-----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, MPEkLpl4Do2+HMEuL1ZTi//yzmjo+/XdAIZK9eFUXy5JXxEXlqARmMASOUw/YbRF RlwgdWIyY7hkO7fdYbPJJA== 0000950131-98-006644.txt : 19981230 0000950131-98-006644.hdr.sgml : 19981230 ACCESSION NUMBER: 0000950131-98-006644 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19981229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBE MANUFACTURING CORP CENTRAL INDEX KEY: 0001071094 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 631101362 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-64675 FILM NUMBER: 98777478 BUSINESS ADDRESS: STREET 1: 456 BEDFORD STREET CITY: FALL RIVER STATE: MA ZIP: 02720 S-4/A 1 AMENDMENT NO. 1 TO FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 1998. REGISTRATION NO. 333-64675 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- GLOBE MANUFACTURING CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ALABAMA 3069 63-1101362 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.) INCORPORATION OR CLASSIFICATION NUMBER) ORGANIZATION) --------------------- 456 BEDFORD STREET FALL RIVER, MASSACHUSETTS 02720 TELEPHONE: (508) 674-3585 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES) --------------------- THOMAS A. RODGERS, III 456 BEDFORD STREET FALL RIVER, MASSACHUSETTS 02720 TELEPHONE: (508) 674-3585 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------------- COPY TO: LAURIE T. GUNTHER KIRKLAND & ELLIS 200 EAST RANDOLPH DRIVE CHICAGO, ILLINOIS 60601 TELEPHONE: (312) 861-2000 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED DECEMBER 29, 1998 PRELIMINARY PROSPECTUS , 1999 GLOBE MANUFACTURING CORP. OFFER TO EXCHANGE ITS 10% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B FOR ANY AND ALL OF ITS OUTSTANDING 10% SENIOR SUBORDINATED NOTES DUE 2008. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED. Globe Manufacturing Corp., an Alabama corporation ( the "Company") hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount of its 10% Senior Subordinated Notes due 2008, Series B (the "New Notes"), registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part, for each $1,000 principal amount of its outstanding 10% Senior Subordinated Notes due 2008 (the "Old Notes") of which $150,000,000 principal amount is outstanding. The form and terms of the New Notes are the same as the form and term of the Old Notes except that (i) the New Notes will bear a Series B designation and a different CUSIP number than the Old Notes, (ii) the New Notes will have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof and (iii) holders of the New Notes will not be entitled to certain rights of holders of Old Notes under the Registration Rights Agreement (as defined). The New Notes will evidence the same debt as the Old Notes (which they replace) and will be issued under and be entitled to the benefits of the Indenture dated as of July 31, 1998 (the "Indenture") by and among the Company and Norwest Bank Minnesota, National Association, as trustee, governing the Old Notes and the New Notes. The Old Notes and the New Notes are sometimes referred to herein collectively as the "Notes." See "The Exchange Offer" and "Description of the Notes." The Company will accept for exchange any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time on , 1999, unless extended by the Company in its sole discretion (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain customary conditions. See "The Exchange Offer." Interest on the Notes will accrue from their date of original issuance and will be payable semiannually in arrears on February 1 and August 1 of each year, commencing February 1, 1999, at the rate of 10% per annum. The Notes will mature on August 1, 2008. The Notes are redeemable, in whole or in part, at the option of the Company on or after August 1, 2003, at the redemption prices set forth herein, plus accrued and unpaid interest, if any, to the date of redemption. In addition, prior to August 1, 2001, the Company, at its option, may redeem up to 35% of the aggregate principal amount of the Notes originally issued with the net cash proceeds of one or more Equity Offerings (as defined) at a redemption price equal to 110.0% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption; provided that not less than $97.5 million of the aggregate principal amount of the Notes originally issued remain outstanding following such redemption. See "Description of the Notes--Optional Redemption." The New Notes will be, as the Old Notes (which they replace) are, general unsecured obligations of the Company, and will, as the Old Notes (which they replace), be subordinated in right of payment to all present (Cover continued on following page) SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. and future Senior Debt (as defined) of the Company, including the Company's obligations under the Senior Credit Facility (as defined). The Notes will be fully and unconditionally guaranteed on a senior subordinated basis (the "Guarantees") by each of the Company's future Restricted Domestic Subsidiaries (as defined) (collectively, the "Guarantors"). The Guarantees will be general unsecured obligations of the Guarantors, subordinated in right of payment to all Guarantor Senior Debt (as defined) of each Guarantor. The Company has no existing Restricted Domestic Subsidiaries and, therefore, the Notes are not, at present, guaranteed. As of September 30, 1998 the Company had $120.9 million of Senior Debt (excluding unused commitments of approximately $44.2 million under the Senior Credit Facility) and no debt that was junior to the Notes. See "Description of the Senior Credit Facility" and "Description of the Notes." In the event of a Change of Control (as defined), each Holder (as defined) will have the right to require the Company to make an offer to repurchase such Holder's Notes, in whole or in part, at a price of 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of repurchase. See "Description of the Notes--Change of Control." The Old Notes were sold by the Company on July 31, 1998 to BancAmerica Robertson Stephens and Merrill Lynch & Co. (the "Initial Purchasers") in a transaction not registered under the Securities Act in reliance upon an exemption under the Securities Act (the "Initial Offering"). The Initial Purchasers subsequently placed the Old Notes with (i) qualified institutional buyers in reliance upon Rule 144A under the Securities Act and (ii) qualified buyers outside the United States in reliance upon Regulation S under the Securities Act. Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred in the United States unless registered under the Securities Act or unless an applicable exemption from the registration requirements of the Securities Act is available. The New Notes are being offered hereunder in order to satisfy the obligations of the Company under the Registration Rights Agreements entered into by the Company and the Initial Purchasers in connection with the Initial Offering (the "Registration Rights Agreement"). See "The Exchange Offer." Based upon an interpretation by the staff of the Securities and Exchange Commission (the "Commission") set forth in certain no-action letters issued to third parties, the Company believes that the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such New Notes. See "The Exchange Offer--Resale of the New Notes." Holders of Old Notes wishing to accept the Exchange Offer must represent to the Company, as required by the Registration Rights Agreements, that such conditions have been met. Each broker-dealer (a "Participating Broker-Dealer") that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." Shortly after the Initial Offering, Globe Holdings, Inc. ("Globe Holdings"), the parent company of the Company, sold 49,086 Units, consisting of 14% Senior Discount Notes due 2009 (the "Old Senior Discount Notes") and Warrants to purchase 69,481 shares of Class A Common Stock. Concurrent with this Exchange Offer, Globe Holdings is offering to exchange $1,000 principal amount at maturity of their 14% Senior Discount Notes due 2009, Series B (the "New Senior Discount Notes") registered under the Securities Act pursuant to a Registration Statement, for each $1,000 principal amount at maturity off ii their outstanding Old Senior Discount Notes, of which $49,086,000 aggregate principal amount at maturity is outstanding as of the date hereof. See "The Transactions" and "Description of Certain Indebtedness--Discount Notes." The Company will not receive any proceeds from the Exchange Offer. The Company has agreed to bear the expenses of the Exchange Offer. No underwriter is being used in connection with the Exchange Offer. There has not previously been any public market for the Old Notes or the New Notes. The Company does not intend to list the New Notes on any securities exchange or to seek approval for quotation through any automated quotation system. The Old Notes are currently eligible for trading in the Private Offerings, Resales and Trading through Automatic Linkages ("PORTAL"). There can be no assurance that an active market for the New Notes will develop. See "Risk Factors--Absence of a Public Market Could Adversely Affect the Value of New Notes." Moreover, to the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. The New Notes will be available initially only in book-entry form. Except as described under "Book-Entry Procedures and Transfer," the Company expects that the New Notes issued pursuant to the Exchange Offer will be represented by one or more Global Notes (as defined), which will be deposited with, or on behalf of, the Depository Trust Company ("DTC") and registered in its name or in the name of Cede & Co., its nominee. Beneficial interests in the Global Notes representing the New Notes will be shown on, and transfers thereof will be effected through, records maintained by DTC and its participants. After the initial issuance of the Global Notes, Notes in certificated form will be issued in exchange for Global Notes only under limited circumstances as set forth in the Indenture. See "Book-Entry Procedure and Transfer." THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. PROSPECTIVE INVESTORS IN THE NEW NOTES ARE NOT TO CONSTRUE THE CONTENTS OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX, BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE NEW NOTES. THE COMPANY IS NOT MAKING ANY REPRESENTATION TO ANY PROSPECTIVE INVESTOR IN THE NEW NOTES REGARDING THE LEGALITY OF AN INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR SIMILAR LAWS. AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-4 (the "Exchange Offer Registration Statement," which term shall encompass all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the Exchange Offer contemplated hereby. This Prospectus does not contain all the information set forth in the Exchange Offer Registration Statement. For further information with respect to the Company and the Exchange Offer, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Exchange Offer Registration Statement, reference iii is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Exchange Offer Registration Statement, including the exhibits thereto, and periodic reports and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and inspected at the Commission's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60601. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such site is http://www.sec.gov. In addition, the Company has agreed that, whether or not it is required to do so by the rules and regulations of the Commission, for so long as any Notes remain outstanding, it will furnish to the holders of the Notes and, to the extent permitted by applicable law or regulation, file with the Commission (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Company were required to file such Forms, including for each a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereof by the Company's independent certified public accountants and (ii) all reports that would be required to be filed on Form 8-K if it were required to file such reports. In addition, for so long as any of the Notes remain outstanding, the Company has agreed to make available to any prospective purchaser of the Notes or beneficial owner of the Notes, in connection with any sale thereof, the information required by Rule 144A(d)(4) under the Securities Act. The Company is an Alabama corporation with its principal executive offices located at 456 Bedford Street, Fall River, Massachusetts 02720, and its telephone number is (508) 674-3585. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE All reports and other documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Prospectus and prior to the Expiration Date shall be deemed to be incorporated by reference herein and to be a part hereof from the date of the filing of such reports and documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein (or in any other subsequently filed document which also is incorporated or deemed to be incorporated by reference herein) modifies or supersedes such previous statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus and the Exchange Offer Registration Statement. This Prospectus incorporates documents by reference which are not presented herein or delivered herewith. These documents are available without charge upon request from Lawrence R. Walsh, Vice President of Finance and Administration of Globe Manufacturing Corp, 456 Bedford Street, Fall River, Massachusetts 02720, telephone (508) 674-3585. In order to ensure timely delivery of the documents, any request should be made by , 1999 (five business days prior to the expiration date). iv MARKET SHARE AND INDUSTRY DATA The market share and industry data presented herein are based upon estimates by management of the Company, utilizing various third party sources, where available. While management believes that such estimates are reasonable and reliable, in certain cases such estimates cannot be verified by information available from independent sources. Accordingly, no assurance can be given that such market share and industry data are accurate in all material respects. CERTAIN TERMINOLOGY As used herein, the following terms have the meanings specified below: circular knit: a type of weft knit in which the fabric is produced in the form of a tube, with threads running continuously around the fabric. In weft knit fabrics, the thread runs crosswise in the fabric, as opposed to lengthwise in warp knits. Circular knits are used in active wear, swimwear, casual wear and dress wear. denier: a weight per unit of length measure of any linear material. In fibers, a weight numerically equal to the weight in grams of 9,000 meters of the material. Lower numbers represent finer sizes, and higher numbers represent coarser sizes. elastomeric: describes any material (including yarn, fiber, film and sheets) which exhibits pronounced elastic properties, such elastic properties being the material's primary value attributes. gauge: the number of needles, fibers or other elements in a determined unit of length. For latex thread, gauge means the number of individual rubber threads which, when placed cross-sectionally beside one another, fit into a length of one inch. Lower numbers represent coarser sizes and higher numbers represent finer sizes. narrow fabric: any knit or woven fabric that is twelve inches or less in width and has a selvage on each side (other than ribbon and seam bindings). Narrow fabric applications include waist bands and straps. nonwoven: a type of fabric in which the fibers are fused or bonded in a random web or mat, as opposed to interlacing sets as in woven fabric. Nonwovens are employed in diapers, adult incontinence products, feminine hygiene products and medical bandages. spandex: a manufactured fiber in which the fiber-forming substance is a long-chain synthetic polymer comprised of at least 85% segmented polyurethane. warp knit: a type of knit in which the threads run lengthwise in the fabric, as opposed to crosswise in weft knits. Examples of warp knits include milanese knits, raschel knits and tricot knits. Warp knit applications include intimate apparel, body shaping garments, swimwear and footwear. woven: a type of fabric generally composed of two sets of yarns, warp and filling, that is formed by weaving interlacing sets of these yarns. v PROSPECTUS SUMMARY The following summary is qualified in its entirety by and should be read in conjunction with the detailed information and consolidated financial statements and notes thereto appearing elsewhere in this Prospectus. As used in this Prospectus, unless the context otherwise indicates, "Company" or "Globe" refers to Globe Manufacturing Corp. (formerly known as Globe Elastic Co., Inc.) together with the historical business and operations undertaken by Globe Holdings, Inc. (formerly known as Globe Manufacturing Co.) which were transferred to Globe pursuant to the Asset Drop Down (as defined), and "Globe Holdings" refers to Globe Holdings, Inc., the Company's sole shareholder. Except as otherwise set forth herein, references to "pro forma" information for a period ending on a specified date means information that gives pro forma effect to the Transactions as if the Transactions had occurred on such date for balance sheet data and as of the beginning of the period for statement of income data. See "--The Transactions." THE COMPANY OVERVIEW Globe is a leading domestic manufacturer and worldwide supplier of spandex and latex elastomeric fibers, marketing its products to more than 500 customers. The Company's fibers are used in a broad range of applications, including men's and women's hosiery, waistbands, intimate apparel, performance athletic wear, swimwear, casual wear, suiting fabrics, body shaping (or foundation) garments, personal care products (including diapers and adult incontinence products) and footwear. The Company has produced elastomeric fibers exclusively for over 50 years and has developed long-term relationships with many of its principal customers, including Fruit of the Loom, Inc., Kimberly-Clark Corporation, Minnesota Mining & Manufacturing Company, Sara Lee Hosiery, Unifi, Inc. and Worldtex, Inc. During the twelve months ended September 30, 1998, the Company had net sales of $177.0 million, Adjusted EBITDA (as defined) of $46.7 million and net income of $13.4 million. See Summary Consolidated Financial Data, footnotes 3 and 5. Spandex fiber, which accounted for 80% of the Company's 1997 sales, is a highly desirable component of fabrics designed for performance, durability, comfort, control and resilience due to its unique chemical and physical properties. Spandex fiber is produced in a broad range of fine and heavy deniers and is sold on a private label basis and under brand names such as the Company's GLOSPAN(R) and CLEERSPAN(R), DuPont's Lycra(R) and Bayer's Dorlastan(R). Recent advances in fabric manufacturing technologies have facilitated the use of spandex fiber in an increasing number of apparel and non-apparel applications. Globe has benefited from this recent proliferation of spandex fiber applications due to its exclusive focus on elastomeric fibers, superior customer service, broad product line, strong market position and efficient manufacturing processes. Management estimates that in 1997 the worldwide market for spandex fiber was approximately 240 million pounds, representing approximately $2.0 billion in sales. From 1993 to 1997, worldwide sales of spandex fiber increased at an estimated 11% compound annual growth rate, and the worldwide spandex fiber market is expected to grow at approximately 9% over the next three years. Since 1993, demand for fine denier spandex has increased faster than the overall market due to its growing use in lightweight and high quality apparel applications and this trend is expected to continue. The Company operates three manufacturing facilities, which are located in Fall River, Massachusetts, Tuscaloosa, Alabama and Gastonia, North Carolina. Since 1993, Globe has invested $97.5 million to increase manufacturing capacity, enhance productivity and shift its product mix to the faster growing, higher margin fine denier spandex fiber. During this period, the Company's annual fine denier spandex fiber production 1 capacity increased from 2.6 million to 10.6 million pounds. As a result of the Company's capital investment program and continuous improvement initiatives in its manufacturing facilities, Globe's fine denier spandex fiber production yields have improved by 35% and sales per employee have increased by 43% since 1993. TUSCALOOSA PLANT EXPANSION Globe is expanding production capacity at its Tuscaloosa, Alabama fine denier spandex fiber manufacturing facility in response to existing demand from current customers (the "Tuscaloosa Plant Expansion"). Through September 30, 1998, Globe had spent approximately $19.2 million of the estimated $22.1 million project cost. The Tuscaloosa facility, built in 1994, has undergone three prior capacity expansions. The Tuscaloosa Plant Expansion will increase the Company's fine denier manufacturing capacity by 3.6 million pounds per annum, or 34%, with approximately half of this increased capacity expected to be on line in the fourth quarter of 1998 and the balance expected to be on line in the first quarter of 1999. As of September 30, 1998, Globe's list price for 40 denier spandex fiber, the primary product currently produced at the Company's Tuscaloosa facility, was $12.99 per pound. COMPETITIVE STRENGTHS The Company's exclusive focus on elastomeric fibers for over 50 years has enabled it to develop the following competitive strengths: Long-Term Customer Relationships and Superior Customer Service. Globe has established long-term relationships with its principal customers by focusing on superior technical and customer service. The Company has been a supplier to Fruit of the Loom, Inc., Kimberly-Clark Corporation, Minnesota Mining and Manufacturing Company, Sara Lee Hosiery, Unifi, Inc. and Worldtex, Inc. for over ten years. Seven of the Company's ten largest customers have selected Globe as their preferred supplier of spandex fiber. Globe provides analytical laboratory services and on-site technical assistance to improve customers' manufacturing and engineering processes. As a result, a number of the Company's major customers have selected it as a technology partner to assist in the development of new spandex applications. Broad Product Line. The Company believes that it offers the broadest line of spandex and latex elastomeric fibers in the world. The Company produces a full line of spandex fibers in deniers ranging from 15 to 5040. These products feature an assortment of stretch, strength and other performance characteristics that may be customized for specific applications and manufacturing processes. Globe also manufactures a wide variety of latex threads in multiple gauges and formulations. This broad range of product offerings differentiates the Company in the industry and represents a competitive advantage, as many customers purchase multiple deniers of spandex fiber, as well as various gauges of latex thread, and prefer to utilize one vendor for their elastomeric fiber requirements. The proprietary technologies and customized equipment used by Globe in its multiple manufacturing processes enable the Company to cost-effectively produce this broad product line. Strong Positions in Growing Markets. The Company has established a strong market position in each of its principal product lines. The Company has an estimated 16% share of the domestic spandex fiber market and an estimated 7% share of the worldwide spandex fiber market (based on pounds produced). Management estimates that worldwide sales of spandex fiber will increase at a compound annual growth rate of approximately 9% over the next three years and that fine denier spandex sales will exceed the overall market growth rate during this period. Fine denier spandex demand has been driven by strong consumer demand for lightweight and high quality apparel and technological advances allowing for the use of spandex fibers in the manufacture of such apparel. Cost-Efficient Manufacturing. Management believes that the Company's manufacturing operations are among the most efficient in the industry, allowing the Company to become one of the world's lowest cost producers of high quality spandex fiber. Globe has developed proprietary chemical formulations and highly 2 efficient manufacturing processes that utilize sophisticated process control systems and custom fabricated manufacturing equipment designed and built by the Company's engineers. Management believes that Globe's in-house capability to design, engineer and build its own manufacturing equipment distinguishes the Company from many of its competitors and provides it with an important competitive advantage in maintaining product quality as well as controlling design, development and maintenance costs. In addition, increased production volume at the Company's facilities has enabled the Company to achieve significant economies of scale and raw material purchasing power. Experienced Management Team. The Company is led by an experienced management team with a track record of achieving profitable growth, developing new manufacturing processes and expanding the Company's customer base. Between 1993 and the twelve months ended September 30, 1998, the Company's net sales increased from $107.6 million to $177.0 million, Adjusted EBITDA increased from $23.7 million to $46.7 million and net income increased from $9.2 million to $13.4 million. See Summary Consolidated Financial Data, footnotes 3 and 5. The Company's executive officers average approximately 20 years with the Company. The Company's senior management team has a substantial financial interest in the Company's continued success through their direct investment in Globe Holdings. BUSINESS STRATEGY The Company's business objective is to become the leading global supplier of elastomeric fiber for use in selected apparel and non-apparel markets. The Company seeks to achieve this objective by pursuing the following strategies: Continue Shift in Product Mix to Higher Growth, More Profitable Fine Denier Products. Since 1993, Globe has expanded its annual production capacity of higher growth fine denier spandex fiber from 2.6 million to 10.6 million pounds. Fine denier spandex fiber is used in applications requiring lightweight or high quality fabric, and has been generally more profitable than heavy denier spandex fiber due to the complexity of the manufacturing process required and strong market demand. Fine denier spandex fiber sales accounted for approximately 49% of Globe's 1997 total sales, up from 25% in 1993. The Tuscaloosa Plant Expansion, which will increase the Company's annual production capacity for fine denier spandex fiber to 14.2 million pounds, will enable the Company to further address the increase in demand for fine denier spandex fiber. Develop Innovative Spandex Fiber Applications. Globe's product managers and research and development engineers work closely with existing and prospective customers to develop innovative applications for spandex fiber. For example, the Company worked with a fleece manufacturer for over two years to develop a new four-way stretch fleece product for outerwear that incorporates Globe's spandex fiber. Cooperative efforts such as this have enabled Globe to enhance its relationships with existing customers and attract new customers. Improve Manufacturing Productivity; Reduce Production Costs. The Company seeks to continually improve manufacturing efficiency and reduce production costs in order to maintain its position as one of the world's lowest cost producers of high quality spandex fiber. The Company seeks to improve manufacturing yields, increase equipment utilization, and reduce production costs by upgrading process monitoring equipment, enhancing production processes and increasing throughput. Each of the Company's manufacturing facilities is certified under ISO 9001, and the Company actively incorporates the principles of continuous improvement. Increase International Sales. Globe estimates that the international market accounts for two-thirds of the worldwide spandex fiber market. International spandex fiber markets are growing rapidly due to increasing consumerism of the world's population, coupled with increases in personal disposable income. From 1993 to 1997, Globe's international sales increased from 19% of sales to 28% of sales (primarily in western Europe and Latin America) as the Company expanded the size and geographic scope of its international sales to 46 countries. The Company seeks to further expand its international sales by leveraging its existing sales and marketing infrastructure and capitalizing on Globe's expanded manufacturing capacity. 3 THE TRANSACTIONS The consummation of the Initial Offering occurred concurrently with the effectiveness of the recapitalization (the "Recapitalization") of Globe Holdings, the Company's sole shareholder. The Recapitalization was effected pursuant to an agreement and plan of merger dated June 23, 1998 (the "Merger Agreement") between Globe Holdings and Globe Acquisition Company ("MergerCo"), a newly formed affiliate of Code, Hennessy & Simmons III, L.P. ("Code Hennessy & Simmons"), pursuant to which MergerCo merged with and into Globe Holdings (the "Merger"). As a result of the Merger and the Recapitalization, Code Hennessy & Simmons, certain members of management and certain other investors have an aggregate investment of $75.0 million (the "Equity Sponsor Investment") in Globe Holdings, comprised of a rollover of approximately $7.2 million (the "Retained Investment") by management and other pre-Merger shareholders of Globe Holdings (the "Pre-Merger Shareholders") and an investment by Code Hennessy & Simmons and certain other investors in an aggregate amount equal to approximately $67.8 million. The Equity Sponsor Investment included a $25.0 million loan to Globe Holdings by Code Hennessy & Simmons (the "CHS Loan"), which was repaid with the net proceeds of the offering (the "Units Offering") by Globe Holdings of the Old Senior Discount Notes and Warrants. See "Recent Developments." Immediately prior to the Merger, Globe Holdings transferred substantially all of its assets and liabilities to the Company (the "Asset Drop Down"). Pursuant to the Merger and the Recapitalization: (i) the Company incurred approximately $120.0 million of borrowings (consisting of $115.0 million in term loans and approximately $5.0 million in revolving loans) under a new senior secured credit facility (the "Senior Credit Facility"); (ii) the Company repaid its indebtedness outstanding under certain loan credit facilities (collectively, the "Old Credit Facility"); (iii) holders of the shares of common stock of Globe Holdings outstanding prior to the Recapitalization received cash (including the payment by Globe Holdings of fees and expenses on their behalf) equal to $315.0 million less (x) the amount of the Company's outstanding indebtedness for borrowed money as of the date of the Merger and (y) the amount of the Retained Investment (the "Cash Merger Consideration"); and (iv) Globe Holdings deposited $15.0 million (the "Escrow Amount") into escrow to secure certain indemnification and other obligations of the Pre- Merger Shareholders under the Merger Agreement. See "Use of Proceeds," "Certain Relationships and Related Transactions--Recapitalization," and "Description of Senior Credit Facility." The Initial Offering, the Asset Drop Down, the Recapitalization, the Merger, the initial borrowings under the Senior Credit Facility, the repayment of borrowings under the Old Credit Facility and the Equity Sponsor Investment are collectively referred to herein as the "Transactions." See "Use of Proceeds" and "Description of Senior Credit Facility." RECENT DEVELOPMENTS The Old Notes were sold by the Company on July 31, 1998 to the Initial Purchasers pursuant to a Purchase Agreement dated July 28, 1998 (the "Purchase Agreement"). The Initial Purchasers subsequently resold the Old Notes to (i) qualified institutional buyers pursuant to Rule 144A under the Securities Act and (ii) qualified buyers outside the United States in reliance upon Regulation S under the Securities Act. Pursuant to the Purchase Agreement, the Company and the Initial Purchasers entered into a Registration Rights Agreement dated as of July 31, 1998 (the "Registration Rights Agreement"), which grants the holders of the Old Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such exchange rights which terminate upon the consummation of the Exchange Offer. On August 6, 1998, Globe Holdings consummated the Units Offering under Rule 144A of the Securities Act, pursuant to which the Globe Holdings issued and sold 49,086 units (the "Units"), each consisting of one Old Senior Discount Note and one warrant (a "Warrant") to purchase 1.4155 shares of Class A Common Stock, $.01 par value, of Globe Holdings. The Units were initially sold to BancAmerica Robertson Stephens. The aggregate purchase price of the Units was $25,000,000 and the net proceeds to Globe Holdings were $24,562,490, after deducting underwriting discounts and commissions and other expenses payable by Globe Holdings. On December 28, 1998 the Company began incurring Liquidated Damages at the rate of .50% per annum because the Registration Statement has not been declared effective. 4 THE EXCHANGE OFFER Securities Offered........ $150,000,000 aggregate principal amount of 10% Se- nior Subordinated Notes due 2008, Series B. The Exchange Offer........ $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of Old Notes. As of the date hereof, $150,000,000 aggregate princi- pal amount of Old Notes are outstanding. The Com- pany will issue the New Notes to holders on or promptly after the Expiration Date. Based on an interpretation by the staff of the Com- mission set forth in no-action letters issued to third parties, the Company believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the regis- tration and prospectus delivery provisions of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holder's business and that such holder does not intend to participate and has no arrangement or understanding with any person to participate in the distribution of such New Notes. Any Participating Broker-Dealer that acquired Old Notes for its own account as a result of market- making activities or other trading activities may be a statutory underwriter. Each Participating Bro- ker-Dealer that receives New Notes for its own ac- count pursuant to the Exchange Offer must acknowl- edge that it will deliver a prospectus in connec- tion with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker- Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or sup- plemented from time to time, may be used by a Par- ticipating Broker-Dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Partici- pating Broker-Dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the New Notes could not rely on the position of the staff of the Commission enunciated in no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery re- quirements of the Securities Act in connection with any resale transaction. Failure to comply with such requirements in such instance may result in such holder incurring liability under the Securities Act for which the holder is not indemnified by the Com- pany. 5 Expiration Date........... 5:00 p.m., New York City time, on , 1999 unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is ex- tended. Accrued Interest on the New Notes and the Old Notes..................... Each New Note will bear interest from its issuance date. Holders of Old Notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the issuance date of the New Notes. Such interest will be paid with the first interest payment on the New Notes (February 1, 1999). Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the New Notes. Conditions to the The Exchange Offer is subject to certain customary Exchange Offer............ conditions, which may be waived by the Company. See "The Exchange Offer--Conditions." Procedures for Tendering Each holder of Old Notes wishing to accept the Ex- Old Notes................. change Offer must complete, sign and date the ac- companying Letter of Transmittal, or a facsimile thereof, in accordance with the instructions con- tained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsim- ile, together with the Old Notes and any other re- quired documentation to the Exchange Agent (as de- fined) at the address set forth herein. By execut- ing the Letter of Transmittal, each holder will represent to the Company that, among other things, the New Notes acquired pursuant to the Exchange Of- fer are being obtained in the ordinary course of business of the person receiving such New Notes, whether or not such person is the holder, that nei- ther the holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such New Notes and that neither the holder nor any such other per- son is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company. See "The Ex- change Offer--Purpose and Effect of the Exchange Offer" and "--Procedures for Tendering." Untendered Old Notes...... Following the consummation of the Exchange Offer, holders of Old Notes eligible to participate but who do not tender their Old Notes will not have any further exchange rights and such Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Old Notes could be adversely affected. Consequences of Failure to Exchange............... The Old Notes that are not exchanged pursuant to the Exchange Offer will remain restricted securi- ties. Accordingly, such Old Notes may be resold only (i) to the Company, (ii) pursuant to Rule 144A or Rule 144 under the Securities Act or pursuant to some other exemption under the Securities Act, (iii) outside the United States to a foreign person pursuant to the requirements of Rule 904 under the Securities Act, or (iv) pursuant to an effective registration statement under the Securities Act. See "The Exchange Offer--Consequences of Failure to Exchange." 6 Shelf Registration If any holder of the Old Notes (other than any such Statement................. holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) is not eligible under applicable securities laws to participate in the Exchange Offer, and such holder has satisfied certain conditions relating to the provision of information to the Company for use therein, the Company has agreed to register the Old Notes on a shelf registration statement (the "Shelf Registration Statement") and use its best efforts to cause it to be declared effective by the Commis- sion as promptly as practical on or after the con- summation of the Exchange Offer. The Company has agreed to maintain the effectiveness of the Shelf Registration Statement for, under certain circum- stances, a maximum of two years, to cover resales of the Old Notes held by any such holders. Special Procedures for Beneficial Owners......... Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and deliv- ering its Old Notes, either make appropriate ar- rangements to register ownership of the Old Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Guaranteed Delivery Holders of Old Notes who wish to tender their Old Procedures................ Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Ex- change Agent (or comply with the procedures for book-entry transfer) prior to the Expiration Date must tender their Old Notes according to the guar- anteed delivery procedures set forth in "The Ex- change Offer--Guaranteed Delivery Procedures." Withdrawal Rights......... Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Acceptance of Old Notes and Delivery of New Notes..................... The Company will accept for exchange any and all Old Notes which are properly tendered in the Ex- change Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The New Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer--Terms of the Exchange Offer." Use of Proceeds........... There will be no cash proceeds to the Company from the exchange pursuant to the Exchange Offer. Exchange Agent............ Norwest Bank Minnesota, National Association is serving as Exchange Agent in connection with the exchange offer of New Notes for Old Notes. 7 THE NEW NOTES General................... The form and terms of the New Notes are the same as the form and terms of the Old Notes (which they re- place) except that (i) the New Notes bear a Series B designation and have a different CUSIP number than the Old Notes, (ii) the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, and (iii) the holders of New Notes will not be entitled to certain rights under the Regis- tration Rights Agreement, including the provisions providing for an increase in the interest rate on the Old Notes in certain circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. See "The Exchange Offer--Purpose and Effect of the Exchange Offer." The New Notes will evidence the same debt as the Old Notes and will be entitled to the benefits of the Indentures. See "Description of New Notes." Issuer.................... Globe Manufacturing Corp. Securities Offered........ $150,000,000 principal amount of 10% Senior Subor- dinated Notes due 2008, Series B. Maturity Date............. August 1, 2008. Interest Payment Dates.... February 1 and August 1 of each year, commencing on February 1, 1999. Mandatory Sinking Fund or Redemption................ None Optional Redemption....... The New Notes may be redeemed, in whole or in part, at any time on or after August 1, 2003 at the op- tion of the Company, at the redemption prices set forth herein, plus, in each case, accrued and un- paid interest, if any, to the date of redemption. In addition, at any time prior to August 1, 2001, the Company may, at its option, redeem up to 35% in aggregate principal amount of the New Notes at a redemption price of 110.0% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption, with the net cash proceeds of one or more Equity Offerings, provided that not less than $97.5 million of the aggregate principal amount of the New Notes remains outstanding immedi- ately after the occurrence of such redemption. Change of Control......... In the event of a Change of Control, each Holder will have the right to require the Company to make an offer to repurchase such Holder's New Notes, in whole or in part, at a price of 101% of the aggre- gate principal amount thereof, plus accrued and un- paid interest to the date of repurchase. At the time of a Change in Control, the Company may not have sufficient funds to redeem the New Notes. In addition, the Company's ability to repurchase the New Notes may be limited by the Senior Credit Fa- cility and the terms of any future Senior Debt. See "Description of the New Notes--Change of Control." Subordination............. The New Notes will be general unsecured obligations of the Company, subordinated in right of payment to all present and future Senior Debt 8 of the Company, including the Company's obligations under the Senior Credit Facility. Claims in respect of the New Notes will also be effectively subordi- nated to all secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness. As of September 30, 1998, the Company had approximately $120.9 million of Senior Debt (excluding unused commitments of approximately $44.2 million under the Senior Credit Facility). Guarantees................ The Notes are not, at present, guaranteed. The New Notes will be fully and unconditionally guaranteed on a senior subordinated basis by each of the Company's future Restricted Domestic Subsidiaries. The Guarantees will be general unsecured obligations of the Guarantors, subordinated in right of payment to all Guarantor Senior Debt of each Guarantor. Claims in respect of the New Notes will also be effectively subordinated to all obligations of any subsidiary of the Company that is not a Guarantor. The Company has no existing Restricted Domestic Subsidiaries. Certain Covenants......... The Indenture pursuant to which the New Notes will be issued (the "Indenture"), among other things, limits the ability of the Company and its Restricted Subsidiaries to: (i) incur additional indebtedness; (ii) issue Disqualified Stock; (iii) make certain restricted payments; (iv) grant liens on assets; (v) merge, consolidate or transfer substantially all of their assets; (vi) enter into transactions with Related Persons; (vii) impose restrictions on any Restricted Subsidiary's ability to pay dividends or make certain other payments to the Company and its Restricted Subsidiaries; (viii) enter into certain guarantees; (ix) sell assets; and (x) issue capital stock of Restricted Subsidiaries. A description of the terms of the New Notes, including definitions of terms which are capitalized above, is set forth herein under "Description of the Notes." RISK FACTORS See "Risk Factors" for a discussion of certain factors that should be considered before tendering Old Notes in exchange for New Notes, including factors affecting forward-looking statements. These risk factors are generally applicable to the Old Notes as well as the New Notes. 9 SUMMARY CONSOLIDATED FINANCIAL DATA The following information is qualified in its entirety by the consolidated financial statements of the Company. The following summary consolidated financial data as of the dates and for the periods indicated were derived from the audited and unaudited consolidated financial statements of the Company contained elsewhere in this Prospectus. The unaudited consolidated financial data at September 30, 1998 and for the nine months ended September 30, 1997 and September 30, 1998 include all adjustments (consisting only of normal recurring adjustments) which management considers necessary for a fair presentation of the financial information for these unaudited periods. The results of operations for the nine months ended September 30, 1998 are not necessarily indicative of the results of operations that may be expected for the full fiscal year 1998. The unaudited pro forma consolidated financial data as of September 30, 1998 give effect to the Transactions as if they had occurred at the beginning of the period. None of the pro forma consolidated financial data set forth below purport to be indicative of the results that actually would have been obtained had all of the events been completed as of the date assumed and for the periods presented and are not intended to be a projection of the Company's future results or financial position. The following summary consolidated financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and the related notes thereto.
PRO FORMA FISCAL YEAR ENDED NINE MONTHS ENDED NINE MONTHS DECEMBER 31, PRO FORMA SEPTEMBER 30, ENDED ---------------------------- DECEMBER 31, ------------------ SEPTEMBER 30, 1995 1996 1997 1997 1997 1998 1998 -------- -------- -------- ------------ -------- -------- ------------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Net sales............... $128,319 $152,603 $170,941 $170,941 $127,307 $133,321 $133,321 Cost of sales........... 97,182 110,609 115,099 115,099 86,187 84,682 84,682 -------- -------- -------- -------- -------- -------- -------- Gross margin........... 31,137 41,994 55,842 55,842 41,120 48,639 48,639 Selling, general and administrative expenses............... 18,515 21,705 24,381 24,286 15,808 19,265 19,217 Research and development costs.................. 2,260 2,533 2,633 2,633 1,953 3,144 3,144 -------- -------- -------- -------- -------- -------- -------- Operating income....... 10,362 17,756 28,828 28,923 23,359 26,230 26,278 Other income (expenses): Interest, net........... (6,030) (5,285) (3,968) (25,703) (3,076) (6,143) (18,222) Loss in investment in joint venture (1)...... (643) -- -- -- -- -- -- Transaction compensation expense................ -- -- -- -- -- (5,778) -- Other income, etc....... 438 875 372 372 233 647 647 -------- -------- -------- -------- -------- -------- -------- Income before income taxes and extraordinary income.. 4,127 13,346 25,232 3,592 20,516 14,956 8,703 Provision for income taxes.................. 1,718 4,784 8,383 (316) 7,715 5,609 3,095 -------- -------- -------- -------- -------- -------- -------- Income before extraordinary item.... 2,409 8,562 16,849 3,908 12,801 9,347 5,608 Loss from write-off of deferred financing cost, net (2).......... 1,294 -- 301 301 301 187 187 -------- -------- -------- -------- -------- -------- -------- Net income.............. $ 1,115 $ 8,562 $ 16,548 $ 3,607 $ 12,500 $ 9,160 $ 5,421 ======== ======== ======== ======== ======== ======== ======== OTHER FINANCIAL DATA: Gross margin %.......... 24.3% 27.5% 32.7% 32.7% 32.3% 36.5% 36.5% Adjusted EBITDA (3) (5). $ 22,480 $ 28,960 $ 42,377 $ 42,377 $ 30,942 $ 35,131 $35,131 Adjusted EBITDA margin (%) (4) (5)............ 17.5% 19.0% 24.8% 24.8% 24.3% 26.4% 26.4% Depreciation and amortization........... $ 10,688 $ 9,676 $ 12,208 $ 12,208 $ 6,654 $ 11,245 $11,245 Capital expenditures.... 8,640 5,806 17,101 17,230 10,513 26,317 26,412 Ratio of earnings to fixed charges.......... 1.6x 3.4x 6.3x 1.1x 6.3x 3.0x 1.4x Cash provided (used) by: Operating activities... $ 12,683 $ 21,898 $ 20,322 $ 20,451 $ 10,372 $ 20,595 $ 20,690 Investing activities... $ (6,712) $ (5,527) $(18,810) $(18,939) $(11,904) $(26,144) $(26,239) Financing activities... $ (4,163) $(16,413) $ (2,666) $ 499 $ (309) $ 5,368 $ (169)
10
SEPTEMBER 30, 1998 ---------------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash..................................................... $ 1,766 Working capital.......................................... 24,420 Property, plant and equipment, net....................... 76,707 Total assets............................................. 140,327 Total debt............................................... 270,889 Shareholders' equity (deficit)........................... (152,775)
- --------------------- (1) Represents the Company's share of the operating losses incurred by a joint venture in which the Company acquired a 40% interest in 1990. The Company accounted for its investment in the joint venture using the equity method of accounting. (2) Reflects non-recurring charges related to the write-off of the unamortized balance of deferred financing costs in the year in which the related refinancing occurred. The amounts are shown net of applicable income tax. (3) Adjusted EBITDA represents income before interest expense (net), income taxes, depreciation and amortization adjusted as follows:
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------- --------------- 1995 1996 1997 1997 1998 ------- ------- ------- ------- ------- EBITDA before adjustments.......... $19,551 $28,307 $41,107 $29,945 $28,583 ADJUSTMENTS TO EBITDA Non cash: Postretirement benefit costs...... 992 653 515 315 378 Loss in joint venture............. 643 0 0 0 0 Write off of deferred finance costs............................ 1,294 0 301 301 187 Non-recurring legal expenses...... 0 0 454 381 67 Deal costs........................ 0 0 0 0 138 Transaction compensation expense.. 0 0 0 0 5,778 ------- ------- ------- ------- ------- Adjusted EBITDA.................... $22,480 $28,960 $42,377 $30,942 $35,131 ======= ======= ======= ======= =======
Adjusted EBITDA is not intended to represent cash flow from operations or net income as defined by generally accepted accounting principles and should not be considered as a measure of liquidity or an alternative to, or more meaningful than, operating income or operating cash flow as an indication of the Company's operating performance. Adjusted EBITDA is included herein because management believes that certain investors find it a useful tool for measuring the Company's ability to service its debt. Management believes that an increase in Adjusted EBITDA level is an indicator of the Company's improved ability to service existing debt, to sustain potential future increases in debt and to satisfy capital requirements. Given that Adjusted EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies. (4) Adjusted EBITDA margin represents Adjusted EBITDA as calculated in footnote (3) above as a percentage of net sales. The explanation and cautionary statements regarding Adjusted EBITDA in footnote (3) above are also applicable to Adjusted EBITDA Margin. (5) The unaudited pro forma consolidated financial data and related ratios give effect to the consummation of the Transactions as if they occurred on the first day of such period. In connection with the Transaction the Company incurred a one time compensation expense charge of $3,318,000 associated with the vesting of stock options and $2,320,000 associated with bonuses paid to certain members of management. Although the Company expects to charge such amounts in the period following the transaction date, such charge is not reflected in the accompanying pro forma financial information. See "Management" and "Certain Relationships and Related Transactions--Management Agreement" and "--Consulting Agreement." 11 RISK FACTORS The following risk factors should be considered carefully, in addition to the other information contained in this Prospectus before tendering the Old Notes in exchange for the New Notes. In connection with the forward-looking statements which appear in this Prospectus, prospective purchasers of New Notes should carefully review the factors discussed below and the cautionary statements referred to in "Risk Factors--Risks Regarding Forward-Looking Statements." The risk factors set forth below are generally applicable to the Old Notes as well as the New Notes. CONSEQUENCES OF FAILURE TO EXCHANGE Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer will continue to be subject to the restrictions on transfer of such Old Notes, as set forth in the legend thereon, as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register the Old Notes under the Securities Act. Based on interpretations by the staff of the Commission set forth in no- action letters issued to third parties, including Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13, 1988) (the "Exxon Capital Letter"), Morgan Stanley & Co. Incorporated, SEC No-Action Letter (available June 5, 1991) (the "Morgan Stanley Letter"), and similar letters, the Company believes that the New Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by any holder thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such New Notes are acquired in the ordinary course of such holder's business and such Holder has no arrangement with any person to participate in the distribution of such New Notes. Notwithstanding the foregoing, each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with any resale of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities (other than Old Notes acquired directly from the Company). The Company has agreed that, for a period of 180 days from the Expiration Date, it will make this Prospectus available to any broker- dealer for use in connection with any such resale. See "Plan of Distribution." Any holder who tenders in the Exchange Offer for the purpose of participating in a distribution of the New Notes cannot rely on the Morgan Stanley Letter or similar letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the Old Notes not so tendered could be adversely affected. See "The Exchange Offer." ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF THE NOTES The Old Notes were issued to, and the Company believes are currently owned by, a relatively small number of beneficial owners. Prior to the Exchange Offer, there has not been any public market for the Old Notes. The Old Notes have not been registered under the Securities Act and will be subject to restrictions on transferability to the extent that they are not exchanged for New Notes by holders who are entitled to participate in this Exchange Offer. The holders of Old Notes (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who are not eligible to participate in the Exchange Offer are entitled to certain registration rights, and the Company is required to file a Shelf Registration Statement with respect to such Old Notes. The New Notes will constitute new issues of securities with no established trading market. The Company does not intend to list the New Notes on any national securities exchange or seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. 12 The Initial Purchasers have advised the Company that they currently intend to make a market in the New Notes, but they are not obligated to do so and may discontinue such market making at any time. In addition, such market making activity will be subject to the limits imposed by the Securities Act and the Exchange Act and may be limited during the Exchange Offer and the pendency of the Shelf Registration Statement. Accordingly, no assurance can be given that an active public or other market will develop for the New Notes or as to the liquidity of the trading market for the New Notes. If a trading market does not develop or is not maintained, holders of the New Notes may experience difficulty in reselling the New Notes or may be unable to sell them at all. If a market for the New Notes develops, any such market may be discontinued at any time. If a public trading market develops for the New Notes, future trading prices of such securities will depend on many factors including, among other things, prevailing interest rates, the Company's results of operations and market for similar securities. Depending on prevailing interest rates, the market for similar securities and other factors, including the financial condition of the Company, the New Notes may trade at a discount from their principal amount. FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS Issuance of the New Notes in exchange for the Old Notes pursuant to the Exchange Offer will be made only after a timely receipt by the Company of such Old Notes, a properly completed and duly executed Letter of Transmittal (or Agent's Message) and all other required documents. Therefore, holders of the Old Notes desiring to tender such Old Notes in exchange for New Notes should allow sufficient time to ensure timely delivery. The Company is under no duty to give notification of defects or irregularities with respect to the tenders of Old Notes for exchange. Old Notes that are not tendered or are tendered but not accepted will, following the consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof, and, upon consummation of the Exchange Offer certain registration rights under the Registration Rights Agreement will terminate. In addition, any holder of Old Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the New Notes may be deemed to have received restricted securities, and if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. See "The Exchange Offer." SUBSTANTIAL LEVERAGE AND DEBT SERVICE REQUIREMENTS The Company is highly leveraged. As a result of the Transactions, including the Initial Offering and the Company's payment of a substantial portion of the net proceeds therefrom to Globe Holdings to enable Globe Holdings to pay the Cash Merger Consideration, the Company's aggregate indebtedness for borrowed money and interest expense increased and its shareholders' equity decreased. As of September 30, 1998, the Company and Holdings had total Debt (as defined) of $295.9 million and total annual debt service (including noncash) of $30.1 million. In addition, subject to the restrictions in the Senior Credit Facility and the Indenture, the Company may incur additional Debt from time to time to finance working capital, capital expenditures, acquisitions, or for other purposes. The Indenture governing the Notes as well as the Senior Credit Facility (or any replacement facilities of the Company or any subsidiary of the Company) contain certain restrictive financial and other covenants. The Company's high degree of leverage and restrictions in its debt agreements could have important consequences to the holders of the Notes, including the following: (i) a substantial portion of the Company's cash flow from operations will be dedicated to debt service and will not be available for operations and other purposes; (ii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, 13 acquisitions or other purposes may be limited or impaired; (iii) the Company's operating flexibility with respect to certain matters will be limited by covenants contained in the Indenture and the Senior Credit Facility which will limit the ability of the Company and its Restricted Subsidiaries to, among other things, incur additional indebtedness, grant liens on assets, merge, consolidate or transfer substantially all of their assets, enter into transactions with Related Persons, impose restrictions on any Restricted Subsidiary's ability to pay dividends or make certain other payments to the Company and its Restricted Subsidiaries, enter into certain guarantees, sell assets and issue capital stock of Restricted Subsidiaries; (iv) the Company will be substantially more leveraged than certain of its competitors, which may place the Company at a competitive disadvantage; (v) the Company's degree of leverage may make it more vulnerable to economic downturns, may reduce its flexibility in responding to changing business and economic conditions and may limit its ability to pursue other business opportunities, to finance its future operations or capital needs, and to implement its business strategy; and (vi) certain of the Company's borrowings will be at variable rates of interest, which will expose the Company to the risk of increased interest rates. See "Business--Business Strategy," "Description of Senior Credit Facility" and "Description of the Notes." Required payments of principal and interest on the Company's long-term debt are expected to be financed from cash flow from operations and debt financings. The Company's ability to generate cash for the repayment of debt will be dependent upon the future performance of the Company's businesses, which will in turn be subject to financial, business, economic, and other factors affecting the business and operations of the Company, including factors beyond its control, such as prevailing economic conditions. There can be no assurance that cash flow from operations will be sufficient to enable the Company to service its debt and meet its other obligations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." SUBORDINATION OF THE NOTES AND THE GUARANTEES The Notes are and any Guarantees will be subordinated in right of payment to all Senior Debt of the Company and Guarantor Senior Debt of the Guarantors, respectively, including the Company's obligations under the Senior Credit Facility. In the event of bankruptcy, liquidation or reorganization of the Company or the Guarantors, the assets of the Company or the Guarantors will be available to pay obligations on the Notes only after all Senior Debt or Guarantor Senior Debt, as the case may be, has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. In addition, indebtedness outstanding under the Senior Credit Facility is secured by substantially all of the assets of the Company and its domestic subsidiaries. Claims in respect of the Notes will be effectively subordinated to all secured indebtedness of the Company and the Guarantors to the extent of the value of the assets securing such indebtedness and to all liabilities (including trade payables) of any subsidiary of the Company that is not a Guarantor. As of September 30, 1998, the Company had approximately $120.9 million of Senior Debt (excluding unused commitments of approximately $44.2 million under the Senior Credit Facility). Additional Senior Debt and Guarantor Senior Debt may be incurred by the Company and the Guarantors from time to time subject to certain restrictions contained in the Senior Credit Facility and the Indenture. See "Description of Senior Credit Facility" and "Description of the Notes." CHANGE OF CONTROL A Change of Control (as defined) could require the Company to refinance substantial amounts of indebtedness, including indebtedness under the Notes and the Senior Credit Facility. Upon the occurrence of a Change of Control, the holders of the Notes would be entitled to require the Company to repurchase the Notes at a purchase price equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to the date of repurchase. Such right is subordinated to the rights of the holders of Senior Debt. These requirements and the subordination of the Notes will limit the ability of the Company to repurchase the Notes. The source of funds for any such repurchase would be the Company's available cash or cash generated from operations or other sources, including borrowings, sales of equity or funds provided by a new controlling person. 14 However, there can be no assurance that sufficient funds will be available at the time of any Change of Control to make any required repurchases of the Notes tendered. In addition, the Senior Credit Facility prohibits the repurchase of the Notes by the Company in such an event, unless and until such time as the indebtedness under the Senior Credit Facility is repaid in full. The Company's failure to make such repurchases in such instances would result in a default under both the Notes and the Senior Credit Facility. Future indebtedness of the Company may also contain restrictions or repayment requirements with respect to certain events or transactions that would constitute a Change of Control. In the event of a Change of Control, there can be no assurance that the Company would have sufficient assets to satisfy all of its obligations under the Notes or the Senior Credit Facility. The effect of such requirements may make it more difficult or delay attempts by others to obtain control of the Company. See "Description of the Notes--Change in Control" and "Description of Senior Credit Facility." COMPETITION The elastomeric fiber industry is highly competitive. The Company competes in the spandex fiber markets primarily with E.I. du Pont de Nemours and Company ("DuPont") and Bayer AG ("Bayer"), both of which have domestic facilities, and with a number of foreign competitors. The Company's primary competitors in the latex thread markets are foreign producers. Some of the Company's competitors have substantially greater financial, marketing, manufacturing, distribution, sales and support resources, market share and brand awareness than the Company. There can be no assurance that the Company will be able to compete successfully in the future against its competitors or that the Company will not experience increased price competition, which could materially and adversely affect the Company's results of operations, financial condition and ability to meet its obligations under the Notes. See "Business-- Competition." ENVIRONMENTAL COMPLIANCE The Company is subject to comprehensive and evolving federal, state and local environmental, health and safety requirements, including laws and regulations relating to air emissions, wastewater management, the handling and disposal of waste and the cleanup of properties affected by hazardous substances. Violations of environmental, health and safety laws may result in the imposition of significant fines and other penalties, and certain environmental laws impose joint and several liability, without regard to fault, on persons responsible for releases of hazardous substances to the environment. The Company's management believes that its operations have been and are in substantial compliance with environmental, health and safety requirements, and that it has no liabilities arising under such requirements, except as would not be expected to have a material adverse effect on the Company's operations, financial condition or competitive position. Some risk of environmental, health and safety liability is inherent in the Company's business, however, and there can be no assurance that material environmental, health or safety costs will not arise in the future. Since 1986, the Company has received requests for information and related correspondence from the U.S. Environmental Protection Agency (the "U.S. EPA") and other third parties indicating that the Company might be responsible under the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") or equivalent state laws (collectively, the "Superfund laws") for costs associated with the investigation and cleanup of ten contaminated sites. The Company's management believes that the Company has resolved its involvement with respect to eight of these sites (five of which were inter-related) since 1988 and that the Company's involvement in matters arising under the Superfund laws will not have a material adverse effect on the Company's operations, liquidity or financial condition. In December 1996, the Company's management learned that U.S. EPA and the U.S. Attorney's Office were conducting an investigation into whether the Company had engaged in criminal violations of environmental laws with respect to its Fall River, Massachusetts facility. The investigators have not informed the Company of the 15 scope of their inquiry. The Company has provided certain information regarding its Fall River operations to the federal investigators and believes it has cooperated fully with their inquiry. The Company does not know whether the investigation is currently active. If the Company is charged with violations of environmental laws, it may be subject to substantial fines and other penalties, which could have a material adverse effect on the Company's results of operations, financial condition and ability to meet its obligations under the Notes. See "Business--Environmental, Health and Safety Matters." DEPENDENCE ON SIGNIFICANT CUSTOMERS The Company's top ten customers accounted for approximately 48% of 1997 sales, with one customer, Unifi, Inc. (a manufacturer of covered yarns for men's and women's hosiery and narrow fabrics), accounting for approximately 9% of 1997 sales. As is customary in the elastomeric fiber industry, the Company does not generally have long-term supply agreements with its customers. The Company has pricing contracts with certain significant customers, however, these contracts do not provide for any minimum purchase requirements. The Company's significant customers can cease doing business with the Company at any time. While the Company believes its customer relationships are generally good, a significant decrease or interruption in business from any of the Company's significant customers could have a material adverse effect on the Company's results of operations, financial condition and ability to meet its obligations under the Notes. See "Business--Customers." DEPENDENCE ON SUPPLIERS During 1997, raw materials represented 42% of the Company's total cost of sales and 28% of net sales. The primary raw materials used by the Company are polytetramethylene ether glycol (used for fine denier spandex), which the Company purchases from BASF Corporation ("BASF"), and polyester resin (used for heavy denier spandex), which the Company purchases from two suppliers. The Company is heavily dependent upon these raw materials for spandex fiber production. These materials are used in a wide variety of products, and based on its experience, management believes that adequate quantities of these materials will be available from existing or alternative suppliers in the foreseeable future. There can be no assurance, however, that such materials will continue to be available in adequate supply in the future or that shortages or disruptions in supply will not result in a material adverse effect on the Company's results of operations, financial condition or ability to meet its obligations under the Notes. The Company's ten largest suppliers accounted for approximately 93% of its total raw material purchases and 31% of its total cost of sales in 1997, with BASF, Polyurethane Specialties Corp. and Ennar-Latex, Inc. accounting for 39%, 24% and 16% of such raw material purchases, respectively. Although the prices for the Company's raw materials have generally been stable over the past five years, the prices of certain of the raw materials used by the Company have fluctuated, and there can be no assurance that the prices of the Company's raw materials will not fluctuate in the future. A significant increase in the price of raw materials that cannot be passed on to customers could have a material adverse effect on the Company's results of operations, financial condition and ability to meet its obligations under the Notes. FOREIGN SALES RISK Sales to international customers represented approximately 28% of sales in 1997 and 47% of total receivables as of December 31, 1997, and the Company is seeking to increase its international sales. Demand for the Company's products is affected by economic and political conditions in each of the countries in which it sells its products and by certain other risks of doing business abroad, including fluctuations in the value of currencies (which may affect demand for products priced in United States dollars), import duties, changes to import and export regulations (including quotas), possible restrictions on the transfer of funds, labor or civil unrest, long payment cycles, greater difficulty in collecting accounts receivable and the burdens and cost of compliance with a variety of foreign laws. Changes in policies by foreign governments could result in, for example, increased duties, higher taxation, currency conversion limitations, or limitations on imports or exports, any of which could have a material adverse effect on the Company's results of operations, financial condition and ability to meet its obligations under the Notes. Globe's principal export markets are Europe, Central/South 16 America and Asia. The current economic crisis in Asia has resulted in a flood of fiber, fabric and apparel into Europe from Asia, which has had a negative impact on prices and the Company's sales in Europe. In addition, economic difficulties in Russia have resulted in reduced demand for the Company's products. A continued economic crisis may precipitate further downturns in spandex fiber consumption in all of Globe's export markets. TEXTILE INDUSTRY AND CYCLICALITY In 1997, approximately 92% of the Company's sales were to the textile and apparel industries. These industries are highly cyclical and are characterized by rapid shifts in consumer demand, as well as competitive pressures and price and demand volatility. The demand for the Company's products is principally dependent upon the level of demand for certain types of apparel. The demand for apparel is in turn dependent on consumer spending, which may be adversely affected by economic downturns, changing retailer and consumer demands, declines in consumer confidence or spending, and other factors beyond the Company's control. A reduction in the level of demand for apparel or a decrease in consumer demand for products containing elastomeric fibers could have a material adverse effect on the Company's result of operations, financial condition and ability to meet its obligations under the Notes. CONTROL BY PRINCIPAL SHAREHOLDER Code Hennessy & Simmons owns approximately 75.6% of the outstanding voting stock of Globe Holdings, which in turn owns all of the issued and outstanding capital stock of the Company. Consequently, Code Hennessy & Simmons, through its voting stock holdings in Globe Holdings and its ability to designate all of the members of the boards of directors of Globe Holdings and of the Company, exercises significant influence over the policies and direction of the Company. Code Hennessy & Simmons' interests may differ from the interests of the holders of the Notes. See "Management--Executive Officers and Directors" and "Certain Relationships and Related Transactions." PROTECTION OF INTELLECTUAL PROPERTY The Company's success is dependent on the proprietary technology included in its manufacturing processes. Much of this technology is not patented. The Company relies primarily on intellectual property laws, confidentiality procedures and contractual provisions to protect its intellectual property. The Company seeks to protect the majority of its technology under trade secret laws, which afford only limited protection. There can be no assurance that intellectual property laws will protect the confidentiality of the Company's technology and processes. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to obtain and use information that the Company regards as proprietary. Furthermore, there can be no assurance that others will not independently develop similar technology or design around any intellectual property rights held by the Company. In addition, no assurance can be given that alternative technologies will not be developed that are superior to or less costly than the Company's existing technology. The Company may in the future be notified that it is infringing certain patent or other intellectual property rights of others, although there are no such pending lawsuits against the Company or unresolved notices that it is infringing intellectual property rights of others. No assurance can be given that in the event of such infringement, licenses could be obtained on commercially reasonable terms, if at all, or that litigation will not occur. The failure to obtain necessary licenses or other rights or the occurrence of litigation arising out of such claims could have a material adverse effect on the Company's results of operations and financial condition and its ability to meet its obligations under the Notes. EXPANSION OF PRODUCTION CAPACITY All of the Company's significant spandex fiber competitors have been engaged in production expansion, product improvement and global marketing programs since 1993. The Company's ability to achieve its strategic 17 objectives and to retain or increase its current share of the spandex fiber market will require it to make significant capital expenditures in order to expand its production capacity, particularly for fine denier spandex fiber. The Company is adding 3.6 million pounds of fine denier spandex fiber capacity to its facility in Tuscaloosa, Alabama at an estimated cost of $22.1 million, with approximately half of this increased capacity expected to be on line in the fourth quarter of 1998 and the balance expected to be on line in the first quarter of 1999. There can be no assurance that the expansion will be completed within the Company's timetable or budget. A lengthy delay in the completion of the Tuscaloosa plant expansion or significant cost over-runs in connection therewith could have a material adverse effect on the Company's result of operations, financial condition and ability to meet its obligations under the Notes. ANTITRUST AND ANTIDUMPING PROCEEDINGS In April 1997 two domestic purchasers of extruded latex thread filed a complaint against a number of foreign manufacturers and distributors of such thread, including an Indonesian limited liability company in which Globe Holdings then owned a 40% interest (the "Joint Venture"). The complaint alleges an international conspiracy to restrain trade in, and fix prices of, the thread in the United States ("U.S."). Neither the Company nor Globe Holdings has been named as a defendant in the case. The Joint Venture has alleged in its motion to dismiss that not all parties to the conspiracy have been joined, and there can be no assurance that the Company will not be named in the future. On March 31, 1998 a petition was filed with the U.S. Department of Commerce alleging subsidization and dumping of Indonesian extruded latex thread. The Department of Commerce is currently conducting an investigation into the allegations. The proceedings could result in additional duties being levied on extruded latex thread imported from Indonesia. During 1996 and 1997, the Company purchased approximately $5.9 million and $9.9 million of latex thread from the Joint Venture for resale in the North American market. DEPENDENCE ON SENIOR MANAGEMENT The Company's success depends to a significant extent upon the efforts and abilities of the Company's senior management employees. The loss of the services of one or more of such persons could have a material adverse effect on the Company. The Company believes that its continued future success will depend on its ability to attract, retain or develop highly skilled managerial, technical and marketing personnel. There can be no assurance that it will be able to do so. See "Management." IMPACT OF THE YEAR 2000 ISSUE The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. If the Company, its significant customers or suppliers fail to make necessary modifications and conversions on a timely basis, the year 2000 issue could have a material adverse effect on Company operations. However, the impact cannot be quantified at this time. The Company believes that its competitors face similar risks. The Company has established a corporate-wide project team to identify non- compliant software and complete the corrections required for the year 2000 issue. The Company has completed its repairs for major manufacturing systems in all locations. The Company also completed its repair of its major financial systems. The Company's current target is to resolve compliance issues in its distribution systems and other ancillary systems by March 31, 1999. The Company also has made inquiry of its major customers and suppliers to assess their compliance. Nevertheless, there can be no absolute assurance that there will not be a material adverse effect on the Company if third party governmental or business entities do not convert or replace their systems in a timely manner and in a way that is compatible with the Company's systems. 18 Costs related to the year 2000 issue are funded through operating cash flows. Through September 30, 1998, the Company expended approximately $108,000 in systems development and remediation efforts, including the cost of new software and modifying the applicable code of existing software. The Company estimates remaining costs to be between $50,000 and $100,000. The Company presently believes that the total cost of achieving year 2000 compliant systems is not expected to be material to the Company's financial condition, liquidity or results of operations. Time and cost estimates are based on currently available information. Developments that could affect estimates include, but are not limited to, the availability and cost of trained personnel, the ability to locate and correct all relevant computer code and systems and remediation success of the Company's customers and suppliers. CERTAIN INSOLVENCY CONSIDERATIONS The incurrence by the Company of indebtedness such as the Notes to finance the Transactions may be subject to review under relevant state and federal fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of unpaid creditors of the Company. Under these laws, if a court were to find that, after giving effect to the sale of the Notes and the application of the net proceeds therefrom, or the exchange of the Old Notes for New Notes, either (a) the Company incurred such indebtedness with the intent of hindering, delaying or defrauding creditors or (b) the Company received less than reasonably equivalent value or consideration for incurring such indebtedness and (i) was insolvent or was rendered insolvent by reason of such transactions, (ii) was engaged in a business or transaction for which the assets remaining with the Company constituted unreasonably small capital or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, such court may subordinate such indebtedness to presently existing and future indebtedness or obligations of the Company, avoid the issuance of such indebtedness and direct the repayment of any amounts paid thereunder to the Company's creditors or take other action detrimental to the holders of such indebtedness. The Notes are not, at present, guaranteed. In the event that under relevant state or federal law a Guarantor is determined, at the time it executed its Guarantee, to have come within clauses (a) or (b) of the first paragraph of this subsection, the Guarantee by such Guarantor may be voidable (in whole or in part) or the claim of the holders of the Notes in respect of such Guarantee may be subordinated (in whole or in part) to other obligations and liabilities of such Guarantor, in each case based on the theory that such Guarantee constituted a fraudulent conveyance under applicable federal or state fraudulent transfer or conveyance statutes. In the event that such claims are asserted after any payments are made by a Guarantor under its Guarantee, there is a risk that persons who received such payments will be ordered by a court to return to such Guarantor's creditors or its trustee in bankruptcy all or a portion of such payments. The measure of insolvency for purposes of determining whether a transfer is avoidable as a fraudulent transfer varies depending upon the law of the jurisdiction which is being applied. Generally, however, a debtor would be considered insolvent if the sum of all its liabilities, including contingent liabilities, were greater than the value of all its property at a fair valuation, or if the present fair saleable value of the debtor's assets were less than the amount required to repay its probable liabilities on its debts, including contingent liabilities, as they become absolute and mature. There can be no assurance as to what standard a court would apply in order to determine insolvency. A court may find that the Company did not receive fair consideration or reasonably equivalent value for the incurrence of the indebtedness represented by the Old Notes. In addition, if a court were to find that any of the components of the Transactions constituted a fraudulent transfer, a court may find that the Company did not receive fair consideration or reasonably equivalent value for the incurrence of the indebtedness represented by the Old Notes and the New Notes. 19 The Company believes that it received equivalent value at the time the indebtedness under the Old Notes was incurred. In addition, the Company does not believe that, after giving effect to the Transactions, it (i) was or will be insolvent or rendered insolvent, (ii) was or will be engaged in a business or transaction for which its remaining assets constituted unreasonably small capital or (iii) intends or intended to incur, or believes or believed that it will or would incur, debts beyond its ability to pay such debts as they mature. These beliefs are based on the Company's operating history and analysis of internal cash flow projections and estimated values of assets and liabilities of the Company at the time of the Initial Offering. There can be no assurance, however, that a court passing on these issues would make the same determination. ABSENCE OF ESTABLISHED PUBLIC MARKET The Notes are a new issue of securities for which there is no established traders market. While application has been made to have the Notes accepted for trading in the PORTAL market, there can be no assurance that an active trading market for the Notes will develop in the PORTAL market or elsewhere. The Company has been advised by the Initial Purchasers that the Initial Purchasers currently intend to make a market in the Notes; however, they are not obligated to do so and any market making activity may be discontinued at any time. Therefore, there can be no assurance that an active public market for the Notes will develop or, if developed, will continue to exist. If a public trading market develops for the Notes, future trading prices of the Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's results of operations and the market for similar securities. Depending upon such factors, the Notes may trade at a discount from their principal amount. See "Plan of Distribution." In addition, the liquidity of, and trading markets for, the Notes also may be materially and adversely affected by declines in the market for high yield securities generally. Such declines may adversely affect such liquidity and trading markets independent of the actual performance of, and prospects for, the Company. RISKS REGARDING FORWARD-LOOKING STATEMENTS This Prospectus contains certain forward-looking statements, including, without limitation, statements concerning the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (which do not apply to initial public offerings). Forward- looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "should," "plans," or "continue" or the negative thereof or variations thereon or similar terminology. Without limiting the foregoing, forward-looking statements are set forth herein under the captions "Prospectus Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. These forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, those identified under "Risk Factors" and elsewhere in this Prospectus and other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission. Actual results could differ materially from these forward-looking statements. 20 USE OF PROCEEDS The gross proceeds to the Company from the sale of the Old Notes, together with approximately $120.0 million of borrowings under the Senior Credit Facility and the Equity Sponsor Investment ($67.8 million) were used (i) to pay the Cash Merger Consideration ($247.2 million) (ii) to repay outstanding obligations under the Old Credit Facility and certain other liabilities ($60.6 million) (iii) to fund the Escrow Amount deposited into escrow to secure certain indemnification and other obligations of Pre-Merger Shareholders of Globe Holdings under the Merger Agreement ($15.0 million) and (iv) to pay fees and expenses related to the Transactions ($15.0 million). Borrowings under the Old Credit Facility bore interest at rates based on the lender's prime rate or LIBOR, in each case plus a margin. As of June 30, 1998, the weighted average interest rate for borrowings under the Old Credit Facility was 7.5% per annum and the weighted average life of the term loans was 4.75 years. The revolving loan portion of the Old Credit Facility was scheduled to mature on March 31, 2002 and the term loan portion of the old Credit Facility was scheduled to mature on March 31, 2003. See "Certain Relationships and Related Transactions--Recapitalization" and "Description of Senior Credit Facility." This Exchange Offer is intended to satisfy certain of the Company's obligations under the Purchase Agreement and the Registration Rights Agreement. The Company will not receive any cash proceeds from the issuance of the New Notes offered hereby. In consideration for issuing the New Notes contemplated in this Prospectus, the Company will receive Old Notes in like principal amount, the form and terms of which are the same as the form and terms of the New Notes (which replace the Old Notes), except as otherwise described herein. The Old Notes surrendered in exchange for New Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the New Notes will not result in any increase or decrease in the indebtedness of the Company. As such, no effect has been given to the Exchange Offer in the pro forma statements or capitalization table. 21 CAPITALIZATION The following table sets forth the unaudited historical consolidated capitalization of the Company as of September 30, 1998. See "Use of Proceeds." This table should be read in conjunction with the "Selected Consolidated Financial Data" and the related notes thereto, and the Company's consolidated financial statements, including related notes thereto, included elsewhere in this Prospectus.
AS OF SEPTEMBER 30, 1998 ------------------ (DOLLARS IN THOUSANDS) Cash and cash equivalents..... $ 1,766 ========= Long-term debt (including current maturities): Senior Credit Facility: (1) Revolving loan facility... $ 5,800 Term loan facility........ 115,000 Old Notes................... 150,000 Capital lease obligations... 89 --------- Total long-term debt.... 270,889 --------- Shareholders' equity (deficit).................... (152,775) --------- Total capitalization.... $ 118,114 =========
- ---------------------- (1) The Senior Credit Facility provides for term loans in an aggregate principal amount of $115.0 million and revolving loans of up to $50.0 million. See "Description of Senior Credit Facility." 22 SELECTED CONSOLIDATED FINANCIAL DATA The following information is qualified in its entirety by the consolidated financial statements of the Company. The following selected consolidated financial data as of the dates and for the periods indicated were derived from the audited and unaudited consolidated financial statements of the Company contained elsewhere in this Prospectus, except data as of, and for the years ended December 31, 1993, and 1994, which was derived from audited consolidated financial statements of the Company not included in this Prospectus. The unaudited consolidated financial statements for the nine months ended September 30, 1997 and September 30, 1998 include all adjustments consisting only of normal recurring adjustments which management considers necessary for a fair presentation of results for these unaudited periods. The results of operations for the nine months ended September 30, 1998 are not necessarily indicative of results of operations that may be expected for the full fiscal year 1998. The following selected consolidated financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and the related notes thereto appearing elsewhere in this Prospectus.
NINE MONTHS ENDED FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------------ ------------------ 1993 1994 1995 1996 1997 1997 1998 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Net sales............... $107,612 $112,475 $128,319 $152,603 $170,941 $127,307 $133,321 Cost of sales........... 75,980 84,321 97,182 110,609 115,099 86,187 84,682 -------- -------- -------- -------- -------- -------- -------- Gross margin........... 31,632 28,154 31,137 41,994 55,842 41,120 48,639 Selling, general and administrative expenses............... 13,467 14,152 18,515 21,705 24,381 15,808 19,265 Research and development costs.................. 1,561 3,506 2,260 2,533 2,633 1,953 3,144 -------- -------- -------- -------- -------- -------- -------- Operating income....... 16,604 10,496 10,362 17,756 28,828 23,359 26,230 Other income (expenses): Interest, net........... (2,212) (3,514) (6,030) (5,285) (3,968) (3,076) (6,143) Loss in investment in joint venture (1)...... -- (617) (643) -- -- -- -- Transaction compensation expenses............... -- -- -- -- -- -- (5,778) Other income, etc....... 492 341 438 875 372 233 647 -------- -------- -------- -------- -------- -------- -------- Income before income taxes and extraordinary income.. 14,884 6,706 4,127 13,346 25,232 20,516 14,956 Provision for income taxes.................. 5,680 2,882 1,718 4,784 8,383 7,715 5,609 -------- -------- -------- -------- -------- -------- -------- Income before extraordinary item.... 9,204 3,824 2,409 8,562 16,849 12,801 9,347 Loss from write-off of deferred financing cost, net (2)................ -- -- 1,294 -- 301 301 187 -------- -------- -------- -------- -------- -------- -------- Net income............. $ 9,204 $ 3,824 $ 1,115 $ 8,562 $ 16,548 $ 12,500 $ 9,160 ======== ======== ======== ======== ======== ======== ======== OTHER FINANCIAL DATA: Gross margin %.......... 29.4% 25.0% 24.3% 27.5% 32.7% 32.3% 36.5% Adjusted EBITDA (3)..... $ 23,747 $ 20,509 $ 22,480 $ 28,960 $ 42,377 $ 30,942 $ 35,131 Adjusted EBITDA margin % (4).................... 22.1% 18.2% 17.5% 19.0% 24.8% 24.3% 26.4% Depreciation and amortization........... $ 5,284 $ 8,228 $ 10,688 $ 9,676 $ 12,208 $ 6,654 $ 11,245 Capital expenditures.... $ 24,542 $ 24,284 $ 8,640 $ 5,806 $ 17,101 10,513 26,317 Ratio of earnings to fixed charges (5)...... 6.4x 1.9x 1.6x 3.4x 6.3x 6.3x 3.0x Cash provided (used) by: Operating activities... $ 17,704 $ 5,932 $ 12,683 $ 21,898 $ 20,322 $ 10,372 $ 20,595 Investing activities... $(27,582) $(24,872) $ (6,712) $ (5,527) $(18,810) $(11,904) $(26,144) Financing activities... $ 10,626 $(18,034) $ (4,163) $(16,413) $ (2,666) $ (309) $ 5,368 DECEMBER 31, SEPTEMBER 30, ------------------------------------------------ ------------------ 1993 1994 1995 1996 1997 1997 1998 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash.................... $ 2,241 $ 1,336 $ 3,143 $ 3,101 $ 1,947 $ 1,260 $ 1,766 Working capital......... 8,021 9,391 5,052 4,263 19,453 20,577 24,420 Property, plant and equipment, net......... 40,332 56,323 53,499 50,122 57,950 54,078 76,707 Total assets............ 69,599 93,414 92,824 91,329 105,133 100,538 140,327 Total debt.............. 50,141 69,182 66,698 50,615 56,917 59,321 270,889 Redeemable cumulative preferred stock........ 6,466 6,466 6,466 6,466 -- -- -- Shareholders' equity.... 2,324 5,298 5,563 13,594 31,109 58,428 (152,775)
23 - ---------------------- (1) Represents the Company's share of the operating losses incurred by a joint venture in which the Company acquired a 40% interest in 1990. The Company accounted for its investment in the joint venture using the equity method of accounting. (2) Reflects non-recurring charges related to the write-off of the unamortized balance of deferred financing costs in the year in which the related refinancing occurred. The amounts are shown net of applicable income tax. (3) Adjusted EBITDA represents income before interest expense (net), income taxes, depreciation and amortization adjusted as follows:
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------- --------------- 1993 1994 1995 1996 1997 1997 1998 ------- ------- ------- ------- ------- ------- ------- EBITDA before adjustments........... $22,380 $18,449 $19,551 $28,307 $41,107 $29,945 $28,583 ADJUSTMENTS TO EBITDA Non cash: Postretirement benefit costs................. 1,367 1,443 992 653 515 315 378 Loss in joint venture.. 0 617 643 0 0 0 0 Write off of deferred finance costs......... 0 0 1,294 0 301 301 187 Non-recurring legal expenses.............. 0 0 0 0 454 381 67 Deal costs............. 0 0 0 0 0 0 138 Transaction compensation expense.. 0 0 0 0 0 0 5,778 ------- ------- ------- ------- ------- ------- ------- Adjusted EBITDA......... $23,747 $20,509 $22,480 $28,960 $42,377 $30,942 $35,131 ======= ======= ======= ======= ======= ======= =======
Adjusted EBITDA is not intended to represent cash flow from operations or net income as defined by generally accepted accounting principles and should not be considered as a measure of liquidity or an alternative to, or more meaningful than, operating income or operating cash flow as an indication of the Company's operating performance. Adjusted EBITDA is included herein because management believes that certain investors find it a useful tool for measuring the Company's ability to service its debt. Management believes that an increase in Adjusted EBITDA level is an indicator of the Company's improved ability to service existing debt, to sustain potential future increases in debt and to satisfy capital requirements. Given that Adjusted EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies. (4) Adjusted EBITDA margin represents Adjusted EBITDA as calculated in footnote (3) above as a percentage of net sales. The explanation and cautionary statements regarding Adjusted EBITDA in footnote (3) above are also applicable to Adjusted EBITDA margin. (5) For purposes of determining the ratio of earnings to fixed charges, earnings are defined as earnings before taxes plus fixed charges. Fixed charges consist of interest expense, capitalized interest costs, amortization of debt issuance costs and the portion of rental expense on capital and operating leases deemed representative of the interest factor. 24 GLOBE MANUFACTURING CORP. The following unaudited pro forma financial statements (the "Pro Forma Financial Statements") are based on the historical financial statements of the Company included elsewhere in this Prospectus. The unaudited pro forma statement of income for the year ended December 31, 1997 gives effect to the Transactions as if such events were consummated on January 1, 1997. The unaudited pro forma statement of income for the nine months ended September 30, 1998 gives effect to the Transactions as if such events were consummated on January 1, 1998. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The Pro Forma Financial Statements do not purport to be indicative of the results that would have been obtained had such transactions described above occurred as of the assumed dates. In addition, the Pro Forma Financial Statements do not purport to project the Company's results of operations for any future date or period. The Pro Forma Financial Statements should be read in conjunction with the financial statements of the Company and the notes thereto, included elsewhere herein. 25 GLOBE MANUFACTURING CORP. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FISCAL YEAR ENDED DECEMBER 31, ------------------------------------- 1997 ADJUSTMENTS PRO FORMA(D) -------- ----------- ------------ (DOLLARS IN THOUSANDS) Net sales................................. $170,941 $ -- $170,941 Cost of sales............................. 115,099 -- 115,099 -------- -------- -------- Gross margin.......................... 55,842 -- 55,842 Selling, general and administrative expenses................................. 24,381 (95)(a) 24,286 Research and development costs............ 2,633 -- 2,633 -------- -------- -------- Operating income...................... 28,828 95 28,923 Other Income/(Expense).................... Interest................................ (3,968) (21,735)(b) (25,703) Loss in investment in joint venture..... -- -- -- Other income, net....................... 372 -- 372 -------- -------- -------- Income before income taxes and extraordinary items.................. 25,232 (21,640) 3,592 Provision for income taxes................ 8,383 (8,699)(c) (316) -------- -------- -------- Income before extraordinary item...... $ 16,849 $(12,941) $ 3,908 ======== ======== ========
- -------- (a) Represents amortization of debt issuance costs associated with the old credit facility. (b) Adjustment to reflect pro forma interest expense calculated using (i) 7.94% per annum on $6,000 for the revolver; (ii) 7.94% on $60,000 for the Term Loan A; (iii) 8.44% on $55,000 for the Term Loan B; (iv) 10.0% on $150,000 for the Senior Subordinated Note; (v) amortization of deferred finance charges; (vi) less capitalized interest costs of $635. (c) Reflects a statutory income tax rate of 40.2% for the pro forma adjustments. (d) In connection with the Transaction the Company incurred a one time compensation expense charge of $3,318 associated with the vesting of stock options and $2,320 associated with bonuses paid to certain members of management. Although the Company expects to charge such amounts in the period following the transaction date, such charge is not reflected in the accompanying pro forma financial information. 26 GLOBE MANUFACTURING CORP. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR PERIOD ENDED SEPTEMBER 30, ---------------------------------- 1998 ADJUSTMENTS PRO FORMA -------- ----------- --------- (DOLLARS IN THOUSANDS) Net sales................................... $133,321 $ -- $133,321 Cost of sales............................... 84,682 -- 84,682 -------- ------- -------- Gross margin............................ 48,639 -- 48,639 Selling, general and administrative expenses................................... 19,265 (48) (a) 19,217 Research and development costs.............. 3,144 -- 3,144 -------- ------- -------- Operating income........................ 26,230 48 26,278 Other Income/(Expense) Interest.................................. (6,143) (12,079) (b) (18,222) Transaction compensation expense.......... (5,778) 5,778 (d) -- Other income, net......................... 647 -- 647 -------- ------- -------- Income before income taxes.............. 14,956 (6,253) 8,703 Provision for income taxes.................. 5,609 (2,514) (c) 3,095 -------- ------- -------- Income before extraordinary item............ $ 9,347 $(3,739) $ 5,608 ======== ======= ========
- -------- (a) Represents amortization of debt issuance costs associated with the old credit facility. (b) Reflects pro forma interest expense calculated using (i) 7.94% per annum on $6,800 for the revolver; (ii) 7.94% on $60,000 for the Term Loan A; (iii) 8.44% on $55,000 for the Term Loan B; (iv) 10.0% on $150,000 for the Senior Subordinated Note; (v) amortization of deferred finance charges; (vi) less capitalized interest costs of $959. (c) Reflects a statutory income tax rate of 40.2% for the pro forma adjustments. (d) In connection with the Transaction the Company incurred a one time compensation expense charge of $3,318 associated with the vesting of stock options and $2,460 associated with bonuses paid to certain members of management. Such charges are not included in the calculation of pro forma income. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company's financial condition and results of operations is qualified in its entirety by, and should be read in conjunction with, the consolidated financial statements of the Company and related notes thereto included elsewhere in this Prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors including, but not limited to, those discussed in "Risk Factors," "Business" and elsewhere in this Prospectus. The Company disclaims any obligation to update information contained in any forward-looking statement. See "Risk Factors--Risks Regarding Forward-Looking Statements." RESULTS OF OPERATIONS The following table sets forth for the periods indicated information derived from the consolidated financial statements of income expressed as a percentage of net sales. There can be no assurance that the trends in sales growth or operating results will continue in the future.
NINE MONTHS YEAR ENDED ENDED DECEMBER 31, SEPTEMBER 30, -------------------- ------------- 1995 1996 1997 1997 1998 ------ ------ ------ ------ ------ Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales................................ 75.7% 72.5% 67.3% 67.7% 63.5% Gross margin................................. 24.3% 27.5% 32.7% 32.3% 36.5% Selling, general & administrative expenses... 14.4% 14.2% 14.3% 12.4% 14.4% Research and development expenses............ 1.8% 1.7% 1.5% 1.5% 2.4% Operating income............................. 8.1% 11.6% 16.9% 18.3% 19.7%
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30, 1997 Net sales of the Company for the nine months ended September 30, 1998 increased $6.0 million, or 4.7%, to $133.3 million from $127.3 million for the corresponding period in 1997. The increase in sales was primarily attributable to a 21.5% increase in fine denier spandex fiber volume and a 4.8% increase in average heavy denier spandex fiber price associated with a change in mix within the Company's heavy denier product line. This sales increase has been offset by the current economic crisis in Asia which has resulted in an influx of fiber, fabric and apparel into Europe from Asia, resulting in a negative impact on prices and the Company's sales in Europe. In addition, economic difficulties in Russia have resulted in reduced demand for the Company's products. Continued economic difficulties may precipitate further downturns in spandex fiber consumption in all of Globe's export markets. Gross margin of the Company for the nine months ended September 30, 1998 increased $7.5 million, or 18.3%, to $48.6 million from $41.1 million for the corresponding period in 1997. The Company's gross margin as a percentage of net sales increased to 36.5% for the nine months ended September 30, 1998 from 32.3% for the corresponding period in 1997. The increase in gross margin was primarily due to a 6% reduction in fine denier spandex fiber unit costs attained through operating efficiencies and economies of scale resulting from increased capacity at the Company's Tuscaloosa, Alabama facility and a favorable shift in product mix towards higher margin fine denier spandex fiber products. Fine denier spandex fiber sales represented 54.3% of total sales in the nine months ended September 30, 1998, compared to 48.5% in the corresponding period in 1997. Selling, general and administrative expenses for the Company for the nine months ended September 30, 1998 increased $3.5 million, or 21.9%, to $19.3 million from $15.8 million for the corresponding period in 1997. Selling, general and administrative expenses for the Company as a percentage of net sales increased to 14.4% for the nine months ended September 30, 1998 from 12.4% in the corresponding period in 1997. The change from the previous year was primarily due to an increase in allowances for bad debt and additional selling expenses associated with an increased level of foreign sales. 28 Research and development expenses for the Company for the nine months ended September 30, 1998 increased $1.2 million, or 61.0%, to $3.1 million from $1.9 million for the corresponding period in 1997. Research and development expenses for the Company as a percentage of net sales increased to 2.4% for the nine months ended September 30, 1998 from 1.5% for the corresponding period in 1997. The increase in research and development expense was associated with the development of new heavy denier spandex fiber products. Net interest expense for the Company for the nine months ended September 30, 1998 increased $3.0 million to $6.1 million from $3.1 million in the corresponding period in 1997. The increase in interest expense was directly attributable to the recapitalization of the Company. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Net sales of the Company for 1997 increased $18.3 million, or 12.0%, to $170.9 million from $152.6 million in 1996. The increase in sales was primarily due to a 5.3% increase in the Company's average fine denier spandex fiber prices and a 17.7% increase in fine denier spandex fiber volume. The increase in average spandex fiber prices was primarily due to stronger market demand, improved acceptance of the Company's products in higher-priced markets, and cost reductions related in improved efficiencies. Gross margin of the Company for 1997 increased $13.8 million, or 32.9%, to $55.8 million from $42.0 million in 1996. The Company's gross margin as a percentage of net sales increased to 32.7% in 1997 from 27.5% in 1996. The increase in gross margin reflects a reduction in fine denier spandex fiber unit costs attributable to economies of scale created by an increase in fine denier spandex fiber capacity at the Company's Tuscaloosa, Alabama facility, gains in efficiencies achieved through improved production processes and a decline in latex raw material costs. The increase in gross margin also reflects a favorable shift in product mix toward higher margin fine denier spandex fiber products. Fine denier spandex fiber sales represented 49.4% of total net sales in 1997 compared to 44.2% in 1996. Selling, general and administrative expenses for the Company in 1997 increased $2.7 million, or 12.4%, to $24.4 million from $21.7 million in 1996. The increase in selling, general and administrative expenses was primarily attributable to the higher level of net sales achieved in 1997. As a percentage of net sales, selling, general and administrative expenses increased to 14.3% in 1997 from 14.2% in 1996. Research and development expenses for the Company in 1997 increased $0.1 million, or 4.0%, to $2.6 million from $2.5 million in 1996. Research and development expenses for the Company as a percentage of net sales decreased to 1.5% in 1997 from 1.7% in 1996. The decrease was primarily due to the higher level of net sales attained in 1997. Net interest expense for the Company in 1997 decreased $1.3 million, or 24.5%, to $4.0 million from $5.3 million in 1996. The decrease in interest expense was primarily due to a decline in interest rates and the capitalization of $0.5 million of interest expense in 1997 in connection with a capital expansion project. Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Net sales of the Company for 1996 increased $24.3 million, or 18.9%, to $152.6 million from $128.3 million in 1995. The increase in sales was primarily due to a 56.4% increase in fine denier spandex fiber volume related to increased manufacturing capacity. Gross margin of the Company for 1996 increased $10.9 million, or 35.0%, to $42.0 million from $31.1 million for the corresponding period in 1995. The Company's gross margin as a percentage of net sales increased to 27.5% in 1996 from 24.3% in 1995. The increase in gross margin was primarily due to a favorable shift in product mix toward higher margin fine denier spandex fiber products. Fine denier spandex fiber sales represented 44.2% of total net sales in 1996 compared to 34.8% in 1995. In addition, the Company's gross margin in 1995 was negatively impacted by Globe's first expansion of its Tuscaloosa facility, which temporarily reduced manufacturing efficiencies, and by lower average selling prices of fine denier spandex resulting from Bayer entering the domestic market. 29 Selling, general and administrative expenses for the Company in 1996 increased $3.2 million, or 17.3%, to $21.7 million from $18.5 million in 1995. Selling, general and administrative expenses for the Company as a percentage of net sales decreased to 14.2% in 1996 from 14.4% in 1995. The decrease in selling, general and administrative expense as a percentage of net sales was primarily attributable to the increase in sales noted above. Research and development expenses for the Company in 1996 increased $0.2 million, or 8.7%, to $2.5 million from $2.3 million in 1995. Research and development expenses for the Company as a percentage of net sales decreased to 1.7% in 1996 from 1.8% in 1995. The decrease in research and development expense as a percentage of net sales reflects the higher level of net sales achieved in 1996. Net interest expense for the Company in 1996 decreased $0.7 million, or 11.7%, to $5.3 million from $6.0 million in 1995. The decrease in interest expense was primarily due to a decrease in the average debt outstanding throughout the year and a decline in interest rates. The Company reported an extraordinary loss of $1.3 million, net of tax, in 1995 to reflect the write-off of unamortized deferred financing costs associated with the restatement of its credit agreement. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was $12.7 million in 1995, $21.9 million in 1996 and $20.3 million in 1997. The increase in cash provided by operating activities for 1996 was primarily due to increases in profitability, accounts payable, taxes payable, accrued expenses and a reduction of inventory balances, partially offset by an increase in accounts receivable. The reduction in cash provided by operating activities in 1997 was due to increases in accounts receivable, inventory balances and deferred tax assets, and a reduction in taxes payable, partially offset by an increase in amortization of unearned compensation. For the nine months ended September 30, 1998, cash provided by operating activities was $20.6 million compared to $10.4 million for the same period in 1997. This increase was primarily attributable to increases in profitability, accounts payable and accrued expenses and a reduction in inventory, partially offset by an increase in accounts receivable. The average days' sales outstanding for accounts receivable was approximately 44, 54 and 56 days for the years ended 1995, 1996 and 1997, respectively. Average days' sales outstanding was 56 days at September 30, 1998. The increase in average days' sales outstanding was primarily attributable to an increase in foreign sales, which have a longer payment cycle than domestic sales as a result of longer shipping times and extended credit terms required by foreign competition. Foreign sales represented 27.5% and 31.6% of sales for the year end December 31, 1997 and for the nine months ended September 30, 1998, respectively. Management does not expect that the increasing days sales outstanding will have a material impact on future results of operations and liquidity. The Company's inventories decreased from $15.9 million at December 31, 1995 to $11.8 million at December 31, 1996. This decrease was primarily attributable to a decrease in fine denier spandex fiber quantities and cost aggregating to a 42%, or $2.3 million, decrease. The Company's inventory increased from $11.8 million at December 31, 1996 to $13.8 million at December 31, 1997. This increase was primarily due to higher fine denier production capacity and anticipated higher heavy denier sales levels. The Company's inventories decreased from $13.2 million at September 30, 1997 to $14.8 million at September 30, 1998. This decrease was primarily due to lower fine denier spandex thread manufacturing costs and reduced latex thread inventory. The Company's accounts payable increased from $4.7 million at December 31, 1995 to $7.2 million at December 31, 1996. The Company's accounts payable increased from $7.2 million at December 31, 1996 to $7.4 million at December 31, 1997. The increase in accounts payable was attributable to capital expenditures incurred to increase fine denier spandex fiber capacity. The Company's accounts payable increased from $6.3 million at September 30, 1997 to $8.5 million at September 30, 1998. The increase was primarily due to capital expenditures incurred to increase fine denier capacity. The Company has historically financed its operations and acquisitions through a combination of internally generated funds and borrowings under its existing credit agreement. The Company financed the construction of the Tuscaloosa plant, as well as the subsequent expansions of the facility, under its existing credit facilities. 30 Capital expenditures were $5.8 million in 1996, $17.1 million in 1997 and $26.3 million for the nine months ended September 30, 1998. Capital expenditures incurred during 1996 consisted primarily of general maintenance and process improvement expenditures, and the capital expenditures incurred during 1997 consisted primarily of expenditures for the expansion of the Tuscaloosa facility and general maintenance and process improvement expenditures. The capital expenditures incurred during the first nine months of 1998 included $19.2 million of plant expansion expenditures. The Company anticipates that its capital expenditures for the balance of 1998 will be approximately $10.0 million, of which $6.0 million is related to the Tuscaloosa Plant Expansion and $1.5 million is related to the Company's new enterprise resource planning system, which is expected to be installed in 1998 and 1999. The Company estimates that based on anticipated levels of operations its capital expenditures will be approximately $6.0 million in each of 1999 and 2000. The Company applied the net proceeds of the Initial Offering and the Equity Sponsor Investment, together with borrowings under the Senior Credit Facility, to repay all outstanding obligations under the Old Credit Facility and to pay a dividend to Globe Holdings to permit it to pay the Cash Merger Consideration and to pay the fees and expenses incurred in connection with the Transactions. In connection with the Transactions, the Company also entered into the Senior Credit Facility, which enables the Company to borrow up to $165.0 million, subject to certain borrowing conditions. The Senior Credit Facility is fully secured and consists of a $115.0 million term loan facility, which was fully drawn upon the consummation of the Transactions, and a $50.0 million revolving loan facility, $5.8 million of which was outstanding at September 30, 1998. The revolving loan facility is available for general corporate and working capital purposes. See "Description of Senior Credit Facility." As a result of the Initial Offering and the other Transactions, the Company's total debt significantly increased. Interest payments on the Notes and under the Senior Credit Facility represent significant liquidity requirements for the Company. The Notes require semi-annual payments and interest on the loans under the Senior Credit Facility is due at least quarterly. Although there can be no assurance, the Company anticipates that its cash flow generated from operations and borrowings under the Senior Credit Facility will be sufficient to fund the Company's working capital needs, planned capital expenditures, scheduled interest payments (including interest payments on the Notes and amounts outstanding under the Senior Credit Facility) and other cash needs for the next twelve months. However, the Company may require additional funds if it enters into strategic alliances, acquires significant assets or businesses or makes significant investments in furtherance of its growth strategy. The ability of the Company to satisfy its capital requirements will be dependent upon the future financial performance of the Company, which in turn will be subject to general economic conditions and to financial, business, and other factors, including factors beyond the Company's control. Instruments governing the Company's indebtedness, including the Senior Credit Facility and the Indenture, contain financial and other covenants that restrict, among other things, the Company's ability to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of substantially all of the assets of the Company. Such limitations, together with the highly leveraged nature of the Company, could limit corporate and operating activities, including the Company's ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities. See "Risk Factors--Substantial Leverage and Debt Service Requirements." IMPACT OF THE YEAR 2000 ISSUE The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. 31 If the Company, its significant customers or suppliers fail to make necessary modifications and conversions on a timely basis, the year 2000 issue could have a material adverse effect on Company operations. However, the impact cannot be quantified at this time. The Company believes that its competitors face similar risks. The Company has established a corporate-wide project team to identify non- compliant software and complete the corrections required for the year 2000 issue. The Company has completed its repairs for major manufacturing systems in all locations. The Company also completed its repair of its major financial systems. The Company's current target is to resolve compliance issues in its distribution systems and other ancillary systems by March 31, 1999. The Company also has made inquiry of its major customers and suppliers to assess their compliance. Nevertheless, there can be no absolute assurance that there will not be a material adverse effect on the Company if third party governmental or business entities do not convert or replace their systems in a timely manner and in a way that is compatible with the Company's systems. Costs related to the year 2000 issue are funded through operating cash flows. Through September 30, 1998, the Company expended approximately $108,000 in systems development and remediation efforts, including the cost of new software and modifying the applicable code of existing software. The Company estimates remaining costs to be between $50,000 and $100,000. The Company presently believes that the total cost of achieving year 2000 compliant systems is not expected to be material to the Company's financial condition, liquidity or results of operations. Time and cost estimates are based on currently available information. Developments that could affect estimates include, but are not limited to, the availability and cost of trained personnel, the ability to locate and correct all relevant computer code and systems and remediation success of the Company's customers and suppliers. INFLATION The Company does not believe that inflation has had any material effect on the Company's business over the past three years. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("Statement 130"), which establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Statement 130 is effective for fiscal years beginning after December 15, 1997. Disclosure of total comprehensive income is required in interim period financial statements. Management does not believe that comprehensive income for prior periods will differ significantly from net income in those periods. In June, 1997, the FASB issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information ("Statement 131"), which is effective for years beginning after December 15, 1997. However, Statement 131 need not be applied to interim financial statements in the initial year of application. Statement 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Since Statement 131 is effective for financial statements for fiscal years beginning after December 15, 1997, the Company will adopt the new requirements retroactively in 1998. Management has not yet determined the impact Statement 131 will have on disclosures of the Company's reported segments. In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits ("Statement 132"), that revises disclosure 32 requirements of FASB Statements No. 87, Employers' Accounting for Pensions, and No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. Statement 132 is effective for fiscal years beginning after December 15, 1997. The Statement does not change the recognition or measurement of pension or post-retirement benefit plans, but standardizes disclosure requirements for pensions and other post-retirement benefits, eliminates certain disclosures and requires additional information. Management does not anticipate that the adoption of Statement 132 will have a material impact on its financial position or the results of its operations. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and for Hedging Activities ("Statement 133"). Statement 133 is effective for years beginning after June 15, 1999. Statement 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. Management does not anticipate that the adoption of Statement 133 will have a material impact on its financial position or the results of its operations. 33 BUSINESS OVERVIEW Globe is a leading domestic manufacturer and worldwide supplier of spandex and latex elastomeric fibers, marketing its products to more than 500 customers. The Company's fibers are used in a broad range of applications, including men's and women's hosiery, waistbands, intimate apparel, performance athletic wear, swimwear, casual wear, suiting fabrics, body shaping (or foundation) garments, personal care products (including diapers and adult incontinence products) and footwear. The Company has produced elastomeric fibers exclusively for over 50 years and has developed long-term relationships with many of its principal customers, including Fruit of the Loom, Inc., Kimberly-Clark Corporation, Minnesota Mining & Manufacturing Company, Sara Lee Hosiery, Unifi, Inc. and Worldtex, Inc. During the twelve months ended September 30, 1998, the Company had net sales of $177.0 million, Adjusted EBITDA of $46.7 million and net income of $13.4 million. See Summary Consolidated Financial Data, footnotes 3 and 5. Spandex fiber, which accounted for 80% of the Company's 1997 sales, is a highly desirable component of fabrics designed for performance, durability, comfort, control and resilience due to its unique chemical and physical properties. Spandex fiber is produced in a broad range of fine and heavy deniers and is sold on a private label basis and under brand names such as the Company's GLOSPAN(R) and CLEERSPAN(R), DuPont's Lycra(R) and Bayer's Dorlastan(R). Recent advances in manufacturing technologies have facilitated the use of spandex fiber in an increasing number of apparel and non-apparel applications. Globe has benefited from this recent proliferation of spandex fiber applications due to its exclusive focus on elastomeric fibers, superior customer service, broad product line, strong market position and efficient manufacturing processes. Management estimates that in 1997 the worldwide market for spandex fiber was approximately 240 million pounds, representing approximately $2.0 billion in sales. From 1993 to 1997, worldwide sales of spandex fiber increased at an estimated 11% compound annual growth rate, and the worldwide spandex fiber market is expected to grow at approximately 9% over the next three years. Since 1993, demand for fine denier spandex has increased faster than the overall market due to its growing use in lightweight and high quality apparel applications and this trend is expected to continue. The Company operates three manufacturing facilities, which are located in Fall River, Massachusetts, Tuscaloosa, Alabama and Gastonia, North Carolina. Since 1993, Globe has invested $97.5 million to increase manufacturing capacity, enhance productivity and shift its product mix to the faster growing, higher margin fine denier spandex fiber. During this period, the Company's annual fine denier spandex fiber production capacity increased from 2.6 million to 10.6 million pounds. As a result of the Company's capital investment program and continuous improvement initiatives in its manufacturing facilities, Globe's fine denier spandex fiber production yields have improved by 35%, and sales per employee have increased by 43% since 1993. TUSCALOOSA PLANT EXPANSION Globe is expanding production capacity at its Tuscaloosa, Alabama fine denier spandex fiber manufacturing facility in response to existing demand from current customers. Through September 30, 1998, Globe had spent approximately $19.2 million of the estimated $22.1 million project cost. The Tuscaloosa facility, built in 1994, has undergone three prior capacity expansions. The Tuscaloosa Plant Expansion will increase the Company's fine denier manufacturing capacity by 3.6 million pounds per annum, or 34%, with approximately half of this increased capacity expected to be on line in the fourth quarter of 1998 and the balance expected to be on line in the first quarter of 1999. As of September 30, 1998, Globe's list price for 40 denier spandex fiber, the primary product produced at the Company's Tuscaloosa facility, was $12.99 per pound. COMPETITIVE STRENGTHS The Company's exclusive focus on elastomeric fibers for over 50 years has enabled it to develop the following competitive strengths: Long-Term Customer Relationships and Superior Customer Service. Globe has established long-term relationships with its principal customers by focusing on superior technical and customer service. The Company 34 has been a supplier to Fruit of the Loom, Inc., Kimberly-Clark Corporation, Minnesota Mining and Manufacturing Company, Sara Lee Hosiery, Unifi, Inc. and Worldtex, Inc. for over ten years. Seven of the Company's ten largest customers have selected Globe as their preferred supplier of spandex fiber. Globe provides analytical laboratory services and on-site technical assistance to improve customers' manufacturing and engineering processes. As a result, a number of the Company's major customers have selected it as a technology partner to assist in the development of new spandex applications. Broad Product Line. The Company believes that it offers the broadest line of spandex and latex elastomeric fibers in the world. The Company produces a full line of spandex fibers in deniers ranging from 15 to 5040. These products feature an assortment of stretch, strength and other performance characteristics that may be customized for specific applications and manufacturing processes. Globe also manufactures a wide variety of latex threads in multiple gauges and formulations. This broad range of product offerings differentiates the Company in the industry and represents a competitive advantage, as many customers purchase multiple deniers of spandex fiber, as well as various gauges of latex thread, and prefer to utilize one vendor for their elastomeric fiber requirements. The proprietary technologies and customized equipment used by Globe in its multiple manufacturing processes enable the Company to cost-effectively produce this broad product line. Strong Positions in Growing Markets. The Company has established a strong market position in each of its principal product lines. The Company has an estimated 16% share of the domestic spandex fiber market and an estimated 7% share of the worldwide spandex fiber market (based on pounds produced). Management estimates that worldwide sales of spandex fiber will increase at a compound annual growth rate of approximately 9% over the next three years and that fine denier spandex sales will exceed the overall market growth rate during this period. Fine denier spandex demand has been driven by strong consumer demand for lightweight and high quality apparel and technological advances allowing for the use of spandex fibers in the manufacture of such apparel. Cost-Efficient Manufacturing. Management believes that the Company's manufacturing operations are among the most efficient in the industry, allowing the Company to become one of the world's lowest cost producers of high quality spandex fiber. Globe has developed proprietary chemical formulations and highly efficient manufacturing processes that utilize sophisticated process control systems and custom fabricated manufacturing equipment designed and built by the Company's engineers. Management believes that Globe's in-house capability to design, engineer and build its own manufacturing equipment distinguishes the Company from many of its competitors and provides it with an important competitive advantage in maintaining product quality as well as controlling design, development and maintenance costs. In addition, increased production volume at the Company's facilities has enabled the Company to achieve significant economies of scale and raw material purchasing power. Experienced Management Team. The Company is led by an experienced management team with a track record of achieving profitable growth, developing new manufacturing processes and expanding the Company's customer base. Between 1993 and the twelve months ended September 30, 1998, the Company's net sales increased from $107.6 million to $177.0 million, Adjusted EBITDA increased from $23.7 million to $46.7 million and net income increased from $9.2 million to $13.4 million. See Summary Consolidated Financial Data, footnotes 3 and 5. The Company's executive officers average approximately 20 years with the Company. The Company's senior management team has a substantial financial interest in the Company's continued success through their direct investment in Globe Holdings. BUSINESS STRATEGY The Company's business objective is to become the leading global supplier of elastomeric fiber for use in selected apparel and non-apparel markets. The Company seeks to achieve this objective by pursuing the following strategies: Continue Shift in Product Mix to Higher Growth, More Profitable Fine Denier Products. Since 1993, Globe has expanded its annual production capacity of higher growth fine denier spandex fiber from 2.6 million to 10.6 million pounds. Fine denier spandex fiber is used in applications requiring lightweight or high quality fabric, and has been generally more profitable than heavy denier spandex fiber due to the complexity of the manufacturing 35 process required and strong market demand. Fine denier spandex fiber sales accounted for approximately 49% of Globe's 1997 total sales, up from 25% in 1993. The Tuscaloosa Plant Expansion, which will increase the Company's annual production capacity for fine denier spandex fiber to 14.2 million pounds, will enable the Company to further address the increase in demand for fine denier spandex fiber. Develop Innovative Spandex Fiber Applications. Globe's product managers and research and development engineers work closely with existing and prospective customers to develop innovative applications for spandex fiber. For example, the Company worked with a fleece manufacturer for over two years to develop a new four-way stretch fleece product for outerwear that incorporates Globe's spandex fiber. Cooperative efforts such as this have enabled Globe to enhance its relationships with existing customers and attract new customers. Improve Manufacturing Productivity; Reduce Production Costs. The Company seeks to continually improve manufacturing efficiency and reduce production costs in order to maintain its position as one of the world's lowest cost producers of high quality spandex fiber. The Company seeks to improve manufacturing yields, increase equipment utilization, and reduce production costs by upgrading process monitoring equipment, enhancing production processes and increasing throughput. Each of the Company's manufacturing facilities is certified under ISO 9001, and the Company actively incorporates the principles of continuous improvement. Increase International Sales. Globe estimates that the international market accounts for two-thirds of the worldwide spandex fiber market. International spandex fiber markets are growing rapidly due to increasing consumerism of the world's population, coupled with increases in personal disposable income. From 1993 to 1997, Globe's international sales increased from 19% of sales to 28% of sales (primarily in western Europe and Latin America) as the Company expanded the size and geographic scope of its international sales to 46 countries. The Company seeks to further expand its international sales by leveraging its existing sales and marketing infrastructure and capitalizing on Globe's expanded manufacturing capacity. INDUSTRY OVERVIEW The Company competes primarily in the worldwide market for spandex fiber and the domestic market for latex thread. Spandex Fiber The worldwide spandex fiber industry has experienced significant growth in recent years. First developed in the early 1960s, spandex fiber has repeatable stretch and recovery capabilities, end-to-end uniformity, and unlike most other elastomeric fibers, is resistant to breakdown from exposure to oxidation, ozone, light, solvents, body oils, and perspiration. In addition, advances in polymer chemistry and manufacturing technology have allowed manufacturers to produce increasingly finer elastomeric fibers. These production advances and the physical characteristics of spandex fiber have made spandex fiber a highly desirable component of an increasing number of applications. As the production capabilities of spandex fiber suppliers have improved, fabric manufacturers have also developed new processes that have allowed them to integrate spandex fiber into a number of new applications. Traditionally, manufacturers of circular knit fabrics were unable to use spandex fiber in the manufacturing process unless the spandex fiber had been covered with another fiber, such as cotton or nylon. Recently, new technologies enabling manufacturers to knit uncovered spandex fibers have spurred an increased use of spandex fiber in sheer, lightweight circular knit products. Suppliers of spandex fiber such as the Company generally target six end-use markets for their fibers: circular knits (which includes product applications such as active wear, swimwear and casual wear); hosiery; nonwovens (personal care products such as diapers); narrow fabrics (waistbands and straps); warp knits (intimate apparel and body shaping garments); and stretch wovens. Stretch wovens include fabrics that are used in men's suits and pants, as well as other new applications, and this segment represents a growth opportunity for industry participants such as Globe. 36 Management estimates that in 1997 the worldwide market for spandex fiber was approximately 240 million pounds, representing approximately $2.0 billion in sales. From 1993 to 1997, worldwide sales of spandex fiber increased at an estimated 11% compound annual growth rate, and the worldwide spandex fiber market is projected to grow at a compound annual growth rate of approximately 9% over the next three years. Since 1993, demand for fine denier spandex fiber has increased faster than the overall market due to its growing use in lightweight and high quality apparel applications and this trend is expected to continue. Currently, approximately 61% of spandex fiber consumption occurs in the major industrialized regions, including the U.S., Japan, and western Europe. International spandex fiber markets are growing rapidly due to increasing consumerism of the world's population, coupled with increases in personal disposable income. Spandex fiber is currently produced throughout the world. Management estimates that there are approximately 16 spandex fiber manufacturers in the world, with the top 5 manufacturers accounting for approximately 77% of the worldwide market. These manufacturers are expected to increase capacity to meet anticipated demand and maintain their respective market shares. Latex Thread The Company estimates that in 1997 the U.S. market for extruded latex thread was approximately 35 million pounds. The primary markets include men's hosiery, narrow fabrics and fused tapes. Fine gauges of latex thread are typically used in men's hosiery. Medium and heavy gauges are used in narrow fabrics and fused tapes. Fused tapes are used for face masks and insert elastics. The Company produces a heat resistant latex thread which resists degradation caused by repeated household laundry drying cycles. PRODUCTS AND CUSTOMERS Products The Company develops, manufactures and sells spandex and latex elastomeric fibers. The Company's products include fine denier spandex fiber (15 to 140 denier), heavier denier spandex fiber (184 to 5040 denier), and latex thread in a variety of gauges. Spandex fiber accounted for 80% of the Company's sales in 1997, and latex thread accounted for the remaining 20%. Spandex Fiber. The unique chemical and physical properties of spandex fiber make it a desirable component of fabrics designed for performance, durability, comfort, control and resilience. Spandex fiber, produced from polyether or polyester, has repeatable stretch and recovery capabilities, end-to-end uniformity, and unlike most other elastomeric fibers, is resistant to breakdown from exposure to oxidation, ozone, light, solvents, body oils and perspiration. Such properties, together with the wide range of available deniers, make spandex fiber suitable for a broad range of applications, including men's and women's hosiery, waistbands, intimate apparel, performance athletic wear, swimwear, casual wear, suiting fabrics, body shaping (or foundation) garments, personal care products (including diapers and adult incontinence products) and footwear. Spandex fiber can be made in deniers much finer than alternative elastomeric fibers while retaining uniform physical properties, and can be heat set in finishing, thereby allowing manufacturers to create ultra sheer and lightweight, yet highly elastic fabrics. Although spandex fiber typically accounts for a small percentage of the total fiber in an application (ranging from 2% in men's suits to 40% in women's foundation garments), it can be used to enhance the performance of an increasing number of apparel and non-apparel products. Latex Thread. The Company's first product was latex thread. Extruded latex thread, which is round, was developed in the 1940's to replace cut rubber thread, which was square and limited in size and usage. Finer gauge latex thread is used in men's hosiery and athletic socks. Mid-range gauges are typically used for narrow fabrics, such as waistbands, straps and insert elastics, and for specialty products and medical garments. Coarse gauge latex thread is also used for narrow fabrics and in specialty products. The Company has engineered various latex thread compound formulations in response to market needs for high-strength, chemical and heat resistance, and durability, and the Company believes opportunities exist for additional uses for latex thread. 37 The Company's products have historically been sold to a variety of customers in five end-markets: circular knits, hosiery, nonwovens, narrow fabrics and warp knits. In addition, the Company has recently begun selling products to the stretch woven market for use in suiting fabrics and outerwear linings. The following table lists the Company's principal product lines, applications for these products, the fiber utilized in the products, and representative customers.
END MARKET AND PERCENTAGE OF REPRESENTATIVE 1997 SALES PRODUCT APPLICATIONS FIBER UTILIZED CUSTOMERS -------------- ------------------------------ ----------------- -------------- Hosiery Women's sheer hosiery 10-560 denier Unifi, Inc. 36% of sales Men's hosiery spandex fiber; Sara Lee Ho- Athletic socks fine gauge latex siery thread Kayser Roth Hosiery, Inc. McMichael Mills, Inc. Worldtex, Inc. Tanofil A.G. Golden Lady S.P.A. Americal Cor- poration Pennaco Ho- siery, Inc. Circular Knits Active wear 20-105 denier C.K.M. Indus- 35% of sales Swimwear spandex fiber tries, Inc. Casual wear Textivision, Dress wear SA de CV Cotton athletic wear Tanofil, A.G./Karl Na- gele GmbH & Co. K.G. Texere 2000 Inc. Elatex--D&S International Taiwan Narrow Fabrics Waistband elastics 280-5040 denier Fruit of the 16% of sales Straps spandex fiber; Loom, Inc. Insert elastics 22-50 gauge Asheboro Elas- Accent laces latex thread tic Corp. Hanes Mens- wear, Inc. Beech Island Knitting Co. North East Knitting, Inc. Sun Hing Elastics & Lace Flat A.C. Nonwovens Diapers 280-1400 denier Kimberly-Clark 8% of sales Adult incontinence products spandex fiber; Corporation Feminine hygiene products 30-50 gauge latex Minnesota Min- Medical bandages thread ing & Manufac- Industrial protective clothing turing Com- pany Paragon Trade Brands, Inc. Warp Knits Intimate apparel 20-560 denier Guilford Mills 5% of sales Body shaping garments spandex fiber Inc. Swimwear The Moore Com- Footwear pany, Inc.-- Darlington Fabrics Divi- sion Liberty Fab- rics, Inc. Charbert Divi- sion of NFA Corp.-- Alton Operating Corp.
The Company has historically maintained a strong position in the hosiery and narrow fabrics markets. Management estimates that Globe's spandex fibers are utilized in the waistband of over 90% of the pantyhose sold in the United States. In addition, the Company believes it is the leading domestic supplier of latex thread for men's dress hosiery and men's underwear waistbands. Fine denier spandex fiber accounted for approximately 49% of the Company's total 1997 sales, up from 25% in 1993. Based on current market demand for products which utilize lightweight or high quality fabrics, the Company believes that fine denier products manufactured for the circular knit, warp knit and stretch woven markets will represent an increasing percentage of Globe's sales. Customers The Company sells its products to a diverse customer base of intermediate and end-use manufacturers. Intermediate users of the Company's products, which include Unifi, Inc., C.K.M. Industries, Inc. and Worldtex, Inc., cover the elastomeric fibers with other materials, and then either sell them to another manufacturer or knit or weave them. The Company's end-use customers, which include Fruit of the Loom, Inc., Sara Lee Hosiery, 38 Hanes Menswear, Inc., and Kayser-Roth Corporation (manufacturer of No Nonsense pantyhose), produce finished goods from the elastomeric fibers supplied by the Company. Most of the Company's customers rely on sophisticated technologies and production techniques to manufacture products of which the Company's fibers are a significant value-added component. These customers typically operate high speed, high volume production lines. In order to run their production lines efficiently and avoid costly line stoppages, customers rely on the Company's ability to provide reliable, on time delivery of high quality products. A number of the Company's customers have selected Globe as a preferred supplier of elastomeric fiber. Globe markets its products to over 500 customers. The Company's top ten customers accounted for approximately 48% of 1997 sales, with sales to Unifi, Inc., a manufacturer of covered yarns for men's and women's hosiery and for narrow fabrics, accounting for approximately 9% of 1997 sales. Export sales represented approximately 28% of the Company's total sales in 1997. See Note 1 to the Company's Consolidated Financial Statements. As is customary in the industry, the Company generally does not have long-term supply agreements with its customers. SALES AND MARKETING Globe's sales and marketing functions are organized into three product lines: hosiery/narrow fabrics; wide fabrics (including circular knits, warp knits, stretch wovens); and nonwovens. Each product line requires different technical expertise and is the responsibility of one of the Company's product managers. Management believes that organizing its sales and marketing team by product line is the most efficient and effective way to develop and maintain customer relationships, to stay abreast of technical and other developments that may result in changing customer or consumer preferences and to take advantage of new business opportunities. The Company markets and sells its products under the direction of three product managers who are supported by an extensive organization comprised of 26 individuals, including key account managers, inside sales staff, field sales personnel, and technical service and customer service personnel. By providing dedicated support to key customers, the Company believes it can better support these larger customers, who, in many cases, have a variety of different product application or production requirements. Domestic sales are handled primarily by the Company's internal sales organization. International sales activity is coordinated by a senior manager and supported by a dedicated customer service staff. The Company sells its products internationally through 35 commissioned agents or authorized distributors, covering 46 countries. Technical service is an integral part of Globe's sales and marketing efforts and includes providing product testing analysis of fabric composition at the Company's laboratories, assisting customers with the integration of Globe's products into the customer's production process and the development of methods to enhance a customer's products through the incorporation of the Company's elastomeric fibers. The Company's sales and marketing organization regularly provides market feedback to Globe's research and development teams. The Company believes this high level of service has been instrumental in retaining and attracting customers. Globe sells spandex fiber under its GLOSPAN(R) and CLEERSPAN(R) brand names. The Company does not require customers to co-brand their fabrics or products with its brand name. The Company believes that this marketing strategy is attractive for customers who seek to build their own brand identity and desire flexibility in sourcing their spandex fiber requirements. COMPETITION Spandex Fiber. The Company competes in the spandex fiber markets primarily on the basis of product quality, service, price and product innovation. The Company competes in the spandex fiber market primarily with DuPont and Bayer, both of which have domestic facilities, and with a number of foreign competitors. Some of the Company's competitors have substantially greater financial, marketing, manufacturing, distribution, sales and support resources, market share and brand awareness than the Company. The Company seeks to differentiate its product offerings by providing a high level of technical and customer service, and believes that DuPont and Bayer are the only other major spandex fiber suppliers that provide similar levels of technical and customer service. 39 Despite significant growth in demand for spandex fiber since 1990, the number of spandex fiber manufacturers has remained relatively constant primarily due to the technological expertise required to produce spandex fiber and the substantial capital requirements to establish a spandex fiber manufacturing facility. Because spandex fiber production is not labor- intensive, the Company believes that the availability of low-cost unskilled labor does not provide foreign manufacturers with a significant competitive advantage. Latex Thread. The Company competes in the latex thread market on the basis of product quality, product variety and price. The Company focuses its latex thread product marketing efforts on high quality and specialty latex thread, which requires high levels of customer support. The Company believes that its customer service and product quality, and its ability to respond to the just- in-time inventory needs of domestic customers, permit it to compete effectively with foreign latex thread manufacturers. The Company's primary competitors in the latex thread markets are foreign producers. See "Risk Factors--Competition." SUPPLIERS During 1997, raw materials represented 42% of the Company's total cost of sales and 28% of net sales. The primary raw materials used by the Company are polytetramethylene ether glycol, which the Company purchases from BASF, and polyester resin, which the Company purchases from two suppliers. These materials are used in a wide variety of products, and based on its experience, management believes that adequate quantities of these materials will be available from existing or alternative suppliers in the foreseeable future. The Company's ten largest suppliers accounted for approximately 93% of its total raw material purchases and 31% of its total cost of sales in 1997, with BASF, Polyurethane Specialties Corp. and Ennar Latex, Inc. accounting for 39%, 24% and 16% of such raw material purchases, respectively. The prices for the Company's raw materials have generally been stable over the past five years, although there can be no assurance that they will not fluctuate in the future. See "Risk Factors--Dependence on Suppliers." INTELLECTUAL PROPERTY The Company utilizes a variety of proprietary technology in its manufacturing processes. In addition to its proprietary technology, management believes that the Company's research, development and engineering skills, as well as its technical know-how, are significant to the Company's business. Much of the Company's technology is not patented. The Company relies primarily on intellectual property laws, confidentiality procedures and contractual provisions to protect its intellectual property. The Company seeks to protect the majority of its technology under trade secret laws, which afford only limited protection. See "Risk Factors--Protection of Intellectual Property." The Company owns certain brand names and trademarks used in its business, including GLOSPAN(R) and CLEERSPAN(R). MANUFACTURING General. The Company utilizes multiple manufacturing processes that allow it to cost-effectively produce a broad range of elastomeric fibers. The Company utilizes real-time control and monitoring systems that continuously monitor key process variables using a sophisticated closed loop system of computers, sensors and custom software. Spandex Fiber. The Company produces spandex fiber in a wide variety of deniers, using dry-spin and reaction spin processes. Typically, spandex fiber of heavier deniers is produced by the reaction spin process, while fine denier threads are produced by the dry-spin process. In 1985, the Company began commercial production of fine denier spandex fiber using a dry-spin, polyether-based process at its Fall River facility. Fine denier fiber production is a continuous process accomplished by vertical spinning of the polymer from the top of a production cell to the bottom, where the chamber is heated and filled with nitrogen in order to strip the solvent from the fiber. The solvent is removed from the cell chamber as a gas, recovered and recycled in a separate process. The process is monitored and 40 controlled by a state-of-the-art computer system developed specifically for the Company. The Company produces fine denier spandex fiber using the dry-spin process at its facilities in Fall River, Massachusetts and Tuscaloosa, Alabama, and currently has the capacity to produce 10.6 million pounds of fine denier spandex fiber annually using the dry-spin process. The Company's dry- spin operations run 24 hours a day, 7 days a week, 52 weeks a year. The Company believes that it is the only manufacturer of spandex fiber using the reaction spin process, which is based on technology proprietary to the Company. The process begins with the preparation of the prepolymer which is transported to an extruder, where it is processed through pumps and filters. The resulting pressure forces the prepolymer through a series of tubes and spinerettes, which distribute the prepolymer into a spinning tank where the chemical reaction which gives the fiber its elasticity occurs and the fibers are formed. The fibers are heated, cured and dried in ovens and then cooled, lubricated and spooled for shipment. In some cases, the Company uses a proprietary process which permits the Company to deliver the fiber in "knit- tape" form, which facilitates its use for certain customers. The Company conducts reaction spin production at its Fall River, Massachusetts, and Gastonia, North Carolina facilities. It currently has the capacity to produce 13.4 million pounds of heavy denier spandex fiber annually using the reaction spin process. Latex Thread. The Company manufactures latex thread through a batch process which begins with the combination of latex (a natural rubber material) and various base chemicals. This compound is matured, heated and fed to extruders, where it is pumped through a series of filters and distributed separately out of a group of capillaries. These capillaries produce latex thread which is then moved through an acid bath reservoir before being washed, dried and cured. At the end of the extruder, the fibers are combined into ribbons of various counts depending on customer needs. The Company produces latex thread at its Fall River, Massachusetts facility, and currently has the capacity to produce 11.0 million pounds of latex thread annually. FACILITIES The following table sets forth certain information with respect to the Company's principal facilities.
SQUARE LOCATION FOOTAGE OWNED/LEASED PRINCIPAL FUNCTION -------- ------- ------------ -------------------------- Fall River, Massachusetts... 375,000 Owned Headquarters Fine denier spandex fiber Heavy denier spandex fiber Latex thread Gastonia, North Carolina.... 180,000 Owned Heavy denier spandex fiber 80,000 Owned Distribution center 10,000 Leased Warehouse Tuscaloosa, Alabama......... 157,000 Owned Fine denier spandex fiber Rancho Dominguez, 15,000 Leased Warehouse California.................
The Company believes that its facilities are adequate and suitable for the purposes for which they are utilized by the Company. The Company is currently expanding production capacity at its Tuscaloosa, Alabama fine denier spandex fiber manufacturing facility in response to existing demand from current customers. See "--Tuscaloosa Plant Expansion." EMPLOYEES As of September 30, 1998, the Company had approximately 900 employees. Of these, approximately 175 are salaried employees and 725 are hourly workers. Of the approximately 175 salaried employees, 60 perform manufacturing functions, 50 are technical employees, 25 perform sales and marketing functions and 40 perform administrative functions. None of the Company's employees are covered by a collective bargaining agreement. The Company believes its relationships with its employees are good. 41 ENVIRONMENTAL, HEALTH AND SAFETY MATTERS The Company is subject to stringent environmental, health and safety requirements, including laws and regulations relating to air emissions, wastewater management, the handling and disposal of waste and the cleanup of properties affected by hazardous substances. The Company's management believes that its operations have been and are in substantial compliance with environmental, health and safety requirements, and that it has no liabilities arising under such requirements, except as would not be expected to have a material adverse effect on the Company's operations, financial condition or competitive position. During 1996 and 1997, respectively, the Company spent approximately $0.3 million and $0.9 million on environmental, health and safety compliance activities at its three operating locations. The Company estimates that approximately $1.0 million will be spent in 1998 on such activities, including efforts to resolve pending compliance issues relating to air emissions and wastewater discharges from the Company's Fall River, Massachusetts facility. Although the Company's management believes its estimate of 1998 costs to be reasonable, there can be no assurances that actual expenditures will not exceed the estimated amount. Since 1986, the Company has received requests for information and related correspondence from the U.S. EPA and other third parties indicating that the Company might be responsible under CERCLA or Superfund laws for costs associated with the investigation and cleanup of ten contaminated sites. The Company's management believes that the Company has resolved its involvement with respect to eight of these sites (five of which were inter-related) since 1988 and that the Company's involvement in matters arising under the Superfund laws will not have a material adverse effect on the Company's operations, liquidity or financial condition. In December 1996, the Company's management learned that the U.S. EPA and the U.S. Attorney's Office were conducting an investigation into whether the Company had engaged in criminal violations of environmental laws with respect to its Fall River, Massachusetts facility. The investigators have not informed the Company of the scope of their inquiry. The Company has provided certain information regarding its Fall River operations to the federal investigators and believes it has cooperated fully with their inquiry. The Company does not know whether the investigation is currently active. If the Company is charged with violations of environmental laws, it may be subject to substantial fines and other penalties. Based on the Company's discussions with the investigators and the results of the Company's internal investigation of this matter, the Company's management does not believe that the investigation will result in any monetary or other penalties that would have a material adverse effect on the Company's financial condition, results of operations or ability to meet its obligations under the Notes. The Merger Agreement provides that the Indemnification Escrow Fund will be available to indemnify the Company from, among other items, any liabilities arising out of this investigation to the extent related to the activities of the Company prior to the Merger. This indemnity expires on December 31, 2001. See "Certain Relationships and Related Transactions--Recapitalization" and "Risk Factors--Environmental Compliance." LEGAL PROCEEDINGS In April 1997 two domestic purchasers of extruded latex thread filed a complaint against a number of foreign manufacturers and distributors of such thread, including an Indonesian limited liability company in which Globe Holdings then owned a 40% interest (the "Joint Venture"). The complaint alleges an international conspiracy to restrain trade in, and fix prices of, the thread in the U.S. Neither the Company nor Globe Holdings has been named as a defendant in the case. The Joint Venture has alleged in its motion to dismiss that not all parties to the conspiracy have been joined. There can be no assurance that the Company will not be named in the future. The Merger Agreement provides that the Indemnification Escrow Fund will be available to indemnify the Company from, among other items, any liabilities arising out of any criminal or civil antitrust claims or investigations resulting from the above-described proceedings to the extent related to the Company's activities prior to the Merger. This indemnity expires on December 31, 2001. On March 31, 1998 a petition was filed with the U.S. Department of Commerce alleging subsidization and dumping of Indonesian extruded latex thread. The Department of Commerce is currently conducting an 42 investigation into the allegations. The proceedings could result in additional duties being levied on extruded latex thread imported from Indonesia. During 1996 and 1997, the Company purchased approximately $5.9 million and $9.9 million of latex thread from the Joint Venture for resale in the North American market. From time to time, the Company has been and is involved in various legal proceedings, all of which management believes are routine in nature and generally incidental to the conduct of its business. The ultimate legal and financial liability of the Company with respect to such proceedings cannot be estimated with certainty, but the Company believes, based on its examination of such matters, that none of such proceedings, if determined adversely to the Company, would have a material adverse effect on the Company's results of operations, financial condition and its ability to meet its obligations under the Notes. 43 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company, and their ages as of July 14, 1998 are set forth below:
NAME AGE POSITION ---- --- -------- Thomas A. Rodgers, Jr... 84 Chairman Thomas A. Rodgers, III.. 53 President and Chief Executive Officer, Director Lawrence R. Walsh....... 46 Vice President, Finance and Administration Americo Reis............ 64 Vice President, Operations Robert L. Bailey........ 60 Vice President, Sales and Marketing William J. Girrier...... 42 Director of Marketing and Business Development Kevin T. Cardullo....... 38 Director of Finance and Accounting Andrew W. Code.......... 39 Director Peter M. Gotsch......... 34 Director Edward M. Lhee.......... 28 Director
The present principal occupations and recent employment history of each of the executive officers and directors of the Company listed above are set forth below. Thomas A. Rodgers, Jr., co-founded Globe Holdings in 1945. He has served as Chairman since 1945, and served as President from 1945 to 1992. Thomas A. Rodgers, III, is the son of Thomas A. Rodgers, Jr., and has served as President of the Company since 1992. He served as the Executive Vice President and Chief Operating Officer of the Company from 1985 to 1992. Mr. Rodgers joined the Company in 1968. Mr. Rodgers has been a Director of the Company since 1972. Lawrence R. Walsh has served as Vice President, Finance and Administration of the Company since 1982. From 1976 to 1982, he was employed by Smith Precious Metals Co. Americo Reis joined the Company in 1959, and has served as the Company's Vice President, Operations since 1982. From 1957 to 1959, he served in the U.S. Army and from 1954 to 1957, he was employed by Goodyear Tire & Rubber Co. Robert L. Bailey has served as the Company's Vice President, Sales and Marketing since he joined the Company in 1979. From 1972 to 1979, he served as Vice President of Sales for the Yarn Division of Texfi Industries, Inc., and from 1967 to 1972 was Vice President of Sales for Intercontinental Fibers. William J. Girrier has been with the Company since 1990, first as Marketing Manager and then as Director of Marketing and Business Development. From 1987 to 1990, he was an Associate Manager of The Robbins Group, a commercial real estate development company. From 1978 to 1987, he served as a Naval Officer in various command and staff positions at the Pentagon and onboard warships. Kevin T. Cardullo has served as the Company's Director of Finance and Accounting since 1992. He is a Certified Public Accountant, and worked as a Senior Manager with Ernst & Young from 1986 to 1992. Mr. Cardullo was with Coopers & Lybrand from 1983 to 1986. Andrew W. Code is a Partner of Code Hennessy & Simmons LLC ("CHS"), which manages three private equity funds, including Code, Hennessy & Simmons III, L.P. Since founding the first such fund in 1988, Mr. Code has been actively involved in the investment organization and investment management activities of CHS. Mr. Code was a Vice President with Citicorp's Leveraged Capital Group from 1986 to 1988, and prior to 1986 he was employed by American National Bank. He is a director of SCP Pool Corporation, a distributor of swimming pool supplies. 44 Peter M. Gotsch has been a Partner of CHS since 1997, and has been employed by CHS and its affiliates since 1989. From 1987 to 1989, Mr. Gotsch was a Corporate Banking Officer at The First National Bank of Chicago, N.A. He is a director of SCP Pool Corporation. Edward M. Lhee has been an associate of CHS since 1997. From 1995 to 1997, he attended the Kellogg Graduate School of Management. From 1992 to 1995, Mr. Lhee was employed by Morgan Stanley & Co., where he worked as a financial analyst in the mergers and acquisitions and corporate finance departments. The term of office for each officer and director of the Company is one year. The following table summarizes the compensation paid by Globe Holdings and its subsidiaries, including the Company, to the Company's Chief Executive Officer and four other most highly compensated executive officers at December 31, 1997 (collectively, the "Named Executive Officers") for services rendered to the Company in 1997. SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION ---------------------------- ------------ OTHER ANNUAL SECURITIES ALL OTHER NAME AND PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION POSITION YEAR ($) ($) (1) OPTIONS/SARS ($) (2) - ------------------ ---- ------- ------- ------------ ------------ ------------ Thomas A. Rodgers, Jr... 1997 759,668 5,000 -- -- 198,796 Chairman Thomas A. Rodgers, III.. 1997 549,042 197,500 -- 11,250 1,900 President Americo Reis............ 1997 211,982 72,500 -- 3,750 1,900 Vice President, Operations Lawrence R. Walsh....... 1997 218,889 72,500 -- 3,750 3,166 Vice President, Finance and Administration Robert L. Bailey........ 1997 176,828 72,500 -- 3,750 1,900 Vice President, Sales and Marketing
- ---------------------- (1) Other Annual Compensation was not reportable. (2) Reflects reimbursement of premiums for life insurance for Thomas A. Rodgers, Jr. and Company contributions under a 401(k) plan for the other Named Executive Officers. The following table sets forth information with respect to all options granted in fiscal 1997 to the Named Executive Officers. OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS GRANT DATE VALUE - ------------------------------------------------------------------------- ---------------- PERCENT OF NUMBER OF TOTAL SECURITIES OPTIONS/SARS UNDERLYING GRANTED TO EXERCISE OR GRANT DATE OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE NAME GRANTED (1) FISCAL YEAR ($/SH) DATE (2) ($) - ---- ------------ ------------ ----------- ---------- ---------------- Thomas A. Rodgers, Jr... -- -- -- -- -- Thomas A. Rodgers, III.. 11,250 50.0% 30.00 12/31/07 2,468,700 Americo Reis............ 3,750 16.7% 30.00 12/31/07 822,900 Lawrence R. Walsh....... 3,750 16.7% 30.00 12/31/07 822,900 Robert L. Bailey........ 3,750 16.7% 30.00 12/31/07 822,900
- ---------------------- (1) The options vested upon consummation of the Recapitalization and the Merger, and are exercisable for common stock and preferred stock of Globe Holdings pursuant to the Recapitalization. See "Certain Relationships and Related Transactions--Recapitalization." The Company expects to implement a new stock option plan. (2) The Black-Scholes option pricing model was used to determine the grant date present value of the options. The grant date present value of the options was calculated to be $219.44 per share, based on an expected life of 5 years and an assumed risk-free interest rate of 5.7%. 45 The following table sets forth information with respect to all options exercised in fiscal 1997 and the year-end value of unexercised options held by the Named Executive Officers. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF OPTIONS/SARS UNEXERCISED IN-THE- AT FISCAL MONEY OPTIONS/SAR'S YEAR END AT FISCAL YEAR-END ------------- ------------------- SHARES ACQUIRED VALUE EXERCISABLE/ ON EXERCISE REALIZED UNEXERCISABLE EXERCISABLE/ NAME (#) ($) (#) UNEXERCISABLE ($) - ---- --------------- -------- ------------- ------------------- Thomas A. Rodgers, Jr... -- -- -- -- Thomas A. Rodgers, III.. -- -- 11,250/11,250 2,385,000/2,385,000 Americo Reis............ -- -- 3,750/ 3,750 795,000/ 795,000 Lawrence R. Walsh....... -- -- 3,750/ 3,750 795,000/ 795,000 Robert L. Bailey........ -- -- 3,750/ 3,750 795,000/ 795,000
PENSION PLANS Globe maintains a Non-Qualified Pension Plan and a Deferred Compensation Plan, pursuant to which each of Thomas A. Rodgers, III, Americo Reis, Lawrence R. Walsh and Robert L. Bailey (the "Participating Executives") will be entitled to receive certain payments upon retirement. Under the Non-Qualified Pension Plan, each of the Participating Executives will receive a lump sum distribution upon retirement at age 65. The amounts payable under the Non- Qualified Pension Plan were determined by the Company and its consultants to approximate 50% of estimated final compensation. Pursuant to the Deferred Compensation Plan, each Participating Executive is entitled to receive, beginning at his retirement at age 65, an annual distribution payable for the following 15 years. The following table shows the estimated annual benefits payable under the Non-Qualified Pension Plan and the Deferred Compensation Plan for each of the Participating Executives.
ESTIMATED ANNUAL BENEFIT UPON RETIREMENT AT AGE 65 ------------------------------- NON-QUALIFIED DEFERRED NAME PENSION PLAN COMPENSATION PLAN ---- ------------- ----------------- Thomas A. Rodgers, Jr. (1)................ $ -- $ -- Thomas A. Rodgers, III.................... $206,400 $90,000 Americo Reis.............................. $ 86,400 $25,000 Lawrence R. Walsh......................... $104,000 $15,000 Robert L. Bailey.......................... $ 96,000 $20,000
- ---------------------- (1) Thomas A. Rodgers, Jr. does not participate in the Non-Qualified Pension Plan or the Deferred Compensation Plan. EMPLOYMENT AGREEMENTS Each of Messrs. Thomas A. Rodgers, III, Americo Reis, Lawrence R. Walsh and Robert L. Bailey are parties to an Employment Agreement with Globe Holdings dated as of December 31, 1997 (the "Employment Agreements"). The Employment Agreements were transferred to the Company pursuant to the Asset Drop Down. The Employment Agreements provide for annual base salaries for Messrs. Rodgers, Reis, Walsh and Bailey of at least $549,000, $212,000, $219,000 and $200,000, respectively, and provide that such executives shall generally be entitled to participate in all bonus and benefit plans made available to executives. The Employment Agreements have a term of three years, but may be terminated earlier by the Company or the executive. If an executive's employment is terminated by the Company without Cause or by the executive with Good Reason (each as defined in the Employment Agreements), then the Company will be required to pay the executive his base salary through December 2000 and the maximum amount he would have been entitled to under the Company's incentive plans for the year in which the termination occurred, and will also be required to provide insurance benefits for three years from the date of termination, except to the extent the executive obtains comparable benefits from a subsequent employer. 46 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The following summaries of the material terms of certain agreements to which the Company is a party do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of such agreements, including the definitions of certain terms therein and the exhibits and schedules thereto. Copies of such agreements may be obtained from the Company or the Initial Purchasers. RECAPITALIZATION The consummation of the Initial Offering occurred concurrently with the effectiveness of the Recapitalization. The Recapitalization was effected pursuant to the Merger Agreement between Globe Holdings and MergerCo, a newly formed affiliate of Code Hennessy & Simmons. In connection with the Merger and the Recapitalization, (i) Globe Holdings transferred substantially all of its assets and liabilities to the Company pursuant to the Asset Drop Down, (ii) Code Hennessy & Simmons and certain other investors invested approximately $42.8 million in common stock and preferred stock of MergerCo and (iii) Code Hennessy & Simmons made the CHS Loan in the amount of $25.0 million. Pursuant to the Merger Agreement: (i) MergerCo merged with and into Globe Holdings, with Globe Holdings being the surviving corporation; (ii) the common stock of MergerCo was converted into common stock of the surviving corporation (the "New Common Stock") and the preferred stock of MergerCo became preferred stock of the surviving corporation (the "New Preferred Stock"); (iii) the CHS Loan became the obligation of the surviving corporation; (iv) certain stock and all stock options of Globe Holdings was converted into or became exercisable for New Common Stock and New Preferred Stock; (v) holders of the remaining stock of Globe Holdings outstanding prior to the Merger received the Cash Merger Consideration (including the payment by Globe Holdings of fees and expenses on their behalf) in an aggregate amount equal to $315.0 million less (x) the amount of Globe Holdings' outstanding indebtedness as of the date of the Merger and (y) the amount of the Retained Investment; and (vi) $15.0 million was deposited into escrow as the Escrow Amount. Following the consummation of the Recapitalization, the CHS Loan was repaid with the net proceeds to Globe Holdings from the Units Offering. The Escrow Amount consists of (a) $5.0 million to secure the obligations of the Pre-Merger Shareholders with respect to the post-closing adjustment of the Cash Merger Consideration and (b) $10.0 million to satisfy any indemnification obligations of the Pre-Merger Shareholders under the Merger Agreement. The Adjustment Escrow Fund is required to be applied and/or released upon the determination of the final closing date consolidated net asset value of the Company and the balance of the Indemnification Escrow Fund is required to be released promptly after December 31, 2001. Pursuant to the Merger Agreement, the Pre-Merger Shareholders have agreed to indemnify Globe Holdings and certain of its related parties for all liabilities and other losses arising from, among other things, (i) any breach of representations, warranties or pre-closing covenants of Globe Holdings contained in or contemplated by the Merger Agreement, (ii) the failure of any Pre-Merger Shareholders to have good, valid and marketable title to the shares of common stock held by such Pre-Merger Shareholder, (iii) the environmental investigation relating to Globe Holdings' facility in Fall River, Massachusetts to the extent related to activities prior to the effective time of the Merger, (iv) the antitrust claims and investigations relating to the alleged conspiracy by the Joint Venture to restrain trade in, and fix prices of, latex thread in the United States to the extent related to activities prior to the effective time of the Merger and (v) certain other matters. With respect to claims based on any misrepresentation or breach of any representation or warranty made by Globe Holdings, the Pre-Merger Shareholders are not required to indemnify Globe Holdings unless the aggregate of all amounts for which indemnity would otherwise be payable exceeds $1.0 million and, in such event, the Pre-Merger Shareholders will only be responsible for the amount in excess of $1.0 million. In addition, the indemnification obligations of the Pre-Merger Shareholders are generally limited to the amount held in the Indemnification Escrow Fund, other than with respect to claims based on fraud or on the failure of a Pre-Merger Shareholder to have good, valid and marketable title to his shares of common stock. 47 The Merger Agreement contains representations and warranties typical of agreements of like nature, including, without limitation, those relating to corporate organization and capitalization, the valid authorization, execution, delivery and enforceability of all transaction documents, Globe Holdings' financial statements, the absence of material adverse changes in the business, assets, financial condition and results of operations, the absence of material undisclosed liabilities, tax matters, the quality and title of personal and real property, material contracts, intellectual property, employee benefits plans, environmental matters, compliance with laws, governmental authorizations, permits and licenses and insurance matters. Generally, the representations and warranties of Globe Holdings expire 18 months after the closing date of the Merger except that (i) those relating to environmental matters remain in full force and effect until the second anniversary of the closing date of the Merger and (ii) those relating to tax matters survive until the expiration of the applicable statute of limitations. Prior to the Merger, Thomas A. Rodgers, Jr. and Thomas A. Rodgers, III beneficially owned, directly or indirectly, an aggregate of approximately 39% of the common stock of Globe Holdings on a fully-diluted basis. In addition, Messrs. Bailey, Reis and Walsh beneficially owned, in the aggregate, approximately 2% of the common stock of Globe Holdings on a fully-diluted basis. In connection with the Merger, these individuals received a pro rata portion of the aggregate merger consideration. MANAGEMENT AGREEMENT In connection with the Recapitalization, the Company entered into a Management Agreement with CHS Management III, L.P. ("CHS Management"), an affiliate of Code Hennessy & Simmons LLC, pursuant to which CHS Management will provide financial and management consulting services to the Company and receive a monthly fee of $83,333. In addition, pursuant to the Management Agreement the Company paid to CHS Management $3.0 million at the closing of the Transactions as compensation for services rendered by CHS Management to the Company in connection with the Transactions. The Management Agreement also provides that when and as the Company consummates the acquisition of other businesses, the Company will pay to CHS Management a fee equal to the greater of $250,000 and one percent of the acquisition price of each such business as compensation for services rendered by CHS Management to the Company in connection with the consummation of such acquisition. The term of the Management Agreement is five years, subject to automatic renewal unless either CHS Management or the Company elects to terminate. The Company believes that the fees to be paid to CHS Management for the professional services to be rendered are at least as favorable to the Company as those which could be negotiated with an unrelated third party. The Company reimbursed CHS Management for expenses related to the Transactions and will reimburse CHS Management for expenses incurred in rendering services to the Company and Globe Holdings under the Management Agreement. SECURITYHOLDERS AGREEMENT In connection with the Recapitalization, Globe Holdings' shareholders entered into a Securityholders Agreement. This agreement provides, among other things, for the nomination of and voting for at least five directors of Globe Holdings by Globe Holdings' shareholders. The Securityholders Agreement also provides that Code Hennessy & Simmons will be entitled to appoint all of the directors of Globe Holdings. The following individuals have been initially designated by Code Hennessy & Simmons to serve as directors: Thomas A. Rodgers, Jr., Thomas A. Rodgers, III, Andrew W. Code, Peter M. Gotsch and Edward M. Lhee. See "Management." EXECUTIVE SECURITIES AGREEMENTS In connection with the Recapitalization, each of Lawrence R. Walsh, Americo Reis and Robert L. Bailey entered into an Executive Securities Agreement with Globe Holdings and Code Hennessy & Simmons which provides for, among other things, repurchase rights with respect to the Globe Holdings securities held by them upon termination of employment (other than retirement) and restrictions on transfer of such securities. 48 REGISTRATION AGREEMENT In connection with the Recapitalization, Globe Holdings' shareholders entered into a Registration Agreement. The Registration Agreement grants certain demand registration rights to Code Hennessy & Simmons. An unlimited number of such demand registrations may be requested by Code Hennessy & Simmons. In the event that Code Hennessy & Simmons makes such a demand registration request, all other shareholders of Globe Holdings will be entitled to participate in such registration on a pro rata basis (based on shares held). Code Hennessy & Simmons may request, pursuant to its demand registration rights, and each other shareholder may request, pursuant to his or its participation rights, that up to all of such shareholder's shares of common stock be registered by Globe Holdings. Globe Holdings is entitled to postpone such a demand registration for up to 180 days under certain circumstances. In addition, the parties to the Registration Agreement are granted certain rights to have shares included in registrations initiated by Globe Holdings or its shareholders ("piggyback registration rights"). Expenses incurred in connection with the exercise of such demand or piggyback registration rights shall, subject to limited exceptions, be borne by Globe Holdings. EXECUTIVE LOAN In December 1992, Globe Holdings made a loan to Thomas A. Rodgers, III to assist him in paying taxes incurred in a previous recapitalization of Globe Holdings. As of June 30, 1998, the balance of such loan, including accrued interest, was $285,397. The loan was repaid prior to the Merger. NON-COMPETITION AGREEMENT In connection with the Merger and the Recapitalization, each of the Named Executive Officers entered into a Non-Competition Agreement with Globe Holdings pursuant to which the Named Executive Officers agreed not to engage anywhere in the U.S. in any business that manufactures, distributes or sells polyester or polyester spandex fiber, latex thread or other elastomeric fiber for a period of three years (or, in the case of Mr. Bailey, until December 31, 2000). The Named Executive Officers also agreed not to solicit employees or customers of Globe Holdings or its subsidiaries, or to hire any person who was an employee of Globe Holdings or any of its subsidiaries within twelve months after such person's employment with Globe Holdings or any subsidiary is terminated. The Named Executive Officers also agreed to maintain the confidentiality of information regarding the business and affairs of Globe Holdings and its subsidiaries. SALE BONUS In February 1998, Globe Holdings instituted a management reward program pursuant to which each of the Named Executive Officers was entitled to receive a cash bonus upon consummation of the Merger. The amount of the bonus paid was based on a percentage of the consideration paid in connection with the Merger. Pursuant to the program, Thomas A. Rodgers, Jr. and Thomas A. Rodgers, III received an aggregate of $825,000; and Messrs. Reis, Walsh and Bailey each received $412,500. In addition, Messrs. Cardullo and Girrier each received a bonus of $50,000 upon consummation of the Merger. INVESTMENT BANKING FEES Prior to the Merger, certain affiliates of Goldman, Sachs & Co. owned an aggregate of approximately 46% of the common stock of Globe Holdings on a fully-diluted basis prior to the consummation of the Merger, and three members of the Board of Directors of Globe Holdings prior to the Merger were affiliates of Goldman, Sachs & Co. Goldman, Sachs & Co. acted as financial advisor to Globe Holdings in connection with the Transactions, for which it received a fee. TAX SHARING AGREEMENT The operations of the Company are included in the Federal income tax returns filed by Globe Holdings. Prior to the closing of the Initial Offering, Globe Holdings and the Company entered into a Tax Sharing Agreement ("Tax Sharing Agreement") pursuant to which the Company agreed to advance to Globe Holdings so long as Globe Holdings files consolidated income tax returns that include the Company (i) payments for the Company's share of income taxes assuming the Company is a stand-alone entity, which in no event may exceed 49 the group's consolidated tax liabilities for such year, and (ii) payments to or on behalf of Globe Holdings in respect of franchise or similar taxes and governmental charges incurred by it relating to the business, operations or finances of the Company. CONSULTING AGREEMENT In connection with the Merger and the Recapitalization, Thomas A. Rodgers, Jr. entered into a consulting agreement with the Company, pursuant to which he will be compensated at a rate of $100,000 per annum, and agreed to perform special projects for the Company and such other matters as the Company's Board of Directors or officers reasonably request. CHS LOAN In connection with the Recapitalization, Code Hennessy & Simmons extended the CHS Loan to Globe Holdings in the principal amount of $25.0 million. The CHS Loan was repaid with the net proceeds to Globe Holdings from the Units Offering. The CHS Loan bore interest at a rate of 14% per annum and would have matured on July 31, 2009. 50 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Globe Holdings owns all of the Company's issued and outstanding capital stock. The following table sets forth certain information as of September 15, 1998 regarding the beneficial ownership of the capital stock of Globe Holdings by (i) each shareholder who beneficially owns more than 5% of the common stock of Globe Holdings, (ii) each director and Named Executive Officer of the Company and (iii) all directors and executive officers of the Company as a group. Except as otherwise indicated below, each of the persons named in the table has sole voting and investment power with respect to the securities beneficially owned by it or him as set forth opposite its or his name. Unless otherwise noted, the address for each director and executive officer of the Company is c/o the Company, 456 Bedford Street, Fall River, Massachusetts 02720.
COMMON STOCK PREFERRED STOCK ---------------------- ---------------------- NAME OF BENEFICIAL OWNER NUMBER (1) PERCENT (1) NUMBER (1) PERCENT (1) ------------------------ ---------- ----------- ---------- ----------- Code, Hennessy & Simmons III, L.P. (2).............. 1,647,437 75.6 21,999.6 75.6 Thomas A. Rodgers, Jr. (3).. 166,244 7.6 2,220 7.6 Thomas A. Rodgers, III...... 89,862 4.1 1,200 4.1 Americo Reis (4)............ 22,465 1.0 300 1.0 Lawrence R. Walsh (4)....... 22,465 1.0 300 1.0 Robert L. Bailey (4)........ 22,465 1.0 300 1.0 William J. Girrier.......... -- -- -- -- Kevin T. Cardullo........... -- -- -- -- Andrew W. Code (5).......... 1,647,437 75.6 21,999.6 75.6 Peter M. Gotsch (5)......... 1,647,437 75.6 21,999.6 75.6 Edward M. Lhee ............. 1,977 * 26.4 * Brinson Partners, Inc. (6)(7)..................... 224,655 10.3 3,000 10.3 Virginia Retirement System (7)........................ 179,724 8.2 2,400 8.2 All executive officers and directors as a group (9 persons)................... 1,806,671 80.4 24,126 80.4
- -------- * Less than 1% (1) Includes shares of Common Stock and Preferred Stock subject to options which are exercisable within 60 days of September 15, 1998. (2) The business address of Code, Hennessy & Simmons III, L.P. is 10 South Wacker Drive, Suite 3175, Chicago, Illinois 60606. (3) All of such shares are held of record by the Thomas A. Rodgers, Jr. Grantor Retained Annuity Trust, of which Thomas A. Rodgers, Jr. is the sole beneficiary. (4) All of the shares shown are issuable upon exercise of outstanding options. (5) All of such shares are held of record by Code, Hennessy & Simmons III, L.P. Messrs. Code and Gotsch are officers, directors and shareholders of the sole general partner of Code, Hennessy & Simmons III, L.P. and share investment and voting power with respect to the securities owned by Code, Hennessy & Simmons III, L.P. Each of Messrs. Code and Gotsch disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The business address of Messrs. Code and Gotsch is c/o Code, Hennessy & Simmons III, L.P., 10 South Wacker Drive, Suite 3175, Chicago, Illinois 60606. (6) Brinson Partners, Inc. ("BPI") has advised the Company that it is an Investment Adviser registered under Section 203 of the Investment Advisers Act of 1940. Of the shares shown: (i) 38,631 shares of Common Stock and 515.87 shares of Preferred Stock are held of record by Brinson Venture Capital Fund III, L.P., of which BPI is the general partner and (ii) 6,300 shares of Common Stock and 84.13 shares of Preferred Stock are held of record by Brinson MAP Venture Capital Fund III, a trust of which a wholly owned subsidiary of BPI is the sole trustee. As a result, BPI has sole voting and dispositive power with respect to such shares. The address of BPI is 209 South LaSalle Street, Chicago, Illinois 60604-1295. (7) BPI serves as an Investment Adviser to Virginia Retirement System and shares voting and dispositive power with respect to the shares held of record by Virginia Retirement System. The address of Virginia Retirement System is 1200 East Main Street, Richmond, Virginia 23219. 51 DESCRIPTION OF SENIOR CREDIT FACILITY General. As part of the Transactions, the Company entered into the Senior Credit Facility with Bank of America National Trust and Savings Association, as a lender and as administrative agent, BancAmerica Robertson Stephens, as arranger, Merrill, Lynch, Pierce, Fenner & Smith, Inc. as syndication agent, and certain other financial institutions (the "Lenders"). The Senior Credit Facility provides for two term loans to the Company for $60.0 million and $55.0 million ("Term Loan A" and "Term Loan B," respectively, and collectively, the "Term Loans") and revolving loans to the Company for up to $50.0 million (including letters of credit) (the "Revolving Loan" and, together with the Term Loans, the "Loans"). Subject to certain restrictions, the Senior Credit Facility may be used to finance the Transactions and for working capital and general corporate purposes of the Company and its subsidiaries. Repayment. Term Loan A and the Revolving Loan must be repaid six and one- half years following the date of the closing of the Senior Credit Facility. Term Loan B must be repaid eight years following the date of the closing of the Senior Credit Facility. Loans made pursuant to the Senior Credit Facility may be borrowed, repaid and, in the case of the Revolving Loans, reborrowed, without premium or penalty (other than prepayments of Eurodollar Loans (as defined in the Senior Credit Facility) which may be subject to customary breakage costs), from time to time until maturity, subject to the satisfaction of certain conditions on the date of any such borrowing. In addition, the Senior Credit Facility provides for mandatory repayments (with corresponding permanent reductions on Revolving Loan commitments) of any outstanding borrowings out of any proceeds received from a sale of assets (other than sales of inventory in the ordinary course of business, sales of certain obsolete assets, and certain other exceptions), net cash proceeds of permitted debt and equity issuances (subject to certain exceptions), net cash proceeds from insurance recovery and condemnation events (subject to certain reinvestment rights) and 75% of annual excess cash flow, reducing to 50% when the ratio of total debt to EBITDA is less than 3.75:1. Security; Guaranty. The obligations of the Company under the Senior Credit Facility are guaranteed by Globe Holdings and will be guaranteed by each of the Company's future direct and indirect domestic subsidiaries and, so long as there are no adverse tax consequences, foreign subsidiaries. The obligations of the Company under the Senior Credit Facility and each of the guarantors under its guarantee is or will be secured by substantially all of the assets of such person and the capital stock of subsidiaries owned by the Company and the guarantors. Interest. At the Company's option, the interest rates per annum applicable to the loans under the Senior Credit Facility will be a fluctuating rate of interest measured by reference to one or a combination (at the Company's election) of the following: (i) the Base Rate (as defined in the Senior Credit Facility), plus the applicable borrowing margin, or (ii) the relevant Eurodollar Rate (as defined in the Senior Credit Facility), plus the applicable borrowing margin. The applicable borrowing margin under the Senior Credit Facility for Base Rate-based borrowings is 1.25% for the Term Loan A and the Revolving Loan and 1.75% for the Term Loan B; the applicable borrowing margin under the Senior Credit Facility for Eurodollar Rate-based borrowings is 2.25% for the Term Loan A and the Revolving Loan and 2.75% for the Term Loan B, subject to adjustment in each case based on the Company's Leverage Ratio (defined in the Senior Credit Facility as the ratio of Total Debt (as defined in the Senior Credit Facility) to EBITDA (as defined in the Senior Credit Facility)). Fees. The Company has agreed to pay certain fees in connection with the Senior Credit Facility, including: (i) letter of credit fees; (ii) agency fees; and (iii) commitment fees. Commitment fees are payable at a rate per annum of 0.5% on the undrawn amounts of the Senior Credit Facility, subject to adjustment based on the Company's Leverage Ratio. Covenants. The Senior Credit Facility contains negative covenants which, among other things, restrict the ability of the Company and its subsidiaries (subject to certain exceptions) to incur liens, transact with affiliates, 52 incur indebtedness, declare dividends or redeem or repurchase capital stock, make loans and investments, engage in mergers, acquisitions and asset sales, acquire assets, stock, or debt securities of any person, have additional subsidiaries, amend its certificate of incorporation and bylaws, and make capital expenditures. The Senior Credit Facility also requires the Company and its restricted subsidiaries to satisfy certain customary affirmative covenants, including financial reporting, notice provisions, books and records, inspection of property, maintenance of property and insurance, maintenance of corporate rights, payment of taxes, contributions from Globe Holdings to Globe Manufacturing, cash management systems, the pledges of additional collateral, security and guarantees, use of proceeds and payment of dividends on the Preferred Stock, and to make certain customary indemnifications to the Lenders and the administrative agent under the Senior Credit Facility. The Senior Credit Facility further requires Globe Holdings and Globe Manufacturing to maintain compliance with three financial covenants which are tested at the end of each fiscal quarter of Globe Holdings (or, in the case of the Consolidated Interest Coverage Ratio for the first fiscal year, the period from the Closing Date to the last day of the fiscal quarter of Globe Holdings then last ended). The Consolidated Interest Coverage Ratio (as defined in the Senior Credit Facility) prohibits Globe Holdings and Globe Manufacturing from exceeding specified minimum ratios (which increase over time) of Consolidated EBITDA (as defined in the Senior Credit Facility) for the applicable period to Consolidated Interest Expense (as defined in the Senior Credit Facility) for such period. The second financial test, the Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility), requires Globe Holdings and Globe Manufacturing to maintain a minimum ratio of 1.10:1.00 for any applicable period ending after December 31, 1999 of Consolidated EBITDA (as adjusted pursuant to the Senior Credit Facility) to Consolidated Fixed Charges (as defined in the Senior Credit Facility). Finally, the Consolidated Leverage Ratio (as defined in the Senior Credit Facility) prohibits Globe Holdings and Globe Manufacturing from exceeding specified ratios (which decline over time) of Consolidated Indebtedness (as defined in the Senior Credit Facility) for the applicable period to Consolidated EBITDA for such period. Events of Default. The Senior Credit Facility contains customary events of default, including payment defaults, breach of representations and warranties, covenant defaults, certain events of bankruptcy and insolvency, ERISA violations, judgment defaults, cross-default to certain other indebtedness, and a change in control of Globe Holdings or the Company. 53 DESCRIPTION OF THE NEW NOTES The New Notes offered hereby are to be issued as a separate series under an Indenture dated as of July 31, 1998 (the "Indenture") between the Company and Norwest Bank Minnesota, National Association, as trustee (the "Trustee"). The form and terms of the New Notes are the same as the form and terms of the Old Notes (which they replace) except that (i) the New Notes bear a Series B designation and a different CUSIP number than the Old Notes, (ii) the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, and (iii) the holders of New Notes will not be entitled to certain rights under the Registration Rights Agreement, including the provisions providing for an increase in the interest rate on the Old Notes in certain circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. The Old Notes issued in the Initial Offering and the New Notes offered hereby are referred to collectively as the "Notes." The following summary of the material provisions of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all provisions of the Indenture, a copy of which can be obtained from the Trustee upon request. Upon the issuance of the New Notes, or the effectiveness of the Shelf Registration Statement, the Indenture will be subject to and governed by the provisions of the Trust Indenture Act of 1939 (the "Trust Indenture Act" ). The definitions of certain terms used in the following summary are set forth below under "--Certain Definitions." Wherever particular sections or defined terms of the Indenture not otherwise defined herein are referred to, such Sections or defined terms shall be incorporated herein by reference, and those terms made a part of the Indenture by the Trust Indenture Act also are incorporated herein by reference. GENERAL The Notes, which mature on August 1, 2008, will be limited to $300.0 million in aggregate principal amount, $150.0 million of which will be issued on the Issue Date. Additional amounts may be issued in one or more series from time to time, subject to the limitations set forth under "Certain Covenants-- Incurrence of Debt and Issuance of Preferred Stock." The Notes will not be entitled to any sinking fund. The Notes will be redeemable at the option of the Company as described below under "--Optional Redemption." The Notes will bear interest from the Issue Date at the rate of 10% per annum payable semiannually in arrears on February 1 and August 1 of each year commencing on February 1, 1999 until the principal thereof is paid or made available for payment to the Holders of record at the close of business on the immediately preceding January 15 or July 15, respectively. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. The circumstances under which the interest rate may increase are described under "--Exchange Offer; Registration Rights." Principal, premium, if any, and interest on the Notes will be payable at the office or agency of the Trustee maintained for such purpose within the City and State of New York or, at the option of the Company, payment of interest may be made by check mailed to the Holders of the Notes at their respective addresses set forth in the register of Holders of Notes; provided that all payments of principal, premium, if any, and interest with respect to Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Until otherwise designated by the Company, the Company's office or agency in New York will be the office of the Trustee maintained for such purpose. The Notes will be issued in denominations of $1,000 and integral multiples thereof. All references herein to payments of principal, premium, if any, and interest on the Notes shall be deemed to include any applicable Additional Interest (as defined) that may become payable in respect of the Notes. See "-- Exchange Offer; Registration Rights." SUBORDINATION The Notes will be general unsecured obligations of the Company and will be subordinated in right of payment to all current and future Senior Debt of the Company, including the Company's obligations under the 54 Senior Credit Facility. The Notes will also be effectively subordinated to all secured Debt of the Company and any Guarantor to the extent of the value of the assets securing such Debt. The Notes will rank pari passu with any future senior subordinated indebtedness of the Company and will rank senior to any future Subordinated Debt of the Company. As of September 30, 1998, the Company had an aggregate of approximately $120.9 million of Senior Debt (excluding unused commitments of approximately $44.2 million under the Senior Credit Facility). The Notes will be fully and unconditionally guaranteed, on a senior subordinated basis, as to the payment of principal, premium, if any, and interest, jointly and severally, by all future direct and indirect Restricted Domestic Subsidiaries of the Company (the "Guarantors"). The Company has no existing Restricted Domestic Subsidiaries and, therefore the Notes are not, at present, guaranteed. In connection with the Transactions, the Company entered into the Senior Credit Facility, under which the Company may borrow up to an aggregate of $165.0 million, subject to compliance with certain covenants and financial ratios. See "Description of Senior Credit Facility." Upon any payment or distribution of assets of the Company of any kind or character to creditors of the Company in a total or partial liquidation, winding up, reorganization or dissolution of the Company or in a voluntary or involuntary bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshaling of the Company's assets and liabilities, the holders of all Senior Debt will be entitled to receive payment in full in cash of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt whether or not such interest is an allowed claim in any such proceeding) before the Holders of the Notes will be entitled to receive any payment of any kind or character with respect to the Notes, and until all Obligations with respect to all Senior Debt are paid in full in cash, any distribution to which the Holders of the Notes would be entitled shall be made to the holders of Senior Debt or their Representative (except that Holders of the Notes may receive Permitted Junior Securities and payments made from the trust described under "--Legal Defeasance and Covenant Defeasance"). Neither the Company nor any Person on behalf of the Company may make any payment of any kind or character upon or in respect of the Notes (except from the trust described under "--Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of the principal of, premium, if any, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Designated Senior Debt occurs and is continuing or (ii) any other default occurs and is continuing with respect to Designated Senior Debt that permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and, in the case of clause (ii), the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Representative of any Designated Senior Debt. Payments on the Notes may and shall be resumed (A) in the case of a payment default described in clause (i) above, upon the date on which such default is cured or waived and (B) in case of a default described in clause (ii) above, the earlier of (1) the date on which all such defaults have been cured or waived, (2) 179 days after the date on which the applicable Payment Blockage Notice is received, (3) the date such Designated Senior Debt shall have been paid in full in cash or (4) the date such Payment Blockage Period shall have been terminated by written notice to the Trustee from the Representative of the Designated Senior Debt initiating such Payment Blockage Period, after which, in the case of clauses (1), (2), (3) and (4), the Company shall resume making any and all required payments in respect of the Notes, including any payments not made to the Holders of the Notes during the Payment Blockage Period due to the foregoing prohibitions, unless the provisions described in clause (i) above or the provisions of the immediately preceding sentence are then applicable. No new Payment Blockage Period may be commenced unless and until 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice. No default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 consecutive days. 55 As a result of the subordination provisions described above, in the event of a liquidation or insolvency, Holders of the Notes may recover less ratably than creditors of the Company who are holders of Senior Debt. The Indenture limits, subject to certain financial tests, the amount of additional Debt, including Senior Debt, that the Company and its Subsidiaries can incur. See "--Certain Covenants--Incurrence of Debt and Issuance of Preferred Stock." GUARANTEES The Notes are not at present, guaranteed. Each Guarantor, if any, will unconditionally guarantee, on a senior subordinated basis, jointly and severally to each Holder and the Trustee, the full and prompt performance of the Company's obligations under the Indenture and the Notes, including the payment of principal, premium, if any, and interest on the Notes. The Guarantees will be subordinated to Guarantor Senior Debt on the same basis as the Notes are subordinated to Senior Debt. The obligations of each Guarantor will be limited to the maximum amount which after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, will result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in an amount pro rata, based on the net assets of each Guarantor, determined in accordance with GAAP. Each Guarantor may consolidate with or merge into or sell its assets to the Company, another Guarantor that is a Restricted Subsidiary of the Company or a Restricted Subsidiary that is or in connection therewith becomes a Guarantor without limitation, or with other Persons upon the terms and conditions set forth in the Indenture. See "Certain Covenants--Merger, Consolidation or Sale of Assets." In the event all of the Capital Stock of a Guarantor or the parent company of a Guarantor are sold and the sale complies with the provisions set forth in "--Certain Covenants--Asset Sales," the Guarantor's Guarantee will be released. A Guarantor's Guarantee shall also be released if such Guarantor becomes an Unrestricted Subsidiary in accordance with the Indenture. OPTIONAL REDEMPTION The Notes will be redeemable at the option of the Company, in whole or in part, at any time and from time to time on or after August 1, 2003 upon not less than 30 nor more than 60 days notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on August 1 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2003........................................................... 105.000% 2004........................................................... 103.333% 2005........................................................... 101.667% 2006 and thereafter............................................ 100.000%
The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. At any time prior to August 1, 2001, the Company may on any one or more occasions redeem from the net proceeds of one or more Equity Offerings up to an aggregate of 35% of the aggregate principal amount of the Notes at a redemption price of 110.0% of the principal amount thereof, plus accrued and unpaid interest thereon to the redemption date; provided that at least $97.5 million in aggregate principal amount of the Notes issued under the Indenture remain outstanding immediately after the occurrence of such redemption. 56 If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on the Notes or portions of them called for redemption. CHANGE OF CONTROL Upon the occurrence of a Change of Control, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof and accrued and unpaid interest thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by the Indenture and described in such notice. On the Change of Control Payment Date, the Company will, to the extent lawful, (i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (ii) deposit with the Trustee an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Trustee will promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided, that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof. The Indenture provides that, prior to complying with the provisions of this covenant (including the mailing of the notice referred to above), but in any event within 90 days following a Change of Control, the Company will either repay in full in cash all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant and the Company's failure to comply with this covenant shall constitute an Event of Default under the Indenture. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. The Senior Credit Facility restricts the ability of the Company to purchase any Notes and other senior subordinated or subordinated indebtedness of the Company, and also provides that certain change of control events with respect to the Company would constitute a default thereunder. Any future credit agreements or other agreements relating to Senior Debt to which the Company becomes a party may contain similar restrictions and provisions. In the event any such restrictions would prohibit the Company from purchasing Notes upon a Change of Control, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to 57 refinance the borrowings that contain such restrictions. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under the Senior Credit Facility. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes. The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The Change of Control provision of the Notes may in certain circumstances make it more difficult or discourage a takeover of the Company and, as a result, may make removal of incumbent management more difficult. The Change of Control provision is a result of negotiations between the Company and the Initial Purchasers. The provisions of the Indenture would not necessarily afford Holders of the Notes protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company that may adversely affect Holders of the Notes. The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of the Company and its Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of Notes to require the Company to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Company and its Subsidiaries taken as a whole to another person or group may be uncertain. The Company will comply with the applicable tender offer rules, including the requirements of Rule 14e-1 under the Exchange Act, and all other applicable securities laws and regulations in connection with any Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture by virtue thereof. CERTAIN COVENANTS Incurrence of Debt and Issuance of Preferred Stock. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Debt (including Acquired Debt) and that the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time or as a consequence thereof, the Company may incur Debt (including Acquired Debt) or issue shares of Disqualified Stock and any Guarantor may incur Debt (including Acquired Debt) or issue preferred stock if the Consolidated Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which financial statements are available immediately preceding the date on which such additional Debt is incurred or such Disqualified Stock or preferred stock is issued would have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Debt had been incurred, or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such four- quarter period. 58 The provisions of the first paragraph of this covenant will not apply to the incurrence of any of the following items of Debt (collectively, "Permitted Debt"): (i) the incurrence by the Company or any of the Guarantors of Debt under the Senior Credit Facility (or if the Senior Credit Facility has matured or been terminated or repaid in whole or in part, any other Credit Facility) in an aggregate principal amount at any time outstanding not to exceed $165.0 million, which amount shall be reduced by (A) any required permanent repayments pursuant to the provisions of the covenant described under the caption "--Asset Sales" (which are accompanied by a corresponding permanent commitment reduction thereunder), (B) the aggregate amount of any Debt constituting Limited Originator Recourse outstanding pursuant to clause (xi) below and (C) the principal amount of Debt outstanding pursuant to clause (x) below; (ii) the incurrence by the Company and its Restricted Subsidiaries of Existing Debt; (iii) the incurrence by the Company or any of its Restricted Subsidiaries of Debt represented by the Notes issued on the Issue Date (or any Notes issued in exchange therefor) or any Guarantee; (iv) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or the net proceeds of which are used to refund, refinance or replace, Debt that was permitted by the Indenture to be incurred; (v) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Debt between or among the Company and any of its Restricted Subsidiaries; provided, however, that (A) if the Company or a Guarantor is the obligor on such Debt, such Debt is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes or such Guarantor's Guarantee, as the case may be, and (B) (1) any subsequent issuance or transfer (other than any bona fide pledge under the Senior Credit Facility) of Equity Interests that results in any such Debt being held by a Person other than the Company or a Restricted Subsidiary and (2) any sale or other transfer (other than any bona fide pledge under the Senior Credit Facility) of any such Debt to a Person that is not either the Company or a Restricted Subsidiary shall be deemed, in each case, to constitute an incurrence of such Debt by the Company or such Subsidiary, as the case may be; (vi) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Debt that is permitted by the terms of the Indenture to be outstanding or for the purpose of fixing or hedging currency exchange risk with respect to any currency exchanges; (vii) Capitalized Lease Obligations and Purchase Money Obligations of the Company and the Guarantors not to exceed $5.0 million in aggregate principal amount (or accrued value, as applicable) at any time outstanding; (viii) Guarantees by the Company of Debt of any Restricted Subsidiaries otherwise permitted by this covenant and guarantees by any of the Company's Restricted Subsidiaries of Debt of the Company or any other Restricted Subsidiary permitted to be incurred under the covenant described under "-- Limitation of Guarantees by Restricted Subsidiaries"; (ix) Debt of the Company or any Restricted Subsidiary in respect of performance bonds, bankers' acceptances, trade letters of credit, workers' compensation or self-insurance, surety bonds and guarantees provided by the Company or any Restricted Subsidiary in the ordinary course of business; (x) Debt of Foreign Restricted Subsidiaries incurred for working capital purposes in an aggregate principal amount outstanding at any one time not to exceed the sum of 85% of the net book value of such Subsidiaries' accounts receivable determined in accordance with GAAP and 60% of the net book value of their inventory determined in accordance with GAAP and guarantees by Foreign Restricted Subsidiaries of such Debt (which Debt shall reduce the aggregate Debt permitted pursuant to clause (i) above in the manner contemplated thereby); 59 (xi) the incurrence by (A) a Securitization Entity of Debt in a Qualified Securitization Transaction that is Non-Recourse Debt with respect to the Company and its other Restricted Subsidiaries (except for Standard Securitization Undertakings and Limited Originator Recourse) or (B) the Company or any Restricted Subsidiary of Debt constituting Limited Originator Recourse (which Debt shall reduce the aggregate Debt permitted pursuant to clause (i) above in the manner contemplated thereby); (xii) Debt arising from agreements of the Company or a Restricted Subsidiary of the Company providing for indemnification, adjustment of purchase price, earn-out or other similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Restricted Subsidiary of the Company, other than guarantees of Debt incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition; and (xiii) the incurrence by the Company or any of its Restricted Subsidiaries of additional Debt in an aggregate principal amount (or accrued value, as applicable) at any time outstanding, including all Permitted Refinancing Debt incurred to refund, refinance or replace any other Debt incurred pursuant to this clause (xiii), not to exceed $40.0 million (which amount may, but need not, be incurred in whole or in part under the Senior Credit Facility). For purposes of determining compliance with this covenant, in the event that an item of Debt meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xiii) above or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Debt in any manner that complies with this covenant and such item of Debt will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. Accrual of interest, the accretion of accrued value and the payment of interest in the form of additional Debt will not be deemed to be an incurrence of Debt for purposes of this covenant. Restricted Payments. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment, unless, at the time of and after giving effect to such Restricted Payment: (i) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (ii) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Debt pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "--Incurrence of Debt and Issuance of Preferred Stock"; and (iii) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (including Restricted Payments permitted by clauses (i) and (v) of the next succeeding paragraph and excluding the Restricted Payments permitted by the other clauses therein), is less than or equal to the sum of (A) 50% of the Consolidated Net Income of the Company (or if Consolidated Net Income shall be a loss, minus 100% of such loss) earned during the period beginning on the first day of the first fiscal quarter immediately following the Issue Date and ending on the last day of the fiscal quarter immediately preceding the date the Restricted Payment is made (the "Reference Date") (treating such period as a single accounting period) plus (B) 100% of the aggregate net proceeds (including the fair market value of property other than cash (determined in good faith by the Board of Directors as evidenced by an Officers' Certificate filed with the Trustee, except that in the event the value of any non-cash consideration shall be $10.0 million or more, the value shall be as determined based on an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing)) received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of Disqualified Stock or debt 60 securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company); plus (C) without duplication of any amounts included in clause (B) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock (excluding, in the case of clauses (B) and (C), any net cash proceeds from an Equity Offering to the extent used to redeem the Notes and any net cash proceeds received by the Company from the sale of Equity Interests of the Company or equity contribution which has been financed, directly or indirectly using funds (1) borrowed from the Company or any of its Subsidiaries, unless and until and to the extent such borrowing is repaid or (2) contributed, extended, guaranteed or advanced by the Company or by any of its Subsidiaries), plus (D) to the extent that any Restricted Investment that was made after the Issue Date is sold by Company or any Restricted Subsidiary for cash or otherwise liquidated or repaid for cash, the lesser of (1) the fair market value of such Restricted Investment as of the date of such Restricted Investment or (2) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any), to the extent any such amount was not otherwise included in Consolidated Net Income, plus (E) 50% of any dividends received by the Company or a Restricted Subsidiary after the Issue Date from an Unrestricted Subsidiary of the Company, to the extent that such dividends were not otherwise included in Consolidated Net Income of the Company for such period, plus (F) to the extent that any Unrestricted Subsidiary is redesignated as a Restricted Subsidiary after the Issue Date, the fair market value of the Investment made by the Company or any of its Restricted Subsidiaries in such Subsidiary as of the date of such redesignation, plus (G) $10.0 million. For purposes of this paragraph, the fair market value of property other than cash shall be determined in good faith by the Board of Directors and evidenced by an Officers' Certificate filed with the Trustee, except that in the event the value of any non-cash consideration shall be $10.0 million or more, the value shall be determined based on an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing. The foregoing provisions will not prohibit (i) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration thereof or giving of irrevocable redemption notice, if at said date of declaration or giving of notice such payment or redemption would have complied with the provisions of the Indenture; (ii) if no Default or Event of Default shall have occurred and be continuing, the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company or any Restricted Subsidiary of the Company or any Subordinated Debt of the Company or any Restricted Subsidiary, in each case in exchange for, or out of the net proceeds of, the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of other Equity Interests of the Company (other than any Disqualified Stock); provided, however, that the amount of any such net proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clauses (iii) (B) and (iii) (C) of the preceding paragraph; (iii) the redemption, repurchase, refinancing or defeasance of Subordinated Debt in exchange for, or with the net cash proceeds from, an incurrence of Permitted Refinancing Debt; (iv) the payment to Globe Holdings of any amounts required under the Tax Sharing Agreement; (v) if no Default or Event of Default shall have occurred and be continuing, the payment of dividends to Globe Holdings in an amount up to $1.0 million in any period of four consecutive quarters to fund repurchases by Globe Holdings (or its successor) of Equity Interests therein or Debt of Globe Holdings issued in connection with such Equity Interests held by Persons who have ceased to be bona fide officers or employees of the Company or one of its Restricted Subsidiaries, provided that any unused amount thereof may be carried forward to subsequent periods so long as the total amount of such Restricted Payments shall not exceed $5.0 million in the aggregate (and shall be increased by the amount of any net cash proceeds (after deducting any premiums) to the Company from (A) sales of Equity Interests of Globe Holdings to management employees subsequent to the Issue Date and (B) any "key-man" life insurance policies which are used to make such redemptions and repurchases); (vi) the payment of dividends to Globe Holdings in an amount necessary to fund Globe Holdings' bona fide corporate overhead and similar fees and expenses relating to the ownership or operation of the Company; (vii) repurchases of Equity Interests deemed to occur upon the exercise of stock options if such Equity Interests represent a portion of the exercise price thereof; and (viii) distributions to Globe Holdings to fund the Transactions and to pay fees and expenses incurred in connection with the Transactions and the Discount Note Offering (as described under "Use of Proceeds"). 61 The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default or an Event of Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under the first paragraph of this covenant. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the greater of (i) the net book value of such Investments at the time of such designation and (ii) the fair market value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Liens. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any Lien (other than Permitted Liens) that secures Debt or trade payables unless (i) in the case of Liens securing Subordinated Debt, the Notes are secured on a senior basis to the obligations so secured until such time as such obligations are no longer secured by a Lien and (ii) in the case of Liens securing obligations under Pari Passu Debt, the Notes are equally and ratably secured with the obligations so secured until such time as such obligations are no longer secured by a Lien. Merger, Consolidation or Sale of Assets. The Indenture provides that the Company may not consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another corporation, Person or entity unless: (i) the Company is the surviving corporation or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person that acquires by conveyance, transfer or lease substantially all of the properties and assets of the Company (the "Surviving Entity") shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia; (ii) if the Company is not the surviving corporation, the Surviving Entity assumes all the obligations of the Company under the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction, no Default or Event of Default exists; (iv) except in the case of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of the Company or a merger entered into solely for the purpose of reincorporating the Company in another jurisdiction, the Company or the Surviving Entity, as the case may be, (A) will have Consolidated Net Worth immediately after the transaction equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction and (B) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Debt pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "--Incurrence of Debt and Issuance of Preferred Stock"; and (v) the Company or the Surviving Entity, as the case may be, shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied. The Indenture provides that each Guarantor (other than any Guarantor whose Guarantee is to be released in accordance with the terms of the Guarantee and the Indenture in connection with any transaction complying with the provisions of "--Asset Sales") will not, and the Company will not cause or permit any Guarantor to, consolidate with or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets to any Person other than the Company or any other Guarantor unless: (i) such Guarantor is the surviving corporation or the Person (if other than a Guarantor) formed by such 62 consolidation or into which such Guarantor is merged or the Person that acquires by conveyance, transfer or lease substantially all of the properties and assets of such Guarantor shall be a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) such entity or Person formed by or surviving any such consolidation or merger (if other than the Guarantor) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all of the obligations of the Guarantor under the Guarantee pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iv) immediately after giving effect to such transaction, the Company could satisfy the provisions of clause (iv) of the first paragraph of this covenant. Any merger or consolidation of a Guarantor with and into the Company (with the Company being the surviving entity) or another Guarantor need only comply with clauses (iv)(A) and (v) of the first paragraph of this covenant. Transactions with Related Persons. The Company will not, nor will it permit any of its Restricted Subsidiaries to, directly or indirectly (i) sell, lease, transfer or otherwise dispose of any of its property to, (ii) purchase any property from, (iii) make any Investment in, or (iv) enter into or amend any contract, agreement or understanding with, or for the benefit of, any of its Related Persons (each a "Related Person Transaction"), other than Related Person Transactions that are no less favorable to the Company or such Restricted Subsidiary than those that could be obtained in a comparable arm's length transaction by the Company or such Restricted Subsidiary from an unrelated party; provided that the Company delivers to the Trustee (A) with respect to any Related Person Transaction (or series of Related Person Transactions which are similar or part of a common plan) involving aggregate payments in excess of $5.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Related Person Transaction complies with the preceding sentence and such Related Person Transaction was approved by a majority of the disinterested members of the Board of Directors of the Company and (B) with respect to any Related Person Transaction (or series of Related Person Transactions which are similar or part of a common plan) involving aggregate payments in excess of $10.0 million, an affirmative opinion as to the fairness to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view issued by a nationally recognized accounting, appraisal, investment banking or consulting firm that is, in the judgment of the Board of Directors of the Company, independent and qualified to render such opinion. The foregoing restrictions shall not apply to: (i) any transactions between Wholly Owned Restricted Subsidiaries of the Company, or between the Company and any Wholly Owned Restricted Subsidiary of the Company, if such transaction is not otherwise prohibited by the terms of the Indenture; (ii) Restricted Payments permitted under the covenant described above under the caption "--Restricted Payments"; (iii) customary directors' fees, indemnification and similar arrangements, employee salaries, bonuses or employment agreements, compensation or employee benefit arrangements and incentive arrangements with any officer, director or employee of the Company or any Restricted Subsidiary entered into in the ordinary course of business (including customary benefits thereunder); (iv) transactions undertaken pursuant to the Management Agreement and the Tax Sharing Agreement; (v) the issue and sale by the Company to its stockholders of Equity Interests other than Disqualified Stock; (vi) the incurrence of intercompany Debt permitted pursuant to "--Incurrence of Debt and Issuance of Preferred Stock" above; (vii) customary indemnification and similar arrangements with any officer, director or employee of Globe Holdings relating to the business, operations or ownership of the Company; (viii) the pledge of Equity Interests of Unrestricted Subsidiaries to support the Debt thereof; (ix) transactions that are permitted by the provisions of the Indenture described above under the caption "--Merger, Consolidation and Sale of Assets;" (x) transactions effected as a part of a Qualified Securitization Transaction; (xi) transactions with customers, clients, suppliers, joint venture partners or purchasers or sellers of goods and services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the Indenture which are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party; and (xii) transactions undertaken pursuant to the Asset Drop Down. 63 Payment Restrictions Affecting Restricted Subsidiaries. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to (i) (A) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (B) pay any indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (A) Existing Debt, (B) the Senior Credit Facility as in effect on the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are not materially more restrictive taken as a whole with respect to such dividend and other payment restrictions than those contained in the Senior Credit Facility as in effect on the date of the Indenture (as determined by the Board of Directors of the Company in its reasonable and good faith judgment), (C) the Indenture and the Notes, (D) applicable law, (E) any instrument governing Debt or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Debt was incurred or such encumbrance or restriction was established in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Debt, such Debt was permitted by the terms of the Indenture to be incurred, (F) customary non-assignment provisions in leases and other agreements entered into in the ordinary course of business and consistent with past practices, restricting assignment or restricting transfers of non-cash assets, (G) Purchase Money Obligations for property acquired in the ordinary course of business and other Liens permitted by the Indenture, in each case that impose restrictions of the nature described in clause (iii) above on the property so acquired (or subject to such Liens), (H) Debt permitted under clause (x) of the second paragraph under the covenant described above under the caption "--Incurrence of Debt and Issuance of Preferred Stock," (I) Permitted Refinancing Debt, provided that the restrictions contained in the agreements governing such Permitted Refinancing Debt are not materially more restrictive taken as a whole than those contained in the agreements governing the Debt being refinanced (as determined by the Board of Directors of the Company in its reasonable and good faith judgment), (J) contracts for the sale of assets or Equity Interests to the extent that any such contract imposes restrictions of the nature described in clause (iii) above on the property to be sold, (K) any pledge by the Company or a Restricted Subsidiary of the Equity Interests of an Unrestricted Subsidiary to support the Debt thereof, (L) secured Debt otherwise permitted to be incurred pursuant to the provisions of the covenant described above under the caption "--Liens" that limits the right of the debtor to dispose of the assets securing such Debt, (M) provisions with respect to the disposition or distribution of assets or property in joint venture agreements and other similar agreements entered into in the ordinary course of business, (N) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business, (O) any Debt or other contractual requirements of a Securitization Entity in connection with a Qualified Securitization Transaction; provided that such restrictions apply only to such Securitization Entity, (P) other Debt of a Restricted Subsidiary that is a Guarantor permitted to be incurred subsequent to the date of the Indenture pursuant to the provisions of the covenants described above under the caption "--Incurrence of Debt and Issuance of Preferred Stock"; provided that any such restrictions are ordinary and customary with respect to the type of Debt or preferred stock being incurred or issued (under the relevant circumstances), or (Q) any encumbrances or restrictions imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (A) through (P) above, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Board of Directors, not materially more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. 64 Incurrence of Senior Subordinated Indebtedness. The Indenture provides that (i) the Company will not, directly or indirectly, incur, create, issue, assume, guarantee or otherwise become liable for any Debt that is expressly subordinated or junior in right of payment to any Senior Debt of the Company and senior in any respect in right of payment to the Notes, and (ii) the Company will not, directly or indirectly, permit any Guarantor to incur, create, issue, assume, guarantee or otherwise become liable for any Debt that is expressly subordinated or junior in right of payment to its Guarantor Senior Debt and senior in any respect in right of payment to its Guarantee. Limitation of Guarantees by Restricted Subsidiaries. The Company will not permit any of its Restricted Subsidiaries, directly or indirectly, by way of the pledge of any intercompany note or otherwise to assume, guarantee or in any other manner become liable with respect to any Debt of the Company or any other Restricted Subsidiary (other than any guarantee by a Foreign Restricted Subsidiary of Debt of another Foreign Restricted Subsidiary permitted under "--Incurrence of Debt and Issuance of Preferred Stock" above) unless, in any such case (i) such Restricted Subsidiary, if it is not a Guarantor, executes and delivers a supplemental indenture to the Indenture, providing a Guarantee and (ii) (A) if any such assumption, guarantee or other liability of such Restricted Subsidiary is provided in respect of Senior Debt or Guarantor Senior Debt, the guarantee or other instrument provided by such Restricted Subsidiary in respect of such Senior Debt or Guarantor Senior Debt may be superior to the Guarantee pursuant to subordination provisions no less favorable in any material respect to the Holders than those contained in the Indenture and (B) if such assumption, guarantee or other liability of such Restricted Subsidiary is provided in respect of Debt that is expressly subordinated to the Notes, the guarantee or other instrument provided by such Restricted Subsidiary in respect to such subordinated Debt shall be subordinated to the Guarantee pursuant to subordination provisions no less favorable in any material respect to the Holders than those contained in the Indenture. Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary of the Notes pursuant to the foregoing paragraph shall provide by its terms that it shall be automatically and unconditionally released and discharged, without any further action required on the part of the Trustee or any Holder, upon: (i) the unconditional release of such Restricted Subsidiary from its liability in respect of the Debt in connection with which such Guarantee was executed and delivered pursuant to the preceding paragraph (including any Debt in respect of the Senior Credit Facility); or (ii) any sale or other disposition (by merger or otherwise) to any Person which is not a Restricted Subsidiary of the Company of all of the Company's Capital Stock in, or all or substantially all of the assets of, such Restricted Subsidiary or the parent of such Restricted Subsidiary; provided that (A) such sale or disposition of such Capital Stock or assets is otherwise in compliance with the terms of the Indenture and (B) such assumption, guarantee or other liability of such Restricted Subsidiary has been released by the holders of the other Debt so guaranteed or (iii) such Guarantor becoming an Unrestricted Subsidiary in accordance with the Indenture. Asset Sales. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash, Cash Equivalents or properties and assets to be used in the Company's business or Equity Interests in a Person that becomes a Restricted Subsidiary and is received at the time of such disposition; provided that the amount of any Senior Debt or Guarantor Senior Debt (as shown on the most recent consolidated balance sheet of the Company) of the Company or any Guarantor that is assumed by the transferee of any such assets pursuant to a customary novation agreement or other agreement that releases or indemnifies the Company or such Guarantor from further liability shall be deemed to be cash for purposes of this provision. 65 Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company or such Restricted Subsidiary may apply such Net Proceeds at its option, (i) to permanently repay, reduce, or secure letters of credit in respect of, Senior Debt and/or Guarantor Senior Debt (and to correspondingly reduce commitments with respect thereto in the case of revolving borrowings), and/or (ii) to the acquisition of a controlling interest in another business, the making of a capital expenditure or Permitted Investment or the acquisition of other assets, in each case, for use in the same or a similar line of business as the Company or any Restricted Subsidiary was engaged in on the date of such Asset Sale or reasonable extensions thereof. Pending the final application of any such Net Proceeds, the Company or such Restricted Subsidiary may temporarily reduce indebtedness under the Senior Credit Facility (or any alternative or subsequent revolving credit agreement where borrowings thereunder constitute Senior Debt and/or Guarantor Senior Debt) or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will be required to make an offer (an "Asset Sale Offer") to all Holders of Notes and holders of any other Pari Passu Debt outstanding with provisions requiring the Company to make an offer to purchase or redeem such indebtedness with the proceeds from any Asset Sale as follows: (i) the Company will make an offer to purchase from all holders of the Notes in accordance with the procedures set forth in the Indenture in the maximum principal amount (expressed as a multiple of $1,000) of Notes that may be purchased out of an amount (the "Note Amount") equal to the product of such Excess Proceeds multiplied by a fraction, the numerator of which is the outstanding principal amount of the Notes, and the denominator of which is the sum of the outstanding principal amount of the Notes and such Pari Passu Debt (subject to proration in the event such amount is less than the aggregate Asset Sale Offered Price (as defined herein) of all Notes tendered), and (ii) to the extent required by such Pari Passu Debt to permanently reduce the principal amount of such Pari Passu Debt, the Company will make an offer to purchase or otherwise repurchase or redeem Pari Passu Debt (an "Asset Sale Pari Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds over the Note Amount; provided that in no event will the Company be required to make an Asset Sale Pari Passu Offer in a Pari Passu Debt Amount exceeding the principal amount of such Pari Passu Debt plus the amount of any premium required to be paid to repurchase such Pari Passu Debt. The offer price for the Notes will be payable in cash in an amount equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to the date (the "Asset Sale Offer Date") such Asset Sale Offer is consummated (the "Asset Sale Offered Price"), in accordance with the procedures set forth in the Indenture. To the extent that the aggregate Asset Sale Offered Price of the Notes tendered pursuant to the Asset Sale Offer is less than the Note Amount relating thereto or the aggregate amount of Pari Passu Debt that is purchased in an Asset Sale Pari Passu Offer is less than the Pari Passu Debt Amount, the Company may use any remaining Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and Pari Passu Debt surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon the completion of the purchase of all the Notes tendered pursuant to an Asset Sale Offer and the completion of a Pari Passu Offer, the amount of Excess Proceeds, if any, shall be reset at zero. The Indenture provides that, if the Company becomes obligated to make an Asset Sale Offer pursuant to the immediately preceding paragraph, the Notes and the Pari Passu Debt shall be purchased by the Company, at the option of the holders thereof, in whole or in part in integral multiples of $1,000, on a date that is not earlier than 30 days and not later than 60 days from the date the notice of the Asset Sale Offer is given to holders, or such later date as may be necessary for the Company to comply with the requirements under the Exchange Act. The Indenture provides that the Company will comply with the applicable tender offer rules, including Rule 14e-1 under the Exchange Act, and any other applicable securities laws or regulations in connection with an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under such provisions of the Indenture by virtue thereof. 66 Issuance and Sale of Capital Stock of Restricted Subsidiaries. The Indenture provides that the Company (i) will not, and will not permit any Restricted Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose of any Capital Stock of any Restricted Subsidiary to any Person (other than to the Company or a Wholly Owned Restricted Subsidiary) and (ii) will not permit any Restricted Subsidiary to issue any of its Capital Stock to any Person other than to the Company or a Wholly Owned Restricted Subsidiary, in each case unless the Net Proceeds from such transfer, sale or other disposition are applied in accordance with "--Asset Sales." Conduct of Business. The Company and its Restricted Subsidiaries will not engage in any businesses which are not the same, similar or related to the businesses in which the Company and its Restricted Subsidiaries are engaged as of the Issue Date (or any reasonable extension or expansion thereof), except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. Guarantors. The Indenture provides that so long as any Notes remain outstanding, any Restricted Domestic Subsidiary shall (i) execute and deliver to the Trustee a supplemental indenture in form reasonably satisfactory to the Trustee pursuant to which such Restricted Domestic Subsidiary shall unconditionally guarantee all of the Company's obligations under the Notes and the Indenture on the terms set forth in the Indenture and (ii) deliver to the Trustee an opinion of counsel that such supplemental indenture has been duly authorized, executed and delivered by such Restricted Domestic Subsidiary and constitutes a legal, valid, binding and enforceable obligation of such Restricted Domestic Subsidiary. Thereafter, such Restricted Domestic Subsidiary shall be a Guarantor for all purposes of the Indenture. The Company has no existing Restricted Domestic Subsidiaries and therefore the Notes are not, at present, guaranteed. If all the Capital Stock of any Guarantor is sold to a Person (other than the Company or any of its Restricted Subsidiaries) and the Net Proceeds from such Asset Sale are used in accordance with the terms of the covenant described under "--Asset Sales," then such Guarantor will be released and discharged from all of its obligations under its Guarantee of the Notes and the Indenture. Limitation on Sale and Lease-Back Transactions. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale and Lease-Back Transaction; provided that the Company or any Guarantor may enter into a Sale and Lease-Back Transaction if: (i) the Company could have (A) incurred Debt in an amount equal to the Attributable Debt relating to such Sale and Lease-Back Transaction pursuant to the Consolidated Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "--Incurrence of Debt and Issuance of Preferred Stock" and (B) incurred a Lien to secure such Debt pursuant to the covenant described above under the caption "--Liens;" (ii) the gross cash proceeds of such Sale and Lease-Back Transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors pursuant to a Board Resolution) of the property that is the subject of such Sale and Lease-Back Transaction; and (iii) the transfer of assets in such Sale and Lease-Back Transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, the covenant described above under the caption "--Asset Sales. " Rule 144A Information Requirement. The Company will furnish to the Holders or beneficial holders of the Notes and prospective purchasers of Notes designated by the Holders, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act for so long as is required for an offer or sale of the Notes to qualify for an exemption under Rule 144A. 67 Reports. The Company will deliver to the Trustee within 15 days after the filing of the same with the Commission, copies of the quarterly and annual reports and of the information, documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the Commission, to the extent permitted, and provide the Trustee and the Holders with such quarterly and annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of Section 314(a) of the Trust Indenture Act. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Accounts Receivable Subsidiary" means any Subsidiary of the Company that is, directly or indirectly, wholly owned by the Company (other than director qualifying shares) and organized solely for the purpose of and engaged in (i) purchasing, financing and collecting accounts receivable obligations of customers of the Company or its Subsidiaries, (ii) the sale or financing or such accounts receivable or interest therein and (iii) other activities incident thereto. "Acquired Debt" means, with respect to any specified Person, (i) Debt of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, including, without limitation, Debt incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Restricted Subsidiary of such specified Person, and (ii) Debt secured by a Lien encumbering any asset acquired by such specified Person which, in each case, is not repaid at or within five days following the date of such acquisition. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. Notwithstanding the foregoing, no Person (other than the Company or any Subsidiary of the Company) in whom a Securitization Entity makes an Investment in connection with a Qualified Securitization Transaction shall be deemed to be an Affiliate of the Company or any of its Subsidiaries solely by reason of such Investment. "Asset Sale" means (i) the sale, lease (other than operating leases entered into in the ordinary course of business), conveyance or other disposition of any assets or rights (including, without limitation, by way of a Sale and Lease-Back Transaction) other than in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "Repurchase at the Option of Holders Upon Change of Control" and/or the provisions described above under the caption "--Certain Covenants--Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's Restricted Subsidiaries (to the extent such Equity Interests are held by the Company or another Restricted Subsidiary of the Company), in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions that (x) have a fair market value in excess of $1.0 million or (y) generate net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the following shall not be deemed to constitute Asset Sales: (i) sales of accounts receivable, equipment and related assets (including 68 contract rights) of the type specified in the definition of "Qualified Securitization Transaction" to a Securitization Entity for the fair market value thereof, including cash in an amount at least equal to 75% of the fair market value thereof as determined in accordance with GAAP; (ii) transfers of accounts receivable, equipment and related assets (including contract rights) of the type specified in the definition of "Qualified Securitization Transaction" (or a fractional undivided interest therein) by a Securitization Entity in a Qualified Securitization Transaction (for the purposes of this clause (ii), Purchase Money Notes shall be deemed to be cash); (iii) a transfer of assets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or to another Restricted Subsidiary; (iv) a disposition of inventory held for sale in the ordinary course of business or obsolete, worn out or damaged property or equipment in the ordinary course of business; (v) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to another Restricted Subsidiary; (vi) a Restricted Payment or Permitted Investment that is permitted by the covenant described above under the caption "--Certain Covenants--Restricted Payments"; (vii) the sale or discount, in each case without recourse, of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof; (viii) the grant in the ordinary course of business of any non-exclusive license of patents, trademarks, registrations therefor and other similar intellectual property and (ix) sales of accounts receivable for cash at fair market value, and any sale, conveyance or transfer of accounts receivable in the ordinary course of business to an Accounts Receivable Subsidiary or to third parties that are not Affiliates of the Company or any Subsidiary of the Company. "Asset Sale Offer" shall have the definition set forth under "--Certain Covenants--Asset Sales." "Asset Sale Offer Date" shall have the definition set forth under "--Certain Covenants--Asset Sales." "Asset Sale Offered Price" shall have the definition set forth under "-- Certain Covenants--Asset Sales." "Asset Sale Pari Passu Offer" shall have the definition set forth under "-- Certain Covenants--Asset Sales." "Attributable Debt" in respect of a Sale and Lease-Back Transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments during the remaining term of the lease included in such Sale and Lease-Back Transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Board Resolution" means a copy of a resolution certified pursuant to an Officers' Certificate to have been duly adopted by the Board of Directors of the Company or a Restricted Subsidiary of the Company, as appropriate, and to be in full force and effect, and delivered to the Trustee. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and Eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any lender party to the Senior Credit Facility or with 69 any domestic commercial bank having capital and surplus in excess of $500.0 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within one year after the date of acquisition, (vi) marketable direct obligations issued by any state of the United States or any political subdivision, or public instrumentality of such state, in each case having maturities of not more than one year from the date of acquisition and, at the time of acquisition thereof, having one of the two highest ratings obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Corporation, and (vii) money market, mutual or similar funds which invest substantially all of their assets in securities of the type described in clauses (i) through (vi) above. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), or group of related persons, together with any Affiliates thereof (other than Permitted Holders), (ii) the adoption by the Company of a plan relating to the liquidation or dissolution of the Company, (iii) the first day on which a majority of the members of the Board of Directors of the Company or Globe Holdings (for so long as Globe Holdings beneficially owns a majority of any class of the Voting Stock of the Company) are not Continuing Directors, or (iv) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above) or group of related persons, together with any Affiliates thereof (other than Permitted Holders) becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% (measured by voting power rather than number of shares) of the Voting Stock of the Company or Globe Holdings (for so long as Globe Holdings beneficially owns a majority of any class of the Voting Stock of the Company). "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication, (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income and without regard to the $1.0 million threshold in the definition thereof), plus (ii) provision for taxes based on income or profits of such Person and its Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense of such Person and its Restricted Subsidiaries for such period (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) the consolidated net interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (v) depreciation, amortization (including amortization of goodwill and other intangibles) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, minus (vi) other non- recurring non-cash items increasing such Consolidated Net Income for such period (which will be added back to Consolidated Cash Flow in any subsequent period to the extent cash is received in respect of such item in such subsequent period), in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, "Consolidated Cash Flow" shall be calculated without giving effect to amortization or depreciation of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 (including non-cash write-ups and non-cash charges relating to 70 inventory and fixed assets, in each case arising in connection with any acquisition permitted under the Indenture) and 17 (including non-cash charges relating to intangibles and goodwill arising in connection with any such acquisition). "Consolidated Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Consolidated Fixed Charges of such Person for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays or redeems any Debt (other than revolving credit borrowings) or issues or redeems preferred stock subsequent to the commencement of the period for which the Consolidated Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Consolidated Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Consolidated Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, repayment or redemption of Debt, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions or Asset Sales that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Consolidated Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Consolidated Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. In calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (i) interest on Debt determined on a fluctuating basis as of the Calculation Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Debt in effect on the Calculation Date; (ii) if interest on any Debt actually incurred on the Calculation Date may be optionally determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate or other rates, then the interest rate in effect on the Calculation Date will be deemed to have been in effect during the relevant four-quarter period reference; and (iii) notwithstanding the foregoing, interest on Debt determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including, without limitation, amortization of debt issuance costs (other than those debt issuance costs incurred on the Issue Date in connection with the Transactions) and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Debt of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv) all dividend payments, whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries (other than dividend payments on Equity Interests payable solely in Equity Interests (other than Disqualified Stock) of the Company) paid or accrued during such period. 71 "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Wholly Owned Restricted Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income (or loss) of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles adopted after the Issue Date shall be excluded, (v) any restoration to Net Income of any contingency reserve of an extraordinary, nonrecurring or unusual nature, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date, shall be excluded, (vi) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets shall be excluded, (vii) non-cash compensation charges arising upon the issuance or exercise of employee stock options or Capital Stock (other than Disqualified Stock) shall be excluded and (viii) all extraordinary gains and extraordinary losses and any unusual or non-recurring charges recorded or accrued in connection with the Transactions shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the ordinary shareholders of such Person and its consolidated Subsidiaries as of such date and (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Stock) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (A) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (B) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (C) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Continuing Director" means, as of any date of determination, any member of the Board of Directors of the Company or Globe Holdings, as the case may be, who (i) was a member of such Board of Directors on the date of the Indenture, (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election or (iii) was nominated for election or elected to such Board of Directors by or with the approval of the Permitted Holders. "Credit Facilities" means, with respect to the Company or any Subsidiary, one or more debt facilities (including, without limitation, the Senior Credit Facility) or commercial paper facilities with banks or other lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables), bankers acceptance or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. Debt under Credit Facilities outstanding on the date on which Notes are first issued and authenticated under the Indenture shall be deemed to have been incurred on such date in reliance on the exception provided by clause (i) of the definition of Permitted Debt. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary of the Company against fluctuations in currency values. 72 "Debt" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Debt of others secured by a Lien on any asset of such Person (whether or not such Debt is assumed by such Person) and, to the extent not otherwise included, the guarantee by such Person of any Debt of any other Person (but excluding, with respect to Debt of a Securitization Entity, any Standard Securitization Undertakings that might be deemed to constitute guarantees). The amount of any Debt outstanding as of any date shall be (i) the accrued or accreted value thereof, in the case of any Debt that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Debt. For purposes of calculating the amount of Debt of a Securitization Entity outstanding as of any date, the face or notional amount of any interest in receivables or equipment that is outstanding as of such date shall be deemed to be Debt but any such interests held by Affiliates of such Securitization Entity shall be excluded for purposes of such calculation. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Designated Senior Debt" means (i) any Debt under the Senior Credit Facility and (ii) any other Senior Debt or Guarantor Senior Debt permitted under the Indenture the principal amount of which is $10.0 million or more and that has been expressly designated by the Company in such Senior Debt or Guarantor Senior Debt instrument as "Designated Senior Debt." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the first anniversary of the Stated Maturity of the Notes; provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the Company to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption "--Certain Covenants-- Restricted Payments." "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means a bona fide underwritten sale to the public of Equity Interests (other than Disqualified Stock) of the Company or of Globe Holdings (to the extent the net proceeds thereof are contributed to the Company as common equity) pursuant to a registration statement (other than on Form S-8 or any other form relating to securities issuable under any benefit plan of the Company or Globe Holdings, as the case may be) that is declared effective by the Commission. "Existing Debt" means up to $500,000 in aggregate principal amount of Debt of the Company and its Restricted Subsidiaries (other than Debt under the Senior Credit Facility) in existence on the date of the Indenture, until such amounts are repaid. "Foreign Subsidiary" means any Subsidiary not organized or validly existing under the laws of the United States or any state thereof or the District of Columbia. 73 "Foreign Restricted Subsidiary" means any Foreign Subsidiary that is a Restricted Subsidiary. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the Issue Date. "Globe Holdings" means Globe Holdings, Inc., a Massachusetts corporation, and its successors and assigns. "guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Debt. "Guarantor Senior Debt" means, with respect to any Guarantor, (i) all Debt of such Guarantor under the Senior Credit Facility and all Hedging Obligations with respect thereto (including, but not limited to, the principal of, premium, if any, interest (including any interest accruing subsequent to a filing of a petition of bankruptcy at the rate provided for in documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, reimbursement obligations under letters of credit issued under, and fees, expenses, indemnities and other amounts owing in respect of, the foregoing Debt); (ii) any other Debt permitted to be incurred by such Guarantor under the terms of the Indenture, unless the instrument under which such Debt is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Guarantee of such Guarantor and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Guarantor Senior Debt will not include (v) Debt represented by Disqualified Stock, (w) any liability for federal, state, local or other taxes owed or owing by any Guarantor, (x) any Debt of a Guarantor to any of its Subsidiaries or other Affiliates, (y) any trade payables or (z) that portion of any Debt that is incurred in violation of the Indenture. "Guarantor" means each of the Company's Restricted Domestic Subsidiaries that executes a supplemental indenture in which such Restricted Domestic Subsidiaries agree to be bound by the terms of the Indenture as a Guarantor; provided that any Person constituting a Guarantor as described above shall cease to constitute a Guarantor when its respective Guarantee is released in accordance with the terms of the Indenture. The Company has no existing Restricted Domestic Subsidiaries and therefore the Notes are not, at present, guaranteed. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under Interest Swap Agreements and Currency Agreements. "Interest Swap Agreements" means any interest rate swap agreement, interest rate cap agreement, interest rate floor agreement, interest rate collar agreement, treasury rate-lock agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary of the Company from fluctuations in interest rates. "Interest Swap Obligations" means the obligations of any Person pursuant to any Interest Swap Agreement with any other Person. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Debt or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees and extensions of trade credit made in the ordinary course of business), purchases or other acquisitions for consideration of Debt, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Issue Date" means July 31, 1998, the date of original issuance of the Notes. 74 "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Limited Originator Recourse" means a reimbursement obligation of the Company or a Restricted Subsidiary in connection with a drawing on a letter of credit, revolving loan commitment, cash collateral account or other such credit enhancement issue to support Debt of a Securitization Entity under a facility for the financing of trade receivables and the warehousing of equipment loans and leases; provided that the available amount of any such form of credit enhancement at any time shall not exceed 10.0% of the principal amount of such Debt at such time. "Management Agreement" means the Management Agreement between the Company and CHS Management III, L.P., dated as of July 31, 1998, as in effect on the date of the Indenture or as thereafter amended in a manner that is not adverse to the Company or the Holders of the Notes. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to Sale and Lease-Back Transactions) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Debt of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash and Cash Equivalents received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of (i) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, (ii) taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), (iii) any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP, or against any liabilities associated with the Asset Sale, or the assets subject thereto, and retained by the Company or any Restricted Subsidiary, and (iv) amounts required to be applied to the repayment of Debt secured by a Lien on the asset or assets that were the subject of such Asset Sale, or to the satisfaction of contractual obligations either existing at the date of the Indenture, or entered into after the date of the Indenture in connection with the payment of deferred purchase price of the properties or assets that were the subject of such Asset Sale. "Non-Recourse Debt" means Debt (i) as to which neither the Company nor any of its Restricted Subsidiaries (A) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Debt), (B) is directly or indirectly liable (as guarantor or otherwise), or (C) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Debt (other than the Notes being offered hereby) of the Company or any of its Restricted Subsidiaries to declare a default on such other Debt or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Obligations" means any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Debt. 75 "Officers' Certificate" means with respect to any Person, a certificate signed by the Chairman, Vice Chairman, Chief Executive Officer, the President or any Vice President and the Chief Financial Officer, Controller or the Treasurer of such Person that shall comply with applicable provisions of the Indenture. "Pari Passu Debt" shall mean (i) any Debt of the Company that is pari passu in right of payment to the Notes and (ii) with respect to any Guarantee of the Notes, Debt which ranks pari passu in right of payment to such Guarantee. "Pari Passu Debt Amount" shall have the definition set forth under "-- Certain Covenants--Asset Sales." "Permitted Holders" means (i) Code, Hennessy & Simmons, Inc., (ii) Code Hennessy & Simmons LLC, (iii) Code, Hennessy & Simmons III, L.P. and (iv) their respective affiliates. "Permitted Investments" means (i) any Investment in the Company or in a Restricted Subsidiary of the Company that is engaged in the same or a similar line of business as the Company and its Restricted Subsidiaries (or reasonable extensions or expansions thereof); (ii) any Investment in Cash Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment (A) such Person becomes a Restricted Subsidiary of the Company that is engaged in the same or a similar line of business as the Company and its Restricted Subsidiaries (or reasonable extensions or expansions thereof) or (B) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company that is engaged in the same or a similar line of business as the Company and its Restricted Subsidiaries (or reasonable extensions or expansions thereof); (iv) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption "-- Certain Covenants--Asset Sales"; (v) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (vi) Investments made in exchange for accounts receivable arising in the ordinary course of business which have not been collected for 180 days and which are, in the good faith of the Company, substantially uncollectible, provided that any such Investments in excess of $500,000 shall be approved by the Board of Directors (evidenced by a Board Resolution set forth in an Officers' Certificate delivered to the Trustee), (vii) loans and advances to employees of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not to exceed $1.0 million in the aggregate at any one time outstanding; (viii) Investments in Permitted Joint Ventures and Investments in suppliers to the Company and its Restricted Subsidiaries in an aggregate amount when taken together with all other Investments pursuant to this clause (viii) does not exceed the greater of $10.0 million or 10% of Total Assets at any one time outstanding; (ix) Hedging Obligations entered into in the ordinary course of business and otherwise in compliance with the Indenture, (x) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (x) that are at the time outstanding, not to exceed $10.0 million, (xi) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers, (xii) guarantees (A) by the Company of Debt otherwise permitted to be incurred by Restricted Subsidiaries of the Company under the Indenture or (B) permitted by the "Limitations on Guarantees by Subsidiaries" covenant, (xiii) any Investment by the Company or a Wholly Owned Subsidiary of the Company in a Securitization Entity or any Investment by a Securitization Entity in any other Person in connection with a Qualified Securitization Transaction; provided that any Investment in a Securitization Entity is in the form of a Purchase Money Note or an Equity Interest and (xiv) Investments received by the Company or its Restricted Subsidiaries as consideration for asset sales, including Asset Sales; provided that in the case of an Asset Sale, such Asset Sale is effected in compliance with the "Limitations on Asset Sales" covenant. For purposes of calculating the aggregate amount of Permitted Investments permitted to be outstanding at any one time pursuant to clauses (viii) and (x) of the preceding sentence, (i) to the extent the consideration for any such Investment consists of Equity Interests (other than Disqualified Stock) of the Company, the value of the Equity Interests so issued will be ignored in determining the amount of such Investment and (ii) the aggregate amount 76 of such Investments made by the Company and its Restricted Subsidiaries on or after the date of the Indenture will be decreased (but not below zero) by an amount equal to the lesser of (A) the cash return of capital to the Company or a Restricted Subsidiary with respect to such Investment that is sold for cash or otherwise liquidated or repaid for cash (less the cost of disposition, including applicable taxes, if any) and (B) the initial amount of such Investment. "Permitted Joint Venture" means any Person which is, directly or indirectly through its Subsidiaries or otherwise, engaged principally in the principal business of the Company, or a reasonably related business, and the Capital Stock of which is owned by the Company and one or more Persons other than the Company or any Affiliate of the Company. "Permitted Junior Securities" means (i) Equity Interests in Globe Holdings, for so long as Globe Holdings owns all of the outstanding Capital Stock of the Company, or, in all other cases, Equity Interests in the Company or (ii) debt securities of the Company that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to the Indenture and which, in the case of clauses (i) and (ii), do not mature or become subject to a mandatory redemption obligation prior to the maturity of the Notes and do not cause the Notes to be treated in any case or proceeding or similar event under any bankruptcy or insolvency law as part of the same class of claims as the Senior Debt. "Permitted Liens" means (i) Liens to secure obligations in respect of workers compensation, unemployment, social security, statutory obligations, surety or appeal bonds or other obligations of a like nature incurred in the ordinary course of business, (ii) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, (iii) Liens in favor of the Company and any Restricted Subsidiary, (iv) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like Liens arising in the ordinary course of business in respect of obligations not overdue for a period in excess of 30 days or which are being contested in good faith by appropriate proceedings promptly instituted and diligently prosecuted, provided that any reserve or other appropriate provision as shall be required to conform with GAAP shall have been made therefor, (v) Liens securing Senior Debt (including the Senior Credit Facility), (vi) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or such Restricted Subsidiary, (vii) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company, provided that such liens were in existence prior to the contemplation of such acquisition, (viii) purchase money Liens to finance property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business; provided, however, that (A) the related Purchase Money Obligations shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property or assets so acquired and (B) the Lien securing such Debt shall be created within 90 days of such acquisition, (ix) Liens existing on the date of the Indenture, (x) judgment Liens not giving rise to an Event of Default, (xi) easements, rights- of-way, zoning and similar restrictions and other similar encumbrances or title defects incurred or imposed, as applicable, in the ordinary course of business and consistent with industry practices which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto (as such property is used by the Company or its Subsidiaries) or interfere with the ordinary conduct of business of the Company or such Subsidiaries; provided, however, that any such Liens are not incurred in connection with any borrowing of money or commitment to loan any money to or to extend any credit, (xii) Liens on assets transferred to a Securitization Entity or on assets of a Securitization Entity, in either case incurred in connection with a Qualified Securitization Transaction, (xiii) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and that (A) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit 77 in the ordinary course of business) and (B) do not in the aggregate materially detract from the value of property or materially impair the use thereof in the operation of business by the Company or such Subsidiary, (xiv) Liens on assets of Guarantors to secure Guarantor Senior Debt of such Guarantors that were permitted by the Indenture to be incurred, (xv) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries, (xvi) any interest or title of a lessor under any Capital Lease Obligation, (xvii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods, (xviii) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof, (xix) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off, (xx) Liens securing Hedging Obligations, (xxi) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries, (xxii) Liens arising from filing Uniform Commercial Code financing statements regarding operating leases entered into in the ordinary course of business, (xxiii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of customer duties in connection with the importation of goods and (xxiv) Liens securing Debt of Foreign Restricted Subsidiaries incurred in reliance on clause (x) of the second paragraph of the covenant described above under the caption "-- Incurrence of Debt and Issuance of Preferred Stock." "Permitted Refinancing Debt" means any Debt of the Company or any of its Restricted Subsidiaries or any Disqualified Stock issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Debt of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount (or accrued value, if applicable) of such Permitted Refinancing Debt does not exceed the principal amount of (or accrued value, if applicable), plus accrued interest on, the Debt so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable fees and expenses incurred in connection therewith); (ii) such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Debt being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Debt being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes or any Guarantee, such Permitted Refinancing Debt has a final maturity date later than the final maturity date of, and is subordinated in right of payment to the Notes on terms at least as favorable to the Holders of Notes or the Guarantees, as applicable, as those contained in the documentation governing the Debt being extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such Debt is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Debt being extended, refinanced, renewed, replaced, defeased or refunded or is Disqualified Stock. "Purchase Money Notes" means a promissory note of a Securitization Entity evidencing a line of credit, which may be irrevocable, from the Company or any Subsidiary of the Company in connection with a Qualified Securitization Transaction to a Securitization Entity which note shall be repaid from cash available to the Securitization Entity, other than amounts required to be established as reserves pursuant to agreements, amounts paid to investors in respect of interest, principal and other amounts owing to such investors and amounts paid in connection with the purchase of newly generated receivables or newly acquired equipment. "Purchase Money Obligations" of a Person means Debt of such Person incurred in connection with the purchase, construction or improvement of property, plant or equipment used in the business of such Person (whether through the direct purchase of the assets or the Equity Interests of any Person owning such assets). "Qualified Securitization Transaction" means any transaction or series of transactions pursuant to which the Company or any of its Restricted Subsidiaries may sell, convey or otherwise transfer to (i) a Securitization Entity (in the case of a transfer by the Company or any of its Restricted Subsidiaries) and (ii) any other Person (in the case of a transfer by a Securitization Entity), or may grant a security interest in, any receivables or 78 equipment loans (whether now existing or arising or acquired in the future) of the Company or any of its Restricted Subsidiaries, and any assets related thereto including, without limitation, all collateral securing such receivables and equipment loans, all contracts and contract rights and all guarantees or other obligations in respect of such receivables and equipment loans, proceeds of such receivables and equipment loans and other assets (including contract rights) which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transaction involving receivables and equipment (collectively, "transferred assets"); provided that in the case of any such transfer by the Company or any of its Restricted Subsidiaries, the transferor receives cash or Purchase Money Notes in an amount which (when aggregated with the cash and Purchase Money Notes received by the Company and its Restricted Subsidiaries upon all other such transfers of transferred assets during the ninety days preceding such transfer) is at least equal to 75.0% of the aggregate face amount of all receivables so transferred during such day and the ninety preceding days. "Related Person" means with respect to any Person (i) any Affiliate of such Person, (ii) any individual or other Person who directly or indirectly is the registered or beneficial owner of 5% or more of any class of Capital Stock of such Person or warrants, rights, options or other rights to acquire more than 5% of any class of Capital Stock of such Person, (iii) any relative of such individual by blood, marriage or adoption not more remote than first cousin and (iv) any officer or director of such Person. "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt; provided that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt. "Restricted Domestic Subsidiary" means a Restricted Subsidiary organized and validly existing under the laws of the United States or any state thereof or the District of Columbia. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Payment" means: (i) any dividend or any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or such Restricted Subsidiary or dividends or distributions payable to the Company or any Wholly Owned Restricted Subsidiary); (ii) any payment to purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company, any direct or indirect parent of the Company or any Restricted Subsidiary of the Company (other than any Equity Interests owned by the Company or any Wholly Owned Restricted Subsidiary); (iii) any payment to purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Debt of the Company or a Restricted Subsidiary, except a payment of interest or principal at Stated Maturity; and (iv) any Restricted Investment. "Restricted Subsidiary" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "Sale and Lease-Back Transaction" means any arrangement with any Person providing for the leasing by the Company or any Restricted Subsidiary of the Company of any real or tangible personal property, which property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person in contemplation of such leasing. "Securitization Entity" means a Wholly Owned Subsidiary of the Company (or another Person in which the Company or any Restricted Subsidiary of the Company makes an Investment and to which the Company or any Restricted Subsidiary of the Company transfers receivables or equipment and related assets) that engages in no activities other than in connection with the financing of receivables or equipment and that is designated by 79 the Board of Directors of the Company (as provided below) as a Securitization Entity (i) no portion of the Debt or any other Obligations (contingent or otherwise) of which (A) is guaranteed by the Company or any Restricted Subsidiary of the Company (other than the Securitization Entity) in any way other than pursuant to Standard Securitization Undertakings or Limited Originator Recourse, (B) is recourse to or obligates the Company or any Restricted Subsidiary of the Company (other than the Securitization Entity) in any way other than pursuant to Standard Securitization Undertakings or Limited Originator Recourse or (C) subjects any property or asset of the Company or any Restricted Subsidiary of the Company (other than the Securitization Entity), directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings or Limited Originator Recourse, (ii) with which neither the Company nor any Restricted Subsidiary of the Company has any material contract, agreement, arrangement or understanding other than on terms no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of the Company, other than fees payable in the ordinary course of business in connection with servicing receivables of such entity and (iii) to which neither the Company nor any Restricted Subsidiary of the Company has any obligation to maintain or preserve such entity's financial condition or cause such entity to achieve certain levels of operating results. Any such designation by the Board of Directors of the Company shall be evidenced by the filing with the Trustee a Board Resolution of the Company giving effect to such designation and an Officer's Certificate certifying that such designation complied with the foregoing conditions. "Senior Credit Facility" means, the Credit Agreement dated as of July 31, 1998, among the Company, Globe Holdings, the lenders party thereto in their capacity as such, Bank of America National Trust and Savings Association, as administrative agent, Merrill Lynch, Pierce, Fenner & Smith, Inc., as syndication agent, and BancAmerica Robertson Stephens, as arranger, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including, without limitation, increasing the amount of available borrowings thereunder or adding Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the indebtedness under such agreement or any successor or replacement agreement, whether by the same or any other agent, lender or group of lenders, whether contained in one or more agreements. "Senior Debt" means (i) all Debt of the Company outstanding under the Senior Credit Facility and all Hedging Obligations with respect thereto (including, but not limited to, the principal of, premium, if any, interest (including any interest accruing subsequent to a filing of a petition of bankruptcy at the rate provided for in documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, reimbursement obligations under letters of credit issued under, and fees, expenses, indemnities and other amounts owing in respect of, the foregoing Debt); (ii) any other Debt permitted to be incurred by the Company under the terms of the Indenture, unless the instrument under which such Debt is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes and (iii) all Obligations with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (i) Debt represented by Disqualified Stock, (ii) any liability for federal, state, local or other taxes owed or owing by the Company, (iii) any Debt of the Company to any of its Subsidiaries or other Affiliates, (iv) any trade payables or (v) that portion of any Debt that is incurred in violation of the Indenture. "Significant Subsidiary" means any Restricted Subsidiary of the Company that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the Issue Date. "Standard Securitization Undertakings" means representations, warranties, covenants and indemnitees entered into by the Company or any Subsidiary of the Company that are reasonably customary in receivables or equipment loan transactions. 80 "Stated Maturity" means, with respect to any installment of interest or principal on any series of Debt, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Debt, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subordinated Debt" means any Debt of the Company or any Guarantor which is by its terms subordinated in right of payment to the Notes or any Guarantee. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof). "Tax Sharing Agreement" means the Tax Sharing Agreement between the Company and Globe Holdings as in effect on the date of the Indenture or as thereafter amended in a manner that is not adverse to the Company or the Holders of Notes. "Total Assets" means, with respect to any date of determination, the total assets of the Company and its Restricted Subsidiaries shown on the Company's consolidated balance sheet prepared in accordance with GAAP on the last day of the fiscal quarter prior to the date of determination. "Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such Person that as of the time of determination shall be or continue to be designated an Unrestricted Subsidiary in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of the Company or any Restricted Subsidiary or holds any Lien on any property of the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided that (i) the Company certifies to the Trustee that such designation complies with the provisions of the covenant described under the caption "--Certain Covenants-- Restricted Payments" and (ii) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to, any indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (i) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Debt pursuant to the Consolidated Fixed Charge Coverage Ratio set forth in the first paragraph of the covenant described under the caption "-- Incurrence of Debt and Issuance of Preferred Stock" and (ii) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors, managers, trustees or other governing body, as applicable, of such Person. "Weighted Average Life to Maturity" means, when applied to any Debt at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (A) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal including payment at final 81 maturity, in respect thereof, by (B) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Debt. "Wholly Owned Restricted Subsidiary" of any Person means any Restricted Subsidiary of such Person that is a Wholly Owned Subsidiary of such Person. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person, by one or more Wholly Owned Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. EVENTS OF DEFAULT AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (ii) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by the subordination provisions of the Indenture); (iii) failure by the Company or any of its Restricted Subsidiaries for 30 days after notice from either the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes to comply with the provisions described under the captions "--Repurchase at the Option of Holders Upon Change of Control", "--Certain Covenants--Asset Sales", or "--Certain Covenants--Merger, Consolidation or Sale of Assets"; (iv) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice from either the Trustee or the Holders of at least 25% in principal amount of the then-outstanding Notes to comply with any of its other agreements or covenants in the Indenture or the Notes; (v) any Guarantee of a Significant Subsidiary ceases to be in full force and effect or any such Guarantor denies its liability under its Guarantee (other than by reason of a release of a Guarantee in accordance with the terms of the Indenture); (vi) a default under any mortgage, indenture, agreement or instrument under which there may be issued or by which there may be secured or evidenced any Debt for money borrowed by the Company or any of its Restricted Subsidiaries (other than a Securitization Entity) (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries (other than a Securitization Entity)) whether such Debt or guarantee now exists, or is created after the date of the Indenture, which default (A) is caused by a failure to pay at final Stated Maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of such Debt (a "Payment Default") or (B) results in the acceleration of such Debt prior to its final Stated Maturity and, in the case of either clause (A) or (B), the principal amount of any such Debt, together with the principal amount of any other such Debt under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $7.5 million or more; (vii) failure by the Company or any of its Significant Subsidiaries to pay final judgments aggregating in excess of $7.5 million (to the extent not covered by third party insurance as to which the insurance company has acknowledged coverage), which judgments are not paid, discharged or stayed for a period of 60 days; and (viii) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice") and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Senior Credit Facility, shall become due and payable upon the first to occur of an acceleration under the Senior Credit Facility, or five business days after receipt by the Company and the Representative under the Senior Credit Facility of such Acceleration Notice (but only if such Event of Default is then continuing). In the event of a declaration of acceleration because an Event of Default set forth in clause (vi) of the preceding paragraph has occurred and is continuing, such declaration of acceleration shall be automatically annulled if (i) the missed payments in respect of the applicable Debt have been paid or if the holders of the Debt that is subject to acceleration have rescinded their declaration of acceleration, in each case within 30 days thereof and (ii) all existing Events of Default, except non-payment of principal or interest which have become due solely 82 because of the acceleration of the Notes, have been cured or waived. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to August 1, 2003, by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to such date, then the amount payable for purposes of this paragraph will be 110.0%, expressed as a percentage of the amount that would otherwise be due but for the provisions of this sentence, plus accrued interest, if any, to the date of payment. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. All references herein to payments of principal, premium, if any, and interest on the Notes shall be deemed to include any applicable Additional Interest that may become payable in respect of the Notes. MODIFICATION OF THE INDENTURE Except as provided in the two succeeding paragraphs, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenant described above under the caption "Certain Covenants-Repurchase at the Option of Holders Upon Change of Control"), (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal, premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past 83 Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes, (vii) waive a redemption payment with respect to any Note (other than a payment required by the covenant described above under the caption "--Change of Control"), (viii) modify or change any provision of the Indenture or the related definitions, affecting the subordination or ranking of the Notes or any Guarantee in any manner that adversely affects the Holders, (ix) release any Guarantor from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with the terms of the Indenture or (x) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of any Holder of Notes, the Company and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Company's obligations to Holders of Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. PAYMENTS FOR CONSENT Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or agreed to be paid to all holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement, which solicitation documents must be mailed to all Holders of the Notes a reasonable length of time prior to the expiration of the solicitation. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have all of its obligations and the obligations of the Guarantors discharged with respect to the outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes to receive payments in respect of the principal, premium, if any, and interest on such Notes when such payments are due from the trust referred to below, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes. 84 In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal, premium, if any, and interest on the outstanding Notes at their Stated Maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (viii) the Company must deliver to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. TRANSFER AND EXCHANGE A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption. Also, the Company is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered Holder of a Note will be treated as the owner of it for all purposes. GOVERNING LAW The Indenture, the Notes and the Registration Rights Agreement are governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the conflicts of law principles thereof. CONCERNING THE TRUSTEE Norwest Bank Minnesota, National Association is the Trustee under the Indenture. Its address is Sixth & Marquette, Minneapolis, Minnesota 55479- 0069. The Company has also approved the Trustee as the initial Registrar and Paying Agent under the Indenture. 85 The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. EXCHANGE OFFER; REGISTRATION RIGHTS The Company and the Initial Purchasers entered into a registration rights agreement (the "Registration Rights Agreement") on July 31, 1998 pursuant to which the Company agreed, for the benefit of Holders of the Notes, that it will, at its expense for the benefit of the Holders, (i) within 60 days after the Issue Date, file the Exchange Offer Registration Statement with the Commission with respect to the Exchange Offer and (ii) use its best effort to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 150 days after the Issue Date. Upon the Exchange Offer Registration Statement being declared effective, the Company and the Guarantors will offer to all holders of the Notes an opportunity to exchange their securities for a like principal amount of the New Notes (and the related Guarantees). The Company and the Guarantors will keep the Exchange Offer open for acceptance for not less than 20 business days (or longer if required by applicable law) after the date notice of the Exchange Offer is mailed to the Holders. For each Note surrendered to the Company for exchange pursuant to the Exchange Offer, the Holder of such Note will receive a New Note having a principal amount at maturity equal to that of the surrendered Note. Interest on each New Note will accrue (i) from the last interest payment date on which interest was paid on the Note surrendered in exchange therefor or (ii) if no interest has been paid on such Note, from the Issue Date. Under existing interpretations of the Commission contained in several no- action letters to third parties, the New Notes (and any related Guarantees) will be freely transferable by holders thereof (other than affiliates of the Company) after the Exchange Offer without further registration under the Securities Act; provided, however, that each Holder that wishes to exchange its Notes for New Notes will be required to represent (i) that any New Notes to be received by it will be acquired in the ordinary course of its business, (ii) that at the time of the consummation of the Exchange Offer it has no arrangement or understanding with any person to participate in the distribution (within the meaning of Securities Act) of the New Notes in violation of the Securities Act, (iii) that it is not an "affiliate" (as defined in Rule 405 promulgated under the Securities Act) of the Company, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of New Notes and (v) if such Holder is a broker-dealer (a "Participating Broker-Dealer") that will receive New Notes for its own account in exchange for Notes that were acquired as a result of market-making or other trading activities, that it will deliver a prospectus in connection with any resale of such New Notes. The Commission has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to the New Notes (other than a resale of an unsold allotment from the original sale of the Notes) with the prospectus contained in the Exchange Offer Registration Statement. The Company and any Guarantors will agree to make available, during the period required by the Securities Act, a prospectus meeting the requirements of the Securities Act for use by Participating Broker-Dealers and other persons, if any, with similar prospectus delivery requirements for use in connection with any resale of New Notes. If, (i) because of any change in law or in currently prevailing interpretations of the staff of the Commission, the Company and any Guarantors are not permitted to effect an Exchange Offer, (ii) the Exchange Offer is not 86 consummated within 180 days of the Issue Date, (iii) in certain circumstances, certain holders of unregistered New Notes so request, or (iv) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive New Notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Company or any Guarantor within the meaning of the Securities Act), then in each case, the Company and any Guarantors will (x) promptly deliver to the Holders and the Trustee written notice thereof and (y) at their sole expense, (1) as promptly as practicable, file a shelf registration statement covering resales of the Notes and the Guarantees (the "Shelf Registration Statement"), (2) use their best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act and (3) use their best efforts to keep effective the Shelf Registration Statement until the earlier of two years after the date such Shelf Registration Statement is declared effective or such time as all of the applicable Notes have been sold thereunder. The Company will, in the event that a Shelf Registration Statement is filed, provide to each Holder copies of the prospectus that is a part of the Shelf Registration Statement, notify each such Holder when the Shelf Registration Statement for the Notes has become effective and take certain other actions as are required to permit unrestricted resales of the Notes. A Holder that sells Old Notes pursuant to the Shelf Registration Statement will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement that are applicable to such Holder (including certain indemnification rights and obligations). If the Company or any Guarantor fails to comply with the above provision or if the Exchange Offer Registration Statement or the Shelf Registration Statement fails to become effective, then, as liquidated damages, additional interest (the "Additional Interest") shall become payable in respect of the Notes as follows: (i) if the Exchange Offer Registration Statement or any Shelf Registration Statement is not filed with the Commission on or prior to the applicable Filing Date, Additional Interest shall accrue on the principal amount of the Notes at a rate of .50% per annum for the first 90 days immediately following such Filing Date, such Additional Interest rate increasing by an additional .25% per annum at the beginning of each subsequent 90-day period; or (ii) if the Exchange Offer Registration Statement is not declared effective by the Commission within 150 days following the Issue Date or, whether or not the Company and the Guarantors have consummated or will consummate an Exchange Offer, the Company and the Guarantors are required to file a Shelf Registration Statement and such Shelf Registration Statement is not declared effective by the Commission on or prior to the 90th day following the applicable Filing Date with respect to such Shelf Registration Statement, then, commencing on the day after either such required effective date, Additional Interest shall accrue on the principal amount of the Notes at a rate of .50% per annum for the first 90 days immediately following such date, such Additional Interest rate increasing by an additional .25% per annum at the beginning of each subsequent 90-day period; or (iii) if (A) the Company has not exchanged New Notes for all Notes validly tendered in accordance with the terms of the Exchange Offer on or prior to the 180th day after the Issue Date, (B) the Exchange Offer Registration Statement ceases to be effective for at least 30 days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders or (C) if applicable, the Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective at any time prior to the second anniversary of the date such Shelf Registration Statement was declared effective (other than after such time as all Notes have been disposed of thereunder), then Additional Interest shall accrue on the principal amount of the Notes at a rate of .50% per annum for the first 90 days commencing on (x) the 181st day after the Issue Date, in the case of (A) above, (y) the day the Exchange Offer Registration Statement ceases to be effective in the case of (B) above or (z) the day such Shelf Registration Statement ceases to be effective in the case of (C) above, such Additional Interest rate increasing by an additional .25% per annum at the beginning of each subsequent 90-day period; 87 provided, however, that the Additional Interest rate on the Notes as a result of the provisions of clauses (i), (ii) and (iii) above may not exceed in the aggregate 2.0% per annum; provided, further, however, that (x) upon the filing of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of clause (i) above), (y) upon the effectiveness of the Exchange Offer Registration or a Shelf Registration Statement (in the case of clause (ii) above), or (z) upon the exchange of New Notes for all Notes tendered (in the case of clause (iii) (A) above), upon the effectiveness of the Exchange Offer Registration Statement which had ceased to remain effective (in the case of clause (iii) (B) above) or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of clause (iii) (C) above), Additional Interest on the Notes as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. As used herein, "Filing Date" means (i) in the case of an Exchange Offer Registration Statement, the 60th day after the Issue Date; or (ii) in the case of a Shelf Registration Statement (which may be applicable notwithstanding the consummation of the Exchange Offer), the 60th day after a notice regarding the obligation to file a Shelf Registration Statement is required to be delivered. Any amounts of Additional Interest due pursuant to clauses (i), (ii) or (iii) above will be payable in cash, on the same original interest payment dates as the Notes. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Notes, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, all the provisions of the Registration Rights Agreement, a copy of which will be available upon request to the Company. ADDITIONAL INFORMATION Anyone who receives this Prospectus may obtain a copy of the Indenture and the Registration Rights Agreement without charge by writing to the Trustee. THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Old Notes were originally sold by the Company on July 31, 1998 to the Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers subsequently resold the Old Notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act. As a condition to the Purchase Agreement, the Company and the Initial Purchasers entered into the Registration Rights Agreement on the date of the Initial Offering (the "Issue Date"). Following the consummation of the Exchange Offer, holders of the Old Notes who were eligible to participate in the Exchange Offer but who did not tender their Old Notes will not have any further registration rights and such Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Old Notes could be adversely affected. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in integral multiples of $1,000. 88 The form and terms of the New Notes are the same as the form and terms of the Old Notes except that (i) the New Notes bear a Series B designation and a different CUSIP Number from the Old Notes, (ii) the New Notes have been registered under the Securities Act and hence will not bear legends restricting the transfer thereof and (iii) the holders of the New Notes will not be entitled to certain rights under the Registration Rights Agreement, including the provisions providing for an increase in the interest rate on the Old Notes in certain circumstances relating to the timing of the Exchange Offer, all of which rights will terminate when the Exchange Offer is consummated. The New Notes will evidence the same debt as the Old Notes and will be entitled to the benefits of the Indenture. As of the date of this Prospectus, $150,000,000 aggregate principal amount of Old Notes were outstanding. The Company has fixed the close of business on , 1999 as the record date for the Exchange Offer for purposes of determining the persons to whom this Prospectus and the Letter of Transmittal will be mailed initially. Holders of Old Notes do not have any appraisal or dissenters' rights under the General Corporation Law of Alabama, or the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder. The Company shall be deemed to have accepted validly tendered Old Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the New Notes from the Company. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted Old Notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the Exchange Offer. See "--Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on 1999, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will mail to the registered holders an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "--Conditions" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. 89 INTEREST ON THE NEW NOTES The New Notes will bear interest from their date of issuance. Holders of Old Notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the date of issuance of the New Notes. Such interest will be paid with the first interest payment on the New Notes on February 1, 1999. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the New Notes. Interest on the New Notes is payable semi-annually on each February 1 and August 1, commencing on February 1, 1999. PROCEDURES FOR TENDERING Only a holder of Old Notes may tender such Old Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal or submit an Agent's Message (as defined below) in connection with a book-entry transfer, and mail or otherwise deliver such Letter of Transmittal or such facsimile, or Agent's Message, together with the Old Notes and any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. To be tendered effectively, the Old Notes, Letter of Transmittal or Agent's Message and other required documents must be completed and received by the Exchange Agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the Old Notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of such book-entry transfer must be received by the Exchange Agent prior to the Expiration Date. The term "Agent's Message" means a message, transmitted by a book-entry transfer facility to, and received by, the Exchange Agent forming a part of a confirmation of a book-entry, which states that such book-entry transfer facility has received an express acknowledgment from the participant in such book-entry transfer facility tendering the Old Notes that such participant has received and agrees: (i) to participate in the Automated Tender Option Program ("ATOP"); (ii) to be bound by the terms of the Letter of Transmittal; and (iii) that the Company may enforce such agreement against such participant. By executing the Letter of Transmittal (or transmitting an Agent's Message in lieu thereof), each holder will make to the Company the representations set forth above in the third paragraph under the heading "--Purpose and Effect of the Exchange Offer." The tender by a holder and the acceptance thereof by the Company will constitute agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal or Agent's Message. THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL OR AGENT'S MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. See "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" included with the Letter of Transmittal. 90 Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Old Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of the Medallion System (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Old Notes listed therein, such Old Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Old Notes with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, offices of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. The Company understands that the Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Old Notes at the book-entry transfer facility, The Depository Trust Company (the "Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Old Notes by causing such Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account with respect to the Old Notes in accordance with the Book-Entry Transfer Facility's procedures for such transfer. Although delivery of the Old Notes may be effected through book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly completed and duly executed with any required signature guarantee (or, in the case of book-entry transfer, an Agent's Message in lieu thereof) and all other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right in their sole discretion to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available, (ii) who cannot deliver their Old Notes, the Letter of Transmittal (or, in the case of book-entry transfer, an Agent's 91 Message) or any other required documents to the Exchange Agent or (iii) who cannot complete the procedures for book-entry transfer, prior to the Expiration Date, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of such Old Notes and the principal amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Old Notes (or a confirmation of book-entry transfer of such Notes into the Exchange Agent's account at the Book-Entry Transfer Facility), and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal or facsimile thereof (or, in the case of book-entry transfer, an Agent's Message), as well as the certificate(s) representing all tendered Old Notes in proper form for transfer (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility), and all other documents required by the Letter of Transmittal are received by the Exchange Agent upon three New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex, letter or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number(s) and principal amount of such Old Notes, or, in the case of Old Notes transferred by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited), (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Old Notes register the transfer of such Old Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no New Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the Expiration Date. 92 CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange New Notes for, any Old Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Old Notes, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which, in the reasonable judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or any material adverse development has occurred in any existing action or proceeding with respect to the Company or any of its subsidiaries; or (b) any law, statute, rule, regulation or interpretation by the staff of the Commission is proposed, adopted or enacted, which, in the reasonable judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or materially impair the contemplated benefits of the Exchange Offer to the Company; or (c) any governmental approval has not been obtained, which approval the Company shall, in its reasonable discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby. If the Company determines in its reasonable discretion that any of the conditions are not satisfied, the Company may (i) refuse to accept any Old Notes and return all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Old Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Old Notes which have not been withdrawn. EXCHANGE AGENT Norwest Bank Minnesota, National Association has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By Registered or Certified Mail: Overnight Courier: Norwest Bank Minnesota, National Norwest Bank Minnesota, National Association Association P.O. Box 1517 Norwest Center Minneapolis, Minnesota 55480-1517 6th and Marquette Avenue Attention: Corporate Trust Services Minneapolis, Minnesota 55479-0113 Attention: Corporate Trust Services By Hand: Facsimile Transmission: Norwest Bank Minnesota, National (For Eligible Institutions Only) Association (612) 667-4927 NorthStar East, 12th Floor Confirm by Telephone: 608 Second Avenue South, North Star (612) 667-9764 East Minneapolis, Minnesota 55479-0113 DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. 93 FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telecopy, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers, or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. ACCOUNTING TREATMENT The New Notes will be recorded at the same carrying value as the Old Notes, which is face value, as reflected in the Company's accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by the Company. The expenses of the Exchange Offer will be expensed over the term of the New Notes. CONSEQUENCES OF FAILURE TO EXCHANGE The Old Notes that are not exchanged for New Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Old Notes may be resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to a person inside the United States whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel reasonably acceptable to the Company), (iii) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, or (iv) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. RESALE OF THE NEW NOTES With respect to resales of New Notes, based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that a holder or other person who receives New Notes, whether or not such person is the holder (other than a person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who receives New Notes in exchange for Old Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the New Notes, will be allowed to resell the New Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the New Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires New Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the New Notes, such holder cannot rely on the position of the staff of the Commission enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each Participating Broker-Dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. 94 As contemplated by these no-action letters and the Registration Rights Agreement, each holder accepting the Exchange Offer is required to represent to the Company in the Letter of Transmittal that (i) the New Notes are to be acquired by the holder or the person receiving such New Notes, whether or not such person is the holder, in the ordinary course of business, (ii) the holder or any such other person (other than a broker-dealer referred to in the next sentence) is not engaging and does not intend to engage, in the distribution of the New Notes, (iii) the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the New Notes, (iv) neither the holder nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act, and (v) the holder or any such other person acknowledges that if such holder or other person participates in the Exchange Offer for the purpose of distributing the New Notes it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the New Notes and cannot rely on those no-action letters. As indicated above, each Participating Broker-Dealer that receives New Notes for its own account in exchange for Old Notes must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. For a description of the procedures for such resales by Participating Broker-Dealers, see "Plan of Distribution." 95 MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS The following is a discussion of material U.S. Federal income and estate tax consequences of an exchange of Old Notes for New Notes and the ownership and disposition of the New Notes. Unless otherwise stated, this discussion is limited to the tax consequences to those persons who are original owners of the Notes and who hold such Notes as capital assets ("Holders"). The discussion does not purport to address specific tax consequences that may be relevant to particular persons (including, for example, financial institutions, broker-dealers, insurance companies, tax-exempt organizations, and persons in special situations, such as those who hold Notes as part of a straddle, hedge, conversion transaction, or other integrated investment). In addition, this discussion does not address U.S. Federal alternative minimum tax consequences or any aspect of state, local or foreign taxation. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Department regulations promulgated thereunder (the "Treasury Regulations"), and administrative and judicial interpretations thereof, all of which are subject to change, possibly with retroactive effect. The Company will treat the Notes as indebtedness for Federal income tax purposes, and the following discussion assumes that such treatment is correct. For purposes of this discussion, a "U.S. Holder" is a Holder of a Note who is a United States citizen or resident, a corporation or partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof, an estate the income of which is subject to U.S. Federal income taxation regardless of its source, or a trust if a United States court exercises primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial decisions. A "Non-U.S. Holder" is a Holder of a Note who is not a U.S. Holder. EXCHANGE OF NOTES The Company believes that the exchange of Old Notes for New Notes pursuant to the Exchange Offer will not be treated as an "exchange" for federal income tax purposes because the New Notes will not be considered to differ materially in kind or extent from the Old Notes. Rather, the New Notes received by a holder will be treated as a continuation of the Old Notes in the hands of such holder. As a result, there will be no federal income tax consequences to holders exchanging Old Notes for New Notes pursuant to the Exchange Offer. PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING AND DISPOSING OF THE NOTES, AS WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS. TAX CONSEQUENCES TO U.S. HOLDERS Taxation of Interest Interest paid on the Notes will be includible in the income of a U.S. Holder in accordance with the U.S. Holder's regular method of tax accounting. A U.S. Holder may be entitled to treat interest income on the Notes as "investment income" for purposes of computing certain limitations concerning the deductibility of investment interest expense. In the event of a Change of Control, a Holder of a Note will have the right to require the Company to purchase such Note at a price equal to 101% of the principal amount thereof. The Treasury Regulations provide that the right of a Holder of a Note to require redemption of such Note upon the occurrence of a Change of Control will not affect the yield or maturity date of the Note unless, based on all the facts and circumstances as of the issue date, it is more likely than not that a Change of Control giving rise to the redemption right will occur. The Company believes that the redemption provisions of the Notes will not affect the computation of the yield to maturity of the Notes and intends to report in a manner consistent with this belief. 96 The Company may redeem the Notes at any time on or after August 1, 2003, and in certain circumstances, may redeem a portion of the Notes at any time prior to August 1, 2001. Under the Treasury Regulations, the Company is deemed to exercise any option to redeem if the exercise of such option would lower the yield of the debt instrument. The Company believes that it will not be treated as having exercised an option to redeem under these rules and intends to report in a manner consistent with this belief. The Company believes that it is significantly more likely than not that no Additional Interest will be payable by the Company to Holders of Notes. Accordingly, the Company intends to take the position (which generally will be binding upon Holders of Notes) that the possible payment of Additional Interest will not affect the computation of the yield to maturity of the Notes and any Additional Interest will be recognized by a Holder of Notes in accordance with such Holder's method of accounting. Sale, Exchange or Retirement of the Notes Upon the sale, exchange or retirement of the Notes, a U.S. Holder will recognize gain or loss equal to the difference between the amount realized upon the sale, exchange or retirement (less a portion allocable to any accrued and unpaid interest, which will be taxable as ordinary income) and the U.S. Holder's adjusted tax basis in the Notes. A U.S. Holder's adjusted tax basis in the Notes generally will be the U.S. Holder's cost therefor, less any principal payments received by such Holder. Gain or loss recognized by a U.S. Holder on the sale, exchange or retirement of the Notes will be capital gain or loss. The gain or loss will be long-term capital gain or loss if the Notes have been held by the U.S. Holder for more than 18 months, and mid-term gain or loss if the Notes have been held by the U.S. Holder for more than 12 months but not more than 18 months. The deductibility of capital losses by U.S. Holders is subject to limitation. TAX CONSEQUENCES TO NON-U.S. HOLDERS Taxation of Interest A Non-U.S. Holder generally will not be subject to U.S. Federal income or withholding tax on interest paid on the Notes so long as such interest is not effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States, and the Non-U.S. Holder (i) does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company, (ii) is not a "controlled foreign corporation" with respect to which the Company is a "related person" within the meaning of the Code, and (iii) satisfies the requirements of Sections 871(h) or 881(c) of the Code, as set forth below under "Owner Statement Requirement." If the foregoing conditions are not satisfied, then interest paid on the Notes will be subject to U.S. withholding tax at a rate of 30%, unless such rate is reduced or eliminated pursuant to an applicable tax treaty. Sale, Exchange or Retirement of the Notes Any capital gain a Non-U.S. Holder realizes on the sale, exchange, retirement or other taxable disposition of a Note will be exempt from U.S. Federal income and withholding tax, provided that (i) the gain is not effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States, and (ii) in the case of a Non-U.S. Holder that is an individual, the Non-U.S. Holder is not present in the United States for 183 days or more during the taxable year. Effectively Connected Income If the interest, gain or other income a Non-U.S. Holder recognizes on a Note is effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States, the Non-U.S. Holder (although exempt from the withholding tax previously discussed if an appropriate statement is furnished) generally will be subject to U.S. Federal income tax on the interest, gain or other income at regular Federal income tax rates. In addition, if the Non-U.S. Holder is a corporation, it may be subject to a branch profits tax equal to 30% of its "effectively connected earnings and profits," as adjusted for certain items, unless it qualifies for a lower rate under an applicable tax treaty. 97 Federal Estate Taxes A Note held by an individual who at the time of death is not a citizen or resident of the United States will not be subject to United States Federal estate tax as a result of such individual's death, provided that the individual does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote and that the interest accrued on such Notes was not effectively connected with a United States trade or business. Owner Statement Requirement Sections 871(h) and 881(c) of the Code require that either the beneficial owner of a Note or a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "Financial Institution") and that holds a Note on behalf of such owner files a statement with the Company or its agent to the effect that the beneficial owner is not a United States person in order to avoid withholding of United States Federal income tax. Under current regulations, this requirement will be satisfied if the Company or its agent receives (i) a statement (an "Owner Statement") from the beneficial owner of a Note in which such owner certifies, under penalties of perjury, that such owner is not a United States person and provides such owner's name and address, or (ii) a statement from the Financial Institution holding the Note on behalf of the beneficial owner in which the Financial Institution certifies, under penalties of perjury, that it has received the Owner Statement together with a copy of the Owner Statement. The beneficial owner must inform the Company or its agent (or, in the case of a statement described in clause (ii) of the immediately preceding sentence, the Financial Institution) within 30 days of any change in information on the Owner Statement. The Internal Revenue Service has amended the transition period relating to recently issued Treasury Regulations governing backup withholding and information reporting requirements. Withholding certificates or statements that are valid on December 31, 1999, may be treated as valid until the earlier of their expiration or December 31, 2000. Certificates or statements received under the currently effective rules will fail to be effective after December 31, 2000. INFORMATION REPORTING AND BACKUP WITHHOLDING The Company will, where required, report to the Holders of Notes and the Internal Revenue Service the amount of any interest paid on the Notes in each calendar year and the amounts of tax withheld, if any, with respect to such payments. A noncorporate U.S. Holder may be subject to information reporting and to backup withholding at a rate of 31% with respect to payments of principal and interest made on a Note, or on proceeds of the disposition of a Note before maturity, unless such U.S. Holder provides a correct taxpayer identification number or proof of an applicable exemption, and otherwise complies with applicable requirements of the information reporting and backup withholding rules. In the case of payments of interest to Non-U.S. Holders, current Treasury Regulations provide that the 31% backup withholding tax and certain information reporting requirements will not apply to such payments with respect to which either the requisite certification, as described above, has been received or an exemption has otherwise been established, provided that neither the Company nor its payment agent has actual knowledge that the Holder is a United States person or that the conditions of any other exemption are not in fact satisfied. Under current Treasury Regulations, these information reporting and backup withholding requirements will apply, however, to the gross proceeds paid to a Non-U.S. Holder on the disposition of the Notes by or through a United States office of a United States or foreign broker, unless the Non-U.S. Holder otherwise establishes an exemption. Information reporting requirements, but not backup withholding, will also apply to payment of the proceeds of a disposition of the Notes by or through a foreign office of a United States broker or foreign brokers with certain types of relationships to the United States unless such broker has documentary evidence in its file that the Holder of the Notes is not a United States person and such broker has no actual knowledge to the contrary, or the Holder establishes an exception. Neither information reporting nor backup withholding generally will apply to payment of the proceeds of a disposition of the Notes by or through a foreign office of a foreign broker not subject to the preceding sentence. 98 The Treasury Department has released new Treasury Regulations governing the backup withholding and information reporting requirements. The new regulations would not generally alter the treatment of a Non-U.S. Holder who furnishes an Owner Statement to the payor. The new regulations may change certain procedures applicable to the foreign office of a United States broker or foreign brokers with certain types of relationships to the United States. The new regulations are generally effective for payments made after December 31, 1999. Non-U.S. Holders should consult their own tax advisors with respect to the impact, if any, of the new final regulations. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against the Holder's United States Federal income tax liability, provided that the required information is furnished to the Internal Revenue Service. 99 BOOK-ENTRY PROCEDURES AND TRANSFER GENERAL Except as set forth in the next paragraph, the Notes to be resold as set forth herein will initially be issued in the form of one or more Global Notes (each, a "Global Note"). Each Global Note will be deposited on the date of the closing of the sale of the Notes offered hereby (the "Closing Date") with, or on behalf of, The Depository Trust Company (the "Depository") and registered in the name of Cede & Co., as nominee of the Depository (such nominee being referred to herein as the "Global Note Holder"). Notes that are issued as described below under "--Certificated Securities" will be issued in the form of registered definitive certificates (the "Certificated Securities"). Upon the transfer of Certificated Securities, such Certificated Securities may, unless the Global Note has previously been exchanged for Certificated Securities, be exchanged for an interest in the Global Note representing the principal amount of Notes being transferred. The Depository is a limited-purpose trust company that was created to hold securities for its participating organizations (collectively, the "Participants" or the "Depository's Participants") and to facilitate the clearance and settlement of transactions in such securities between Participants through electronic book-entry changes in accounts of its Participants. The Depository's Participants include securities brokers and dealers (including the Initial Purchasers), banks and trust companies, clearing corporations and certain other organizations. Access to the Depository's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants" or the "Depository's Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Persons who are not Participants may beneficially own securities held by or on behalf of the Depository only thorough the Depository's Participants or the Depository's Indirect Participants. The Company expects that pursuant to procedures established by the Depository ownership of the Notes evidenced by the Global Note will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depository (with respect to the interests of the Depository's Participants), the Depository's Participants and the Depository's Indirect Participants. Note holders are advised that the laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer Notes evidenced by the Global Note will be limited to such extent. So long as the Global Note Holder is the registered owner of any Notes, the Global Note Holder will be considered the sole Holder under the Indenture of any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the Global Note will not be considered the owners or Holders thereof under the Indenture for any purpose, including with respect to the giving of any directions, instructions or approvals to the Trustee thereunder. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records of the Depository or for maintaining, supervising or reviewing any records of the Depository relating to the Notes. Payments in respect of the principal, premium, if any, and interest on any Notes registered in the name of the Global Note Holder on the applicable record date will be payable by the Trustee to or at the direction of the Global Note Holder in its capacity as the registered Holder under the Indenture. Under the terms of the Indenture, the Company and the Trustee may treat the persons in whose names Notes, including the Global Note, are registered as the owners thereof for the purpose of receiving such payments. Consequently, neither the Company nor the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of Notes. The Company believes, however, that it is currently the policy of the Depository to immediately credit the accounts of the relevant Participants with such payments, in amounts proportionate to their respective holdings of beneficial interests in the relevant security as shown on the records of the Depository. Payments by the Depository's Participants and the Depository's Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practice and will be the responsibility of the Depository's Participants or the Depository's Indirect Participants. 100 Certificated Securities. Subject to certain conditions, any person having a beneficial interest in the Global Note may, upon request to the Trustee, exchange such beneficial interest for Notes in the form of Certificated Securities. Upon any such issuance, the Trustee is required to register such Certificated Securities in the name of, and cause the same to be delivered to, such person or persons (or the nominee of any thereof). In addition, if (i) the Company notifies the Trustee in writing that the Depository is no longer willing or able to act as a depository and the Company is unable to locate a qualified successor within 90 days or (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in the form of Certificated Securities under the Indenture, then, upon surrender by the Global Note Holder of its Global Note, Notes in such form will be issued to each person that the Global Note Holder and the Depository identify as being the beneficial owner of the related Notes. Neither the Company nor the Trustee will be liable for any delay by the Global Note Holder or the Depository in identifying the beneficial owners of Notes and the Company and the Trustee may conclusively rely on, and will be protected in relying on, instructions from the Global Note Holder or the Depository for all purposes. Next Day Settlement and Payment. The Indenture will require that payments in respect of the Notes represented by the Global Note (including principal, premium, if any, and interest) be made by wire transfer of immediately available next day funds to the accounts specified by the Global Note Holder. With respect to Certificated Securities, the Company will make all payments of principal, premium, if any, and interest, if any, by wire transfer of immediately available next day funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each such Holder's registered address. The Company expects that secondary trading in the Certificated Securities will also be settled in immediately available funds. 101 PLAN OF DISTRIBUTION Each Participating Broker-Dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any Participating Broker- Dealer for use in connection with any such resale. In addition, until , 1999 (90 days after the commencement of the Exchange Offer), all dealers effecting transactions in the New Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sales of the New Notes by Participating Broker-Dealers. New Notes received by Participating Broker- Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Participating Broker-Dealer and/or the purchasers of any such New Notes. Any Participating Broker-Dealer that resells the New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any Participating Broker-Dealer that requests such documents in the Letter of Transmittal. LEGAL MATTERS The validity of the New Notes offered hereby and certain other legal matters will be passed upon on behalf of the Company by Kirkland & Ellis, Chicago, Illinois. EXPERTS The consolidated financial statements of the Company at December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company is not currently subject to the periodic reporting and other informational requirements of the Exchange Act. The Company has agreed that, whether or not it is required to do so by the rules and regulations of the Commission, for so long as any of the Notes remain outstanding, it will furnish to the holders of the Notes and file with the Commission, copies of the financial and other information that would be contained in the annual reports and quarterly reports that the Company would be required to file with the Commission if it were subject 102 to such requirements of the Exchange Act. The Company will also make such reports available to prospective purchasers of the Old Notes and the New Notes, as applicable, and to securities analysts and broker-dealers upon their request. In addition, the Company has agreed to furnish to holders of the Notes, and prospective purchasers of the Notes, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act until such time as the Company has exchanged the Notes for the New Notes and which have been registered under the Securities Act or the Shelf Registration Statement has been declared effective by the Commission. 103 GLOBE MANUFACTURING CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Auditors............................................ F-2 Consolidated Balance Sheets at December 31, 1996 and 1997 and Unaudited September 30, 1998....................................................... F-3 Consolidated Statements of Income for the Years Ended December 31, 1995, 1996 and 1997 and the Unaudited Nine Months Ended September 30, 1997 and 1998..................................................................... F-4 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1995, 1996 and 1997 and the Unaudited Nine Months Ended September 30, 1998................................................. F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 and the Unaudited Nine Months Ended September 30, 1997 and 1998............................................................ F-6 Notes to Consolidated Financial Statements................................ F-7
F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors Globe Manufacturing Corp. We have audited the accompanying consolidated balance sheets of Globe Manufacturing Corp. (formerly Globe Manufacturing Co.) as of December 31, 1996 and 1997, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Globe Manufacturing Corp. (formerly Globe Manufacturing Co.) at December 31, 1996 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Ernst & Young LLP Providence, Rhode Island March 24, 1998 except for Note 12, as to which the date is August 6, 1998 F-2 GLOBE MANUFACTURING CORP. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED DECEMBER 31, ------------------ SEPTEMBER 30, ASSETS 1996 1997 1998 ------ -------- -------- ------------- (UNAUDITED) Current assets: Cash and cash equivalents................... $ 3,101 $ 1,947 $ 1,766 Accounts receivable, net.................... 20,517 23,953 25,633 Receivable from joint venture............... -- 213 319 Taxes receivable............................ -- -- 2,211 Inventories................................. 11,812 13,764 14,843 Prepaid expenses and other assets........... 445 484 449 Deferred income taxes....................... 1,395 2,449 2,848 -------- -------- -------- Total current assets...................... 37,270 42,810 48,069 Property, plant and equipment: Land and land improvements.................. 942 942 942 Building and building improvements.......... 31,575 33,122 35,344 Manufacturing equipment..................... 66,359 79,202 83,084 Furniture and equipment..................... 1,826 2,087 2,166 Autos and trucks............................ 319 319 319 Construction in progress.................... 3,460 5,959 26,156 -------- -------- -------- 104,481 121,631 148,011 Less accumulated depreciation............... (54,359) (63,681) (71,304) -------- -------- -------- Net property, plant and equipment......... 50,122 57,950 76,707 Deferred income taxes........................ 1,421 2,822 2,961 Cash surrender value of life insurance, net of loans.................................... 1,523 927 1,054 Intangible assets............................ 214 -- -- Investment in joint venture.................. -- -- -- Notes receivable from officers............... 264 278 -- Other Assets................................. -- -- -- Deferred financing costs, net of amortization................................ 515 346 11,536 -------- -------- -------- Total assets.............................. $ 91,329 $105,133 $140,327 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable............................ $ 7,177 $ 7,440 $ 8,466 Accrued expenses............................ 5,183 4,827 9,352 Payable to joint venture.................... 1,481 -- -- Dividend payable............................ 872 50 -- Note payable................................ 2,750 2,475 5,800 Taxes payable............................... 2,206 1,028 -- Long-term lease obligations due within one year....................................... 88 37 31 Long-term debt obligations due within one year....................................... 13,250 7,500 -- -------- -------- -------- Total current liabilities................. 33,007 23,357 23,649 Long-term debt............................... 34,500 46,875 115,000 Senior subordinated notes.................... -- -- 150,000 Senior discount notes........................ -- -- -- Long-term lease obligation................... 27 30 58 Other long-term postretirement liability..... 3,521 3,762 4,395 Minimum pension liability.................... 214 -- -- Commitments and contingencies (Note 7)....... -- -- -- Redeemable cumulative preferred stock, Series A, redeemable at $8,000; 30,000 shares authorized, 8,000 issued and outstanding at December 31, 1996........................... 6,466 -- -- Shareholders' equity......................... Common stock, Class A, voting, $.01 par value...................................... 2 2 -- Common stock, Class B, nonvoting, $.01 par value...................................... 16 16 -- Paid in capital............................. 5,700 10,785 68,076 Retained earnings........................... 41,744 56,468 (220,851) -------- -------- -------- 47,462 67,271 (152,775) Less treasury stock, at cost: Common, Class A, 99,000 shares.............. (4,187) (4,187) -- Common, Class B, 683,314 shares............. (28,657) (28,657) -- -------- -------- -------- (32,844) (32,844) -- Unearned compensation........................ (1,024) (3,318) -- -------- -------- -------- Total shareholders' equity................ 13,594 31,109 (152,775) -------- -------- -------- Total liabilities & shareholders' equity.. $ 91,329 $105,133 $140,327 ======== ======== ========
See accompanying notes. F-3 GLOBE MANUFACTURING CORP. CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED DECEMBER NINE MONTHS ENDED 31, SEPTEMBER 30, ---------------------------- ------------------ 1995 1996 1997 1997 1998 -------- -------- -------- -------- -------- (UNAUDITED) Net sales.................... $128,319 $152,603 $170,941 $127,307 $133,321 Cost of sales................ 97,182 110,609 115,099 86,187 84,682 -------- -------- -------- -------- -------- Gross margin............. 31,137 41,994 55,842 41,120 48,639 Selling, general and administrative expenses..... 18,515 21,705 24,381 15,808 19,265 Research and development costs....................... 2,260 2,533 2,633 1,953 3,144 -------- -------- -------- -------- -------- Operating income......... 10,362 17,756 28,828 23,359 26,230 Other Income/(Expense) Interest................... (6,030) (5,285) (3,968) (3,076) (6,143) Loss in investment in joint venture................... (643) -- -- -- -- Transaction compensation expenses.................. -- -- -- -- (5,778) Other income, net.......... 438 875 372 233 647 -------- -------- -------- -------- -------- Income before income taxes and extraordinary items................... 4,127 13,346 25,232 20,516 14,956 Provision for income taxes... 1,718 4,784 8,383 7,715 5,609 -------- -------- -------- -------- -------- Income before extraordinary item...... 2,409 8,562 16,849 12,801 9,347 Loss from write-off of deferred financing costs, net of applicable income taxes of $822 in 1995 and $176 in 1997................ 1,294 -- 301 301 187 -------- -------- -------- -------- -------- Net income............... $ 1,115 $ 8,562 $ 16,548 $ 12,500 $ 9,160 ======== ======== ======== ======== ========
See accompanying notes. F-4 GLOBE MANUFACTURING CORP. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
SHARES OUTSTANDING TREASURY STOCK ------------------ ----------------- COMMON STOCK COMMON STOCK COMMON STOCK TOTAL ------------------ ---------------- PAID-IN RETAINED ----------------- UNEARNED SHAREHOLDERS' CLASS A CLASS B CLASS A CLASS B CAPITAL EARNINGS CLASS A CLASS B COMPENSATION EQUITY -------- -------- ------- -------- ------- --------- ------- -------- ------------ ------------- Balances, December 31, 1994............. 100,000 931,404 $16 $ 2 $ 4,965 $ 33,789 $(4,187) $(28,657) $ (630) $ 5,298 Dividends....... -- -- -- -- -- (850) -- -- -- (850) Net income...... -- -- -- -- -- 1,115 -- -- -- 1,115 -------- -------- --- ---- ------- --------- ------- -------- ------- --------- Balances, December 31, 1995............. 100,000 931,404 16 2 4,965 34,054 (4,187) (28,657) (630) 5,563 Dividends....... -- -- -- -- -- (872) -- -- -- (872) Unearned compensation relating to the grant of stock options......... -- -- -- -- 735 -- -- -- (735) 0 Amortization of unearned compensation.... -- -- -- -- -- -- -- -- 341 341 Net income...... -- -- -- -- -- 8,562 -- -- -- 8,562 -------- -------- --- ---- ------- --------- ------- -------- ------- --------- Balances, December 31, 1996............. 100,000 931,404 16 2 5,700 41,744 (4,187) (28,657) (1,024) 13,594 Dividends....... -- -- -- -- -- (290) -- -- -- (290) Redemption of Series A Cumulative Preferred Stock. -- -- -- -- -- (1,534) -- -- -- (1,534) Unearned compensation relating to the grant of stock options......... -- -- -- -- 5,085 -- -- -- (5,085) 0 Amortization of unearned compensation.... -- -- -- -- -- -- -- -- 2,791 2,791 Net income...... -- -- -- -- -- 16,548 -- -- -- 16,548 -------- -------- --- ---- ------- --------- ------- -------- ------- --------- Balances, December 31, 1997............. 100,000 931,404 16 2 10,785 56,468 (4,187) (28,657) (3,318) 31,109 Net effect of recapitalization transaction..... (100,000) (931,404) (16) (2) 57,291 (286,479) 4,187 28,657 3,318 (193,044) Net income (unaudited)..... -- -- -- -- -- 9,160 -- -- -- 9,160 -------- -------- --- ---- ------- --------- ------- -------- ------- --------- Balances, September 30, 1998 (unaudited). -- -- -- $-- $68,076 $(220,851) $ -- $ -- $ -- $(152,775) ======== ======== === ==== ======= ========= ======= ======== ======= =========
See accompanying notes. F-5 GLOBE MANUFACTURING CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, --------------------------- ------------------ 1995 1996 1997 1997 1998 -------- -------- ------- -------- -------- (UNAUDITED) Operating Activities Net Income.................. $ 1,115 $ 8,562 $16,548 $ 12,500 $ 9,160 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............. 10,688 9,335 9,417 6,654 7,926 Amortization of unearned compensation............. -- 341 2,791 -- 3,319 Extraordinary charge-- write-off of deferred finance cost............. 1,801 -- 478 478 299 Provision for losses on accounts receivable...... 336 1,093 691 277 1,363 Loss in joint venture..... 643 -- -- -- -- Deferred income tax provision (benefit)...... (606) (958) (2,455) -- (538) Other post-retirement benefits charge.......... 992 652 515 565 633 Increase (decrease) in cash from changes in assets and liabilities: Accounts receivable..... (1,296) (7,122) (4,127) (7,163) (3,044) Inventories............. (4,008) 4,132 (1,952) (1,374) (1,079) Prepaid expenses and other assets........... 381 12 (38) 215 35 Refundable income taxes. 1,414 61 -- -- -- Accounts payable........ (214) 2,459 263 (923) 1,026 Accrued expenses........ 840 2,203 (357) 420 4,525 Taxes payable........... 772 1,434 (1,178) (1,277) (3,239) Other long-term postretirement liability.............. (175) (306) (274) -- -- -------- -------- ------- -------- -------- Net cash provided by operating activities. 12,683 21,898 20,322 10,372 20,595 Investing Activities Capital expenditures........ (8,640) (5,806) (17,101) (4,182) (7,156) Plant expansion capital expenditures Thirty-two cell expansion... -- -- -- (6,331) (98) Fifty-six cell expansion.... -- -- -- -- (19,063) Payable to (receivable from) joint venture.............. 1,259 293 (1,694) (1,391) (105) Note receivable collected from (issued to) shareholders............... 669 (14) (15) -- 278 -------- -------- ------- -------- -------- Net cash used in investing activities. (6,712) (5,527) (18,810) (11,904) (26,144) Financing Activities Net change in note payable.. 3,000 (4,750) (275) 250 3,325 Borrowing on long-term debt. 62,000 -- 15,000 60,000 119,400 Principal payments on long- term debt.................. (67,500) (11,250) (8,375) (51,500) (58,775) Principal payments on capital lease obligation... (75) (85) (97) (69) (42) Redemption of preferred stock...................... -- -- (8,000) (8,000) -- Deferred financing costs.... (754) -- (403) (350) (11,791) Issuance of senior subordinate notes.......... -- -- -- -- 150,000 Issuance of senior discount notes...................... -- -- -- -- 25,000 Issuance of preferred stock. -- -- -- -- 21,530 Issuance of common stock.... -- -- -- -- 14,353 Distribution to Company stockholders for recapitalization........... -- -- -- -- (257,455) Cash surrender value of life insurance, net............. 16 522 596 472 (127) Payment of dividends........ (850) (850) (1,112) (1,112) (50) -------- -------- ------- -------- -------- Net cash provided by (used in) financing activities........... (4,163) (16,413) (2,666) (309) 5,368 Net decrease in cash and cash equivalents........... 1,808 (42) (1,154) (1,841) (181) Cash and cash equivalents at beginning of year.......... 1,335 3,143 3,101 3,101 1,947 -------- -------- ------- -------- -------- Cash and cash equivalents at end of period.............. $ 3,143 $ 3,101 $ 1,947 $ 1,260 $ 1,766 ======== ======== ======= ======== ========
See accompanying notes. F-6 GLOBE MANUFACTURING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include the accounts of Globe Manufacturing Corp. (formerly Globe Manufacturing Co.) and its wholly-owned subsidiaries, Globe Elastic Co. and Globe Manufacturing FSC, Ltd. (collectively, the Company). All significant intercompany accounts have been eliminated. CASH AND CASH EQUIVALENTS The Company considers all highly liquid, short-term investments with an original maturity of three months or less to be cash equivalents. RISKS AND UNCERTAINTIES Segment Information and Concentration of Credit Risk The Company operates in one dominant industry segment encompassing the manufacture and sale of elastomeric fibers. These fibers, which consist of spandex fibers and latex thread, are sold to customers in the textile and apparel industries that are geographically diversified throughout the United States and in various foreign countries. The Company performs credit evaluations on all new customers and requires collateral in certain circumstances. For the years ended December 31, 1995, 1996 and 1997, respectively, sales to foreign customers totaled 24%, 27% and 28%. During the years ended December 31, 1995, 1996 and 1997, the composition of sales made to the following geographic areas was of 6.3%, 7.6%, 13.8% in Europe; 7.7%, 8.7%, 4.0% in Asia; 3.4%, 3.4%, 2.1% in Central and South America; and 6.6%, 7.3%, 8.1% in other, respectively. Historically, transfers of product between geographic areas have not been significant. Sales to one customer represented 11%, 9% and 9% of total sales for the years ended December 31, 1995, 1996 and 1997, respectively. Also for the years ended December 31, 1995, 1996 and 1997, respectively, sales to five customers totaled 32%, 34% and 36%. At December 31, 1996 and 1997, 48% and 47%, respectively, of total receivables were from foreign customers. Balances owed from one customer totaled 9% and 8% of total receivables at December 31, 1996 and 1997, respectively. Also at December 31, 1996 and 1997, 33% and 39%, respectively, of total receivables were from five customers of which 21% and 24% represented receivables from foreign customers. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. ACCOUNTS RECEIVABLE Accounts receivable at December 31, 1996 and 1997 are shown net of an allowance for doubtful accounts of $1,346 and $1,870, respectively. At December 31, 1994 and 1995, the Company's allowance for doubtful accounts was $314 and $416, respectively. Additions to the allowance for doubtful accounts charged to costs and expenses were $333, $1,085 and $684 during each of the years in the three-year period ended December 31, 1997. Deductions to the allowance for doubtful accounts were $231, $155, and $160 during each of the years in the three-year period ended December 31, 1997. F-7 GLOBE MANUFACTURING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) REVENUE RECOGNITION Revenue is recognized when products are shipped to customers. INVENTORIES Inventories are valued at lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for latex and certain spandex inventories and the first-in, first out (FIFO) method for the other inventories. Management utilizes LIFO for those product lines that have exhibited increasing costs to better match costs with revenues. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is provided using an accelerated method over estimated useful lives of the assets for financial statement purposes, which range from 3 to 39.5 years. For the years ended December 31, 1995, 1996 and 1997, the Company recorded depreciation expense of $10,390, $9,183 and $9,322, respectively. The Company capitalizes direct materials, labor and certain overhead costs for self-constructed assets. In 1996 and 1997, the Company capitalized $0 and $506,007, respectively, of interest costs incurred in connection with the expansion of the manufacturing plant in Alabama. Total interest costs in 1996 and 1997 amounted to $5,347 and $4,573, respectively. INTANGIBLE ASSET The intangible asset (and minimum pension liability) represents the adjustment required to record the Company's minimum pension liability for a defined benefit pension plan covering salaried employees of the Company at December 31, 1996. INVESTMENT IN JOINT VENTURE The Company accounts for its 40% investment in a joint venture using the equity method of accounting (see Note 10). DEFERRED FINANCING COSTS Deferred financing costs are amortized over the term of the facility using the straight line method of amortization. Use of the straight line method to amortize deferred financing costs does not yield results that are materially different from those that would result from the use of the interest method. STOCK BASED COMPENSATION The Company accounts for its stock based compensation arrangements under the provisions of APB 25, Accounting for Stock Issued to Employees. The Company recognizes as compensation expense the excess of the deemed fair value of the common stock issuable upon exercise of compensatory stock options over the aggregate exercise price of such options. The expense is amortized over the vesting period of each option. INCOME TAXES The liability method is used in accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and income tax bases of assets and liabilities and F-8 GLOBE MANUFACTURING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) are measured using the currently enacted tax rates and laws that are in effect for the period when the differences are expected to reverse. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of accounts receivable, accounts payable, long term debt, notes payable and other current and long-term liabilities approximate their respective fair values. INTEREST RATE SWAP AGREEMENTS The differential to be paid or received on interest rate swap agreements is accrued as an interest rate charge and is recognized over the life of the agreements (see Note 3). UNAUDITED INTERIM FINANCIAL DATA The interim financial data relating to the nine months ended September 30, 1997 and 1998 are unaudited; however, in the opinion of the Company's management, the interim data includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The results for the nine months ended September 30, 1998 are not necessarily indicative of the results to be expected for the full year or any other interim period. RESEARCH AND DEVELOPMENT COSTS The Company expenses research and development costs as incurred. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (Statement 130), which establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Statement 130 is effective for fiscal years beginning after December 15, 1997. Disclosure of total comprehensive income is required in interim period financial statements. Management does not believe that comprehensive income for prior periods will differ significantly from net income in those periods as the Company had no material items of other comprehensive income in any of the three years in the period ended December 31, 1997. In June, 1997, the FASB issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (Statement 131), which is effective for years beginning after December 15, 1997. However, Statement 131 need not be applied to interim financial statements in the initial year of application. Statement 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Since Statement 131 is effective for financial statements for fiscal years beginning after December 15, 1997, the Company will adopt the new requirements retroactively in 1998. Management has not yet determined the impact it will have on disclosures of the Company's reported segments. In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits (Statement 132), that revises and improves F-9 GLOBE MANUFACTURING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) disclosure requirements of FASB Statements No. 87, Employers' Accounting for Pensions, and No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. The Statement is effective for fiscal years beginning after December 15, 1997. Statement 132 does not change the recognition or measurement of pension or postretirement benefit plans, but standardizes disclosure requirements for pensions and other postretirement benefits, eliminates unnecessary disclosures and requires additional information. Management does not anticipate that the adoption of Statement 132 will have a material impact on the Company's financial position or the results of its operations. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and for Hedging Activities (Statement 133). Statement 133 is effective for years beginning after June 15, 1999. Statement 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. Management does not anticipate that the adoption of Statement 133 will have a material impact on the Company's financial position or the results of its operations. 2. INVENTORIES At December 31, 1996 and 1997, inventories totaling approximately $5,452 and $6,465, respectively, were valued using the LIFO method. Had the FIFO method of inventory valuation been used, inventories and income before taxes would have increased (decreased) by approximately $786 and $(687) in 1995; $1,149 and $363 in 1996; and, $1,247 and $98 in 1997. Inventories consist of the following:
DECEMBER 31 ---------------- 1996 1997 ------- ------- Raw materials........................................... $ 2,233 $ 2,460 Finished goods.......................................... 10,728 12,551 ------- ------- 12,961 15,011 Less LIFO reserve....................................... (1,149) (1,247) ------- ------- $11,812 $13,764 ======= =======
3. DEBT On June 9, 1995, the Company refinanced its existing debt by entering into a new debt agreement with a group of banks consisting of a $62,000 term loan and a $12,000 working capital facility. As a result of the refinancing, the unamortized deferred financing costs totaling $1,801, relating to the prior debt facility, and a fee associated with terminating the prior debt agreement of $315, were charged to expense as an extraordinary item in 1995. On April 16, 1997, the Company amended and restated its existing credit agreement (as amended, the "Credit Agreement"). The Credit Agreement consists of a new $60,000 term loan, extension of the $12,000 working capital facility to March 31, 2002, and a reduction in interest rates and other fees charged on the loans. The Credit Agreement allows for letters of credit to the extent of the unused portion of the working capital facility up to a maximum of $3,000. At December 31, 1996 and 1997, respectively, the Company had $2,750 F-10 GLOBE MANUFACTURING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) and $2,475 outstanding under the working capital facility and $1,200 and $1,000 outstanding under letters of credit to secure the Company's workers' compensation self-insurance program (see Note 11). In connection with the Credit Agreement, a portion of the additional proceeds from the term note ($15,000) were used to redeem all outstanding shares of Series A Cumulative Preferred Stock for $8,000 (see Note 5). As a result of the amendment, the unamortized deferred financing costs totaling $477, relating to the original term note, were charged to expense as an extraordinary item in 1997. Borrowings under the term loan bear interest at either the bank's prime rate plus a margin ranging from .25% to 1.00% (.0% to .75% for advances under the working capital facility) or the applicable Eurodollar rate plus a margin ranging from 1.25% to 2.00% (1.125% to 1.875% for advances under the working capital facility), as determined by the borrower. At December 31, 1996 and 1997, the weighted average interest rates on the working capital facility were 9.75% and 8.75%, respectively. In February 1998, the Credit Agreement was modified so as to provide an additional $14,000 in term loans beginning on June 30, 1998. Long-term debt consists of the following:
DECEMBER 31 --------------- 1996 1997 ------- ------- Term note, principal due in variable quarterly installments through 2003; variable interest rates based on the base rate (see above) (7.3125%-8.75% at December 31, 1997; 8.3789%- 8.5938% at December 31, 1996)................................. $47,750 $54,375 Less current maturities........................................ 13,250 7,500 ------- ------- $34,500 $46,875 ======= =======
The Credit Agreement contains certain covenants that limit, among other things, capital expenditures, investments, debt, and dividends declared and distributed. The Credit Agreement also limits net extraordinary losses and requires the maintenance of a minimum fixed charge coverage, leverage ratio, and earnings before interest, income taxes, depreciation and amortization as defined in the Credit Agreement. All of the Company's assets are pledged under the Credit Agreement. The Company uses interest-rate swap agreements to effectively convert a portion of its floating rate debt to a fixed rate basis, thus reducing the impact of interest-rate changes on future income. At December 31, 1997, the Company had outstanding interest rate swap agreements with a commercial bank, having a total notional principal amount of $15 million. These agreements effectively change the Company's interest rate exposure on $15 million of its variable rate term notes to a fixed rate of 6.29%. The interest rate swap agreements in effect at December 31, 1997 matured on March 18, 1998. The Company is obligated to maintain such agreements during the first two years that the term note is outstanding. While the Company is exposed to credit loss for the periodic settlement of amounts due under the agreements in the event of nonperformance by the counterparty, the Company does not anticipate nonperformance by this party. The fair value of these agreements representing the estimated amount that the Company would receive from a third party assuming the Company's obligations under the interest rate agreements ceased at December 31, 1997, is approximately $187. The fair value of the agreements was determined by independent commercial bankers and represents the fair value based on pricing models or formulas using current assumptions. F-11 GLOBE MANUFACTURING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The term loan matures on a quarterly basis during the following years: December 31 1998........................... $ 7,500 1999........................... 9,375 2000........................... 10,000 2001........................... 11,875 2002........................... 12,500 2003........................... 3,125 ------- $54,375 =======
Cash paid for interest, net of amounts capitalized amounted to $6,182, $5,469 and $4,192 in 1995, 1996 and 1997, respectively. 4. LEASE COMMITMENTS The Company leases certain assets under capital leases. At December 31, 1996 and 1997, leased assets, with a cost of approximately $316 and $366, have been included in property, plant and equipment. Accumulated amortization was approximately $256 and $302 at December 31, 1996 and 1997, respectively. Future minimum lease payments relating to the equipment under the capital lease are as follows: 1998............................................................... $40 1999............................................................... 15 2000............................................................... 9 2001............................................................... 6 2002............................................................... 4 --- Total minimum lease payments....................................... 74 Less amount representing interest.................................. 7 --- Present value of net minimum lease payments........................ 67 Lease payments due within one year................................. 37 --- Lease obligations due after one year............................... $30 ===
5. REDEEMABLE CUMULATIVE PREFERRED STOCK AND WARRANTS At December 31, 1996, the Company had authorized 30,000 shares of Series A Cumulative Preferred Stock with a redemption price of $1,000 per share. Dividends were payable on December 22 of each year at a rate of 10% per annum, to the extent that such dividends were paid in cash and 15% per annum, to the extent that dividends were paid in additional shares of Series A Cumulative Preferred Stock. In 1997, the Company redeemed all outstanding shares of Series A Cumulative Preferred Stock at a price of $1,000 per share, plus unpaid dividends at the time of redemption. In connection with the redemption, the Company terminated any future vesting associated with its agreement to issue warrants to purchase shares of Class B Common Stock at a price of $.01 per share. At December 31, 1996 and 1997, the Company had 59 and 50 of such warrants issued and outstanding. During the years ended December 31, 1995, 1996 and 1997, the Company paid cash dividends on the preferred stock of $800, $822 and $240, respectively. The preferred stock required redemption on the earlier of December 21, 1999 or consummation of certain transactions. F-12 GLOBE MANUFACTURING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 6. SHAREHOLDERS' EQUITY COMMON STOCK The Company has authorized 2,000 shares of Class A Common Stock and 2,000 shares of Class B Common Stock. Class B Common Stock automatically converts into Class A Common Stock if the Company sells stock pursuant to a registered public offering and Class A Common Stock automatically converts into Class B Common Stock upon certain transfers of Class A Common Stock. The Company paid cash dividends of $0.05 per share in 1995, 1996 and 1997. STOCK OPTIONS The Company has a Management Incentive Plan ("the Plan") which authorizes the grant of incentive stock options and nonqualified stock options including performance options based on the financial performance of the Company to employees. A total of 102,570 shares has been reserved for issuance under the Plan. The exercise price of incentive stock options granted under the Plan may not be less than 100% of the fair market value of the common stock as of the grant date, as determined by the Board of Directors. The exercise price of nonqualified stock options may not be less than $1.00 per share. Options issued under the Plan generally have a five year vesting period, unless otherwise determined by the Board of Directors. The term of stock options granted under the Plan may not exceed ten years. The following table presents the activity under the Plan for the years ended December 31, as follows:
1996 1997 -------------------------- -------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE OPTIONS EXERCISE PRICE (1) OPTIONS EXERCISE PRICE (1) ------- ------------------ ------- ------------------ Outstanding at January 1. 22,500 $30.00 22,500 $30.00 Granted................ -- -- 22,500 30.00 Canceled............... -- -- -- -- ------ ------ ------ ------ Outstanding at December 31...................... 22,500 $30.00 45,000 $30.00 ====== ====== ====== ====== Options exercisable at December 31........... 9,000 $30.00 22,500 $30.00 ====== ====== ====== ======
(1) All options were granted at an exercise price of $30 per share. In connection with the grant of performance options, the Company recorded a total of $5,820 of unearned compensation ($735 and $5,085 in 1996 and 1997, respectively) of which $341 and $2,791 was earned and recognized as compensation expense in 1996 and 1997, respectively. Options that did not vest in the years 1994 and 1995 were vested in the current year since cumulative five-year performance measurements were achieved for the option granted in 1993. The weighted average remaining contractual life of options outstanding at December 31, 1996 and 1997, is six and eight years, respectively. FAS 123 DISCLOSURES The Company has only adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("Statement 123"). Had the compensation cost for options granted under the Plan been determined based on the fair value at the grant date for grants in 1997, consistent with the provisions of Statement 123, there would have been no pro forma effect on net income for 1997, since the options granted under the Plan will be earned and vest during the five-years January 1, 1998 to December 31, 2002 and, thus, have no impact on the determination of consolidated net income during 1997. F-13 GLOBE MANUFACTURING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The weighted average fair value per share of options granted during 1997 and whose exercise price was less than the market price of the underlying common stock on the grant date was $219.44. The fair value of options issued at the date of grant were estimated using the Black-Scholes model with the following weighted average assumptions:
OPTIONS GRANTED 1997 ------- Expected life (years)............ 5.0 Interest rate.................... 5.7% Expected volatility.............. 0.0% Expected dividend yield.......... $ --
STOCK RESERVED As of December 31, 1997, a total of 1,668,383 shares of Class A Common Stock and 258,383 shares of Class B Common Stock are reserved for issuance under the various capital stock conversion and warrant arrangements. 7. COMMITMENTS AND CONTINGENCIES The Company is a party to an agreement with a utility company, under the terms of which, the Company is obligated to purchase power generated from a co-generation power plant through 2006. The Company receives a portion of the savings generated by the plant and profits on excess supply generated. The co- generation power plant began operations in January 1991. From time to time, the Company has been and is involved in various legal and environmental proceedings, all of which management believes are routine in nature and incidental to the conduct of its business. The ultimate legal and financial liability of the Company with respect to such proceedings cannot be estimated with certainty, but the Company believes, based on its examination of such matters, that none of such proceedings, if determined adversely to the Company, would have a material adverse effect on the Company's results of operations, or financial condition. 8. PENSION AND OTHER BENEFITS The Company sponsors three noncontributory defined benefit pension plans covering substantially all employees. The Plan assets are invested in a group annuity contract with an insurance company and in a trust that holds a balanced portfolio of corporate stocks and bonds, U.S. Government bonds and money market investments. The plan covering salaried employees at the Massachusetts, North Carolina and Alabama locations provides pension benefits based on the employee's average monthly compensation during a defined period. The plans covering hourly employees at the Massachusetts, North Carolina and Alabama locations provide benefits based on years of service. The Company's funding policy is to contribute annually the maximum deductible amount allowable under applicable tax regulations. Net periodic pension cost includes the following components:
DECEMBER 31 ----------------------- 1995 1996 1997 ------- ----- ------- Service cost..................................... $ 258 $ 257 $ 303 Interest cost on projected benefit obligations... 471 427 477 Actual return on plan assets..................... (1,103) (669) (1,102) Net amortization and deferral.................... 798 337 697 ------- ----- ------- Net periodic pension cost........................ $ 424 $ 352 $ 375 ======= ===== =======
F-14 GLOBE MANUFACTURING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The following summarizes the funded status of the Company's pension plans, measured as of:
DECEMBER 31 ----------------------------------------------- 1996 1997 ----------------------- ----------------------- ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS ACTUARIAL PRESENT VALUE OF ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFIT OBLIGATIONS BENEFITS ASSETS BENEFITS ASSETS -------------------------- ----------- ----------- ----------- ----------- Vested benefit obligations..... $2,010 $3,856 $2,250 $3,631 ====== ====== ====== ====== Accumulated benefit obligations................... $2,071 $3,925 $2,309 $3,736 ====== ====== ====== ====== Projected benefit obligations.. $2,071 $4,268 $2,309 $4,282 Less: Plan assets at fair value, mutual funds........... 2,313 3,770 2,699 3,981 ------ ------ ------ ------ Projected benefit obligations (in excess of) less than plan assets........................ 242 (498) 390 (301) Unrecognized actuarial net losses (gains)................ 123 159 (5) (13) Prior service cost to be recognized in future periods.. 14 204 12 179 Unrecognized initial net (asset) obligation............ (123) 193 (104) 152 Adjustment required to recognize minimum liability... -- (213) -- -- ------ ------ ------ ------ Prepaid (accrued) pension cost at end of period.............. $ 256 $ (155) $ 293 $ 17 ====== ====== ====== ======
In 1996 and 1997, the salaried and Massachusetts hourly plans had distribution of $502 and $602, respectively. Inasmuch as the 1996 settlements exceeded the 1996 service and interest cost components of the net periodic pension cost, an additional loss of $89 has been recognized in the accompanying statement of income. Assumptions used in calculating the pension expense and the accumulated benefit obligation, were as follows:
DECEMBER 31 -------------- 1995 1996 1997 ---- ---- ---- Discount rate.............................................. 7.5% 7.5% 7.5% Rate of increase in compensation levels.................... 5.5% 5.5% 5.5% Expected long-term rate of return on assets................ 7.5% 7.5% 7.5%
The Company has instituted a tax deferred savings plan covering all employees of the Company under Section 401(k) of the Internal Revenue Code. Under the Plan, subject to certain limitations, each eligible employee may contribute up to 10% of gross wages per year to the maximum amount set by law. The Company matches one third of the first 6% of employee contributions. Company contributions to the Plan for employees were approximately $345 in 1995; $356 in 1996; and $384 in 1997. In addition to the Company's defined benefit plans, the Company currently provides postretirement medical and life insurance benefits (postretirement benefits) to eligible full-time employees. The Company is recognizing the initial accumulated benefit obligation over a 20-year period. F-15 GLOBE MANUFACTURING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The following table provides information on the status of the postretirement benefit plan as of December 31:
1996 1997 ------- ------- Accumulated postretirement benefit obligation: Retirees............................................. $ 1,675 $ 1,505 Fully eligible plan participants..................... 1,077 1,186 Other active plan participants....................... 2,324 2,968 ------- ------- Total.............................................. 5,076 5,659 Unrecognized net gain.................................. 1,594 1,055 Unrecognized transition obligation..................... (3,149) (2,952) ------- ------- Accrued postretirement benefit cost................ $ 3,521 $ 3,762 ======= =======
Net periodic postretirement benefit cost consisted of the following:
1995 1996 1997 ----- ----- ---- Service cost--benefits attributed to service during the period......................................... $ 442 $284 $273 Interest cost on accumulated postretirement benefit obligation......................................... 550 347 366 Amortization of unrecognized net (gain) or loss..... (379) (175) (192) Amortization of unrecognized transition obligation.. 379 196 197 ----- ----- ---- Net periodic postretirement benefit cost.......... $ 992 $ 652 $644 ===== ===== ====
At December 31, 1995, 1996 and 1997, respectively, 951, 908 and 833 active employees and 176, 185 and 181 retired employees are covered by the Plan. The Company's policy is to fund postretirement benefits as claims are paid. The accumulated postretirement benefit obligation was determined using a discount rate of 7% in 1996 and 7.5% in 1997 and a health care cost trend rate of 9.5%, declining each year to 4% in the year 2007 and thereafter. The effect of a 1% annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation by approximately $481 and the annual net periodic postretirement benefit cost by approximately $74. F-16 GLOBE MANUFACTURING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 9. INCOME TAXES Significant components of the Company's deferred tax assets and liabilities as of December 31, are as follows:
1996 1997 ------ ------ Deferred tax liabilities: Pension................................................. $ 125 $ 126 Depreciation............................................ 235 249 ------ ------ Total deferred tax liabilities........................ 360 375 Deferred tax assets: Other postretirement benefits........................... 1,390 1,519 Joint venture........................................... 428 -- Professional fees, primarily financing fees............. 84 279 Inventories............................................. 231 639 Bad debts............................................... 534 759 Workers' compensation accrued........................... 344 491 Deferred compensation................................... 198 1,330 Vacation accrued........................................ 221 241 Other, net.............................................. 174 388 ------ ------ Total deferred tax assets............................. 3,604 5,646 Valuation allowance for deferred tax assets............... (428) -- ------ ------ Net deferred tax assets............................... $2,816 $5,271 ====== ======
The following table sets forth selected data with respect to the Company's provision for income taxes from continuing operations for the years ended:
1995 1996 1997 ------ ------ ------- Current: Federal....................................... $1,819 $4,683 $ 9,090 State......................................... 505 1,059 1,748 ------ ------ ------- 2,324 5,742 10,838 Deferred: Federal....................................... (448) (820) (2,034) State......................................... (158) (138) (421) ------ ------ ------- (606) (958) (2,455) ------ ------ ------- Total....................................... $1,718 $4,784 $ 8,383 ====== ====== =======
F-17 GLOBE MANUFACTURING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) DECEMBER 31, 1996 AND 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The reconciliation of income taxes computed at the U.S. federal statutory tax rate to income tax expense for continuing operations is as follows:
1995 1996 1997 ------------ ------------ ------------ AMOUNT % AMOUNT % AMOUNT % ------ ---- ------ ---- ------ ---- Tax at statutory rate................ $1,403 34.0 $4,538 34.0 $8,831 35.0 State income tax expense, less federal tax benefit................. 351 8.5 601 4.5 858 3.4 Foreign sales corporation............ (187) (4.5) (203) (1.5) (775) (3.0) Change in valuation allowance........ 219 5.3 -- -- (428) (1.7) Other, net........................... (68) (1.7) (152) (1.1) (103) (0.5) ------ ---- ------ ---- ------ ---- Total.............................. $1,718 41.6 $4,784 35.9 $8,383 33.2 ====== ==== ====== ==== ====== ====
Cash paid for income taxes amounted to $1,150, $4,247 and $11,833 in 1995, 1996 and 1997, respectively. 10. INVESTMENT IN JOINT VENTURE On November 23, 1990, the Company entered into a joint venture agreement (Joint Venture) with PT Bakrie Nusantara Corporation ("Bakrie"), an Indonesian company, to engage in the business of the manufacturer of rubber thread and its related products. During 1997, the Company took steps to terminate its Joint Venture relationship. However, the Company continues to acquire and sell the entire production of the Joint Venture other than production sold in Indonesia. During the years ended December 31, 1996 and 1997, respectively, the Company purchased inventory totaling $5,912 and $9,854 from the Joint Venture. 11. SELF-INSURANCE The Company has a self-insurance program for its workers' compensation. The plan, which is administered by an insurance company, contains certain stop loss clauses that limit the Company's liability in the event of catastrophic losses ($200 per incident, $580 in the aggregate per year). Claims are accrued as incurred based on available claim information and management's estimate of claims incurred but not yet reported. At December 31, 1996 and 1997, the Company had outstanding letters of credit of $1,200 and $1,000, respectively, to secure the Company's workers' compensation self-insurance program. 12. SUBSEQUENT EVENTS On June 23, 1998, the Company entered into an Agreement and Plan of Merger (the Agreement) with an affiliate of Code, Hennessy & Simmons III, L.P. The Agreement provides for the obtaining of additional debt and equity to be used in a recapitalization transaction whereby Code, Hennessy & Simmons III, L.P. will obtain a majority interest in the Company and certain continuing shareholders will retain a minority interest. The recapitalization transaction was financed with $50,000 of equity and $295,000 of debt. Prior to the closing of the merger, substantially all of the assets and liabilities of Globe Manufacturing Co. were contributed to its wholly owned subsidiary, Globe Elastic Co., Inc., which was renamed Globe Manufacturing Corp. Inasmuch as the recapitalization transaction was among the Company's shareholders, some of whom maintained a continuing interest in the Company, management expects the assets and liabilities contributed to Globe Manufacturing Corp. to be carried at their respective historical cost bases. Management also expects that the distributions to certain of the Company's shareholders upon redemption of their shares of Company stock will be recorded as a distribution from retained earnings. On July 31, 1998, Globe Manufacturing Corp. issued $150,000 of 10% Senior Subordinated Notes due 2008 (the "Notes"). The proceeds of these Notes were used to (i) pay consideration under the Agreement to certain shareholders of the Company (ii) repay certain indebtedness of the Company and (iii) repay related fees and expenses of the recapitalization and refinancing. On August 6, 1998 the Company issued and sold 49,086 units (the "Units"), each consisting of one 14% Senior Discount Note due 2009 (the "Senior Discount Notes") and one warrant (a "Warrant") to purchase 1.4155 shares of Class A Common Stock, $.01 par value, of the Company. The aggregate purchase price of the Units was $25,000 and the net proceeds to the Company were $24,562 after deducting underwriting discounts and commissions and other expenses payable by the Company. The proceeds of these Units were used to repay a $25,000 loan made by Code, Hennessy & Simmons, III, L.P. to the Company pursuant to the recapitalization transaction. F-18 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. -------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 1 Risk Factors.............................................................. 12 Use of Proceeds........................................................... 21 Capitalization............................................................ 22 Selected Consolidated Financial Data...................................... 23 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 28 Business.................................................................. 34 Management................................................................ 44 Certain Relationships and Related Transactions............................ 47 Security Ownership of Certain Beneficial Owners and Management............ 51 Description of Senior Credit Facility..................................... 52 Description of the New Notes.............................................. 54 Material United States Federal Tax Considerations......................... 96 Book-Entry Procedures and Transfer........................................ 100 Plan of Distribution...................................................... 102 Legal Matters............................................................. 102 Experts................................................................... 102 Available Information..................................................... 102 Index to Consolidated Financial Statements................................ F-1
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GLOBE MANUFACTURING CORP. OFFER TO EXCHANGE ITS 10% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B FOR ANY AND ALL OF ITS OUTSTANDING 10% SENIOR SUBORDINATED NOTES DUE 2008 -------------------- PROSPECTUS , 1999 -------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20: INDEMNIFICATION OF DIRECTORS AND OFFICERS. Sections 10-2B-8.50 through 10-2B-8.58 of the Code of Alabama, 1975, give a corporation power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, penalties, fines and amounts paid in settlement reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in the best interests of the corporation, when acting in his or her official capacity with the corporation, or, in all other cases, not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The same Sections also give a corporation power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees) reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in the best interests of the corporation, when acting in his or her official capacity with the corporation or, in all other cases, not opposed to the best interest of the corporation. No indemnification may be made, however, in respect of any claim, issue or matter as to which such person shall have not met the applicable standard of conduct, shall have been adjudged to be liable to the corporation or, in connection with any other action, suit or proceeding charging improper personal benefit to such person, if such person was adjudged liable on the basis that personal benefit was improperly received by him, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the relevant circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. Also, Section 10-2B-8.52 states that, to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any such action, suit or proceeding, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) reasonably incurred by him in connection therewith, notwithstanding that he has not been successful on any other claim, issue or matter in any such action, suit or proceeding. Section 11.1 of the Bylaws of the Company (the "Bylaws") provides that the Company shall indemnify the officers and members of the board of directors of the Company and former officers and former members of the board of directors to the maximum extent permitted by the Alabama Business Corporation Act. Section 11.2 of the Bylaws provides that the Company shall indemnify any person who is or was a party or who is threatened to be made a party to any threatened, pending, or completed claim, action, lawsuit, or proceeding, whether civil, criminal, administrative or investigative, by reason that he is or was an officer or director of the Company or that he is or was serving at the request of the Company as a director, manager, member, partner, officer, employee, trustee, fiduciary or agent of another corporation, limited liability company, partnership, joint venture, trust, plan or other enterprise, against expenses (including attorneys' fees), judgments, costs, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with such claim, action, lawsuit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct unlawful. Determination of any claim, action, lawsuit, proceeding, or prosecution by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, in and of itself, create a presumption that the person did not act in good faith and in a manner in which he II-1 reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful; except that no indemnification shall be made with respect at any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Company unless, and only to the extent that, a court of equity or the court in which such claim, action, lawsuit, or proceeding was brought shall determine upon application that, despite the adjudication of liability, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court of equity or other court shall deem proper. Section 11.3 of the Bylaws provides that expenses, including, but not limited to, attorneys' fees, incurred in defending a civil or criminal claim, action, lawsuit, or proceeding may be paid by the corporation in advance of the final disposition of such claim, action, lawsuit or proceeding upon receipt of an undertaking by or on behalf of the officer or director to repay such amount if such advance is made in accordance with Section 10-2B-8.53 of the Alabama Business Corporation Act, as in effect from time to time. Section 11.4 of the Bylaws provides that the indemnification provided by these Bylaws shall not be exclusive of any other rights to which those indemnified may be otherwise entitled under any statute, rule of law, provision of certificate or articles of incorporation or bylaws, agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in his official capacity and as to action in another capacity, while holding such office, and shall continue as to a person who has ceased to be an officer or director and shall inure to the benefit of his personal representatives, legatees, distributees, heirs, next-of-kin, successors, and assigns. If such other provisions provide broader rights of indemnification than these Bylaws, such other provisions shall control and take precedence. Section 11.5 of the Bylaws further provides that the Company shall have the power to purchase and maintain insurance on behalf of any person who is or was an officer, director, employee or agent of the Company or is or was an officer, director, employee or agent of the Company or is or was serving at the request of the corporation as a director, manager, member, partner, officer, employee, trustee, fiduciary, or agent of another corporation, limited liability company, partnership, joint venture, trust, plan, or other enterprise against any liability asserted against him and incurred by him any such capacity, or arising out of his status as such, whether or not the Company would otherwise have the power to indemnify him against such liability under the provisions of these Bylaws. All of the directors and officers of the Company are covered by insurance policies maintained and held in effect by the Company against certain liabilities for actions taken in such capacities, including liabilities under the Securities Act of 1933. ITEM 21. EXHIBITS.
EXHIBIT NO. DESCRIPTION ------- ----------- * 2.1 Agreement and Plan of Merger dated as of June 23, 1998 between Globe Holdings and Globe Acquisition Company. Asset Transfer Agreement dated as of July 29, 1998 between the Company * 2.2 and Globe Holdings. * 2.3 Amendment No. 1 dated as of July 17, 1998 to the Agreement and Plan of Merger dated as of June 23, 1998 between Globe Holdings and Globe Acquisition Company. * 2.4 Amendment No. 2 dated as of July 30, 1998 to the Agreement and Plan of Merger dated as of June 23, 1998 between Globe Holdings and Globe Acquisition Company. * 2.5 Purchase Agreement dated as of July 31, 1998 by and among Globe Acquisition Company, Code, Hennessy & Simmons III, L.P. and certain other purchasers to purchase shares of Globe Acquisition Company's stock.
II-2
EXHIBIT NO. DESCRIPTION ------- ----------- * 3.1 Articles of Incorporation of the Company. * 3.2 Bylaws of the Company. * 4.1 Indenture dated as of July 31, 1998 by and between the Company and Norwest Bank Minnesota, National Association. * 4.2 Purchase Agreement dated as of July 28, 1998 by and among the Company, BancAmerica Robertson Stephens and Merrill Lynch & Co. * 4.3 Registration Rights Agreement dated as of July 31, 1998 by and among the Company, BancAmerica Robertson Stephens and Merrill Lynch & Co. * 4.4 Securityholders Agreement dated as of July 31, 1998 by and among the shareholders of Globe Holdings. * 4.5 Registration Agreement dated as of July 31, 1998 by and among the shareholders of Globe Holdings. ** 5.1 Opinion and Consent of Kirkland & Ellis. *10.1 Employment Agreement dated as of December 31, 1997 between Globe Holdings and Thomas A. Rodgers, III. *10.2 Employment Agreement dated as of December 31, 1997 between Globe Holdings and Americo Reis. *10.3 Employment Agreement dated as of December 31, 1997 between Globe Holdings and Lawrence R. Walsh. *10.4 Employment Agreement dated as of December 31, 1997 between Globe Holdings and Robert L. Bailey. *10.5 Form of Executive Securities Agreement dated as of July 31, 1998 by and among Globe Holdings, Code Hennessy & Simmons and each of Messrs. Walsh, Reis and Bailey. *10.6 Form of Non-Competition Agreement dated as of July 31, 1998 between Globe Holdings and each of Messrs. Rodgers, III, Walsh, Reis and Bailey. Mr. Bailey's non-competition restriction terminates on December 31, 2000, compared to July 31, 2001 for the other executives. *10.7 Management Agreement, dated as of July 31, 1998 between the Company and CHS Management III, L.P. *10.8 Tax Sharing Agreement dated as of July 31, 1998 between the Company and Globe Holdings. 10.9 Credit Agreement dated as of July 31, 1998 by and among the Company, Globe Holdings, various banks, Bank of America National Trust and Savings Association, BancAmerica Robertson Stephens and Merrill Lynch, Pierce, Fenner & Smith, Inc. 10.10 Pledge Agreement dated as of July 31, 1998 by the Company and Globe Holdings in favor of Bank of America Trust and Savings Association. 10.11 Security Agreement dated as of July 31, 1998 by the Company and Globe Holdings in favor of Bank of America National Trust and Savings Association. 10.12 Form of Amended and Restated Performance Option Agreement by and between Globe Holdings and each of Messrs. Walsh, Reis, and Bailey. *10.13 Globe Holdings Management Incentive Plan. 10.14 Consulting Agreement dated as of July 31, 1998 between the Company and Thomas A. Rodgers, Jr.
II-3
EXHIBIT NO. DESCRIPTION ------- ----------- 12.1 Statement of Computation of Ratios. 23.1 Consent of Ernst & Young LLP. **23.2 Consent of Kirkland & Ellis (included in Exhibit 5-1). *24.1 Powers of Attorney (included in signature page). *25.1 Statement of Eligibility of Trustee on Form T-1. 27.1 Financial Data Schedule. *99.1 Form of Letter of Transmittal. *99.2 Form of Notice of Guaranteed Delivery. *99.3 Form of Tender Instructions.
- ------- *Previously filed **To be filed by amendment The Company agrees to furnish supplementally to the Commission a copy of any omitted schedule to such agreement upon the request of the Commission in accordance with Item 601(b)(2) of Regulation S-K. (b) FINANCIAL STATEMENT SCHEDULE. Note: All financial statement schedules have been omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto. ITEM 22. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933. (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-4 (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered, therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (d) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (e) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN CITY OF FALL RIVER, STATE OF MASSACHUSETTS, ON THE 29TH DAY OF DECEMBER, 1998. Globe Manufacturing Corp. /s/ Thomas A. Rodgers, III By: _________________________________ Thomas A. Rodgers, III President and Chief Executive Officer * * * * * PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE 29TH DAY OF DECEMBER, 1998.
SIGNATURE TITLE --------- ----- /s/ Thomas A. Rodgers, Jr. Chairman ___________________________________________ Thomas A. Rodgers, Jr. /s/ Thomas A. Rodgers, III President, Chief Executive Officer and ___________________________________________ Director (Principal Executive Officer) Thomas A. Rodgers, III /s/ Lawrence R. Walsh Vice President, Finance and Administration ___________________________________________ (Principal Financial Officer) Lawrence R. Walsh /s/ Kevin T. Cardullo Director of Finance and Accounting ___________________________________________ (Principal Accounting Officer) Kevin T. Cardullo /s/ Andrew W. Code Director ___________________________________________ Andrew W. Code /s/ Peter M. Gotsch Director ___________________________________________ Peter M. Gotsch /s/ Edward M. Lhee Director ___________________________________________ Edward M. Lhee
* By ---------------------------------- Attorney-In-Fact II-6 EX-10.9 2 CREDIT AGREEMENT, DATED JULY 31, 1998 EXHIBIT 10.9 CREDIT AGREEMENT among GLOBE HOLDINGS, INC., GLOBE MANUFACTURING CORP., VARIOUS LENDERS, MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., as Syndication Agent, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent, and BANCAMERICA ROBERTSON STEPHENS, as Arranger __________________________________ Dated as of July 31, 1998 __________________________________ TABLE OF CONTENTS -----------------
Page ---- ARTICLE I. DEFINITIONS.......................................................... 1 1.01 Defined Terms.................................................. 1 1.02 Other Definitional Provisions.................................. 29 (a) Defined Terms............................................. 29 (b) The Agreement............................................. 29 (c) Certain Common Terms...................................... 29 (d) Performance; Time......................................... 29 (e) Contracts................................................. 29 (f) Laws 30 1.03 Accounting Principles.......................................... 30 ARTICLE II. THE CREDIT FACILITIES................................................ 30 2.01 Amounts and Terms of Commitments............................... 30 (a) The Tranche A Term Loans.................................. 30 (b) The Tranche B Term Loans.................................. 30 (c) The Revolving Loans....................................... 30 (d) The Swingline Loans....................................... 31 2.02 Loan Accounts and Register; Notes.............................. 32 2.03 Procedure for Borrowing........................................ 33 2.04 Conversion and Continuation Elections for Loans................ 34 2.05 Reduction and Termination of Commitments....................... 36 2.06 Voluntary Prepayments.......................................... 37 2.07 Mandatory Prepayments.......................................... 38 2.08 Repayment of Principal......................................... 41 (a) The Tranche A Term Loans.................................. 41 (b) The Tranche B Term Loans.................................. 41 (c) The Revolving Loans....................................... 42 (d) The Swingline Loans....................................... 42 2.09 Interest....................................................... 42 2.10 Fees........................................................... 44 (a) Commitment Fees........................................... 44 (b) Other Fees................................................ 45 2.11 Computation of Fees and Interest............................... 45 2.12 Payments by the Borrower....................................... 46
(i)
Page ---- 2.13 Payments by the Lenders to the Administrative Agent................ 46 2.14 Sharing of Payments, etc........................................... 47 2.15 Security and Guaranties............................................ 48 ARTICLE III. THE LETTERS OF CREDIT.................................................... 48 3.01 The Letter of Credit Subfacility................................... 48 3.02 Issuance, Amendment and Renewal of Letters of Credit............... 49 3.03 Participations, Drawings and Reimbursements........................ 51 3.04 Repayment of Participations........................................ 52 3.05 Role of the Issuing Lenders........................................ 53 3.06 Obligations Absolute............................................... 53 3.07 Cash Collateral Pledge............................................. 54 3.08 Letter of Credit Fees.............................................. 55 3.09 Uniform Customs and Practice....................................... 56 ARTICLE IV. TAXES, YIELD PROTECTION AND ILLEGALITY................................... 56 4.01 Taxes.............................................................. 56 4.02 Illegality......................................................... 59 4.03 Increased Costs and Reduction of Return............................ 60 4.04 Funding Losses..................................................... 61 4.05 Inability to Determine Rates....................................... 61 4.06 Increased Costs on Eurodollar Loans................................ 62 4.07 Certificates of Lenders............................................ 62 4.08 Change of Lending Office, Replacement Lender, etc.................. 62 4.09 Survival........................................................... 63 ARTICLE V. CONDITIONS PRECEDENT..................................................... 63 5.01 Conditions to Loans and Letters of Credit on the Closing Date...... 63 (a) Credit Agreement.............................................. 64 (b) Resolutions; Incumbency....................................... 64 (c) Articles of Incorporation; By-laws and Good Standing.......... 64 (d) Subsidiary Guaranty........................................... 65 (e) Pledge Agreement.............................................. 65 (f) Security Agreement............................................ 65 (g) Mortgages; Title Insurance; Survey, etc....................... 66 (h) Legal Opinions................................................ 66 (i) Payment of Fees and Expenses.................................. 67 (j) Certificates.................................................. 67
(ii)
Page ---- (k) Solvency Opinion...................................................................... 67 (l) Transaction........................................................................... 67 (m) Adverse Change........................................................................ 68 (n) Governmental and Third Party Approvals................................................ 68 (o) Litigation............................................................................ 68 (p) Shareholders Agreements; Management Agreements and Tax Sharing Agreements............. 69 (q) Financial Statements.................................................................. 69 (r) Insurance............................................................................. 69 5.02 Conditions to all Borrowings and the Issuance of any Letters of Credit..................... 69 (a) Notice................................................................................ 69 (b) Continuation of Representations and Warranties........................................ 69 (c) No Existing Default................................................................... 69 (d) No Material Adverse Effect............................................................ 69 ARTICLE VI. REPRESENTATIONS AND WARRANTIES................................................................... 70 6.01 Existence and Power........................................................................ 70 6.02 Authorization; No Contravention............................................................ 70 6.03 Governmental Authorization................................................................. 71 6.04 Binding Effect............................................................................. 71 6.05 Litigation................................................................................. 71 6.06 No Default................................................................................. 72 6.07 ERISA Compliance........................................................................... 72 6.08 Use of Proceeds; Margin Regulations....................................................... 73 6.09 Title to Properties, etc................................................................... 73 6.10 Taxes...................................................................................... 73 6.11 Financial Statements....................................................................... 73 6.12 Securities Law, etc.; Compliance........................................................... 74 6.13 Governmental Regulation.................................................................... 74 6.14 Labor Controversies........................................................................ 74 6.15 Subsidiaries............................................................................... 74 6.16 Patents, Trademarks, etc................................................................... 74 6.17 Accuracy of Information.................................................................... 74 6.18 Hazardous Materials........................................................................ 75 6.19 Collateral Documents....................................................................... 75 6.20 Solvency................................................................................... 76 6.21 Representations and Warranties in the other Documents...................................... 76 6.22 Capitalization............................................................................. 76 6.23 Special Purpose Corporation................................................................ 77 6.24 Insurance.................................................................................. 77 6.25 Subordination Provisions................................................................... 77
(iii)
Page ---- ARTICLE VII. AFFIRMATIVE COVENANTS......................................................................................... 78 7.01 Financial Statements.................................................................................... 78 7.02 Certificates; Other Information......................................................................... 79 7.03 Notices................................................................................................. 80 7.04 Books, Records and Inspections.......................................................................... 82 7.05 Maintenance of Property; Insurance...................................................................... 82 7.06 Franchises.............................................................................................. 83 7.07 Compliance with Law..................................................................................... 83 7.08 Payment of Taxes........................................................................................ 83 7.09 Contributions........................................................................................... 83 7.10 End of Fiscal Years; Fiscal Quarters.................................................................... 84 7.11 Cash Management System.................................................................................. 84 7.12 Additional Security; Further Assurances................................................................. 84 7.13 Foreign Subsidiaries Security........................................................................... 85 7.14 Use of Proceeds; Margin Regulations..................................................................... 85 7.15 Holdings Preferred Stock................................................................................ 86 ARTICLE VIII. NEGATIVE COVENANTS............................................................................................ 86 8.01 Liens................................................................................................... 86 8.02 Consolidation, Merger, Purchase or Sale of Assets, etc.................................................. 89 8.03 Dividends............................................................................................... 91 8.04 Indebtedness............................................................................................ 93 8.05 Advances, Investments and Loans......................................................................... 95 8.06 Transactions with Affiliates............................................................................ 97 8.07 Capital Expenditures.................................................................................... 98 8.08 Consolidated Interest Coverage Ratio.................................................................... 99 8.09 Consolidated Fixed Charge Coverage Ratio................................................................ 100 8.10 Maximum Leverage Ratio.................................................................................. 100 8.11 Limitation on Voluntary Payments and Modification of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc.............................. 101 8.12 Limitation on Certain Restrictions on Subsidiaries...................................................... 103 8.13 Limitation on Issuance of Capital Stock................................................................. 103 8.14 Business................................................................................................ 104 8.15 Limitation on Creation of Subsidiaries.................................................................. 105 ARTICLE IX. EVENTS OF DEFAULT............................................................................................. 105 9.01 Event of Default........................................................................................ 105
(iv)
Page ---- (a) NonPayment................................................................... 105 (b) Representation or Warranty................................................... 105 (c) Specific Defaults............................................................ 105 (d) Other Defaults............................................................... 105 (e) CrossDefault................................................................. 106 (f) Insolvency; Voluntary Proceedings............................................ 106 (g) Involuntary Proceedings...................................................... 106 (h) ERISA........................................................................ 106 (i) Judgments.................................................................... 107 (j) Change of Control............................................................ 107 (k) Collateral; Guaranties....................................................... 107 9.02 Remedies.......................................................................... 107 9.03 Rights Not Exclusive.............................................................. 108 ARTICLE X. THE GUARANTY............................................................................ 108 10.01 Guaranty from Holdings............................................................ 108 ARTICLE XI. THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE ISSUING LENDERS, THE ARRANGER AND THE SYNDICATION AGENT....................................................................... 112 11.01 Appointment and Authorization..................................................... 112 11.02 Delegation of Duties.............................................................. 112 11.03 Liability of Agent................................................................ 113 11.04 Reliance by Agent................................................................. 113 11.05 Notice of Default................................................................. 114 11.06 Credit Decision................................................................... 114 11.07 Indemnification................................................................... 114 11.08 Agent in Individual Capacity...................................................... 115 11.09 Successor Agent................................................................... 115 11.10 The Arranger and Syndication Agent................................................ 116 ARTICLE XII. MISCELLANEOUS........................................................................... 116 12.01 Amendments and Waivers............................................................ 116 12.02 Notices........................................................................... 118 12.03 No Waiver; Cumulative Remedies.................................................... 118 12.04 Costs and Expenses................................................................ 118 12.05 Indemnity......................................................................... 119 12.06 Successors and Assigns............................................................ 120
(v)
Page ---- 12.07 Assignments, Participations, etc.......................................... 120 12.08 Confidentiality........................................................... 122 12.09 Setoff.................................................................... 122 12.10 Notification of Addresses, Lending Offices, etc........................... 123 12.11 Counterparts.............................................................. 123 12.12 Severability.............................................................. 123 12.13 No Third Parties Benefited................................................ 123 12.14 Governing Law and Jurisdiction............................................ 123 12.15 Waiver of Jury Trial...................................................... 124 12.16 Domicile of Loans......................................................... 124
SCHEDULE 1.01 (a) Lending Offices SCHEDULE 1.01 (b) Commitments SCHEDULE 1.01 (c) Subsidiary Guarantors SCHEDULE 1.01 (d) Indebtedness to be Refinanced SCHEDULE 6.09 Real Property SCHEDULE 6.15 Subsidiaries SCHEDULE 6.24 Insurance SCHEDULE 8.01 Existing Liens SCHEDULE 8.04 Existing Indebtedness SCHEDULE 8.05 Existing Investments EXHIBIT A Form of Notice of Borrowing EXHIBIT B Form of Notice of Conversion/Continuation EXHIBIT C Form of Pledge Agreement EXHIBIT D Form of Subsidiary Guaranty EXHIBIT E Form of Guarantor Supplement EXHIBIT F Form of Security Agreement EXHIBIT G Form of Leverage Ratio Certificate EXHIBIT H Form of Kirkland & Ellis Opinion EXHIBIT I Form of White & Case LLP Opinion EXHIBIT J Form of Holdings Shareholder Subordinated Note EXHIBIT K Form of Compliance Certificate EXHIBIT L Form of Assignment and Acceptance EXHIBIT M Form of Intercompany Note EXHIBIT N Form of Section 4.01(f) Certificate (vi) CREDIT AGREEMENT CREDIT AGREEMENT, dated as of July 31, 1998, among GLOBE HOLDINGS, INC., a Massachusetts corporation ("Holdings"), GLOBE MANUFACTURING CORP., an Alabama corporation (the "Borrower"), the several lenders from time to time party to this Agreement (the "Lenders"), MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., as Syndication Agent, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent, and BANCAMERICA ROBERTSON STEPHENS, as Arranger. W I T N E S S E T H: ------------------- WHEREAS, subject to and upon the terms and conditions set forth herein, the Lenders are willing to make available to the Borrower the respective credit facilities provided for herein; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I. DEFINITIONS ----------- 1.01 Defined Terms. As used in this Agreement, the capitalized terms in the preamble hereto shall have the meanings therein given them, and the following words and terms shall have the meanings specified below: "Acquired Entity or Business" has the meaning specified in the definition of "Consolidated Net Income". "Additional Security Documents" has the meaning specified in Section 7.12. "Adjusted Consolidated Working Capital" means, at any time, Consolidated Current Assets (but excluding therefrom all cash and Cash Equivalents) less Consolidated Current Liabilities at such time. "Adjustment Date" means (A) the first date after 180 days following the Closing Date upon which Holdings has delivered a Leverage Ratio Certificate to the Administrative Agent in accordance with Section 12.02 as of the end of the then most recently ended fiscal quarter of Holdings (the "First Adjustment Date") and (B) after the First Adjustment Date, the earlier of (x) each date which is 45 days after the end of a fiscal quarter of Holdings (or, in the case of the fourth fiscal quarter of Holdings, 90 days) and (y) the date which is two Business Days after Holdings has delivered a Leverage Ratio Certificate to the Administrative Agent in accordance with Section 12.02 as of the end of a fiscal quarter of Holdings. "Administrative Agent" means Bank of America in its capacity as administrative agent for the Lenders hereunder, and any successor administrative agent. "Administrative Agent's Payment Office" means the address for payments set forth on the signature page hereto in relation to the Administrative Agent or such other address as the Administrative Agent may from time to time specify in accordance with Section 12.02. "Affiliate" means, with respect to any Person, any other Person (i) directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person or (ii) that directly or indirectly owns more than 5% of any class of the capital stock of, or equity interests in, such Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise, provided that no Lender nor any Affiliate thereof shall be an Affiliate of Holdings or any of its Subsidiaries. "Agent" means Bank of America, in its capacity as Administrative Agent and as Collateral Agent, in each case for the Lenders hereunder, and shall include any successor to the Agent appointed pursuant to Article XI and Article XII. "Agent-Related Persons" has the meaning specified in Section 11.03. "Aggregate Commitment" means the combined Commitments of the Lenders in the initial principal amount of $165,000,000 as such amount may be reduced from time to time pursuant to this Agreement. "Aggregate Revolving Commitment" means the combined Revolving Commitments of the Lenders in the initial principal amount of $50,000,000 as such amount may be reduced from time to time pursuant to this Agreement. "Aggregate Tranche A Term Loan Commitment" means the combined Tranche A Term Loan Commitments of the Lenders in the initial principal amount of $60,000,000 as such amount may be reduced from time to time pursuant to this Agreement. "Aggregate Tranche B Term Loan Commitment" means the combined Tranche B Term Loan Commitments of the Lenders in the initial principal amount of $55,000,000 as such amount may be reduced from time to time pursuant to this Agreement. "Agreement" means this Credit Agreement as from time to time amended, modified or supplemented. "Applicable Margin" means the margin to be added to the Eurodollar Rate or the Base Rate, as the case may be, in accordance with Section 2.09(a). "Arranger" means BancAmerica Robertson Stephens. -2- "Asset Contribution" means the contribution by Holdings to the Borrower of all of Holdings' material assets (other than the capital stock of the Borrower) pursuant to the terms of the Asset Contribution Documents. "Asset Contribution Documents" means all documents entered into to evidence the Asset Contribution. "Asset Sale" means the direct or indirect sale, lease (other than operating leases entered into in the ordinary course of business), transfer, conveyance or other disposition (including, without limitation, dispositions pursuant to sale and leaseback transactions), in a single transaction or a series of transactions, by Holdings or any of its Subsidiaries to any Person (other than to Holdings or any of its Wholly-Owned Subsidiaries) of any property or assets of Holdings or any of its Subsidiaries (including any capital stock held by Holdings or any such Subsidiary other than such Person's own capital stock), other than sales or transfers of assets pursuant to Sections 8.02(ii), (iii), (iv), (vii), (viii), (ix), (xi), (xii), (xiii), (xiv), (xv) and (xvi). "Assignee" has the meaning specified in Section 12.07(a). "Assignment and Acceptance" has the meaning specified in Section 12.07(a). "Attorney Costs" means and includes all reasonable fees and disbursements of any law firm or other external counsel and, without duplication, the allocated cost of internal legal services and all reasonable disbursements of internal counsel. "B Lender" means each Lender that has outstanding Tranche B Term Loans hereunder. "Bank of America" means Bank of America National Trust and Savings Association, a national banking association, in its individual capacity and shall include any successor thereto by merger or otherwise. "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. (S) 101, et seq.). "Base Rate" means, for any day, the higher of (a) the Reference Rate or (b) the Federal Funds Rate plus 1/2%, in each case as in effect for such day. "Base Rate Loan" means each Swingline Loan and each other Loan that bears interest based on the Base Rate. "Borrower" has the meaning specified in the preamble hereto. "Borrower Senior Subordinated Note Documents" means the Borrower Senior Subordinated Note Indenture, the Borrower Senior Subordinated Notes and all other documents and agreements executed and delivered pursuant to the Borrower Senior Subordinated Note Indenture. -3- "Borrower Senior Subordinated Note Exchange Offer" means the exchange offer for the Borrower Senior Subordinated Notes pursuant to the applicable Borrower Senior Subordinated Note Documents for new Borrower Senior Subordinated Notes which have been registered under the Securities Act. "Borrower Senior Subordinated Note Indenture" means the Indenture, dated as July 31, 1998, between the Borrower and Norwest Bank Minnesota, National Association, as trustee, as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. "Borrower Senior Subordinated Notes" means the Borrower's 10% senior subordinated notes due 2008 (which term includes the senior subordinated notes of the Borrower issued as part of the Borrower Senior Subordinated Note Exchange Offer), as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. "Borrowing" means a borrowing hereunder consisting of one or more Loans under a single Tranche made to the Borrower on the same Borrowing Date by the Lenders having Commitments of the respective Tranche or by the Swingline Lender, as the case may be, in each case pursuant to Section 2.01, and may be a Tranche A Term Loan Borrowing, a Tranche B Term Loan Borrowing, a Revolving Borrowing or a Swingline Borrowing. "Borrowing Date" means, in relation to any Loan, the date of the borrowing of such Loan as specified in the relevant Notice of Borrowing for a Tranche A Term Loan Borrowing, a Tranche B Term Loan Borrowing or a Revolving Borrowing or as specified in the relevant request for a Swingline Loan, as the case may be. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in San Francisco, Chicago or New York City are authorized or required by law to close and, if such term is used in relation to any Eurodollar Loan or the Interest Period therefor, any such day on which dealings are carried on by and between banks in Dollar deposits in the applicable interbank market. "Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law (but with which a Lender customarily complies) regarding capital adequacy of any Lender or of any corporation controlling a Lender. "Capital Expenditures" means, for any period and with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which is capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries. "Capital Lease" has the meaning specified in the definition of "Capital Lease Obligations". -4- "Capital Lease Obligations" means all monetary obligations of Holdings or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, is classified as a capital lease ("Capital Lease"). "Cash Collateralize" means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the Administrative Agent, the Issuing Lenders and the Lenders, as collateral for the Letter of Credit Obligations, cash or deposit account balances pursuant to documentation in form and substance reasonably satisfactory to the Administrative Agent and the Issuing Lenders (which documents are hereby consented to by the Lenders). Derivatives of such term shall have corresponding meanings. Cash Collateral shall be invested in Cash Equivalents of a tenor reasonably satisfactory to the Administrative Agent and as instructed by the Borrower, which Cash Equivalents shall be held in the name of, and under the control of, the Administrative Agent in a manner reasonably satisfactory to the Collateral Agent. "Cash Equivalents" means any or all of the following: (i) obligations of, or guaranteed as to interest and principal by, the United States Government maturing within one year after the date on which such obligations are purchased; (ii) marketable direct obligations issued by any state of the United States or any political subdivision or public instrumentality of such state, in each case having maturities of not more than one year from the date of acquisition and, at the time of acquisition thereof, having one of the two highest ratings obtainable from either S&P or Moody's; (iii) open market commercial paper of any corporation (other than Holdings or any of its Subsidiaries) incorporated under the laws of the United States or any State thereof or the District of Columbia rated P-1 or its equivalent by Moody's or A-1 or its equivalent or higher by S&P; (iv) time deposits or certificates of deposit maturing within one year after the issuance thereof issued by commercial banks organized under the laws of any country which is a member of the OECD and having a combined capital and surplus in excess of $250,000,000 or which is a Lender; (v) repurchase agreements with a term of not more than seven days with respect to securities described in clause (i) above entered into with an office of a bank or trust company meeting the criteria specified in clause (iv) above; (vi) bankers' acceptances with maturities not exceeding one year and overnight bank deposits in each case with an office of a bank or trust company meeting the criteria specified in clause (iv) above; and (vii) money market, mutual or similar funds substantially all of whose investments are comprised of the investments described in clauses (i) through (vi) above. "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as the same may be amended from time to time, 42 U.S.C. (S) 9601 et seq. "Change of Control" means (a) (i) prior to a Qualified Public Equity Offering, the Permitted Holders shall cease to own on a fully diluted basis at least 51% of the economic and voting interest in Holdings capital stock, and (ii) on and after the consummation of a Qualified Public Equity Offering, (x) the consummation of a transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" (as such term is defined in Section 13(d) (3) of the Exchange Act) or group of related persons, together with any Affiliates thereof (other than the Permitted Holders), becomes the "beneficial owner" (as such term is -5- defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 35% of the Voting Stock of Holdings (as determined on a fully diluted basis as measured by voting power rather than by number of shares), provided that the Permitted Holders "beneficially own" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, in the aggregate a lesser percentage of the Voting Stock of Holdings than such other "person" or group of related persons and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors of Holdings or (y) the first day on which a majority of the members of the Board of Directors of Holdings are not Continuing Directors, (b) Holdings shall cease to own 100% of the issued and capital stock of the Borrower or (c) a "Change of Control" shall occur under the Borrower Senior Subordinated Note Documents or the Holdings Senior Discount Note Documents. "CHS" means Code, Hennessy & Simmons III, L.P., a Delaware limited partnership. "CHS Management" means CHS Management III, L.P., a Delaware limited partnership. "CHS Management Agreement" means the Management Agreement, dated as of July 31, between the Borrower and CHS Management, as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. "Closing Date" means the date on or before September 15, 1998 on which all conditions precedent set forth in Sections 5.01 and 5.02 have been satisfied or waived in accordance with this Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor. "Collateral" means all property with respect to which any security interest has been granted (or purported to be granted) pursuant to any Collateral Document, as well as any property which serves as Cash Collateral for any Obligations. "Collateral Agent" means the Administrative Agent acting as collateral agent for the Lenders pursuant to the Collateral Documents. "Collateral Documents" means the Pledge Agreement, the Subsidiary Guaranty, the Security Agreement, each Mortgage, each Additional Security Document and each Guarantor Supplement. "Commitment" means any of the commitments of any Lender, i.e., whether the Tranche A Term Loan Commitment, Tranche B Term Loan Commitment or Revolving Commitment. -6- "Commitment Percentage" means, as to any Lender, such Lender's Tranche A Term Loan Commitment Percentage, Tranche B Term Loan Commitment Percentage or Revolving Commitment Percentage, as applicable. "Compliance Certificate" has the meaning specified in Section 7.02(a). "Consolidated Current Assets" means, at any time, the consolidated current assets of Holdings and its Subsidiaries at such time. "Consolidated Current Liabilities" means, at any time, the consolidated current liabilities of Holdings and its Subsidiaries at such time, but excluding the current portion of any Indebtedness under this Agreement and the current portion of any other long-term Indebtedness which would otherwise be included therein. "Consolidated EBIT" means, for any period, Consolidated Net Income for such period before Consolidated Interest Expense (calculated without regard to the proviso contained in the definition thereof) and provision for taxes for such period and without giving effect to (w) any extraordinary gains or losses, (x) any gains or losses from sales of assets other than from sales of inventory sold in the ordinary course of business, (y) any premiums, fees or expenses incurred in connection with any Permitted Acquisition and any related financings, and (z) the amortization or depreciation of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 (including non-cash write-ups and non-cash charges relating to inventory and fixed assets, in each case arising in connection with any Permitted Acquisition) and 17 (including non-cash charges relating to intangibles and goodwill arising in connection with any Permitted Acquisition). "Consolidated EBITDA" means, for any period, Consolidated EBIT for such period, adjusted by adding thereto, without duplication, the sum of (i) the amount of all amortization of goodwill and other intangibles (including debt issuance and other deferred financing, legal and accounting costs (including those associated with the Transaction and the issuance of the Holdings Senior Discount Notes)) and depreciation, (ii) all fees and expenses incurred in connection with the Transaction, the issuance of the Holdings Senior Discount Notes and each Exchange Offer and (iii) other non-cash charges and expenses (including non-cash charges or expenses included in costs of goods sold), in each case to the extent that same were deducted in arriving at Consolidated EBIT for such period and (y) subtracting therefrom, without duplication, the sum of (i) the amount of all non-cash credits to the extent that same were included in arriving at Consolidated EBIT for such period (but which will be added back to Consolidated EBITDA in any subsequent period to the extent cash is received in respect of any such non-cash credits in such subsequent period) and (ii) the amount of all cash payments made in such period to the extent that same relate to a non-cash charge incurred in a previous period. "Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio of (x) the remainder of (A) Consolidated EBITDA for such period minus (B) the sum of (I) the amount of all Capital Expenditures made by Holdings and its Subsidiaries for such period (other than Capital Expenditures (i) to the extent financed with equity proceeds, Asset Sale Proceeds, insurance proceeds or Indebtedness or (ii) to the extent constituting a Permitted Acquisition or a -7- Permitted Capital Expansion), and (II) the amount of all cash payments made by Holdings and its Subsidiaries in respect of taxes or tax liabilities for such period to (y) Consolidated Fixed Charges for such period. "Consolidated Fixed Charges" means, for any period, the sum, without duplication, of (i) Consolidated Interest Expense that is paid or payable in cash for such period and (ii) the scheduled principal amount of all amortization payments on all Indebtedness (including, without limitation, the principal component of all Capitalized Lease Obligations but excluding the repayment of the Indebtedness to be Refinanced) of Holdings and its Subsidiaries for such period (as determined on the first day of such period). "Consolidated Indebtedness" means, at any time, the principal amount of all Indebtedness of Holdings and its Subsidiaries at such time determined on a consolidated basis to the extent that such Indebtedness would be accounted for as debt on the liability side of a balance sheet in accordance with GAAP plus, without duplication, (i) the maximum amount available to be drawn under all letters of credit (including any Letters of Credit), bankers acceptances and similar obligations issued for the account of Holdings and its Subsidiaries and all unpaid drawings or reimbursement obligations in respect thereof, (ii) the principal amount of all bonds issued by Holdings and its Subsidiaries in connection with workers' compensation obligations, lease obligations, surety and similar obligations, and (iii) the amount of all Contingent Obligations of Holdings and its Subsidiaries determined on a consolidated basis in respect of Indebtedness of other Persons of the type described above in this definition, provided that Consolidated Indebtedness shall exclude Indebtedness in respect of any Holdings Junior Subordinated Notes, any Holdings Senior Discount Notes and any Holdings Shareholder Subordinated Notes. "Consolidated Interest Coverage Ratio" means, for any period, the ratio of (x) Consolidated EBITDA for such period to (y) Consolidated Interest Expense that is paid or payable in cash for such period (including all such cash interest expense on the Holdings Senior Discount Notes). "Consolidated Interest Expense" means, for any period, the total consolidated interest expense of Holdings and its Subsidiaries for such period (calculated without regard to any limitations on the payment thereof) (net of interest income of Holdings and its Subsidiaries for such period) plus, without duplication, that portion of Capital Lease Obligations of Holdings and its Subsidiaries representing the interest factor for such period, and including the net costs or benefits under Interest Rate Protection Agreements, provided that (w) the amortization of debt issuance and deferred financing, legal and accounting costs with respect to this Agreement, the Borrower Senior Subordinated Notes and the Holdings Senior Discount Notes, (x) all fees and expenses incurred in connection with the Transaction and the issuance of the Holdings Senior Discount Notes, (y) all interest on the Holdings Junior Subordinated Notes to the extent paid in kind and (z) all interest on any Holdings Shareholder Subordinated Notes in each case shall be excluded from Consolidated Interest Expense to the extent same would otherwise have been included therein. Any cash payments (other than in respect of principal) made under or on account of the Holdings Junior Subordinated Notes (whether or not characterized as interest) to -8- the holders thereof shall be included as interest expense for purposes of this Agreement except to the extent permitted by Sections 8.11(iii), 8.11(v) and 8.11(vi). "Consolidated leverage Ratio" means, at any time, the ratio of (i) Consolidated Indebtedness at such time to (ii) Consolidated EBITDA for the Measurement Period then most recently ended, it being agreed that (A) Consolidated EBITDA for Holdings' fiscal quarters ended September 30, 1997, December 31, 1997, March 31, 1998 and June 30, 1998, was $9,787,080, $13,018,896, $13,089,423 and $12,728,288, respectively, and (B) in determining the Consolidated Leverage Ratio at any time, there shall be excluded from Consolidated Indebtedness at such time an amount equal to the amount of unrestricted cash and/or Cash Equivalents of Holdings and its Subsidiaries as would be reflected on the consolidated balance sheet of Holdings at such time. "Consolidated Net Income" means, for any period, the net income (or loss) of Holdings and its Subsidiaries for such period, determined on a consolidated basis (after any deduction for minority interests), provided that (i) in determining Consolidated Net Income, the net income of any other Person which is not a Subsidiary of Holdings or is accounted for by Holdings by the equity method of accounting shall be included only to the extent of the payment of cash dividends or distributions by such other Person to Holdings or a Subsidiary thereof during such period, (ii) the net income of any Subsidiary of Holdings (other than the Borrower) shall be excluded to the extent that the declaration or payment of cash dividends or similar distributions by that Subsidiary of that net income is not at the date of determination permitted by operation of its charter or any agreement, instrument or law applicable to such Subsidiary, (iii) the net income (or loss) of any other Person acquired by such specified Person or a Subsidiary of such Person in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, and (iv) in determining the Consolidated Leverage Ratio in Sections 2.07(f) and 8.10 and in determining the Applicable Margin, the commitment fee and the letter of credit fee there shall be included (to the extent not already included) in determining Consolidated Net Income for any period the net income (or loss) of any Person, business, property or asset acquired during such period pursuant to a Permitted Acquisition and not subsequently sold or otherwise disposed of by Holdings or one of its Subsidiaries during such period (each such Person, business, property or asset acquired and not subsequently disposed of during such period, an "Acquired Entity or Business"), in each case based on the actual net income (or loss) of such Acquired Entity or Business for the entire period (including the portion thereof occurring prior to such Permitted Acquisition). "Contingent Obligation" means, as applied to any Person, any obligation of such Person as a result of such Person being a general partner of the other Person, unless the underlying obligation is expressly made non- recourse as to such general partner, and any direct or indirect liability of that Person with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor; (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to -9- maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor; (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (d) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof; in each case, including arrangements wherein the rights and remedies of the holder of the primary obligation are limited to repossession or sale of certain property of such Person. The amount of any Contingent Obligation shall be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or if less, the stated or determinable amount of such Contingent Obligation) or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof. "Continuation Date" means any date on which the Borrower elects to continue a Eurodollar Loan as a Eurodollar Loan for a further Interest Period in accordance with the provisions of Section 2.04. "Contractual Obligations" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Conversion Date" means any date on which the Borrower elects to convert a Base Rate Loan to a Eurodollar Loan, or a Eurodollar Loan to a Base Rate Loan, in each case in accordance with the provisions of Section 2.04. "Credit Party" means each of Holdings, the Borrower and each Subsidiary Guarantor. "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Defaulting Lender" means any Lender with respect to which a Lender Default is in effect. "Disbursement Date" has the meaning specified in Section 3.03(b). "Dividend" with respect to any Person means that such Person has declared or paid a dividend or returned any equity capital to its stockholders as such or made any other distribution, payment or delivery of property or cash to its stockholders as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for consideration any shares of any class of its capital stock outstanding on or after the Closing Date (or any options or warrants issued by such Person with respect to its capital stock), or set aside any funds for any of the foregoing purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for a consideration any shares of any class of the capital stock of such Person outstanding on or -10- after the Closing Date (or any options or warrants issued by such Person with respect to its capital stock). "Dollars" and "$" each mean lawful money of the United States. "Domestic Lending Office" has the meaning provided in the definition of "Lending Office". "Domestic Subsidiary" means each Subsidiary of Holdings that is incorporated under the laws of the United States or any State thereof. "Eligible Assignee" means and includes (a) a commercial bank or (b) a financial institution, a fund or other "accredited investor" (as defined in Regulation D of the Securities Act) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business. "Environmental Claims" means all actions, suits, proceedings or claims by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law or for release of Hazardous Materials or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non- negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from property, whether or not owned by Holdings or any of its Subsidiaries, or (b) any other violation, or alleged violation, of any Environmental Law. "Environmental Law" has the meaning specified in the definition of "Hazardous Material". "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" means each person (as defined in Section 3(9) of ERISA) which together with Holdings or a Subsidiary of Holdings would be deemed to be a "single employer" within the meaning of Section 414(b), (c), (m) or (o) of the Code. "Eurodollar Lending Office" has the meaning provided in the definition of "Lending Office". "Eurodollar Loan" means a Loan (other than a Swingline Loan) that bears interest based at the Eurodollar Rate. -11- "Eurodollar Rate" means, for any Interest Period with respect to Eurodollar Loans comprising part of the same Borrowing, the per annum rate of interest (rounded upward to the next 1/100th of 1%) determined by the Administrative Agent (whose determination shall be conclusive in the absence of manifest error) as follows: Eurodollar Rate = Eurodollar Base Rate 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means for any day for any Interest Period the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to any Lender) under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities" as defined in Regulation D). The Eurodollar Rate for any outstanding Eurodollar Loans shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. "Eurodollar Base Rate" means the interest rate per annum (rounded upward to the next 1/16 of 1%) at which deposits in Dollars are offered by Bank of America's (or any successor Administrative Agent) applicable Lending Office to prime international banks in the offshore dollar market at or about 11:00 a.m. (New York City time), two Business Days before the first day of the applicable Interest Period in an aggregate amount approximately equal to the amount of the Loan made by Bank of America (or any successor Administrative Agent) with respect to such Eurodollar Loan and for a period of time comparable to the number of days in the applicable Interest Period. The determination of the Eurodollar Reserve Percentage and the Eurodollar Base Rate by the Administrative Agent shall be conclusive in the absence of manifest error. "Event of Default" means any of the events or circumstances specified in Section 9.01. "Excess Cash Flow" means, for any period, the remainder of (a) the sum of, without duplication, (i) Consolidated Net Income for such period, (ii) the amount of all non-cash charges (including, without limitation or duplication, depreciation, amortization and non-cash interest expense but excluding any non- cash charges deducted in determining Adjusted Consolidated Working Capital) included in determining Consolidated Net Income for such period, and (iii) the decrease, if any, in Adjusted Consolidated Working Capital from the first day to the last day of such period, minus (b) the sum of, without duplication, (i) the amount of (1) all Capital Expenditures (including those in connection with a Permitted Capital Expansion) made by Holdings and its Subsidiaries during such period (other than Capital Expenditures (including those in connection with a Permitted Capital Expansion) to the extent financed with equity proceeds, Asset Sale proceeds, insurance proceeds or Indebtedness) plus (or minus, if negative) (2) the Rollover Amount for such period to be carried forward to the next period less the -12- Rollover Amount (if any) for the preceding period carried forward to the current period, (ii) the amount of all Permitted Acquisitions made by Holdings and its Subsidiaries during such period (other than Permitted Acquisitions to the extent financed with equity proceeds, Asset Sale proceeds, insurance proceeds or Indebtedness), (iii) the aggregate amount of permanent principal payments of Indebtedness of Holdings and its Subsidiaries during such period (other than repayments of Loans, provided that repayments of Loans shall be deducted in determining Excess Cash Flow if such repayments were (x) required as a result of a Scheduled Repayment under Section 2.08(a) or (b) or (y) made as a voluntary prepayment with internally generated funds (but in the case of a voluntary prepayment of Revolving Loans or Swingline Loans only to the extent accompanied by a voluntary reduction to the Aggregate Revolving Commitment)), (iv) the increase, if any, in Adjusted Consolidated Working Capital from the first day to the last day of such period, (v) any non-cash credits (including from sales of assets and insurance recoveries) included in determining Consolidated Net Income for such period, (vi) gains from sales of assets or insurance recoveries (other than sales of inventory in the ordinary course of business) included in determining Consolidated Net Income for such period, (vii) non-cash charges added back in a previous period pursuant to clause (a)(ii) above to the extent any such charge has become a cash item in the current period, and (viii) any cash payments made during such period under Section 8.03(ii), 8.05(xviii), 8.11(iii) or 8.11(iv) in each case to the extent not deducted in determining Consolidated Net Income for such period (except to the extent that such cash payments were financed with equity proceeds or Indebtedness). "Excess Cash Payment Date" means the date occurring 90 days after the last day of each fiscal year of Holdings (beginning with its fiscal year ending on December 31, 1999). "Excess Cash Payment Period" means, with respect to the repayment required on each Excess Cash Payment Date, the immediately preceding fiscal year of Holdings. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Offer" means the Borrower Senior Subordinated Note Exchange Offer and the Holdings Senior Discount Note Exchange Offer. "Existing Letter of Credit" has the meaning specified in the definition of Issuing Lender. "Federal Funds Rate" means, for any day, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, "H.15(519)") for such day opposite the caption "Federal Funds (Effective)". If on any relevant day the appropriate rate for such previous day is not yet published in H.15(519), the rate for such day will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System or any successor thereto. -13- "First Adjustment Date" has the meaning specified in the definition of the term "Adjustment Date". "Foreign Pension Plan" means any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States of America or any territory thereof by Holdings or any one or more of its Subsidiaries primarily for the benefit of employees of Holdings or such Subsidiaries residing outside the United States of America, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code. "Foreign Subsidiary" means each Subsidiary of Holdings which is not a Domestic Subsidiary. "Form 4224" has the meaning specified in Section 4.01(f). "Form 1001" has the meaning specified in Section 4.01(f). "Form W-8" has the meaning specified in Section 4.01(f). "Fund Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control another Person for purposes of this definition if such Person possesses, directly or indirectly, the power (i) to vote 50% or more of the securities having ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession), or in such other statements by such other entity as may be in general use by significant segments of the U.S. accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and including, in the case of any Lender that is an insurance company, the National Association of Insurance Commissioners. "Guaranteed Creditors" means and includes each of the Administrative Agent, the Collateral Agent, the Issuing Lenders, the Lenders and, in the case of any Interest Rate Protection Agreements or Other Hedging Agreements, also any Affiliate of a Lender which has entered into -14- an Interest Rate Protection Agreement or Other Hedging Agreement (even if such Lender subsequently ceases to be a Lender under this Agreement for any reason). "Guaranteed Obligations" means (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of the principal and interest on each note issued by, and Loans made to, the Borrower under this Agreement and all reimbursement obligations and unpaid drawings with respect to Letters of Credit, together with all the other obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities (including, without limitation, indemnities, fees and interest thereon) of the Borrower to the Lenders, the Administrative Agent, the Issuing Lenders and the Collateral Agent now existing or hereafter incurred under, arising out of or in connection with this Agreement or any other Loan Document and the due performance and compliance by the Borrower with all the terms, conditions and agreements contained in the Loan Documents and (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) of the Borrower owing under any Interest Rate Protection Agreement or Other Hedging Agreement entered into by the Borrower with any Lender or any other Guaranteed Creditor so long as such Lender or affiliate participates in such Interest Rate Protection Agreement or Other Hedging Agreement, and their subsequent assigns, if any, whether now in existence or hereafter arising, and the due performance and compliance with all terms, conditions and agreements contained therein. "Guarantor" means and includes Holdings and each Subsidiary Guarantor. "Guarantor Supplement" means a supplement to the Subsidiary Guaranty, the Pledge Agreement and the Security Agreement substantially in the form of Exhibit E, whereby a Subsidiary of the Borrower becomes a party to each such Loan Document. "Guaranty" means and includes the guaranty of Holdings pursuant to Article X and the Subsidiary Guaranty. "Hazardous Material" means and includes (a) any asbestos, urea- formaldehyde, PCBs or dioxins or other material composed of or containing asbestos, PCBs or dioxins, (b) crude oil, any fraction thereof, and any petroleum product, (c) any natural gas, natural gas liquids, liquefied natural gas or other natural gas product or synthetic gas, and (d) any hazardous or toxic waste, substance or material or pollutant or contaminant defined as such in (or for purposes of) or that may result in the imposition of liability under any "Environmental Law", defined as the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund", or any other applicable Federal, state, local or other statute, law, ordinance, code, rule, regulation, order or decree, as now or at any time hereafter in effect, regulating, relating to, or imposing liability concerning the environment, the impact of the environment on human health, or any hazardous or toxic waste, substance or material or pollutant or contaminant. "Holdings" has the meaning specified in the preamble hereto. -15- "Holdings Common Stock" has the meaning specified in Section 6.22. "Holdings Junior Subordinated Notes" means the junior subordinated promissory notes issued by Holdings pursuant to the Recapitalization Documents. "Holdings Preferred Stock" has the meaning specified in Section 6.22. "Holdings Senior Discount Note Documents" means the Holdings Senior Discount Note Indenture, the Holdings Senior Discount Notes and all other documents and agreements executed and delivered pursuant to the Holdings Senior Discount Note Indenture. "Holdings Senior Discount Note Exchange Offer" means the exchange offer for Holdings Senior Discount Notes pursuant to the applicable Holdings Senior Discount Note Documents for new Holdings Senior Discount Notes which have been registered under the Securities Act. "Holdings Senior Discount Note Indenture" means the Indenture to be entered into between Holdings and a trustee pursuant to which the Holdings Senior Discount Notes are to be issued, as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. "Holdings Senior Discount Notes" means Holdings' senior unsecured discount notes due no earlier than 2009 (which term includes the senior discount notes of Holdings issued as part of the Holdings Senior Discount Note Exchange Offer), as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof (which notes shall not be guaranteed or supported in any way by any Subsidiary of Holdings). "Holdings Shareholder Subordinated Note" means an unsecured junior subordinated note issued by Holdings (and not guaranteed or supported in any way by any Subsidiary of Holdings) in the form of Exhibit J (appropriately completed), as amended, modified or supplemented from time to time in accordance with the terms of this Agreement. "Holdings Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of July 31, 1998, between Holdings and the Borrower, as amended, modified or supplemented from time to time to time in accordance with the terms hereof and thereof. "Indebtedness" of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than (i) trade payables entered into in the ordinary course of business pursuant to ordinary terms and (ii) ordinary course purchase price adjustments); (c) all reimbursement or payment obligations with respect to letters of credit or non- contingent reimbursement or payment obligations with respect to bankers' acceptances and similar documents; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement or sales of accounts receivable, in any such case with respect to property acquired by -16- the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all Capital Lease Obligations; (g) all net obligations with respect to Interest Rate Protection Agreements and Other Hedging Agreements; (h) all indebtedness referred to in clauses (a) through (g) above and clause (i) below secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, valued, in the case of Indebtedness not assumed, at the lesser of the amount of such obligation and the fair market value of the encumbered property or asset; and (i) all Contingent Obligations. Notwithstanding the foregoing, Indebtedness shall not include trade payables and accrued expenses incurred by any Person in accordance with customary practices and in the ordinary course of business of such Person. "Indebtedness to be Refinanced" means the Indebtedness described in Schedule 1.01(d). "Indemnified Liabilities" has the meaning provided in Section 12.05. "Indemnified Person" has the meaning provided in Section 12.05. "Insolvency Proceeding" means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors or similar proceedings, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally; in each case undertaken under U.S. Federal, State or foreign law, including the Bankruptcy Code. "Intercompany Loan" has the meaning provided in Section 8.05(xi). "Intercompany Note" means a promissory note in the form of Exhibit M. "Interest Payment Date" means, (a) with respect to any Base Rate Loan, the last day of the last calendar month of each calendar quarter and in addition, in the case of Revolving Loans maintained as Base Rate Loans, the Revolving Termination Date, and (b) with respect to any Eurodollar Loan, the last day of each Interest Period applicable to such Eurodollar Loan and the date such Eurodollar Loan is repaid or prepaid; provided, however, that if any Interest Period for any Eurodollar Loan exceeds three months, then also the date which falls three months after the beginning of such Interest Period and, if applicable, at three month intervals thereafter shall also be an "Interest Payment Date". "Interest Period" means, in relation to any Eurodollar Loan, the period commencing on the applicable Borrowing Date or any Conversion Date or Continuation Date with respect thereto and ending on the date one, two, three or six months thereafter, as selected or deemed selected by the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation (provided that the Borrower shall have the right, with the consent of the Administrative Agent, to -17- select an Interest Period for the Term Loans with a term of between seven days and two months in order to ensure compliance with clause (iv) below); provided -------- that: (i) if any Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month which is one, two, three or six months, as the case may be, after the calendar month in which such Interest Period began; (iii) no Interest Period for any Revolving Loan shall extend beyond the Revolving Termination Date; and (iv) no Interest Period in respect of any Tranche A Term Loans or Tranche B Term Loans, as the case may be, shall be selected which extends beyond any date upon which a mandatory repayment of such Tranche of Term Loans will be required to be made under Section 2.08(a) or (b), as the case may be, if the aggregate principal amount of Tranche A Term Loans or Tranche B Term Loans, as the case may be, which have Interest Periods which will expire after such date will be in excess of the aggregate principal amount of Tranche A Term Loans or Tranche B Term Loans, as the case may be, then outstanding less the aggregate amount of such required prepayment. "Interest Rate Protection Agreement" means an interest rate swap, cap, collar or similar arrangement entered into to hedge interest rate risk (and not for speculative purposes). "Investment" has the meaning provided in Section 8.05. "Issuing Lender" means (i) Bank of America or any Affiliate thereof in its capacity as issuer of Letters of Credit hereunder and (ii) Fleet National Bank but solely in respect of the Standby Letter of Credit in the amount of $1,000,000 issued for the benefit of the North River Insurance Company, and expiring on January 1, 1999 (the "Existing Letter of Credit"). Upon termination of the Existing Letter of Credit and the payment of all amounts (if any) owing in respect thereof, Fleet National Bank shall cease to be an Issuing Lender hereunder. "Leaseholds" of any Person means all the right, title and interest of such Person as lessee or licensee in, to and under leases or licenses of land , improvements and/or fixtures. "Lender Affiliate" means an Affiliate of a Lender, including, in the case of any Lender that is a fund that invests in loans, any other fund that invests in loans and is managed or is advised by the same investment advisor of such Lender or by a Fund Affiliate of such investment advisor. -18- "Lender Default" shall mean (i) the refusal (which has not been retracted) of a Lender to make available its portion of any Borrowing (including a Mandatory Borrowing) or to fund its portion of any unreimbursed payment under Section 3.03(c) or (ii) a Lender having notified the Administrative Agent and/or the Borrower that it does not intend to comply with the obligations under Section 2.01(a), 2.01(b), 2.01(c), 2.01(d)(iv) or 3.03(c), in the case of either clause (i) or (ii) above as a result of the appointment of a receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority. "Lenders" has the meaning specified in the preamble hereto. "Lending Office" means, with respect to any Lender, the office or offices of such Lender specified as its "Lending Office", "Domestic Lending Office" or "Eurodollar Lending Office", as the case may be, on Schedule 1.01(a), or such other office or offices of such Lender as it may from time to time notify the Borrower and the Administrative Agent. "Letter of Credit" means any letter of credit issued by any Issuing Lender pursuant to Article III. "Letter of Credit Amendment Application" means an application form for an amendment to any outstanding standby or commercial documentary letter of credit as shall at any time be in use by the respective Issuing Lender, as such Issuing Lender shall request. "Letter of Credit Application" means an application form for an issuance of any standby or commercial documentary letter of credit as shall at any time be in use at the Issuing Lender, as such Issuing Lender shall request. "Letter of Credit Borrowing" means an extension of credit resulting from a drawing under any Letter of Credit which shall not have been reimbursed on or before the Business Day following the respective Disbursement Date when made nor converted into a Borrowing of Revolving Loans under Section 3.03(b). "Letter of Credit Commitment" means the commitment of the Issuing Lenders to issue Letters of Credit, the Letter of Credit Obligations in respect thereof not to exceed in aggregate amount on any date the lesser of (i) the Aggregate Revolving Commitment on such date and (ii) $5,000,000. "Letter of Credit Obligations" means at any time the sum of (a) the aggregate undrawn amount of all Letters of Credit then outstanding plus (b) the amount of all outstanding Letter of Credit Borrowings. "Letter of Credit Related Documents" means the Letters of Credit, the Letter of Credit Applications, the Letter of Credit Amendment Applications and any other document relating to any Letter of Credit, including any of each Issuing Lender's standard form documents for letter of credit issuances. "Level I" has the meaning specified in Section 2.09(a)(ii). -19- "Level II" has the meaning specified in Section 2.09(a)(ii). "Level III" has the meaning specified in Section 2.09(a)(ii). "Level IV" has the meaning specified in Section 2.09(a)(ii). "Level V" has the meaning specified in Section 2.09(a)(ii). "Leverage Ratio Certificate" means a certificate duly executed by a Responsible Officer of Holdings, substantially in the form of Exhibit G (with such changes thereto as may be agreed upon from time to time by the Administrative Agent and Holdings), and including therein, among other things, calculations supporting the information contained therein. "Lien" means any interest in any real or personal property or fixture which secures payment or performance of any obligation and shall include any mortgage, lien, pledge, encumbrance, charge or other security interest of any kind, whether arising under a Security Instrument or as a matter of law, judicial process or otherwise, including the retained security title of a conditional vendor or lessor. "Loan" means an extension of credit by a Lender to the Borrower pursuant to Article II and shall include Tranche A Term Loans, Tranche B Term Loans, Revolving Loans and Swingline Loans. "Loan Documents" means this Agreement, each Collateral Document and all other agreements, instruments, certificates or other documents evidencing, guaranteeing or securing the Loans, Letter of Credit Borrowings or the other obligations of the Borrower or any Guarantor hereunder or under any Collateral Document. "Majority Lenders" of any Tranche means at any time those Lenders which would constitute the Required Lenders under, and as defined in, this Agreement if all outstanding Obligations of the other Tranches under this Agreement were repaid in full and all Commitments with respect thereto were terminated. "Mandatory Borrowing" has the meaning specified in Section 2.01(d)(iv). "Margin Stock" means "margin stock" as such term is defined in Regulation T, U or X of the Federal Reserve Board. "Material Adverse Effect" means, relative to any occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding), a material adverse effect on: (a) the operations, business, assets, properties, liabilities, condition (financial or otherwise) or prospects of Holdings and its Subsidiaries taken as a whole (although the term "prospects" shall not apply to any representation or warranty made in connection with the incurrence of Loans on the Closing Date); or -20- (b) the rights and remedies of the Administrative Agent, the Collateral Agent, the Issuing Lender and the Lenders under this Agreement or under any other Loan Document. "Measurement Period" means any period of four consecutive fiscal quarters of Holdings (taken as one accounting period), provided, however, for purposes of determining compliance with Section 8.08 for any Measurement Period ending on or prior to June 30, 1999, each such Measurement Period means the period from the Closing Date to the last day of the fiscal quarter of Holdings then last ended (in each case taken as one accounting period). "Merrill Lynch" means Merrill Lynch, Pierce, Fenner & Smith, Inc. "Moody's" means Moody's Investors Service, Inc. "Mortgage" means a mortgage, deed of trust, leasehold mortgage, leasehold deed of trust or similar Security Instrument. "Mortgage Policies" has the meaning specified in Section 5.01(g). "Mortgaged Property" means each parcel of Real Property owned or leased by any Credit Party which is encumbered by a Mortgage. "Net Debt Proceeds" means, with respect to any incurrence of Indebtedness for borrowed money, the cash proceeds (net of underwriting discounts and commissions and other reasonable costs associated therewith (including attorneys' fees, accountants' fees and investment banking fees)) received by the respective Person from the respective incurrence of such Indebtedness for borrowed money. "Net Equity Proceeds" means, with respect to each issuance or sale of any equity by any Person or any capital contribution to such Person, the cash proceeds (net of underwriting discounts and commissions and other reasonable costs associated therewith (including attorneys' fees, accountants' fees and investment banking fees)) received by such Person from the respective sale or issuance of its equity or from the respective capital contribution. "Net Insurance Proceeds" means, with respect to any Recovery Event, the cash proceeds (net of reasonable costs and taxes incurred in connection with such Recovery Event) received by the respective Person in connection with the respective Recovery Event. "Net Sale Proceeds" means, in connection with any Asset Sale, the cash proceeds (including any cash payments received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only as and when received in cash) of such Asset Sale net of (i) reasonable transaction costs (including any underwriting, brokerage or other customary selling commissions and reasonable legal, advisory and other fees and expenses, including title and recording expenses, associated therewith actually incurred), (ii) required debt payments (other than pursuant hereto), (iii) taxes estimated to be paid as a result of such Asset Sale and (iv) any portion of such cash proceeds which Holdings determines in good faith should be reserved for -21- post-closing adjustments or liabilities (to the extent Holdings delivers to the Administrative Agent a certificate signed by a Responsible Officer of Holdings as to such determination). "Non-Defaulting Lender" shall mean each Lender other than a Defaulting Lender. "Notice of Borrowing" means a notice given by the Borrower to the Administrative Agent pursuant to Section 2.03(a), in substantially the form of Exhibit A. "Notice of Conversion/Continuation" means a notice given by the Borrower to the Administrative Agent pursuant to Section 2.04(b), in substantially the form of Exhibit B. "Obligations" means all Loans, Letter of Credit Borrowings and other indebtedness, advances, debts, liabilities, obligations, indemnities, fees, expenses (including, without limitation, Attorney Costs), covenants and duties, of any kind or nature, owing by the Borrower or any Guarantor to any Lender, the Administrative Agent, the Collateral Agent, the Swingline Lender or any Issuing Lender in connection with this Agreement or any other Loan Document, in each case whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and however acquired (including those acquired by assignment) or arising and whether or not for the payment of money or evidenced by any note, guarantee or other instrument. "OECD" means the Organization for Economic Cooperation and Development. "Originating Lender" has the meaning provided in Section 12.07(d). "Other Hedging Agreement" means any foreign exchange contracts, currency swap agreements, commodity agreements or other similar agreements or arrangements designed to protect against the fluctuations in currency or commodity values. "Other Taxes" has the meaning specified in Section 4.01(b). "Participant" has the meaning specified in Section 12.07(d). "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. "Permitted Acquisition" has the meaning specified in Section 8.02(x). "Permitted Capital Expansion" means (i) in addition to the current expansion of the Borrower's Tuscaloosa, Alabama facility, any other expansion of a manufacturing facility owned or leased by the Borrower or any of its Subsidiaries on the Closing Date (including any additional expansion of the Tuscaloosa, Alabama facility) and (ii) the construction of any new manufacturing facility by the Borrower or any of its Subsidiaries. "Permitted Encumbrance" means, with respect to any Mortgaged Property, such exceptions to title as are set forth in the Mortgage Policy delivered with respect thereto, all of -22- which exceptions must be reasonably acceptable, on the date of delivery of such Mortgage Policy, to the Administrative Agent. "Permitted Holders" means Code, Hennessy & Simmons, Inc., Code Hennessy & Simmons LLC, CHS and their respective Affiliates. "Permitted Liens" has the meaning provided in Section 8.01. "Permitted Retained Equity Transactions" means, collectively, Permitted Acquisitions, Capital Expenditures (including Permitted Capital Expansions), Investments made pursuant to Section 8.05 (xviii), Dividends made pursuant to Section 8.03(iv) and payments made pursuant to Section 8.11 (v). "Person" means any natural person, corporation, firm, trust, partnership, limited liability company, business trust, association, government, governmental agency or authority, or any other entity, whether acting in an individual, fiduciary or other capacity. "Plan" means any pension plan as defined in Section 3(2) of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) Holdings or a Subsidiary of Holdings or an ERISA Affiliate, and each such plan for the five year period immediately following the latest date on which Holdings or a Subsidiary of Holdings or an ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan. "Pledge Agreement" means the Pledge Agreement in the form of Exhibit C, as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Pledged Securities" has the meaning specified in the Pledge Agreement. "Pro Forma Balance Sheet" means the pro forma consolidated balance sheet of Holdings and its Subsidiaries as of June 30, 1998 after giving effect to the transactions contemplated hereunder, which pro forma consolidated balance sheet has been prepared, in all material respects, in accordance with GAAP. "Projections" means the projections prepared by, or on behalf of, Holdings, dated July 1, 1998 and furnished to the Lenders prior to the Closing Date. "Qualified Public Equity Offering" means a bona fide underwritten sale to the public of common stock of Holdings pursuant to a registration statement (other than on Form S-8 or any other form relating to securities issuable under any benefit plan of Holdings or any of its Subsidiaries, as the case may be) that is declared effective by the Securities and Exchange Commission and such offering results in gross cash proceeds to Holdings (exclusive of underwriter's discounts and commissions and other expenses) of at least $50,000,000. "Real Property" of any Person means all the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds. -23- "Recapitalization" means the recapitalization of Holdings pursuant to the Recapitalization Documents. "Recapitalization Agreement" means the Agreement and Plan of Merger, dated as of June 23, 1998, by and between Holdings and Globe Acquisition Company, as amended, modified and supplemented from time to time. "Recapitalization Documents" means the Recapitalization Agreement and all other documents and agreements entered into pursuant to the Recapitalization Agreement. "Recovery Event" means the receipt by Holdings or any of its Subsidiaries of any cash insurance proceeds or condemnation awards payable by reason of theft, loss, physical destruction, damage, taking or any other similar event with respect to any property or assets of Holdings or any of its Subsidiaries. "Reference Rate" means the rate of interest publicly announced from time to time by Bank of America in San Francisco (or any successor Administrative Agent) as its "reference rate". It is a rate set by Bank of America based upon various factors, including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such announced rate. Any change in the Reference Rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. "Refinancing" means, collectively, the repayment of all Indebtedness to be Refinanced, together with all accrued interest, premiums, fees, commissions and expenses owing in connection therewith, and the termination of all commitments thereunder. "Register" has the meaning specified in Section 2.02(a). "Regulation D" means Regulation D of the Federal Reserve Board or from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Replaced Lender" has the meaning specified in Section 4.08(b). "Replacement Lender" has the meaning specified in Section 4.08(b). "Reportable Event" means an event described in Section 4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA other than those events as to which the 30-day notice period is waived under subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043. "Required Lenders" means Lenders, the sum of whose outstanding Term Loans and Revolving Commitments (or after the termination thereof, outstanding Revolving Loans and Revolving Commitment Percentages of Swingline Loans and Letter of Credit Obligations) represent at least 50.1% of the sum of all outstanding Term Loans and the Aggregate Revolving Commitment (or after the termination thereof, the sum of the then total outstanding Revolving -24- Loans and the aggregate Revolving Commitment Percentages of the total outstanding Swingline Loans and Letter of Credit Obligations at such time). "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of a court or of a Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" means, for Holdings, the Borrower or any Subsidiary thereof, its chief executive officer, its president, any of its executive vice presidents, its chief operating office, its chief financial officer or its treasurer or any other officer having substantially the same authority and responsibility as any of the foregoing officers. "Retained Equity Amount" means, at any time, an amount equal to the remainder of (A) the sum of (I) 50% of all Net Equity Proceeds theretofore received by Holdings after the Closing Date (other than Net Equity Proceeds referred to in the parenthetical of Section 2.07(e)) plus (II) the amount of all other Net Equity Proceeds received by Holdings after the Closing Date as described in clauses (ii), (iii) and (iv) of the parenthetical in Section 2.07(e), in each case to the extent that such Net Equity Proceeds are not used to voluntarily prepay outstanding Term Loans, less (B) the amount of all Permitted Retained Equity Transactions previously made which utilized the Retained Equity Amount. "Revolving Borrowing" means a Borrowing hereunder consisting of Revolving Loans made to the Borrower on the same Borrowing Date by the Lenders ratably according to their respective Revolving Commitment Percentages and in the case of Eurodollar Loans, having the same Interest Periods, provided that any Base Rate Loans incurred pursuant to Section 4.02 shall be considered as part of the related Revolving Borrowing of Eurodollar Loans. "Revolving Commitment" means, for each Lender, the amount set forth opposite such Lender's name in Schedule 1.01(b) directly below the column entitled "Revolving Commitment," as such amount may be modified from time to time pursuant to the terms hereof. "Revolving Commitment Percentage" of any Lender at any time means a fraction (expressed as a percentage) the numerator of which is the Revolving Commitment of such Lender at such time and the denominator of which is the Aggregate Revolving Commitment at such time, provided that if the Revolving Commitment Percentage of any Lender is to be determined after the Aggregate Revolving Commitment has been terminated, then the Revolving Commitment Percentages of the Lenders shall be determined immediately prior (and without giving effect) to such termination. "Revolving Loan" means a Loan by a Lender to the Borrower under Section 2.01(c), which may be a Eurodollar Loan or a Base Rate Loan. "Revolving Termination Date" means the earliest to occur of (a) January 15, 2005, (b) the date on which all outstanding Tranche A Term Loans are repaid or prepaid in full or -25- (c) the date on which the Revolving Commitments shall otherwise terminate in accordance with the provisions hereof. "RL Lender" means, at any time, each Lender with a Revolving Commitment or with outstanding Revolving Loans. "Rollover Amount" has the meaning specified in Section 8.07(b). "S&P" means Standard & Poor's Ratings Service, a division of McGraw Hill, Inc. "Scheduled Repayment" means any Scheduled A Repayment or any Scheduled B Repayment. "Scheduled A Repayment" has the meaning specified in Section 2.08(a). "Scheduled B Repayment" has the meaning specified in Section 2.08(b). "Section 4.01(f) Certificate" has the meaning specified in Section 4,01(f)(i)(B)(x). "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Security Agreement" means the Security Agreement in the form of Exhibit F, as amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Security Instrument" means any security agreement, chattel mortgage, assignment, pledge agreement, financing or similar statement or notice, continuation statement, other agreement or instrument, or amendment or supplement to any thereof, providing for, evidencing or perfecting any security interest. "Significant Subsidiary" means any Subsidiary of the Borrower that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the Closing Date. "Specified Default" means (i) any Default under Section 9.01(a), 9.01(f) or 9.01(g) or (ii) any Event of Default under Section 9.01(a), 9.01(b), 9.01(c) (but only as a result of a breach of Section 8.07, 8.08, 8.09 or 8.10), 9.01(e), 9.01(f). 9.01(g), 9.01(i), 9.01(j) or 9.01(k). "Standby Letter of Credit" has the meaning specified in Section 3.01(a). "Subsidiary" of a Person means any corporation, association, limited liability company, partnership or other business entity of which more than 50% of the voting stock or other voting equity interests (in the case of Persons other than corporations) is owned or controlled directly or indirectly by such Person, or one or more of the Subsidiaries of the Person, or a combination thereof. -26- "Subsidiary Guarantor" means each of the Domestic Subsidiaries of the Borrower listed on Schedule 1.01(c) and each other Domestic Subsidiary of the Borrower (and, to the extent Section 7.12 is operative, each Foreign Subsidiary of the Borrower) that hereafter executes and delivers the Subsidiary Guaranty or a Guarantor Supplement. "Subsidiary Guaranty" means the Guaranty in the form of Exhibit D, as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof. "Swingline Amount" means an aggregate amount of $5,000,000. "Swingline Borrowing" means a Borrowing of a Swingline Loan hereunder on any Borrowing Date. "Swingline Lender" means Bank of America. "Swingline Loan" means a Loan by the Swingline Lender to the Borrower pursuant to Section 2.01(d). "Syndication Agent" means Merrill Lynch. "Taxes" has the meaning specified in Section 4.01(a). "Term Borrowing" means the Tranche A Term Loan Borrowing and the Tranche B Term Loan Borrowing. "Term Loan" means each Tranche A Term Loan and each Tranche B Term Loan. "Trade Letter of Credit" has the meaning specified in Section 3.01(a). "Tranche" means the respective facility and commitments utilized in making Loans hereunder, with there being four separate Tranches, i.e., Tranche A Term Loans, Tranche B Term Loans, Revolving Loans and Swingline Loans. "Tranche A Term Loan" means a Loan made by a Lender to the Borrower under Section 2.01(a), which may be a Base Rate Loan or a Eurodollar Loan. "Tranche A Term Loan Borrowing" means the Borrowing hereunder consisting of Tranche A Term Loans made to the Borrower on the Closing Date by the Lenders ratably according to their respective Tranche A Term Loan Commitment Percentages and in the case of Eurodollar Loans, having the same Interest Periods, provided that any Base Rate Loans incurred pursuant to Section 4.02 shall be considered as part of the related Tranche A Term Loan Borrowing of Eurodollar Loans. "Tranche A Term Loan Commitment" means, for each Lender, the amount set forth opposite such Lender's name in Schedule 1.01(b) directly below the column entitled "Tranche A Term Loan Commitment", as such amount may be modified from time to time pursuant to the terms hereof. -27- "Tranche A Term Loan Commitment Percentage" of any Lender at any time means (i) prior to the incurrence of Tranche A Term Loans on the Closing Date, a fraction (expressed as a percentage) the numerator of which is the Tranche A Term Loan Commitment of such Lender at such time and the denominator of which is the Aggregate Tranche A Term Loan Commitment at such time and (ii) at any time thereafter, a fraction (expressed as a percentage) the numerator of which is the outstanding Tranche A Term Loans of such Lender at such time and the denominator of which is the aggregate outstanding Tranche A Term Loans of all Lenders at such time. "Tranche B Term Loan" means a Loan made by a Lender to the Borrower under Section 2.01(b), which Loan may be a Eurodollar Loan or a Base Rate Loan. "Tranche B Term Loan Borrowing" means the Borrowing hereunder consisting of Tranche B Term Loans made to the Borrower on the Closing Date by the Lenders ratably according to their respective Tranche B Term Loan Commitment Percentages and in the case of Eurodollar Loans, having the same Interest Periods, provided that any Base Rate Loans incurred pursuant to Section 4.02 shall be considered as part of the related Tranche B Term Loan Borrowing of Eurodollar Loans. "Tranche B Term Loan Commitment" means, for each Lender, the amount set forth opposite such Lender's name in Schedule 1.01(b) directly below the column entitled "Tranche B Term Loan Commitment", as such amount may be modified from time to time pursuant to the terms hereof. "Tranche B Term Loan Commitment Percentage" of any Lender at any time means (i) prior to the incurrence of Tranche B Term Loans on the Closing Date, a fraction (expressed as a percentage) the numerator of which is the Tranche B Term Loan Commitment of such Lender at such time and the denominator of which is the Aggregate Tranche B Term Loan Commitment at such time and (ii) at any time thereafter, a fraction (expressed as a percentage) the numerator of which is the outstanding Tranche B Term Loans of such Lender at such time and the denominator of which is the aggregate outstanding Tranche B Term Loans of all Lenders at such time. "Transaction" means, collectively, (i) the Recapitalization, (ii) the Refinancing, (iii) the issuance of the Borrower Senior Subordinated Notes, (iv) the issuance by Holdings of the Holdings Junior Subordinated Notes, (v) the equity issuances referred to in Section 5.01(l)(ii), (vi) the Asset Contribution and (vii) the entering into of this Agreement and the occurrence of the Closing Date. "Transaction Documents" means this Agreement, the other Loan Documents, the Borrower Senior Subordinated Note Documents, the Holdings Junior Subordinated Notes, the Recapitalization Documents, the Asset Contribution Documents and the documents that evidence the equity issuances referred to in Section 5.01(l)(ii). "Transferee" has the meaning specified in Section 12.08. -28- "UCC" means the Uniform Commercial Code as from time to time in effect in the relevant jurisdiction. "Unfunded Current Liability" of any Plan means the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year exceeds the fair market value of the assets allocable thereto, each determined in accordance with Statement of Financial Accounting Standards No. 87, based upon the actuarial assumptions used by the Plan's actuary in the most recent annual valuation of the Plan. "United States" and "U.S." each means the United States of America. "Voting Stock" of any Person as of any date means the capital stock of such Person that is of that time entitled to vote in the election of the Board of Directors of such Person. "Waivable Mandatory Repayment" has the meaning specified in Section 2.07(j). "Wholly-Owned Domestic Subsidiary" means each Domestic Subsidiary of Holdings that is also a Wholly-Owned Subsidiary of Holdings. "Wholly-Owned Foreign Subsidiary" means each Foreign Subsidiary of Holdings that is also a Wholly-Owned Subsidiary of Holdings. "Wholly-Owned Subsidiary" means, as to any Person, (i) any corporation 100% of whose capital stock (other than director's or other qualifying shares) is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership, association or other entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at such time. 1.02 Other Definitional Provisions. (a) Defined Terms. Unless otherwise specified herein or therein, all terms defined in this Agreement shall have such defined meanings when used in any certificate or other document made or delivered pursuant hereto. The meaning of defined terms shall be equally applicable to the singular and plural forms of the defined terms. Terms (including uncapitalized terms) not otherwise defined herein and that are defined in the UCC shall have the meanings therein described. (b) The Agreement. The words "hereof", "herein", "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. (c) Certain Common Terms. (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. -29- (ii) The terms "including" or "include" are not limiting and mean "including without limitation" or "include without limitation". (d) Performance; Time. Subject to the definition of the term "Interest Period" in Section 1.01, whenever any performance obligation hereunder shall be stated to be due or required to be satisfied on a day other than a Business Day, such performance shall be made or satisfied on the next succeeding Business Day. In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding"; and the word "through" means "to and including". If any provision of this Agreement refers to any action taken or to be taken by any Person, or which such Person is prohibited from taking, such provision shall be interpreted to encompass any and all means, direct or indirect, of taking, or not taking, such action. (e) Contracts. Unless otherwise expressly provided herein, references to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document. (f) Laws. References to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending or replacing such statute or regulation. 1.03 Accounting Principles. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted in accordance with GAAP. Unless the context otherwise clearly requires, all financial computations required under this Agreement shall be made in accordance with generally accepted accounting principles applied in a manner consistent with those in effect on December 31, 1997. ARTICLE II. THE CREDIT FACILITIES --------------------- 2.01 Amounts and Terms of Commitments. (a) The Tranche A Term Loans. Each Lender with a Tranche A Term Loan Commitment severally agrees, on the terms and conditions hereinafter set forth, to make a Tranche A Term Loan to the Borrower on the Closing Date, which Tranche A Term Loans (i) shall be made and initially maintained as a single Borrowing of Base Rate Loans and (ii) shall be made by each such Lender in that initial aggregate principal amount as is equal to the Tranche A Term Loan Commitment of such Lender on such date. Once repaid or prepaid, Tranche A Term Loans incurred hereunder may not be reborrowed. (b) The Tranche B Term Loans. Each Lender with a Tranche B Term Loan Commitment severally agrees, on the terms and conditions hereinafter set forth, to make a -30- Tranche B Term Loan to the Borrower on the Closing Date, which Tranche B Term Loans (i) shall be made and initially maintained as a single Borrowing of Base Rate Loans and (ii) shall be made by each such Lender in that initial aggregate principal amount as is equal to the Tranche B Term Loan Commitment of such Lender on such date. Once repaid or prepaid, Tranche B Term Loans incurred hereunder may not be reborrowed. (c) The Revolving Loans. Each Lender with a Revolving Commitment severally agrees, on the terms and conditions hereinafter set forth, to make Revolving Loans to the Borrower from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate amount not to exceed at any time outstanding the amount of such Lender's Revolving Commitment; provided, however, that (i) no more than $8,500,000 of Revolving Loans may be incurred on the Closing Date and all such Revolving Loans shall be made and initially maintained as a single Borrowing of Base Rate Loans and (ii) after giving effect to any Revolving Borrowing, the aggregate principal amount of all outstanding Revolving Loans, together with the aggregate principal amount of all outstanding Swingline Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) plus the aggregate amount of all outstanding Letter of Credit Obligations (exclusive of unpaid drawings under any Letter of Credit which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans), shall not exceed the Aggregate Revolving Commitment. Within such limits, and subject to the other terms and conditions hereof, the Borrower may borrow Revolving Loans under this Section 2.01(c), prepay pursuant to Section 2.06 or 2.07(a) and reborrow pursuant to this Section 2.01(c). (d) The Swingline Loans. (i) The Swingline Lender agrees, on the terms and conditions hereinafter set forth, to make Swingline Loans to the Borrower on any Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate amount not to exceed at any time outstanding the Swingline Amount; provided, however, (x) each Swingline Loan shall be made and maintained as a Base Rate Loan and (y) that after giving effect to any Swingline Borrowing, the aggregate principal amount of all outstanding Swingline Loans, together with the aggregate principal amount of all outstanding Revolving Loans plus the aggregate amount of all outstanding Letter of Credit Obligations (exclusive of unpaid drawings under any Letter of Credit which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans), shall not exceed the Aggregate Revolving Commitment. Within such limits, and subject to the other terms and conditions hereof, the Borrower may borrow Swingline Loans under this Section 2.01(d), prepay pursuant to Section 2.06 or 2.07(a) and reborrow pursuant to this Section 2.01(d). Notwithstanding the foregoing, the Swingline Lender shall not be obligated to make any Swingline Loans at a time when a Lender Default exists unless the Swingline Lender has entered into arrangements satisfactory to it and the Borrower to eliminate the Swingline Lender's risk with respect to the Defaulting Lender's or Lenders' participation in such Swingline Loans, including -31- by Cash Collateralizing such Defaulting Lender's or Lenders' Revolving Commitment Percentage of the outstanding Swingline Loans. (ii) The Swingline Lender shall not be responsible for or liable to any Lender for determining whether (A) any representation or warranty of the Borrower in connection with any request for a Swingline Loan is correct or (B) any Default or Event of Default exists or would result from the making of any such Swingline Loan; provided, however, that the Swingline Lender shall not make any Swingline Loan after receiving a written notice from the Borrower or the Required Lenders stating that a Default or an Event of Default exists and is continuing until such time as the Swingline Lender shall have received written notice from the Administrative Agent that such Default or Event of Default has been cured or waived. (iii) Each Swingline Loan shall reduce the available Aggregate Revolving Commitment. For purposes of Section 2.10(a), each Swingline Loan shall be deemed to utilize only the Revolving Commitment of the Swingline Lender but not any other Lender (it being understood that the aggregate principal amount of Swingline Loans at any time outstanding may exceed the otherwise unutilized portion of the Revolving Commitment of the Swingline Lender). (iv) On any Business Day, the Swingline Lender may, in its sole discretion, give notice to the RL Lenders that its outstanding Swingline Loans shall be funded with a Revolving Borrowing (provided that each such notice shall be deemed to have been automatically given upon the occurrence of a Default or an Event of Default under Section 9.01(f) or 9.01(g) or upon the exercise of any of the remedies provided in Section 9.02), in which case a Revolving Borrowing constituting Base Rate Loans (each such Revolving Borrowing, a "Mandatory Borrowing") shall be made no later than 11:00 a.m. (New York City time) on the immediately succeeding Business Day by all RL Lenders pro rata based on each RL Lender's Revolving Commitment Percentage, and the proceeds thereof shall be applied directly to repay the Swingline Lender for such outstanding Swingline Loans. Each RL Lender hereby irrevocably agrees to make Base Rate Loans upon one Business Day's notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified in writing by the Swingline Lender notwithstanding (i) that the amount of the Mandatory Borrowing may not comply with the minimum borrowing denominations set forth in Section 2.03(a), (ii) whether any of the conditions precedent set forth in Section 5.02 is then satisfied and (iii) whether the borrowing limitations set forth in this Agreement are met or the amount of the Aggregate Revolving Commitment then in effect (including the fact that the Aggregate Revolving Commitment may have been terminated). In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code in respect of the Borrower), each RL Lender hereby agrees that it shall forthwith purchase from the Swingline Lender (without recourse or warranty) such assignment of the outstanding Swingline Loans as shall be necessary to cause the RL Lenders to share in such Swingline Loans ratably -32- based upon their respective Revolving Commitment Percentages, provided that all interest payable on the Swingline Loans shall be for the account of the Swingline Lender until the date the respective assignment is purchased and, to the extent attributable to the purchased assignment, shall be payable to the RL Lender purchasing same from and after such date of purchase. The failure of any RL Lender to pay such amount to the Swingline Lender shall not relieve any other RL Lender of its obligation to make the payment to be made by it. 2.02 Loan Accounts and Register; Notes. (a) The Loans made by, and the Commitments of, each Lender shall be evidenced by one or more loan accounts maintained by such Lender and the Register maintained by the Administrative Agent in the ordinary course of business. The Register maintained by the Administrative Agent shall, in the event of a discrepancy between the entries in the Administrative Agent's books and any Lender's books relating to such matters, be controlling and, absent manifest error, shall be conclusive as to the amount of the Loans made by the Lenders to the Borrower, the interest and payments thereon and any other amounts owing in respect of this Agreement. Any failure to make a notation in the Register or any such loan account or any error in doing so shall not limit or otherwise affect the obligations of the Borrower hereunder to pay any amount owing with respect to the Loans. The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent, solely for purposes of this Section 2.02, to maintain a register (the "Register") on which it will record the Commitments from time to time of each of the Lenders, the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. With respect to any Lender, the transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan made pursuant to such Commitments shall not be effective until such transfer is recorded on the Register maintained by the Administrative Agent with respect to ownership of such Commitments and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment and Acceptance pursuant to Section 12.07(a). The Borrower agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 2.02 (other than any losses, claims, damages and liabilities to the extent incurred by reason of the gross negligence or willful misconduct of the Administrative Agent as finally determined by a court of competent jurisdiction). (b) If requested by any Lender for purposes of Section 12.07(e), the Borrower shall execute and deliver to such Lender (and deliver a copy thereof to the Administrative Agent) one or more promissory notes evidencing the Loans owing to such Lender pursuant to this Agreement. Any such note shall be in a form prescribed by the Borrower and the Administrative Agent and shall be entitled to all of the rights and benefits of this Agreement and the other Loan Documents. -33- 2.03 Procedure for Borrowing. (a) Each Borrowing of Tranche A Term Loans, Tranche B Term Loans and Revolving Loans (other than a Borrowing of Revolving Loans pursuant to Section 2.01(d)(iv) or Section 3.03(b)) shall be made upon the Borrower's irrevocable written notice delivered to the Administrative Agent in accordance with Section 12.02 in the form of a Notice of Borrowing (which notice must be received by the Administrative Agent (i) prior to 11:00 a.m. (New York City time) not less than three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans and (ii) prior to 11:00 a.m. (New York City time) on the requested Borrowing Date, in the case of Base Rate Loans, specifying: (A) whether the Borrowing is to be comprised of Tranche A Term Loans, Tranche B Term Loans or Revolving Loans; (B) the amount of the Borrowing, which shall be in an aggregate minimum principal amount of $1,000,000 or any multiple of $100,000 in excess thereof (or, such lesser multiple as may be acceptable to the Administrative Agent); (C) the requested Borrowing Date, which shall be a Business Day; (D) in the case of a Revolving Borrowing after the Closing Date, whether such Borrowing is to be comprised of Eurodollar Loans or Base Rate Loans; and (E) the duration of the Interest Period, if any, applicable to the respective Revolving Loans included in such notice. If the Notice of Borrowing shall fail to specify the duration of the Interest Period for any Borrowing comprised of Eurodollar Loans, such Interest Period shall be one month. (b) Upon receipt of the Notice of Borrowing, the Administrative Agent will promptly notify each Lender with a Commitment for such Loan of the contents thereof and of the amount of such Lender's Commitment Percentage of the requested Borrowing. (c) Each Lender will make the amount of its Commitment Percentage of each Tranche A Term Loan Borrowing, Tranche B Term Loan Borrowing or Revolving Borrowing, as applicable, available to the Administrative Agent for the account of the Borrower at the Administrative Agent's Payment Office by 2:00 p.m. (New York City time) on the Borrowing Date (or by 3:00 p.m. (New York City time) on such Borrowing Date in the case of a Borrowing of Base Rate Loans made on same day notice) requested by the Borrower in funds immediately available to the Administrative Agent. Unless any applicable condition of Article V has not been satisfied or waived in writing by the Required Lenders, the proceeds of all such Loans will then be made available to the Borrower by the Administrative Agent by wire transfer in accordance with written instructions provided to the Administrative Agent by the Borrower. Each Lender will make the amount of its Commitment Percentage of each Mandatory Borrowing available to the Administrative Agent for the account of the Swingline Lender at the Administrative Agent's Payment Office by 2:00 p.m. (New York City time) on the date specified in Section 2.01(d)(iv). -34- (d) Upon the occurrence and during the continuance of (x) any Default under Section 9.01(a), 9.01(f) or 9.01(g) or (y) any Event of Default, the Borrower shall not have the right to elect (and shall not elect) to have a Loan be made as a Eurodollar Loan. (e) After giving effect to any Borrowing, there shall not be more than ten different Interest Periods in effect in respect of all Term Loans and Revolving Loans. (f)(i) Whenever the Borrower desires to make a Swingline Borrowing hereunder, the Borrower shall give the Administrative Agent and the Swingline Lender not later than 2:00 p.m. (New York City time) on the date that a Swingline Loan is to be made, written notice or telephonic notice promptly confirmed in writing of each Swingline Loan to be made hereunder. Each such notice shall be irrevocable and specify in each case: (A) the amount of the Swingline Loan, which shall be in an aggregate minimum principal amount of $250,000 or any multiple of $50,000 in excess thereof (or, in either case, such lesser amount as may be acceptable to the Administrative Agent); and (B) the requested Borrowing Date, which shall be a Business Day. (ii) The Swingline Lender shall not incur any liability to the Borrower in acting upon any telephonic notice which the Swingline Lender believes in good faith to have been given by any officer authorized to act on behalf of the Borrower. 2.04 Conversion and Continuation Elections for Loans. (a) The Borrower may upon irrevocable written notice to the Administrative Agent in accordance with paragraph (b) below: (i) elect to convert on any Business Day, any Base Rate Loans (or any part thereof in an amount of not less than $1,000,000 or an integral multiple of $25,000 in excess thereof (or, in either case, such other amount as may be acceptable to the Administrative Agent in the case of any Tranche of Term Loans)) into Eurodollar Loans; (ii) elect to convert on the last day of the Interest Period with respect thereto, any Eurodollar Loans (or any part thereof in an amount of not less than $1,000,000 or an integral multiple of $25,000 in excess thereof (or, in either case, such other amount as may be acceptable to the Administrative Agent)) into Base Rate Loans; or (iii) elect to continue on the last day of the Interest Period with respect thereto, any Eurodollar Loans (or any part thereof in an amount of not less than $1,000,000 or an integral multiple of $25,000 in excess thereof (or, in either case, such other amount as may be acceptable to the Administrative Agent)) as a new Borrowing of Eurodollar Loans; provided, however, (x) that if the aggregate amount of a Borrowing comprised of Eurodollar Loans shall have been reduced, by payment, prepayment or conversion of part thereof to be less than $1,000,000, the Eurodollar Loans comprising such Borrowing shall automatically convert -35- into Base Rate Loans, and on and after such date the right of the Borrower to continue such Loans as, and convert such Loans into, Eurodollar Loans shall terminate and (y) Swingline Loans may not be converted pursuant to this Section 2.04. (b) The Borrower shall deliver a Notice of Conversion/Continuation in accordance with Section 12.02 to be received by the Administrative Agent not later than (i) 11:00 a.m. (New York City time) not less than three Business Days in advance of the Conversion Date or Continuation Date, if the Loans are to be converted into or continued as Eurodollar Loans and (ii) 11:00 a.m. (New York City time) not less than one Business Day in advance of the Conversion Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the Loans to be converted or continued; (B) the proposed Conversion Date or Continuation Date which shall be a Business Day; (C) the aggregate principal amount of Loans to be converted or continued; (D) whether such Loans are converted into, or continued as, Base Rate Loans or Eurodollar Loans; and (E) the duration of the requested Interest Period, if applicable. (c) If upon the expiration of any Interest Period applicable to Eurodollar Loans, the Borrower has failed to select timely a new Interest Period or the Borrower is not permitted to elect a new Interest Period, such Loans shall automatically convert into Base Rate Loans. (d) Upon receipt of a Notice of Conversion/Continuation, the Administrative Agent will promptly notify each Lender with Loans affected thereby of the contents thereof, or, if no timely notice is provided by the Borrower, the Administrative Agent will promptly notify each such Lender of the details of any automatic conversion. All conversions and continuations shall be made pro rata according to the respective outstanding principal amounts of the Loans with respect to which the notice was given. (e) Upon the occurrence and during the continuance of (x) any Default under Section 9.01(a), 9.01(f) or 9.01(g) or (y) any Event of Default, the Borrower shall not elect (and shall not have the right to elect) to have a Loan converted into or continued as a Eurodollar Loan. (f) Notwithstanding any other provision contained in this Agreement, after giving effect to any conversion or continuation of any Loans, there shall not be more than ten different Interest Periods in effect in respect of all Term Loans and Revolving Loans. 2.05 Reduction and Termination of Commitments. (a) The Borrower may, upon not less than three Business Days' prior notice to the Administrative Agent, terminate the Aggregate Revolving Commitment (including the Letter of Credit Commitment) or permanently -36- reduce the Aggregate Revolving Commitment (including the Letter of Credit Commitment) by an aggregate minimum amount of $2,000,000 or any multiple of $100,000 in excess thereof; provided, however, that no such reduction or termination shall be permitted if after giving effect thereto and to any prepayment of the Revolving Loans and/or Swingline Loans made on the effective date thereof, (i) the then outstanding principal amount of the Revolving Loans and Swingline Loans plus the outstanding Letter of Credit Obligations would exceed the Aggregate Revolving Commitment then in effect or (ii) the aggregate amount of Letter of Credit Obligations would exceed the Letter of Credit Commitment then in effect; and, provided further, that once reduced in accordance with this Section 2.05, the Aggregate Revolving Commitment (including the Letter of Credit Commitment) may not be increased. (b) The Aggregate Commitment (and the Commitments of each Lender) shall terminate in their entirety on September 15, 1998 unless the Closing Date shall have occurred on or prior to such date. (c) The Aggregate Tranche A Term Loan Commitment (and the Tranche A Term Loan Commitment of each Lender) shall terminate in its entirety on the Closing Date (after giving effect to the making of the Tranche A Term Loans on such date). (d) The Aggregate Tranche B Term Loan Commitment (and the Tranche B Term Loan Commitment of each Lender) shall terminate in its entirety on the Closing Date (after giving effect to the making of the Tranche B Term Loans on such date). (e) The Aggregate Revolving Commitment (and the Revolving Commitment of each Lender) shall terminate in its entirety on the Revolving Termination Date. (f) The Aggregate Commitment (and the Commitments of each Lender) shall terminate in their entirety on the date on which a Change of Control occurs. (g) The Aggregate Revolving Commitment shall be permanently reduced on the dates, and in the amounts, required by Sections 2.07(i) and 2.07(j). (h) Any reduction of the Aggregate Revolving Commitment and the Letter of Credit Commitment pursuant to this Section 2.05 shall be applied pro rata to each Lender's Revolving Commitment in accordance with such Lender's Revolving Commitment Percentage. The amount of any such reduction of the Aggregate Revolving Commitment shall not be applied to the Letter of Credit Commitment unless otherwise specified by the Borrower or required by the definition thereof. All accrued commitment and letter of credit fees to the effective date of any reduction or termination of Aggregate Revolving Commitment, shall be paid on the effective date of such reduction or termination. The Administrative Agent shall promptly notify the Lenders of any reduction or termination of the Aggregate Revolving Commitment. 2.06 Voluntary Prepayments. (a) (i) The Borrower may, prior to 11:00 a.m. (New York City time), upon at least three Business Days' notice to the Administrative Agent in the case of Eurodollar Loans, and prior to 11:00 a.m. (New York City time), upon same Business Day notice to the Administrative Agent in the case of Base Rate Loans, prepay Tranche A Term -37- Loans, Tranche B Term Loans or Revolving Loans, in whole or in part in amounts of $1,000,000 or an integral multiple of $25,000 in excess thereof, and with each such prepayment to be applied ratably among the Lenders holding the Tranche of Loans so prepaid. (ii) The Borrower may at any time prepay Swingline Loans, in whole or in part in minimum amounts of $100,000 or an integral multiple of $50,000 in excess thereof; provided, however, that notice of such prepayment shall be required to be delivered to the Administrative Agent by 1:00 p.m. (New York City time) on the date of such prepayment. (b) Any notice of prepayment delivered pursuant to this Section 2.06 shall specify the date and amount of such prepayment, whether Tranche A Term Loans, Tranche B Term Loans, Revolving Loans or Swingline Loans are to be prepaid and the type of Loans to be prepaid, including whether such prepayment is of Base Rate Loans or Eurodollar Loans or any combination thereof. Each such notice shall be irrevocable by the Borrower and the Administrative Agent will promptly notify each Lender thereof and of such Lender's Commitment Percentage of such prepayment, if applicable. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and the amounts, if any, required pursuant to Section 4.04; provided that interest shall be paid in connection with any such prepayment of Base Rate Loans (other than a prepayment in full) on the next occurring Interest Payment Date. (c) Each voluntary prepayment of Term Loans pursuant to this Section 2.06 shall consist of a voluntary prepayment of both Tranche A Term Loans and Tranche B Term Loans, and with the amount of such voluntary prepayment to be allocated between both Tranches of Term Loans on a pro rata basis (based upon the then outstanding principal amount of Tranche A Term Loans and Tranche B Term Loans). Each prepayment of principal of any Tranche of Term Loans pursuant to this Section 2.06 shall be applied to reduce the then remaining Scheduled Repayments of the respective Tranche of Term Loans pro rata based upon the then remaining principal amounts of the Scheduled Repayments of the respective Tranche after giving effect to all prior reductions thereto. 2.07 Mandatory Prepayments. (a) (i) If on any date (A) the aggregate unpaid principal amount of all outstanding Revolving Loans and Swingline Loans plus the outstanding Letter of Credit Obligations (to the extent not Cash Collateralized pursuant to clause (ii) below or as provided for in Section 3.07) exceeds the Aggregate Revolving Commitment or (B) the aggregate unpaid principal amount of Swingline Loans exceeds the Swingline Amount, in each such case the Borrower shall immediately prepay the amount of such excess. (ii) If on any date the aggregate amount of all Letter of Credit Obligations shall exceed either (x) the Letter of Credit Commitment or (y) the Aggregate Revolving Commitment, the Borrower shall Cash Collateralize on such date its obligations in respect of Letters of Credit in an amount equal to such excess. (b) On each date upon which Holdings or any of its Subsidiaries receives any proceeds from any incurrence by Holdings or any of its Subsidiaries of Indebtedness for -38- borrowed money (other than Indebtedness for borrowed money permitted to be incurred under Section 8.04 as in effect on the Closing Date), an amount equal to 100% of the Net Debt Proceeds of the respective incurrence of Indebtedness shall be applied on such date as a mandatory repayment of principal of outstanding Term Loans and/or reduction to the Aggregate Revolving Commitment pursuant to Section 2.07(i). Nothing in this paragraph (b) shall be deemed to permit the issuance of any Indebtedness not otherwise permitted under this Agreement. (c) Within two Business Days after Holdings or any of its Subsidiaries receives any proceeds from any Asset Sale, an amount equal to 100% of the Net Sale Proceeds from such Asset Sale shall be applied on such date as a mandatory repayment of principal of outstanding Term Loans and/or as a reduction to the Aggregate Revolving Commitment pursuant to Section 2.07(i), provided that with respect to no more than $2,000,000 in the aggregate of such Net Sale Proceeds in any fiscal year of Holdings, such Net Sale Proceeds shall not give rise to a repayment and/or reduction pursuant to this paragraph (c) to the extent that no Default or Event of Default then exists and Holdings has delivered a certificate to the Administrative Agent on or prior to such date stating that such Net Sale Proceeds shall be used to purchase assets used or to be used in the Borrower's or any of its Subsidiaries' business within 270 days following the date of receipt of the Net Sale Proceeds from such Asset Sale (which certificate shall set forth the estimates of the proceeds to be so expended), and provided further, that if all or any portion of such Net Sale Proceeds are not so reinvested within such 270-day period (or such earlier date, if any, as Holdings or the Borrower determines not to so reinvest such Net Sale Proceeds), such remaining portion shall be applied on the last day of such period (or such earlier date, as the case may be) as a mandatory repayment of principal of outstanding Term Loans and/or as a reduction to the Aggregate Revolving Commitment pursuant to Section 2.07(i). Nothing in this paragraph (c) shall be deemed to permit any Asset Sale not otherwise permitted under this Agreement. (d) Within 10 days following each date upon which Holdings or any of its Subsidiaries receives any cash proceeds from any Recovery Event, an amount equal to 100% of the Net Insurance Proceeds from such Recovery Event shall be applied on such date as a mandatory repayment of principal of outstanding Term Loans and/or as a reduction to the Aggregate Revolving Commitment pursuant to Section 2.07(i), provided that so long as no Default or Event of Default then exists and such Net Insurance Proceeds from such Recovery Event do not exceed $10,000,000, such Net Insurance Proceeds shall not give rise to a repayment and/or reduction pursuant to this paragraph (d) on such date to the extent that Holdings has delivered a certificate to the Administrative Agent on or prior to such date stating that such Net Insurance Proceeds shall be used to replace or restore any properties or assets in respect of which such Net Insurance Proceeds were paid within 365 days following the date of receipt of such Net Insurance Proceeds (which certificate shall set forth the estimates of the Net Insurance Proceeds to be so expended), and provided further, that (i) if the amount of such Net Insurance Proceeds exceeds $10,000,000, then the entire amount of such Net Insurance Proceeds and not just the portion in excess of $10,000,000 shall be applied as provided above in this paragraph (d), and (ii) if all or any portion of such Net Insurance Proceeds are not contractually committed to be used within 280 days after the date of receipt of such Net Insurance Proceeds and are not actually used within 365 days after the date of receipt of such Net Insurance Proceeds to effect such restoration -39- or replacement (or such earlier date, if any, as Holdings or the Borrower determines not to reinvest such Net Insurance Proceeds, such remaining portion shall be applied on the last day of such 280-day or 365-day period, as the case may be (or such earlier date as the case may be), as provided above in this paragraph (d). (e) On each date after the Closing Date upon which Holdings or any of its Subsidiaries receives any cash proceeds from any capital contribution or any sale or issuance of its equity (other than (i) proceeds received by any Subsidiary of the Borrower from equity contributions made by the Borrower or any Subsidiary of the Borrower, (ii) up to $2,000,000 of proceeds in the aggregate in any fiscal year of Holdings from the issuance of shares of Holding Common Stock (including as a result of the exercise of any options to purchase such shares) to officers and employees of Holdings or any of its Subsidiaries, (iii) up to $10,000,000 of proceeds in the aggregate (other than from a registered public equity offering) the proceeds of which are used to fund a Permitted Retained Equity Transaction and (iv) up to $20,000,000 of additional proceeds in the aggregate to the extent made by one or more Permitted Holders and/or other shareholders of Holdings on the Closing Date the proceeds of which are used to fund a Permitted Retained Equity Transaction), an amount equal to 50% of the Net Equity Proceeds of such capital contribution or sale or issuance of equity shall be applied as a mandatory repayment of principal of outstanding Term Loans and/or as a reduction to the Aggregate Revolving Commitment pursuant to Section 2.07(i). (f) On each Excess Cash Payment Date, an amount equal to 75% of the Excess Cash Flow for the relevant Excess Cash Payment Period shall be applied as a mandatory repayment of principal of outstanding Term Loans and/or as a reduction to the Aggregate Revolving Commitment pursuant to Section 2.07(i); provided, however, that the foregoing percentage shall be reduced to 50% if the Consolidated Leverage Ratio is less than 3.75:1.00 on the last day of the Measurement Period for the relevant Excess Cash Payment Period (after giving effect to any repayment of Term Loans on such date). (g) The Borrower shall pay, together with each prepayment made by the Borrower under this Section 2.07, accrued interest on the amount prepaid and any amounts required pursuant to Section 4.04; provided that interest shall be paid in connection with any such prepayment of Base Rate Loans (other than a prepayment in full) on the next occurring Interest Payment Date. (h) Any prepayments pursuant to this Section 2.07 made on a day other than an Interest Payment Date for any Loan shall be applied first to any Base Rate Loans then outstanding and then to Eurodollar Loans with the shortest Interest Periods remaining. (i) Subject to paragraph (j) of this Section 2.07, each repayment of Term Loans pursuant to this Section 2.07 shall be applied to the Tranche A Term Loans and the Tranche B Term Loans on a pro rata basis (based upon the then outstanding principal amount of Tranche A Term Loans and Tranche B Term Loans). Each repayment of principal of any Tranche of Term Loans pursuant to this Section 2.07 shall be applied to reduce the then remaining Scheduled Repayments of the respective Tranche of Term Loans pro rata based upon -40- the then remaining principal amounts of the Scheduled Repayments of the respective Tranche after giving effect to all prior reductions thereto. After all Term Loans have been repaid in full, any amounts required to be applied pursuant to this Section 2.07(i) shall be applied to reduce the Aggregate Revolving Commitment. (j) Notwithstanding anything to the contrary contained in this Section 2.07, so long as any Tranche A Term Loans remain outstanding the Borrower shall have the option, in its sole discretion, to give the B Lenders the option to waive their pro rata share of a mandatory repayment of Tranche B Term Loans which is to be made pursuant to Section 2.07(b), (c), (d), (e) or (f) (each such repayment, a "Waivable Mandatory Repayment") upon the terms and provisions set forth in this Section 2.07(j). If the Borrower elects to exercise the option referred to in the immediately preceding sentence, the Borrower shall give to the Administrative Agent written notice of the Borrower's intention to give the B Lenders the right to waive a Waivable Mandatory Repayment (including in such notice, the aggregate amount of such proposed repayment) at least five Business Days prior to the date of the proposed repayment, which notice the Administrative Agent shall promptly forward to all B Lenders (indicating in such notice the amount of such repayment to be applied to each such B Lender's outstanding Tranche B Term Loans). The Borrower's offer to permit the B Lenders to waive any such Waivable Mandatory Repayment may apply to all or part of such repayment, provided that any offer to waive part of such repayment must be made ratably to the B Lenders on the basis of their outstanding Tranche B Term Loans. In the event that any such B Lender desires to waive its pro rata share of such B Lender's right to receive any such Waivable Mandatory Repayment in whole or in part, such B Lender shall so advise the Administrative Agent no later than 5:00 P.M. (New York City time) on the date which is two Business Days after the date of such notice from the Administrative Agent, which notice shall also include the amount such B Lender desires to receive in respect of such repayment. If any B Lender does not reply to the Administrative Agent within the two Business Days, such B Lender will be deemed not to have waived any part of such repayment. If any B Lender does not specify an amount it wishes to receive, such B Lender will be deemed to have accepted 100% of its share of such repayment. In the event that any such B Lender waives all or any part of its share of any such Waivable Mandatory Repayment, the Administrative Agent shall apply 100% of the amount so waived by such B Lender (1) first, to the outstanding Tranche A Term Loans in accordance with Section 2.07(i) and (2) second, to the extent that any amount remains after the application pursuant to preceding clause (1), to permanently reduce the Aggregate Revolving Commitment. (k) The Borrower shall repay in full all outstanding Loans on the date on which a Change of Control occurs. 2.08 Repayment of Principal. (a) The Tranche A Term Loans. On each date set forth below, the Borrower shall repay that principal amount of Tranche A Term Loans, to the extent then outstanding, as is set forth opposite such date below (each such repayment, as the same may be reduced as provided in Sections 2.06(c) and 2.07(i), a "Scheduled A Repayment"): -41-
Scheduled A Amount ------ Repayment Date -------------- January 15, 2000 $ 2,500,000 July 15, 2000 $ 2,500,000 January 15, 2001 $ 3,500,000 July 15, 2001 $ 3,500,000 January 15, 2002 $ 5,000,000 July 15, 2002 $ 5,000,000 January 15, 2003 $ 6,000,000 July 15, 2003 $ 6,000,000 January 15, 2004 $ 7,500,000 July 15, 2004 $ 7,500,000 January 15, 2005 $11,000,000
(b) The Tranche B Term Loans. On each date set forth below, the Borrower shall repay that principal amount of Tranche B Term Loans, to the extent then outstanding, as is set forth opposite such date below (each such repayment, as the same may be reduced as provided in Sections 2.06(c) and 2.07(i), a "Scheduled B Repayment"):
Scheduled B Amount ------ Repayment Date -------------- January 15, 2000 $275,000 July 15, 2000 $275,000 January 15, 2001 $275,000 July 15, 2001 $275,000 January 15, 2002 $275,000 July 15, 2002 $275,000
-42-
Scheduled B Amount ------ Repayment Date -------------- January 15, 2003 $ 275,000 July 15, 2003 $ 275,000 January 15, 2004 $ 275,000 July 15, 2004 $ 275,000 January 15, 2005 $ 275,000 July 15, 2005 $ 275,000 January 15, 2006 $25,850,000 July 15, 2006 $25,850,000
(c) The Revolving Loans. The Borrower shall repay in full on the Revolving Termination Date the aggregate principal amount of the Revolving Loans outstanding on such date. (d) The Swingline Loans. The Borrower shall repay to the Swingline Lender in full on the Revolving Termination Date the aggregate principal amount of the Swingline Loans outstanding on such date. 2.09 Interest. (a) Each Loan under a respective Tranche shall bear interest on the outstanding principal amount thereof from the Borrowing Date applicable thereto until it becomes due at a rate per annum equal to the Base Rate or the Eurodollar Rate, as the case may be, plus the Applicable Margin for such Tranche of Loans then in effect as set forth below: (i) for the period commencing on the Closing Date to the First Adjustment Date:
Applicable Margin/Tranche A Applicable Margin Term Loans, Revolving Loans and Swingline Loans Tranche B Term Loans ----------------------------------------------- -------------------- Base Rate 1.25% 1.75% Eurodollar Rate 2.25% 2.75%
(ii) from and after the First Adjustment Date, for each period from an Adjustment Date to the next succeeding Adjustment Date, the rate per annum for the relevant type of Loan of the respective Tranche set forth below opposite the Consolidated Leverage Ratio determined as at the end of the last fiscal quarter ended prior to the first day of such period: -43-
Applicable Margin/ Tranche A Term Loans, Revolving Loans and Applicable Margin/ Swingline Loans Tranche B Term Loans ----------------------------------- ----------------------------------- Eurodollar Rate Base Rate Eurodollar Rate Base Rate ------------------- -------------- ------------------- -------------- Consolidated Leverage Ratio is less than or equal to 3.00 to 1.25% 0.25% 2.00% 1.00% 1.00 ("Level I") Consolidated Leverage Ratio is less than or equal to 3.50 to 1.50% 0.50% 2.25% 1.25% 1.0 but greater than 3.00 to 1.00 ("Level II") Consolidated Leverage Ratio is less than or equal to 4.00 to 1.75% 0.75% 2.25% 1.25% 1.00 but greater than 3.50 to 1.00 ("Level III") Consolidated Leverage Ratio is less than or equal to 4.50 to 2.00% 1.00% 2.75% 1.75% 1.00 but greater than 4.00 to 1.00 ("Level IV") Consolidated Leverage Ratio is greater than 4.50 to 1.00 2.25% 1.25% 2.75% 1.75% ("Level V")
(iii) If by the last day for determining any Adjustment Date, Holdings has failed to deliver a Leverage Ratio Certificate as at the end of the fiscal quarter ended immediately prior to such Adjustment Date, interest for the next succeeding period from such Adjustment Date to the next succeeding Adjustment Date shall be computed as if the Consolidated Leverage Ratio were at Level V; provided, however, to the extent that Holdings thereafter delivers a Leverage Ratio Certificate during such succeeding period, interest for the remainder of such succeeding period shall be computed at the rate prescribed by Section 2.09(a)(ii). In addition, at any time that a Specified Default shall exist, the Applicable Margin shall be computed as if the Consolidated Leverage Ratio were at Level V. (b) Except as provided in the last sentence of Section 2.09(a)(iii) or in the proviso to the first sentence of Section 2.09(a)(iii), any change in the Applicable Margin due to a change in the Consolidated Leverage Ratio shall be effective on the applicable Adjustment Date and shall apply to all Loans that are outstanding at any time during the period commencing on such Adjustment Date and ending on the next Adjustment Date. -44- (c) Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of any portion of Loans (excluding Base Rate Loans) for the portion of such Loans so prepaid and upon payment (including prepayment) of any Loans (including Base Rate Loans) in full. In addition, interest which accrues under Section 2.09(d) also shall be paid on demand by the Administrative Agent or the Required Lenders. (d) If any amount of principal of or interest on any Loan, or any other regularly scheduled amount payable hereunder or under any other Loan Document is not paid in full when due (whether at stated maturity, by acceleration, demand or otherwise), the Borrower shall pay interest (after as well as before judgment) on the overdue principal amount of all outstanding Loans at the applicable rate per annum provided in this Section 2.09 plus 2% and on all other overdue amounts (including interest to the extent permitted by law), at a rate per annum equal to the Base Rate plus the Applicable Margin for the relevant Tranche of Loans plus 2%. (e) Anything herein to the contrary notwithstanding, the obligations of the Borrower hereunder shall be subject to the limitation that payments of interest shall not be required, for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by the respective Lender would be contrary to the provisions of any law applicable to such Lender limiting the highest rate of interest which may be lawfully contracted for, charged or received by such Lender, and in such event the Borrower shall only pay such Lender interest at the highest rate permitted by applicable law. 2.10 Fees. In addition to fees described in Section 3.08: (a) Commitment Fees. The Borrower shall pay to the Administrative Agent for the account of each RL Lender which is Non-Defaulting Lender a commitment fee on the daily unused portion of such Lender's Revolving Commitment (subject to Section 2.01(d)(iii) in the case of the Swingline Lender), computed on a quarterly basis in arrears, on each Interest Payment Date for Base Rate Loans based upon the daily utilization for the previous three month period as calculated by the Administrative Agent, equal to (A) for the period from the Closing Date to the First Adjustment Date, 0.500% per annum and (B) from and after the First Adjustment Date, for each period from an Adjustment Date to the next succeeding Adjustment Date, the rate per annum set forth below opposite the relevant Level of Consolidated Leverage Ratio determined as at the end of the last fiscal quarter ended prior to the first day of such period: -45- Consolidated Leverage Ratio --------------------------- Level I .300% Level II .375% Level III .425% Level IV .500% Level V .500% provided, however, that if by the last day for determining any Adjustment Date, Holdings has failed to deliver a Leverage Ratio Certificate as at the end of the fiscal quarter ended immediately prior to such Adjustment Date, the commitment fee for the next succeeding period from such Adjustment Date to the next succeeding Adjustment Date shall be computed as if the Consolidated Leverage Ratio were at Level V; provided further, however, to the extent that Holdings thereafter delivers a Leverage Ratio Certificate during such succeeding period the commitment fee for the remainder of such succeeding period shall be computed at the rate prescribed in the table above in this Section 2.10(a). In addition, at any time that a Specified Default shall exist, the commitment fee shall be computed as if the Consolidated Leverage Ratio were at Level V. Such commitment fees shall be paid in arrears on each Interest Payment Date for Base Rate Loans. (b) Other Fees. The Borrower shall pay such other fees as have or may be agreed between or among CHS and/or the Borrower and the Administrative Agent from time to time. 2.11 Computation of Fees and Interest. (a) All computations of interest payable in respect of Base Rate Loans shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All computations of fees and other interest under this Agreement shall be made on the basis of a 360-day year (of 12 months with 30 days each) and actual days elapsed. Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) The Administrative Agent will promptly notify the Borrower and the Lenders of each determination of the Eurodollar Rate; provided, however, that any failure to do so shall not relieve the Borrower of any liability hereunder. Except as otherwise provided in the last sentence of Section 2.09(a)(iii) or in the proviso to the first sentence of Section 2.09(a)(iii), any change in the interest rate on a Loan resulting from a change in the Applicable Margin shall become effective as of the opening of business on the relevant Adjustment Date. The Administrative Agent will promptly notify the Borrower and the Lenders of the effective date and the amount of each such change, provided, however, that any failure to do so shall not relieve the Borrower of any liability hereunder. (c) Each determination of an interest rate by the Administrative Agent shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. 2.12 Payments by the Borrower. (a) All payments (including prepayments) to be made by the Borrower on account of principal, interest, drawings under Letters of Credit, fees -46- and other amounts required hereunder shall be made, except as otherwise expressly provided herein, without set-off or counterclaim and shall, except as otherwise expressly provided with respect to drawings under Letters of Credit and elsewhere herein, be made to the Administrative Agent for the ratable account of the Lenders entitled thereto at the Administrative Agent's Payment Office, and shall be made in Dollars and in immediately available funds, no later than 2:00 p.m. (New York City time) on the date specified herein. The Administrative Agent will promptly distribute to each Lender its share, if any, of such principal, interest, fees or other amounts, in like funds as received. Any payment which is received by the Administrative Agent later than 2:00 p.m. (New York City time) shall be deemed to have been received on the immediately succeeding Business Day and any applicable interest or fees shall continue to accrue until such payment is deemed to have been received. (b) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be, subject to the provisions set forth in the definition of the term "Interest Period" herein. (c) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make the payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent as required hereunder on such date in immediately available funds and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, cause to be distributed to each Lender entitled thereto on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have made such payment in full to the Administrative Agent, each such Lender shall repay to the Administrative Agent on demand such amount distributed to such Lender, together with interest thereon for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate as in effect for each such day. 2.13 Payments by the Lenders to the Administrative Agent. (a) Unless the Administrative Agent shall have received notice from a Lender on the Closing Date or, with respect to each Borrowing after the Closing Date, at least one Business Day prior to the date of any proposed Borrowing (other than a Borrowing of a Swingline Loan which in accordance with Section 2.03(f) is funded directly by the Swingline Lender), that such Lender will not make available to the Administrative Agent for the account of the Borrower the amount of such Lender's Commitment Percentage of the Loans included in such Borrowing, the Administrative Agent may assume that each such Lender has made such amount available to the Administrative Agent as required hereunder on the Borrowing Date and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent any such Lender shall not have made its full amount available to the Administrative Agent in immediately available funds and the Administrative Agent in such circumstances has made available to the Borrower such amount, such Lender shall immediately make such amount available to the Administrative Agent, together with interest at the Federal Funds Rate from the Borrowing Date with respect to such -47- Borrowing to the date on which the Administrative Agent recovers such amount from such Lender or the Borrower. A notice of the Administrative Agent submitted to any Lender with respect to amounts owing under this Section 2.13(a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Administrative Agent shall constitute such Lender's Loan on the Borrowing Date for all purposes of this Agreement. If such amount is not made available to the Administrative Agent on the next Business Day following such Borrowing Date, the Administrative Agent may notify the Borrower of such failure to fund and, within one Business Day of demand by the Administrative Agent, the Borrower shall pay such amount to the Administrative Agent for the Administrative Agent's account, together with interest thereon for each day elapsed since such Borrowing Date, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. (b) The failure of any Lender to make any Loan on any Borrowing Date shall not relieve any other Lender of any obligation hereunder to make a Loan on such Borrowing Date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on any Borrowing Date. 2.14 Sharing of Payments, etc. (a) If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Obligations owing to it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Commitment Percentage of payments on account of the respective Obligations of the same kind obtained by all the Lenders entitled thereto, such Lender shall forthwith (i) notify the Administrative Agent of such fact, and (ii) purchase from the other such Lenders such participations in such Obligations made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender, such purchase shall to that extent be rescinded and each other such Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender's Commitment Percentage (according to the proportion of (A) the amount of such paying Lender's required repayment to (B) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased pursuant to this Section 2.14 and will in each case notify the Lenders following any such purchases. (b) The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.14 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 12.09) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. 2.15 Security and Guaranties. (a) All Obligations of the Borrower and the Guarantors under this Agreement and all other Loan Documents to which they are a party shall be secured in accordance with the Collateral Documents. -48- (b) All Obligations of the Borrower under this Agreement and all other Loan Documents to which it is a party shall be unconditionally guaranteed by each Guarantor pursuant to its Guaranty. ARTICLE III. THE LETTERS OF CREDIT --------------------- 3.01 The Letter of Credit Subfacility. (a) On the terms and conditions set forth herein, (i) each Issuing Lender agrees, (A) from time to time, on any Business Day during the period from the Closing Date to the date which is 30 days prior to the Revolving Termination Date to issue (x) irrevocable sight standby Letters of Credit (each such standby Letter of Credit, a "Standby Letter of Credit") for the account of the Borrower and (y) irrevocable sight commercial Letters of Credit (each such commercial Letter of Credit, a "Trade Letter of Credit" and each such Trade Letter of Credit and each Standby Letter of Credit (including the Existing Letter of Credit), a "Letter of Credit") for the account of the Borrower, and to amend or renew Letters of Credit previously issued by it, in accordance with Sections 3.02(b), 3.02(c) and 3.02(d), and (B) to honor drafts under the Letters of Credit; and (ii) the RL Lenders severally agree to participate in Letters of Credit issued for the account of the Borrower; provided, however, that no Issuing Lender shall issue any Letter of Credit if as of the date of, and after giving effect to, the issuance of such Letter of Credit, (x) the aggregate amount of all Letter of Credit Obligations (exclusive of unpaid drawings under any Letter of Credit which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) plus the aggregate principal amount of all Revolving Loans and all Swingline Loans shall exceed the Aggregate Revolving Commitment or (y) the Letter of Credit Obligations (exclusive of unpaid drawings under any Letter of Credit which are repaid with the proceeds of, and simultaneously with the incurrence of, the respective incurrence of Revolving Loans) shall exceed the Letter of Credit Commitment. All Letters of Credit shall be denominated in Dollars. Notwithstanding the foregoing, in the event a Lender Default exists, no Issuing Lender shall be required to issue any Letter of Credit unless such Issuing Lender has entered into arrangements satisfactory to it and the Borrower to eliminate such Issuing Lender's risk with respect to the participation in Letters of Credit of the Defaulting Lender or Lenders, including by Cash Collateralizing such Defaulting Lender's or Lenders' Revolving Commitment Percentage of the Letter of Credit Obligations. Notwithstanding anything to the contrary contained herein, Fleet National Bank shall be the Issuing Lender only in respect of the Existing Letter of Credit and with the Existing Letter of Credit being deemed issued for all purposes of this Agreement on the Closing Date. (b) No Issuing Lender shall be under any obligation to issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority shall by its terms purport to enjoin or restrain such Issuing Lender from issuing such Letter of Credit, or any Requirement of Law applicable to such Issuing Lender or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuing Lender shall prohibit, or request that such Issuing Lender -49- refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Lender with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such Issuing Lender is not otherwise compensated hereunder) not in effect on the Closing Date or shall impose upon such Issuing Lender any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which such Issuing Lender in good faith deems material to it; (ii) such Issuing Lender has received written notice from the Required Lenders, the Administrative Agent, the Borrower or any other Credit Party on or prior to the Business Day prior to the requested date of issuance of such Letter of Credit, that one or more of the applicable conditions contained in Article V is not then satisfied; (iii) the expiry date of any requested Letter of Credit (x) is more than (A) in the case of Standby Letters of Credit, one year after the date of issuance or (B) in the case of Trade Letters of Credit, 180 days after the date of issuance, unless (in each case) the Required Lenders, the Administrative Agent and the respective Issuing Lender have approved such expiry date in writing or (y) is later than the 30th day prior to the Revolving Termination Date; (iv) any requested Letter of Credit is not in form and substance acceptable to the respective Issuing Lender, or the issuance, of a Letter of Credit shall violate any applicable policies of such Issuing Lender; or (v) such Letter of Credit is in a face amount less than $100,000. 3.02 Issuance, Amendment and Renewal of Letters of Credit. (a) Each Letter of Credit (other than the Existing Letter of Credit) shall be issued upon the irrevocable written request of the Borrower received by the respective Issuing Lender (with a copy sent by the Borrower to the Administrative Agent) at least five Business Days (or such shorter time as such Issuing Lender may agree in a particular instance in its sole discretion) prior to the proposed date of issuance. Each such request for issuance of a Letter of Credit shall be by facsimile, confirmed immediately in an original writing, in the form of a Letter of Credit Application, and shall specify in form and detail satisfactory to the respective Issuing Lender: (i) the proposed date of issuance of the Letter of Credit (which shall be a Business Day); (ii) the face amount of the Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) the documents to be presented by the beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; and (vii) such other matters as the respective Issuing Lender may reasonably require. (b) From time to time while a Letter of Credit is outstanding and prior to the Revolving Termination Date, each Issuing Lender will, upon the written request of the Borrower received by such Issuing Lender (with a copy sent by the Borrower to the Administrative Agent) at least five Business Days (or such shorter time as such Issuing Lender may agree in a particular instance in its sole discretion) prior to the proposed date of amendment, amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made by fac- -50- simile, confirmed immediately in an original writing, made in the form of a Letter of Credit Amendment Application and shall specify in form and detail satisfactory to the respective Issuing Lender: (i) the Letter of Credit to be amended; (ii) the proposed date of amendment of the Letter of Credit (which shall be a Business Day); (iii) the nature of the proposed amendment; and (iv) such other matters as such Issuing Lender may reasonably require. No Issuing Lender shall be under any obligation to amend any Letter of Credit if: (A) such Issuing Lender would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed amendment to the Letter of Credit. (c) The Administrative Agent will promptly notify the RL Lenders of the receipt by it of any Letter of Credit Application or Letter of Credit Amendment Application. (d) The Issuing Lenders and the Lenders agree that, while a Letter of Credit is outstanding and prior to the Revolving Termination Date, at the option of the Borrower and upon the written request of the Borrower received by the respective Issuing Lender (with a copy sent by the Borrower to the Administrative Agent) at least five Business Days (or such shorter time as such Issuing Lender may agree in a particular instance in its sole discretion) prior to the proposed date of notification of renewal, such Issuing Lender shall be entitled to authorize the automatic renewal of any Letter of Credit issued by it. Each such request for renewal of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, in the form of a Letter of Credit Amendment Application, and shall specify in form and detail satisfactory to the respective Issuing Lender: (i) the Letter of Credit to be renewed; (ii) the proposed date of notification of renewal of the Letter of Credit (which shall be a Business Day); (iii) the revised expiry date of the Letter of Credit; and (iv) such other matters as such Issuing Lender may reasonably require. No Issuing Lender shall be under any obligation to renew any Letter of Credit if such Issuing Lender would have no obligation at such time to issue or amend such Letter of Credit in its renewed form under the terms of this Agreement. If any outstanding Letter of Credit shall provide that it shall be automatically renewed unless the beneficiary thereof receives notice from the respective Issuing Lender that such Letter of Credit shall not be renewed, and if at the time of renewal such Issuing Lender would be entitled to authorize the automatic renewal of such Letter of Credit in accordance with this Section 3.02(d) upon the request of the Borrower but such Issuing Lender shall not have received any Letter of Credit Amendment Application from the Borrower with respect to such renewal or other written direction by the Borrower with respect thereto, such Issuing Lender shall nonetheless be permitted to allow such Letter of Credit to be renewed, and the Borrower and the Lenders hereby authorize such renewal, and, accordingly, such Issuing Lender shall be deemed to have received a Letter of Credit Amendment Application from the Borrower requesting such renewal. (e) This Agreement shall control in the event of any conflict with any Letter of Credit Related Document (other than any Letter of Credit). (f) Each Issuing Lender will also deliver to the Administrative Agent, concurrently or promptly following its delivery of a Letter of Credit issued by it, or amendment to or -51- renewal of a Letter of Credit issued by it, to an advising bank or a beneficiary, a true and complete copy of each such Letter of Credit or amendment to or renewal of any such Letter of Credit. 3.03 Participations, Drawings and Reimbursements. (a) Immediately upon the issuance of each Letter of Credit, each RL Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the respective Issuing Lender a participation in such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) the Revolving Commitment Percentage of such RL Lender times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of Section 2.10(a), each issuance of a Letter of Credit shall be deemed to utilize the Revolving Commitment of each RL Lender by an amount equal to the amount of such participation. (b) In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the respective Issuing Lender will promptly notify the Borrower. The Borrower shall reimburse the respective Issuing Lender prior to 2:00 p.m. (New York City time), on the Business Day immediately following each date that any amount is paid by such Issuing Lender under any Letter of Credit (each such date on which any amount is so paid by such Issuing Lender, a "Disbursement Date"), in an amount equal to the amount so paid by the Issuing Lender. In the event the Borrower shall fail to reimburse the respective Issuing Lender for the full amount of any drawing under any Letter of Credit by 2:00 p.m. (New York City time) on the Business Day immediately following the respective Disbursement Date, such Issuing Lender will promptly notify the Administrative Agent and the Administrative Agent will promptly notify each RL Lender thereof, and the Borrower shall be deemed to have requested that Revolving Loans consisting of Base Rate Loans be made by the RL Lenders (and hereby irrevocably consents to such deemed request) pursuant to Section 2.01(c) to be disbursed on the Business Day immediately following the respective Disbursement Date under such Letter of Credit. Any notice given by an Issuing Lender or the Administrative Agent pursuant to this Section 3.03(b) may be oral if immediately confirmed in writing (including by facsimile); provided, however, that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (c) Each RL Lender shall upon receipt of any notice pursuant to Section 3.03(b) make available to the Administrative Agent for the account of the respective Issuing Lender an amount in Dollars and in immediately available funds equal to its Revolving Commitment Percentage of the amount of the unreimbursed drawing, whereupon the participating RL Lenders shall (subject to Section 3.03(d)) each be deemed to have made a Revolving Loan consisting of a Base Rate Loan to the Borrower in that amount. If any RL Lender so notified shall fail to make available to the Administrative Agent for the account of the respective Issuing Lender the amount of such RL Lender's Revolving Commitment Percentage of the amount of the unreimbursed drawing by no later than 2:00 p.m. (New York City time) on the Business Day immediately following the respective Disbursement Date, then interest shall accrue on such RL Lender's obligation to make such payment, from the Business Day immediately following the respective Disbursement Date to the date such RL Lender makes such payment, at a rate per annum equal to (i) the Federal Funds Rate in effect from time to time during the period -52- commencing on the later of the Business Day immediately following the respective Disbursement Date and the date such RL Lender receives notice of the Disbursement Date prior to 2:00 p.m. (New York City time) on such date and ending on the date three Business Days thereafter, and (ii) thereafter at the Base Rate as in effect from time to time plus the Applicable Margin for Revolving Loans maintained as Base Rate Loans. The Administrative Agent will promptly give notice of the occurrence of the Disbursement Date, but failure of the Administrative Agent to give any such notice on the Disbursement Date or in sufficient time to enable any RL Lender to effect such payment on such date shall not relieve such RL Lender from its obligations under this Section 3.03. (d) With respect to any unreimbursed drawing which is not converted into Revolving Loans consisting of Base Rate Loans to the Borrower in whole or in part, because of the Borrower's failure to satisfy the conditions set forth in Section 5.02 or for any other reason, the Borrower shall be deemed to have incurred from the respective Issuing Lender a Letter of Credit Borrowing in the amount of such unreimbursed drawing, which Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall bear interest from the respective Disbursement Date at a rate per annum equal to the Base Rate, plus the Applicable Margin for Revolving Loans maintained as Base Rate Loans, plus in the case of any Letter of Credit Borrowing outstanding after the respective Disbursement Date, 2% per annum, and each RL Lender's payment to such Issuing Lender pursuant to Section 3.03(c) shall be deemed payment in respect of its participation in such Letter of Credit Borrowing. (e) Each RL Lender's obligation in accordance with this Agreement to make the Revolving Loans or fund its participation in any Letter of Credit Borrowing, as contemplated by this Section 3.03, as a result of a drawing under a Letter of Credit shall be absolute and unconditional and without recourse to the respective Issuing Lender and shall not be affected by any circumstance, including (i) any set-off, counterclaim, defense or other right which such RL Lender may have against the Issuing Lender, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default, an Event of Default or a Material Adverse Effect; (iii) the amount of the Aggregate Revolving Commitment at such time; or (iv) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 3.04 Repayment of Participations. (a) On (and only upon) receipt by the Administrative Agent for the account of the respective Issuing Lender of funds from the Borrower (i) in reimbursement of any payment made by such Issuing Lender under the Letter of Credit issued by it and with respect to which any RL Lender has paid the Administrative Agent for the account of such Issuing Lender for such RL Lender's participation in the Letter of Credit pursuant to Section 3.03, or (ii) in payment of interest on amounts described in clause (i), the Administrative Agent will pay to each RL Lender, in the same funds as those received by the Administrative Agent for the account of such Issuing Lender, the amount of such RL Lender's Revolving Commitment Percentage of such funds, and such Issuing Lender shall receive the amount of the Revolving Commitment Percentage of such funds of any RL Lender that did not so pay the Administrative Agent for the account of such Issuing Lender. -53- (b) If the Administrative Agent or any Issuing Lender is required at any time to return to the Borrower, or to a trustee, receiver, liquidator, custodian, or any similar official in any Insolvency Proceeding, any portion of the payments made by the Borrower to the Administrative Agent for the account of such Issuing Lender pursuant to Section 3.04(a) in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each RL Lender shall, on demand of the Administrative Agent, forthwith return to the Administrative Agent or such Issuing Lender the amount of its Revolving Commitment Percentage of any amounts so returned by the Administrative Agent or such Issuing Lender plus interest thereon from the date such demand is made to the date such amounts are returned by such RL Lender to the Administrative Agent or such Issuing Lender, at a rate per annum equal to the Federal Funds Rate in effect from time to time. 3.05 Role of the Issuing Lenders. (a) Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, no Issuing Lender shall have any responsibility to obtain any document (other than any sight draft and certificates expressly required by the Letter of Credit issued by such Issuing Lender) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. (b) No Issuing Lender nor any of the respective correspondents, participants or assignees of such Issuing Lender shall be liable to any Lender for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Required Lenders; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any Letter of Credit Related Document. (c) The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit. No Issuing Lender nor any of the respective correspondents, participants or assignees of such Issuing Lender, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 3.06; provided, however, that the Borrower may have a claim against the respective Issuing Lender, and such Issuing Lender may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by such Issuing Lender's willful misconduct or gross negligence or such Issuing Lender's willful failure to pay under any Letter of Credit issued by it after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing: (i) each Issuing Lender may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (ii) each Issuing Lender shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 3.06 Obligations Absolute. The obligations of the Borrower under this Agreement and any Letter of Credit Related Document to reimburse each Issuing Lender for a -54- drawing under a Letter of Credit issued by such Issuing Lender, and to repay any Letter of Credit Borrowing and any drawing under a Letter of Credit converted into Revolving Loans, shall (except as expressly provided in the proviso to the second sentence of Section 3.05(c)) be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other Letter of Credit Related Document under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement, any other Loan Document or any Letter of Credit Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Borrower in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the Letter of Credit Related Documents; (iii) the existence of any claim, set-off, defense or other right that the Borrower or any Subsidiary of the Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), any Issuing Lender or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the Letter of Credit Related Documents or any unrelated transaction; (iv) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) any payment by the respective Issuing Lender under any Letter of Credit issued by it against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit; or any payment made by the respective Issuing Lender under any Letter of Credit issued by it to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the obligations of the Borrower in respect of any Letter of Credit; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor. 3.07 Cash Collateral Pledge. Upon (a) the request of the Administrative Agent, (i) if the respective Issuing Lender has honored any full or partial drawing request on any Letter -55- of Credit issued by such Issuing Lender and such drawing has resulted in a Letter of Credit Borrowing hereunder, or (ii) if, as of the Revolving Termination Date, any Letters of Credit may for any reason remain outstanding and partially or wholly undrawn, or (b) the occurrence of the circumstances described in Section 2.07(a) requiring the Borrower to Cash Collateralize Letters of Credit, then the Borrower shall immediately Cash Collateralize the Letter of Credit Obligations in an amount equal to such Letter of Credit Obligations (or in the case of clause (b) above, the excess amount required pursuant to Section 2.07(a)) and such cash will be held as security for all Obligations of the Borrower to the Lenders hereunder in a cash collateral account to be established by the Administrative Agent, and during the existence of an Event of Default, the Administrative Agent may, upon the request of the Required Lenders, apply such amounts so held to the payment of such outstanding Obligations. 3.08 Letter of Credit Fees. (a) The Borrower shall pay to the Administrative Agent for the account of each RL Lender a letter of credit fee with respect to the Letters of Credit computed on the average daily maximum amount available to be drawn of the outstanding Letters of Credit, on each Interest Payment Date for Base Rate Loans based upon Letters of Credit outstanding for the previous three-month period. The letter of credit fee shall be equal to (i) for the period from the Closing Date to the First Adjustment Date, 2.25% per annum and (ii) from and after the First Adjustment Date, for each period from an Adjustment Date to the next succeeding Adjustment Date, the rate per annum set forth below opposite the relevant Level of Consolidated Leverage Ratio determined as at the end of the last fiscal quarter ended prior to the first day of such period: Consolidated Leverage Ratio --------------------------- Level I 1.25% Level II 1.50% Level III 1.75% Level IV 2.00% Level V 2.25% provided, however, that if by the day for determining any Adjustment Date Holdings has failed to deliver a Leverage Ratio Certificate as at the end of the fiscal quarter ended immediately prior to such Adjustment Date, the letter of credit fee for the next succeeding period from such Adjustment Date to the next succeeding Adjustment Date shall be computed as if the Consolidated Leverage Ratio were at Level V; provided further, however, to the extent that Holdings thereafter delivers a Leverage Ratio Certificate during such succeeding period, the letter of credit fee for the remainder of such succeeding period shall be computed at the rate prescribed in the table above in this Section 3.08(a). In addition, at any time that a Specified Default shall exist, the letter of credit fee shall be computed as if the Consolidated Leverage Ratio were at Level V. Such letter of credit fee shall be due and payable in arrears on each Interest Payment Date for Base Rate Loans. (b) The Borrower shall pay to each Issuing Lender a letter of credit fronting fee for each Letter of Credit issued by such Issuing Lender equal to 0.25% per annum of the face -56- amount of such Letter of Credit. Such Letter of Credit fronting fee shall be due and payable in arrears on each Interest Payment Date for Base Rate Loans. (c) The Borrower shall pay to each Issuing Lender from time to time on demand the normal issuance, presentation, amendment and other processing fees, and other standard costs and charges with respect to Letters of Credit issued by it, of such Issuing Lender relating to letters of credit as from time to time in effect. 3.09 Uniform Customs and Practice. The Uniform Customs and Practice for Documentary Credits as most recently published by the International Chamber of Commerce shall in all respects be deemed a part of this Article III as if incorporated herein and (unless otherwise expressly provided in the Letters of Credit) shall apply to the Letters of Credit. ARTICLE IV. TAXES, YIELD PROTECTION AND ILLEGALITY -------------------------------------- 4.01 Taxes. (a) Subject to Section 4.01(g), any and all payments made by the Borrower to any Lender or the Administrative Agent under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any and all present or future taxes, levies, imposts, deductions, duties, fees, assessments or other charges or withholdings, and all liabilities with respect thereto now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments, excluding, in the case of each Lender and the Administrative Agent (except as otherwise provided in Section 4.01(c)), as the case may be, such taxes as are imposed on or measured by such Person's net income or net profits by the jurisdiction under the laws of which such Person is organized or has its principal office or in which the Lending Office of such Person is located or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, duties, fees, assessments or other charges, withholdings and liabilities being hereinafter referred to as "Taxes"). (b) In addition, the Borrower shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). (c) Subject to Section 4.01(g), the Borrower shall indemnify and hold harmless each Lender and the Administrative Agent for (i) the full amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under Section 4.01(d) and this Section 4.01(c)) and (ii) the full amount of all taxes imposed on or measured by the net income or net profits of such Lender or the Administrative Agent pursuant to the laws of the jurisdiction in which such Lender or the Administrative Agent is organized or has its principal office or in which the Lending Office of such Person is located or under the laws -57- of any political subdivision or taxing authority of any such jurisdiction in which such Lender or the Administrative Agent is organized or has its principal office or in which its respective Lending Office is located paid by such Lender or the Administrative Agent as a result of amounts payable by the Borrower under Section 4.01(d) and this Section 4.01(c), and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such taxes or other liabilities were correctly or legally asserted. (d) If the Borrower shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent, then, subject to Section 4.01(g): (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.01(d)) such Lender or the Administrative Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Borrower shall make such deductions; and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (e) Within 30 days after the date of any payment by the Borrower of Taxes or Other Taxes, such Person shall furnish to the Administrative Agent, at its address referred to in Section 12.02, the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Administrative Agent. (f) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees that: (i) it shall, no later than the Closing Date (or, in the case of a Lender which becomes a party hereto pursuant to Section 12.07 after the Closing Date, the date upon which such Lender becomes a party hereto unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer) deliver to the Borrower and the Administrative Agent either (A) two accurate and complete signed originals of Internal Revenue Service Form 4224 or any successor thereto ("Form 4224"), or two accurate and complete signed originals of Internal Revenue Service Form 1001 or any successor thereto ("Form 1001"), as appropriate, in each case indicating that such Lender is on the date of delivery thereof entitled to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any note, or (B) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (f)(i)(A), (x) a certificate substantially in the form of Exhibit N ("Section 4.01(f) Certificate") and (y) two accurate and complete signed originals of Internal Revenue Service Form W-8 or any successor thereto ("Form W-8") certifying to such Lender's entitlement on the date of delivery thereof to a complete exemption from -58- United States withholding tax with respect to payments of interest to be made under this Agreement or any note. (ii) if at any time a Lender that provides forms pursuant to paragraph (f)(i)(A) above makes any change in its place of incorporation or fiscal residence necessitating a new Form 4224 or Form 1001, such Lender shall promptly deliver to the Borrower through the Administrative Agent in replacement for, or in addition to, the forms previously delivered by such Lender hereunder, two accurate and complete signed originals of Form 4224 or Form 1001 or Form W-8 and a Section 4.01(f) Certificate, as appropriate, in each case indicating that such Lender is on the date of delivery thereof entitled to receive all payments under this Agreement free from withholding of United States Federal income tax; (iii) it shall, to the extent it is legally entitled to do so, before or promptly after a Lender that provides forms pursuant to paragraph (f)(i)(A) above makes any change of a Lending Office or its principal office, or the occurrence of any event (including the passing of time but excluding any event mentioned in clause (ii) above) requiring a change in or renewal of the most recent Form 4224 or Form 1001 previously delivered by such Lender, deliver to the Borrower through the Administrative Agent two accurate and complete original signed copies of Form 4224 or Form 1001 in replacement for the forms previously delivered by such Lender indicating that such Lender continues to be entitled to receive all payments under this Agreement free from any withholding of any United States Federal income tax; (iv) it shall, to the extent it is legally entitled to do so, promptly upon the Borrower's or the Administrative Agent's reasonable request to that effect, deliver to the Borrower or the Administrative Agent (as the case may be) such other forms or similar documentation as may be required from time to time by any applicable law, treaty, rule or regulation in order to establish such Lender's complete exemption from withholding on all payments under this Agreement; and (v) without limiting or restricting any Lender's right to increased amounts under Section 4.01(d) from the Borrower upon satisfaction of such Lender's obligations under the provisions of this Section 4.01(f), if such Lender is entitled to a reduction in the applicable withholding tax, the Administrative Agent may (but shall not be obligated to) withhold from any interest to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other administrative documentation required by clause (i) are not delivered to the Administrative Agent, then the Administrative Agent shall withhold from any interest payment to any such Lender not providing such forms or other documentation, an amount equivalent to the applicable withholding tax and in addition, the Administrative Agent shall also withhold against periodic payments other than interest payments to the extent United States withholding tax is not eliminated by obtaining Form 4224, Form 1001 or Form W-8 and Section 4.01(f) Certificate. The Borrower shall indemnify and hold harmless the Administrative Agent and each of its officers, directors, employees, counsel, agents and attorney-in-fact, -59- on an after tax basis, from and against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including Attorney Costs) of any kind whatsoever incurred as a result of or in connection with the Administrative Agent's failure to withhold as provided pursuant to the preceding sentence, unless such failure constitutes gross negligence or willful misconduct of the Administrative Agent itself as the same is determined by a final judgment of a court of competent jurisdiction and the obligations in this sentence shall survive payment of all other Obligations. (g) The Borrower will not be required to pay any additional amounts in respect of Taxes imposed by the United States Federal government pursuant to Section 4.01(a) or 4.01(d) to any Lender if and to the extent the obligation to pay such additional amounts would not have arisen but for a failure by such Lender to comply with its obligations under Section 4.01(f) in respect of its Lending Office. (h) Each Lender agrees that it shall, at any time upon reasonable advance request in writing by the Borrower or the Administrative Agent, promptly deliver such certification or other documentation as may be required under the law or regulation in any applicable jurisdiction and which such Lender is entitled to submit to avoid or reduce withholding taxes on amounts to be paid by the Borrower and received by such Lender pursuant to this Agreement or any other Loan Document; provided, however, a Lender will not be obligated to deliver any tax returns, income tax schedules or computations, or other documentation that would require such bank to disclose any other information that would adversely affect such Lender, as determined solely by such Lender. (i) Subject to Section 4.01(g), the Borrower shall indemnify each Lender and the Administrative Agent, to the extent required by this Section 4.01 within 30 days after receipt of written request from such Lender or the Administrative Agent thereof accompanied by a written statement describing in reasonable detail the Taxes or Other Taxes or other additional amounts that are the subject of the basis for such indemnity and the computation of the amount payable. (j) If the Borrower is required to pay additional amounts to any Lender or the Administrative Agent pursuant to Section 4.01(d), then such Lender shall, upon the Borrower's request, use its reasonable best efforts (consistent with policy considerations of such Lender) to change the jurisdiction of its Lending Office so as to reduce or eliminate any such additional payment which may thereafter accrue if such change in the sole judgment of such Lender is not otherwise disadvantageous to such Lender. (k) Each Lender agrees that it will (i) take all reasonable actions reasonably requested by the Borrower (consistent with policy considerations by such Lender) to maintain all exemptions, if any, available to it from withholding taxes (whether available by treaty or existing administrative waiver), and (ii) to the extent reasonable, otherwise cooperate with the Borrower to minimize any amounts payable by the Borrower under this Section 4.01, in any case described -60- in the preceding clauses (i) and (ii), however, only if such action or cooperation is not disadvantageous to such Lender in the sole judgment of such Lender. 4.02 Illegality. (a) If any Lender shall determine that (i) the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration thereof, has made it unlawful, or (ii) any central bank or other Governmental Authority has asserted that it is unlawful for any Lender or its Lending Office to make a Eurodollar Loan or to convert any Base Rate Loan to a Eurodollar Loan, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, the obligation of such Lender to make or convert any such Loans shall be suspended until such Lender shall have notified the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. (b) If a Lender shall determine that it is unlawful to maintain any Eurodollar Loan, the Borrower shall, unless otherwise permitted under paragraph (c) below, prepay in full all Eurodollar Loans of such Lender then outstanding, together with interest accrued thereon, either on the last day of the Interest Period thereof if such Lender may lawfully continue to maintain such Eurodollar Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Loans, together with any amounts required to be paid in connection therewith pursuant to Section 4.04. (c) If the Borrower is required to prepay any Eurodollar Loan immediately, then concurrently with such prepayment, the Borrower shall borrow from the affected Lender, in the aggregate amount of such repayment, Base Rate Loans of the respective Tranche. (d) Before giving any notice to the Administrative Agent pursuant to this Section 4.02, the affected Lender shall designate a different Lending Office with respect to its Eurodollar Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of such Lender, be illegal, inconsistent with the policies of such Lender or otherwise disadvantageous to such Lender. 4.03 Increased Costs and Reduction of Return. (a) If any Lender or any Issuing Lender shall determine that, due to either (i) the introduction of or any change in or in the interpretation or administration of any law or regulation (other than any law or regulation relating to taxes, including those relating to Taxes and Other Taxes) after the Closing Date or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) made after the Closing Date, there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any Eurodollar Loans or participating in any Letter of Credit Obligations, or any increase in the cost to such Issuing Lender of agreeing to issue, issuing or maintaining any Letter of Credit or of agreeing to make or making, funding or maintaining any unpaid drawing under any Letter of Credit, then the Borrower shall be liable for, and shall from time to time, within ten days of demand therefor by such Lender or such Issuing Lender, as the case may be (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such -61- Lender or such Issuing Lender, additional amounts as are sufficient to compensate such Lender or the Issuing Lender for such increased costs. (b) If any Lender or any Issuing Lender shall have determined that (i) the introduction of any Capital Adequacy Regulation after the Closing Date, (ii) any change in any Capital Adequacy Regulation after the Closing Date, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof after the Closing Date, or (iv) compliance by any Lender (or its Lending Office) or any Issuing Lender, as the case may be, or any corporation controlling such Lender or such Issuing Lender, as the case may be, with any Capital Adequacy Regulation adopted after the Closing Date, affects or would affect the amount of capital required or expected to be maintained by such Lender or such Issuing Lender or any corporation controlling such Lender or such Issuing Lender and (taking into consideration such Lender's, such Issuing Lender's or such corporation's policies with respect to capital adequacy and such Lender's, such Issuing Lender's or corporation's desired return on capital) determines that the amount of such capital is (or is required to be) increased as a consequence of any of its Commitments, Loans, participations in Letters of Credit, or obligations under this Agreement, then, within ten days of demand by such Lender or such Issuing Lender (with a copy to the Administrative Agent), the Borrower shall be liable for and shall immediately pay to such Lender or such Issuing Lender, from time to time as specified by such Lender or such Issuing Lender, additional amounts sufficient to compensate such Lender or such Issuing Lender for such increase. 4.04 Funding Losses. The Borrower agrees to reimburse each Lender and to hold each Lender harmless from any loss, cost or expense (other than loss of margin) which such Lender may sustain or incur as a consequence of: (a) any failure by the Borrower to make any payment of principal of any Eurodollar Loan (including payments made after any acceleration thereof) when due; (b) any failure by the Borrower to borrow a Eurodollar Loan or continue a Eurodollar Loan or convert a Base Rate Loan to a Eurodollar Loan after the Borrower has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation, as the case may be; (c) any failure by the Borrower to make any prepayment of a Eurodollar Loan after the Borrower has given a notice in accordance with Section 2.06; or (d) any payment or prepayment (including pursuant to Section 2.07, Section 2.08 or after acceleration thereof) of a Eurodollar Loan for any reason whatsoever on a day which is not the last day of the Interest Period with respect thereto; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain any Eurodollar Loan hereunder or from fees payable to terminate the deposits from which such funds were obtained. -62- 4.05 Inability to Determine Rates. Notwithstanding any provisions herein to the contrary, if, in relation to any proposed Eurodollar Loan, (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon all parties hereto) that by reason of circumstances affecting the interbank markets adequate and fair means do not exist for ascertaining the Eurodollar Rate to be applicable to such Eurodollar Loan or (b) the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Rate determined or to be determined for any Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Eurodollar Loans during such affected Interest Period, then, the obligation of the Lenders to make, continue or maintain Eurodollar Loans or to convert Base Rate Loans into Eurodollar Loans shall be suspended until (x) in the case of (a) above, the Administrative Agent determines adequate and fair means for ascertaining the Eurodollar Rate to be applicable to such Eurodollar Loan exists or (y) in the case of (b) above, the Administrative Agent upon the instruction of the Required Lenders revokes such notice in writing. If, notwithstanding the provisions of this Section 4.05, any Lenders has made available to the Borrower its Commitment Percentage of any such proposed Eurodollar Loan, then such Eurodollar Loan shall immediately be converted into a Base Rate Loan. 4.06 Increased Costs on Eurodollar Loans. At any time that any Lenders shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loans (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of net income taxes or similar charges) because of (x) any change since the date of this Agreement in any Requirement of Law or governmental guideline, order or request (whether or not having the force of law), or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline, order or request (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Eurodollar Rate) and/or (y) other circumstances affecting such Lender, the interbank Eurodollar market or the position of such Lender in such market, then the Borrower shall pay to each such Lender, within ten days after such Lender's written demand therefor (accompanied by the written notice referred to in Section 4.07 below), such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts received or receivable hereunder. 4.07 Certificates of Lenders. Any Lender, the Swingline Lender or any Issuing Lender claiming reimbursement or compensation pursuant to this Article IV shall deliver to the Borrower (with a copy to the Administrative Agent) a certificate setting forth in reasonable detail the amount payable to such Person hereunder and such certificate shall be conclusive and binding on the Borrower in the absence of manifest error. In determining any amounts payable under Section 4.03(b), each Lender or each Issuing Lender, as the case may be, shall act reasonably and in good faith and will use averaging and attribution methods which are reasonable. -63- 4.08 Change of Lending Office, Replacement Lender, etc. (a) Each Lender agrees that upon the occurrence of an event giving rise to the operation of Section 4.01, 4.02, 4.03 or 4.06 with respect to such Lender, it will if so requested by the Borrower, use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Lending Office for any Loans affected by such event with the object of avoiding the consequence of the event giving rise to the operation of such section; provided, however, that such designation would not, in the sole judgment of such Lender, be otherwise disadvantageous to such Lender. Nothing in this Section 4.08(a) shall affect or postpone any of the obligations of the Borrower or the right of any Lender provided in Section 4.01, 4.02, 4.03 or 4.06. (b) Notwithstanding anything to the contrary contained herein or in any other Loan Document, (x) upon the occurrence of any event that obligates the Borrower to pay any amount under Section 4.01 or giving rise to the operation of Section 4.02, 4.03 or 4.06 with respect to such Lender, (y) if any Lender becomes a Defaulting Lender or (z) as provided in Section 12.01(b) in the case of certain refusals by a Lender to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Lenders, the Borrower shall have the right, if no Default or Event of Default then exists or will exist immediately after giving effect to the respective replacement, to replace such Lender (the "Replaced Lender") by designating another Non-Defaulting Lender or an Eligible Assignee (such Non-Defaulting Lender or Eligible Assignee being herein called a "Replacement Lender") to which such Replaced Lender shall assign, in accordance with Section 12.07 and without recourse to or warranty by, or expense to, such Replaced Lender, all of the rights and obligations of such Replaced Lender hereunder and, upon such assignment, such Replaced Lender shall no longer be a party hereto or have any rights hereunder (except for such rights as survive repayment of the Loans), and such Replacement Lender shall succeed to the rights and obligations of such Replaced Lender hereunder. The Borrower shall pay to such Replaced Lender in same day funds on the date of replacement all interest, fees and other amounts then due and owing such Replaced Lender by the Borrower hereunder to and including the date of replacement, including, without limitation, costs incurred under Section 4.01, 4.02, 4.03 or 4.06. (c) Notwithstanding anything to the contrary contained in Section 4.01, 4.02, 4.03 or 4.06, unless a Lender gives notice to the Borrower that the Borrower is obligated to pay an amount under any such Section within 180 days after the later of (x) the date such Lender incurs the respective increased costs, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital or (y) the date such Lender has actual knowledge of its incurrence of the respective increased costs, loss, expense or liability, reductions in amounts received or receivable or reduction in return on capital, then such Lender shall only be entitled to be compensated for such amount by the Borrower pursuant to said Section 4.01, 4.02, 4.03 or 4.06, as the case may be, to the extent the respective increased costs, loss, expense or liability, reduction in amounts received or receivable or reduction in return on capital are incurred or suffered on or after the date which occurs 180 days prior to such Lender giving such notice to the Borrower as provided above that the Borrower is obligated to pay the respective amounts pursuant to said Section 4.01, 4.02, 4.03 or 4.06, as the case may be. This paragraph (c) shall -64- have no applicability to any Section of this Agreement other than said Section 4.01, 4.02, 4.03 or 4.06. 4.09 Survival. The agreements and obligations of the Borrower in this Article IV shall survive the payment of all other Obligations. ARTICLE V. CONDITIONS PRECEDENT -------------------- 5.01 Conditions to Loans and Letters of Credit on the Closing Date. The occurrence of the Closing Date, the obligation of each Lender to make Loans hereunder and the obligation of each Issuing Lender to issue Letters of Credit on the Closing Date is subject to the condition that the Administrative Agent shall be reasonably satisfied that the following conditions have been satisfied or waived in writing by the Lenders on or before the Closing Date and, to the extent applicable, shall have received on or before the date for making such Loans and/or issuing such Letters of Credit all of the following, in form and substance reasonably satisfactory to the Administrative Agent and each Lender and (except for the instruments or documents representing Pledged Securities) in sufficient copies for each Lender: (a) Credit Agreement. This Agreement executed by Holdings, the Borrower, the Administrative Agent, each Issuing Lender, the Swingline Lender and each of the Lenders (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Administrative Agent in form satisfactory to it of facsimile or other written confirmation from such party of execution of a counterpart hereof by such party). (b) Resolutions; Incumbency. (i) Copies of the resolutions of the Board of Directors of the Borrower approving and authorizing the execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents to be delivered by the Borrower, and authorizing the borrowing of the Loans and the issuance of the Letters of Credit, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Borrower; (ii) Copies of the resolutions of the Board of Directors of Holdings approving and authorizing the execution, delivery and performance by Holdings of this Agreement (including the guaranty of the Obligations of the Borrower) and the other Transaction Documents to be delivered by Holdings hereunder, certified by the Secretary or an Assistant Secretary of Holdings; (iii) Copies of the resolutions of the Board of Directors of each Subsidiary Guarantor (if any) approving and authorizing the execution, delivery and performance by such Subsidiary Guarantor of the Subsidiary Guaranty, the Pledge Agreement, the Security Agreement and the other Loan Documents to be delivered by such Subsidiary -65- Guarantor, certified by the Secretary or an Assistant Secretary of such Subsidiary Guarantor; and (iv) Certificates of the Secretary or Assistant Secretary of Holdings, the Borrower and each Subsidiary Guarantor (if any) certifying the names and true signatures of the officers of Holdings, the Borrower and such Subsidiary Guarantor authorized to execute, deliver and perform, as applicable, this Agreement and all other Loan Documents, notices, requests and other communications to be delivered hereunder or thereunder. (c) Articles of Incorporation; By-laws and Good Standing. Each of the following documents: (i) the articles or certificate of incorporation (or equivalent organizational documents) of Holdings, the Borrower and each Subsidiary Guarantor (if any) as in effect on the Closing Date, certified by the Secretary of State (or similar, applicable Governmental Authority) of the State of such Credit Party's organization as of a recent date and by the Secretary or Assistant Secretary of Holdings, the Borrower and such Subsidiary Guarantor as of the Closing Date, and the bylaws (or equivalent organizational documents) of Holdings, the Borrower and such Subsidiary Guarantor as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of Holdings, the Borrower and such Subsidiary Guarantor as of the Closing Date; and (ii) a good standing certificate as of a recent date for Holdings, the Borrower and each Subsidiary Guarantor (if any) from the Secretary of State of the State of such Credit Party's organization and each state where Holdings, the Borrower and such Subsidiary Guarantor is qualified to do business as a foreign corporation as of a recent date; and (iii) a bring-down certificate, to the extent reasonably available, of Holdings, the Borrower and each Subsidiary Guarantor (if any) from the Secretary of State of the State of such Credit Party's organization, dated the Closing Date. (d) Subsidiary Guaranty. The Subsidiary Guaranty, duly executed by each Subsidiary Guarantor (if any). (e) Pledge Agreement. (i) The Pledge Agreement, duly executed by Holdings, the Borrower and each Subsidiary Guarantor (if any); (ii) all certificated Pledged Securities (x) endorsed in blank in the case of promissory notes representing Pledged Securities and (y) together with an undated stock power executed in blank in the case of capital stock representing Pledged Securities; and (iii) with respect to Pledged Securities, if any, consisting of book- entry shares, evidence that all actions described in the Pledge Agreement which are necessary to create -66- and perfect the security interests pursuant to the Pledge Agreement in accordance with the New York UCC have been taken. (f) Security Agreement. (i) The Security Agreement, duly executed by each Credit Party; (ii) proper financing statements (Form UCC-1 or the equivalent) fully executed for filing under the UCC or other appropriate filing offices of each jurisdiction as may be necessary or, in the reasonable opinion of the Administrative Agent, desirable to perfect the security interests purported to be created by the Security Agreement; and (iii) certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports, listing all effective financing statements that name any Credit Party or any of its Subsidiaries as debtor and that are filed in the jurisdictions referred to in clause (ii) above, together with copies of such other financing statements that name any Credit Party or any of its Subsidiaries as debtor (none of which shall cover the Collateral except to the extent evidencing Permitted Liens or in respect of which the Administrative Agent shall have received Form UCC-3 termination statements or such other termination statements as shall be required by local law fully executed for filing). (g) Mortgages; Title Insurance; Survey, etc. (i) Fully executed counterparts of Mortgages, in form and substance reasonably satisfactory to the Administrative Agent, which Mortgages shall cover the Mortgaged Properties owned or leased by the Credit Parties on the Closing Date as designated on Schedule 6.09, together with evidence that counterparts of such Mortgages have been delivered to the title insurance company insuring the Lien of such Mortgages for recording in all places to the extent necessary or, in the reasonable opinion of the Administrative Agent, desirable, to effectively create a valid and enforceable first priority mortgage lien (subject to Permitted Liens in respect thereof) on each such Mortgaged Property in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Secured Creditors; (ii) a mortgagee title insurance policy (or a binding commitment with respect thereto) on each such Mortgaged Property (the "Mortgage Policies") issued by a title insurer reasonably satisfactory to the Administrative Agent in amounts satisfactory to the Administrative Agent assuring the Administrative Agent that the Mortgages on such Mortgaged Properties are valid and enforceable first priority mortgage liens on the respective Mortgaged Properties, free and clear of all defects and encumbrances except Permitted Encumbrances and such Mortgage Policies shall otherwise be in form and substance reasonably satisfactory to the Administrative Agent, and shall include, as appropriate, an endorsement for future advances under this Agreement and shall not include an exception for mechanics' liens, shall provide for affirmative insurance and such reinsurance as the Administrative Agent may reasonably request and shall provide for any other matter that the Administrative Agent may reasonably request; and -67- (iii) a survey, in form and substance reasonably satisfactory to the Administrative Agent of each Mortgaged Property, certified by a licensed professional surveyor reasonably satisfactory to the Administrative Agent. (h) Legal Opinions. (i) An opinion of Kirkland & Ellis, counsel to Holdings, the Borrower and the Subsidiary Guarantors (if any), addressed to the Administrative Agent, the Collateral Agent and the Lenders, containing opinions substantially in the form of Exhibit H and as to such other matters as the Administrative Agent may reasonably request; (ii) an opinion of White & Case LLP, special counsel to the Administrative Agent and the Lenders, containing opinions substantially in the form of Exhibit I; (iii) an opinion of Palmer & Dodge LLP, local Massachusetts counsel to the Administrative Agent, addressed to the Administrative Agent, the Collateral Agent and the Lenders; (iv) an opinion of Maynard, Cooper & Gale, P.C., local Alabama counsel to the Administrative Agent, addressed to the Administrative Agent, the Collateral Agent and the Lenders; and (v) an opinion of Moore & Van Allen, PLLC, local North Carolina counsel to the Administrative Agent, addressed to the Administrative Agent and the Lenders. (i) Payment of Fees and Expenses. Evidence that all fees, costs and expenses (including Attorney Costs of the Administrative Agent) payable by the Borrower on or before the Closing Date have been paid to the extent then invoiced. (j) Certificates. (i) Certificates signed by a Responsible Officer of Holdings and the Borrower, dated as of the Closing Date stating that: (A) the representations and warranties of Holdings and the Borrower contained in Article VI and in the other Loan Documents to which they are party are true and correct in all material respects on and as of such date, as though made on and as of such date (except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); (B) no Default or Event of Default exists or would result from any Borrowing on the Closing Date; and (C) the conditions set forth in paragraphs (l), (m), (n) and (o) of this Section 5.01 have been satisfied; and (ii) Certificates signed by a Responsible Officer of each of the Subsidiary Guarantors (if any), dated as of the Closing Date, stating that the representations and war- -68- ranties of such Subsidiary Guarantor contained in the Subsidiary Guaranty, the Pledge Agreement and the Security Agreement are true and correct in all material respects on and as of such date, as though made on and as of such date (except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date). (k) Solvency Opinion. A solvency opinion issued by Valuation Research Corporation. (l) Transaction. (i) The Transaction shall have been consummated in all material respects in accordance with the Transaction Documents and all applicable laws, and each of the conditions precedent to the consummation of the Transaction shall have been satisfied and not waived except with the consent of the Administrative Agent and the Required Lenders; (ii) Holdings shall have received gross cash proceeds of at least (x) $20,000,000 from the issuance of Holdings Common Stock (of which approximately $2,880,000 may be in the form of "roll-over" equity (including options) by the existing shareholders of Holdings) and (y) $30,000,000 from the issuance of Holdings Preferred Stock (of which approximately $4,320,000 may be in the form of roll-over equity (including options) by the existing shareholders of Holdings) ; (iii) Holdings shall have received gross cash proceeds of at least $25,000,000 from the issuance of Holdings' Junior Subordinated Notes; (iv) the creditors in respect of the Indebtedness to be Refinanced shall have terminated and released all security interests and Liens on the assets owned by Holdings and its Subsidiaries and all guaranties in respect thereof, and the Administrative Agent shall have received such releases of security interests in and Liens on the assets owned by Holdings and its Subsidiaries as may have been requested by the Administrative Agent; (v) the Borrower shall have received $150,000,000 of gross cash proceeds from the issuance of a like principal amount of Borrower Senior Subordinated Notes; and (vi) the Administrative Agent shall have received true and correct copies of all Transaction Documents. (m) Adverse Change. Since April 30, 1998, nothing shall have occurred (and neither the Administrative Agent nor the Lenders shall have become aware of any facts or conditions not previously known) which the Administrative Agent or the Required -69- Lenders shall reasonably determine has had, or could reasonably be expected to have, a Material Adverse Effect. (n) Governmental and Third Party Approvals. All governmental and material third party approvals and consents (including the consent of BASF Company) necessary in connection with the Transaction and the transactions contemplated by this Agreement and the other Transaction Documents shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose materially adverse conditions on the Transaction or the transactions contemplated by this Agreement or the other Transaction Documents. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon, or materially delaying, or making economically unfeasible, the consummation of the Transaction or the transactions contemplated by this Agreement or the other Transaction Documents. (o) Litigation. There shall be no actions, suits or proceedings pending or threatened (i) with respect to the Transaction or the transactions contemplated by this Agreement or the other Transaction Documents or (ii) which the Administrative Agent or the Required Lenders reasonably determine could reasonably be expected to have a (x) material adverse effect on the Transaction or the transactions contemplated by this Agreement or the other Transaction Documents or (y) a Material Adverse Effect. (p) Shareholders' Agreements; Management Agreements and Tax Sharing Agreements. (i) All agreements entered into by Holdings or any of its Subsidiaries governing the terms and relative rights of its capital stock and any agreements entered into by shareholders relating to any such entity with respect to its capital stock; (ii) all management and consulting agreements entered into by Holdings or any of its Subsidiaries (including the CHS Management Agreement); and (iii) all tax sharing, tax allocation and other similar agreements entered into by Holdings or any of its Subsidiaries (including the Holdings Tax Sharing Agreement). (q) Financial Statements. (i) The Pro Forma Balance Sheet; (ii) the Projections. (r) Insurance. Evidence of insurance complying with the requirements of Section 7.05 for the business and properties of Holdings and its Subsidiaries. 5.02 Conditions to all Borrowings and the Issuance of any Letters of Credit. The obligation of each Lender to make any Loan hereunder and the obligation of the Issuing Lender to issue, renew or amend any Letter of Credit is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date or date of issuance, as the case may be: -70- (a) Notice. The Administrative Agent shall have received a Notice of Borrowing; or in the case of a Swingline Loan, the notice required under Section 2.03(f); or in the case of any issuance of any Letter of Credit (other than the Existing Letter of Credit in respect of its deemed issuance on the Closing Date), the respective Issuing Lender and the Administrative Agent shall have received a Letter of Credit Application, as required under Section 3.02; (b) Continuation of Representations and Warranties. The representations and warranties contained in Article VI and in the other Loan Documents shall be true and correct in all material respects on and as of such Borrowing Date or such date of issuance (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date); (c) No Existing Default. No Default or Event of Default shall exist or shall result from such Borrowing or issuance of such Letter of Credit; and (d) No Material Adverse Effect. Since April 30, 1998, nothing shall have occurred which, individually or in the aggregate, has had, or could reasonably be expected to have, a Material Adverse Effect. Each Notice of Borrowing, request for a Swingline Loan or Letter of Credit Application submitted by the Borrower hereunder shall be deemed to constitute a representation and warranty by each of Holdings and the Borrower hereunder, as of the date of each such notice or application and as of the date of each Borrowing that the applicable conditions in Section 5.01 (with respect to such credit events to occur on the Closing Date) and in this Section 5.02 (with respect to credit events to occur on and after the Closing Date) are satisfied. ARTICLE VI. REPRESENTATIONS AND WARRANTIES ------------------------------ Each of Holdings and the Borrower represents and warrants with respect to itself and its Subsidiaries to the Administrative Agent, each Issuing Lender and each Lender as of the Closing Date and as of the date of each Borrowing of Loans or issuance, renewal or amendment of each Letter of Credit that: 6.01 Existence and Power. Each of Holdings and the Borrower and each of their respective Subsidiaries: (a) is a corporation, partnership or limited liability company, as the case may be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; -71- (b) has the power and authority and has or will have on or prior to the date required to be obtained all governmental licenses, authorizations, consents and approvals to execute, deliver and perform its obligations under all of the Transaction Documents to which it is a party and has duly executed and delivered each such Transaction Document, in each case other than (i) immaterial third party authorizations, consents and approvals for the Recapitalization and the Asset Contribution and (ii) filings necessary to perfect the security interest in the Collateral under the Security Agreement and the Mortgages (which filings, in the case of this clause (ii), have been made to the extent that this representation and warranty is made (or deemed made) after 10 days after the Closing Date); (c) is duly qualified to do business as a foreign corporation and is licensed and in good standing, under the laws of each jurisdiction where its ownership, lease or operation of property or the nature or conduct of its business requires such qualification or license except where the failure so to qualify, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; and (d) is in compliance with all Requirements of Law, except to the extent that the failure to do so, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 6.02 Authorization; No Contravention. The execution, delivery and performance by each of Holdings, the Borrower and each other Credit Party of any Transaction Document to which such Person is party have been duly authorized by all necessary corporate, partnership or limited liability company action, as the case may be, and do not and will not: (a) contravene the terms of any of such Person's charter or by-laws (or equivalent organizational documents); (b) conflict with or result in any breach or contravention of, or the creation or imposition of (or the obligation to create or impose) any Lien (except pursuant to the Collateral Documents) under, any document evidencing any material Contractual Obligation to which such Person is a party or any order, injunction, writ or decree of any Governmental Authority to which such Person or its property is subject; or (c) violate any Requirement of Law. 6.03 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, Holdings or any of its Subsidiaries of any Transaction Document to which any such Person is a party, in each case other than (i) immaterial third party authorizations, consents and approvals for the Recapitalization and the Asset Contribution, (ii) filings with the Securities and Exchange Commission in connection with the Exchange Offer and (iii) filings necessary to perfect the security interest in the Collateral under the Security Agreement and the Mortgages (which filings have been made to the extent that this representation and warranty is made (or deemed made) after 10 days after the Closing Date). -72- 6.04 Binding Effect. This Agreement and each other Transaction Document to which Holdings or any of its Subsidiaries is a party constitute the legal, valid and binding obligations of Holdings and each of its Subsidiaries to the extent such Person is a party thereto, enforceable against such Person in accordance with their respective terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by equitable principles of general applicability. 6.05 Litigation. There are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of Holdings and the Borrower, threatened at law, in equity, in arbitration or before any Governmental Authority, against Holdings or any of its Subsidiaries or any of their respective properties or assets which: (a) purport to affect or pertain to this Agreement or any other Loan Document; or (b) either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. As of the Closing Date, no injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Transaction Document, or directing that any other transaction provided for herein not be consummated as herein provided. 6.06 No Default. No Default or Event of Default exists or would result from the incurring of any Obligations by Holdings, the Borrower or any Subsidiary Guarantor. Neither Holdings nor any of its Subsidiaries is in default under or with respect to any Contractual Obligation in any respect which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 6.07 ERISA Compliance. (a) Each Plan (and each related trust, insurance contract or fund) is in material compliance with its terms and with all applicable laws, including, without limitation, ERISA and the Code; each Plan (and each related trust, if any) which is intended to be qualified under Section 401(a) of the Code has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Sections 401(a) and 501(a) of the Code; no Reportable Event has occurred; no Plan which is a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has an Unfunded Current Liability which, when added to the aggregate amount of Unfunded Current Liabilities with respect to all other Plans, exceeds $2,500,000; no Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated funding deficiency, within the meaning of such sections of the Code or ERISA, or has applied for or received a waiver of an accumulated funding deficiency or an extension of any amortization period, within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA; all contributions required to be made with respect to a Plan have been timely made; neither Holdings nor any Subsidiary of Holdings nor any ERISA Affiliate has incurred any material liability (including any indirect, contingent or secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section -73- 401(a)(29), 4971 or 4975 of the Code or expects to incur any such material liability under any of the foregoing sections with respect to any Plan; no condition exists which presents a material risk to Holdings or any Subsidiary of Holdings or any ERISA Affiliate of incurring a material liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no proceedings have been instituted to terminate or appoint a trustee to administer any Plan which is subject to Title IV of ERISA; no action, suit, proceeding, hearing, audit or investigation with respect to the administration, operation or the investment of assets of any Plan (other than routine claims for benefits) is pending, expected or threatened; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of Holdings and its Subsidiaries and its ERISA Affiliates to all Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan ended prior to the date of the most recent Borrowing Date, would not exceed $2,500,000; each group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered employees or former employees of Holdings, any Subsidiary of Holdings, or any ERISA Affiliate has at all times been operated in material compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed under the Code or ERISA on the assets of Holdings or any Subsidiary of Holdings or any ERISA Affiliate exists or is likely to arise on account of any Plan; and Holdings and its Subsidiaries do not maintain or contribute to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any plan the obligations with respect to which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Each Foreign Pension Plan has been maintained (and all required contributions have been made) in substantial compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities. Neither Holdings nor any of its Subsidiaries has incurred any material obligation in connection with the termination of or withdrawal from any Foreign Pension Plan. The present value of the accrued benefit liabilities (whether or not vested) under each Foreign Pension Plan, determined as of the end of Holdings' most recently ended fiscal year on the basis of actuarial assumptions, each of which is reasonable, did not exceed the current value of the assets of such Foreign Pension Plan allocable to such benefit liabilities. 6.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are intended to be and shall be used solely for the purposes set forth in and permitted by Section 7.14. 6.09 Title to Properties, etc. Holdings and each of its Subsidiaries have good record and marketable title in fee simple to, or valid leasehold interests in, all material property owned or leased by them, free and clear of all Liens other than Permitted Liens. Schedule 6.09 contains a true and complete list of each parcel of Real Property owned or leased by Holdings or any of its Subsidiaries on the Closing Date, and the type of interest therein held by Holdings or such Subsidiary. -74- 6.10 Taxes. Each of Holdings and its Subsidiaries has filed all federal and state income tax returns and all other material tax returns, domestic and foreign, required to be filed by it and has paid all taxes and assessments payable by it which have become due, except for immaterial taxes and taxes contested in good faith and adequately disclosed and fully provided for on the financial statements of Holdings and its Subsidiaries in accordance with GAAP. Holdings and each of its Subsidiaries have at all times paid, or have provided adequate reserves (in the good faith judgment of the management of Holdings) for the payment of, all federal, state, local and foreign income taxes (other than immaterial taxes) applicable for all prior fiscal years and for the current fiscal year to date. There is no material action, suit, proceeding, investigation, audit or claim now pending or, to the best knowledge of Holdings and the Borrower, threatened by any authority regarding any taxes relating to Holdings or any of its Subsidiaries. As of the Closing Date, neither Holdings nor any of its Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of Holdings or any of its Subsidiaries, or is aware of any circumstances that would cause the taxable years or other taxable periods of Holdings or any of its Subsidiaries not to be subject to the normally applicable statute of limitations. 6.11 Financial Statements. All balance sheets, statements of operations and other financial data of Holdings and its Subsidiaries which have been or shall hereafter be furnished to the Administrative Agent and the Lenders for the purposes of or in connection with this Agreement or any transaction contemplated hereby have been prepared in accordance with GAAP and do and will present fairly, in all material respects, the financial condition of Holdings and its Subsidiaries as of the dates thereof and the results of their operations for the period(s) covered thereby. The Projections which have been furnished by (or on behalf of) Holdings pursuant to Section 5.01(q)(ii) represent management's good faith estimates of future performance based upon historical financial information and reasonable assumptions of management, it being recognized that such Projections are not to be viewed as facts and do not constitute a warranty as to the future performance of Holdings or its Subsidiaries and that actual results may vary from projected results and such variances may be material. 6.12 Securities Law, etc.; Compliance. All transactions contemplated by this Agreement and the other Loan Documents comply with (x) Regulations T, U and X of the Federal Reserve Board and (y) all other applicable laws and any rules and regulations thereunder. 6.13 Governmental Regulation. Neither Holdings nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940 or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a holding company", within the meaning of the Public Utility Holding Company Act of 1935. 6.14 Labor Controversies. There are no labor controversies pending or, to the best of Holdings' and the Borrower's knowledge, threatened against it or any of their respective -75- Subsidiaries which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 6.15 Subsidiaries. Holdings has no Subsidiaries, except, on the Closing Date, those Subsidiaries which are identified in Schedule 6.15 and, thereafter, those Subsidiaries permitted to be formed or acquired in compliance with the terms of this Agreement. 6.16 Patents, Trademarks, etc. Each of Holdings and each of its Subsidiaries owns (or is licensed to use) and possesses all such patents, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights, copyrights, permits, licenses and authorizations as it considers necessary for the conduct of the business of Holdings and its Subsidiaries as now conducted without, individually or in the aggregate, any infringement upon rights of other Persons which could reasonably be expected to have a Material Adverse Effect. 6.17 Accuracy of Information. All factual information (taken as a whole) heretofore or contemporaneously herewith furnished by or on behalf of Holdings or any of its Subsidiaries in writing to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby and all other such factual information (taken as a whole) hereafter furnished by or on behalf of Holdings or any of its Subsidiaries to the Administrative Agent or any Lender when taken as a whole will be true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information (taken as whole), in the light of the circumstances existing at the time such information was delivered, not misleading in any material respect, it being understood that any representation or warranty in this Section 6.17 as to the Projections is qualified to the extent set forth in Section 6.11. 6.18 Hazardous Materials. Neither Holdings nor any of its Subsidiaries have caused or permitted any Hazardous Material to be disposed of or otherwise released, either from, on or under any property currently or formerly legally or beneficially owned, leased or operated by, or otherwise used by, Holdings or any of its Subsidiaries, which, either individually or in the aggregate, has or could reasonably be expected to have a Material Adverse Effect. No such property has (or, with respect to the period of time prior to which Holdings or any of its Subsidiaries legally or beneficially owned, leased or operated such property, to the knowledge of Holdings and Borrower, no such property has) ever been used as a dump site or storage site for any Hazardous Materials or otherwise contains or contained Hazardous Materials, which, either individually or in the aggregate, has or could reasonably be expected to have a Material Adverse Effect. The failure, if any, of Holdings or any of its Subsidiaries, in connection with their current and former properties or their businesses, to be in compliance with any Environmental Law or to obtain any permit, certificate, license, approval and other authorization under such Environmental Laws has not had, nor is reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries have entered into, have agreed to or are subject to any judgment, decree or order or other similar requirement of any Governmental Authority under any Environmental Law, including without limitation, -76- relating to compliance or to investigation, cleanup, remediation or removal of Hazardous Materials, which, either individually or in the aggregate, has or could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries have contractually assumed any liabilities or obligations under any Environmental Law which, either individually or in the aggregate, have or could reasonably be expected to have a Material Adverse Effect. There are no facts or circumstances which exist that could reasonably be expected to give rise to liabilities with respect to Hazardous Materials or any Environmental Law, which, either individually or in the aggregate, have or could reasonably be expected to have a Material Adverse Effect. 6.19 Collateral Documents. (i) The provisions of the Pledge Agreement will be, on and after the Closing Date, effective to create, in favor of the Collateral Agent for the benefit of the Lenders and the Collateral Agent, legal, valid and enforceable security interests in all of the Collateral described therein, and upon the taking of and continued possession of such Collateral by the Collateral Agent on or prior to the Closing Date, the Pledge Agreement shall constitute, as of and after the Closing Date, a fully perfected security interest in such Collateral superior in right to any other security interests, existing or future, which any Person may have against such Collateral, except to the extent, if any, otherwise provided in the Pledge Agreement; (ii) the provisions of the Security Agreement are effective to create in favor of the Collateral Agent for the benefit of the Lenders and the Collateral Agent, a legal, valid and enforceable security interest in all right, title and interest in all of the Collateral described therein, and the Security Agreement, upon the filing of Form UCC-1 financing statements or the appropriate equivalent (which filing, if this representation is being made more than 10 days after the Closing Date, has been made), create a fully perfected first priority lien on, and security interest in, all right, title and interest in all of the Collateral described in the Security Agreement to the extent that such security interests can be perfected by the filing of a financing statement under the UCC or in which a filing may be made in the United States Patent and Trademark Office or in the United States Copyright Office, subject to no other Liens other than Permitted Liens. (iii) the Mortgages create, for the obligations purported to be secured thereby, a valid and enforceable perfected security interest in and mortgage lien on the respective Mortgaged Properties covered thereby in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Lenders, superior to and prior to the rights of all third Persons (except that the security interest and mortgage lien created in the Mortgaged Properties may be subject to the Permitted Encumbrances related thereto) and subject to no other Liens (other than Permitted Liens). 6.20 Solvency. On and as of the Closing Date and after giving effect to the Transaction and to all Indebtedness being incurred, assumed or repaid and Liens created by the Credit Parties in connection therewith (a) the sum of the assets, at a fair valuation on a going-concern basis, of each of the Borrower on a stand-alone basis and of Holdings and its Subsidiaries taken as a whole will exceed its debts; (b) each of the Borrower on a stand-alone basis and Holdings and its Subsidiaries taken as a whole has not incurred and does not intend to -77- incur, and does not believe that it will incur, debts beyond its ability to pay such debts as such debts mature; and (c) each of the Borrower on a stand alone basis and Holdings and its Subsidiaries taken as a whole will have sufficient capital with which to conduct its business. For purposes of this Section 6.20, "debt" means any liability on a claim, and "claim" means (i) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. 6.21 Representations and Warranties in the other Documents. All representations and warranties made by any Credit Party in the Recapitalization Documents and in the Borrower Senior Subordinated Note Documents were true and correct in all material respects at the time as of which such representations and warranties were made (or deemed made) and shall be true and correct in all material respects as of Closing Date as if such representations and warranties were made on and as of such date, unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. 6.22 Capitalization. (a) On the Closing Date and after giving effect to the Transaction and the other transactions contemplated hereby, the authorized capital stock of Holdings shall consist of (i) (x) 5,000,000 shares of Class A common stock, $.01 par value per share, (y) 350,000 shares of Class B common stock, $.01 par value per share, and (z) 600,000 shares of Class C common stock, $.01 par value per share (collectively, "Holdings Common Stock"), and (ii) 40,000 shares of preferred stock, $.01 par value per share ("Holdings Preferred Stock"). All outstanding shares of capital stock of Holdings have been duly and validly issued and are fully paid and non-assessable. Holdings does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock, except (i) for options to purchase shares of Holdings' Common Stock which may be issued from time to time to directors, officers and employees of Holdings or any of its Subsidiaries, (ii) for shares of Holdings Preferred Stock which may be convertible into shares of Holdings Common Stock, (iii) for warrants to purchase shares of Holdings Common Stock which may be issued from time to time and (iv) as may be set forth in any of the shareholders' agreements delivered pursuant to Section 5.01(p). (b) On the Closing Date and after giving effect to the Transaction and the other transactions contemplated hereby, the authorized capital stock of the Borrower shall consist of 5,000 shares of common stock, $1.00 par value per share, of which 1,000 shares shall be issued and outstanding and owned by Holdings. All outstanding shares of capital stock of the Borrower have been duly and validly issued, are fully paid and nonassessable. The Borrower -78- does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock. 6.23 Special Purpose Corporation. Holdings engages in no significant business activities and, after giving effect to the Transaction, has no significant assets (other than the capital stock of the Borrower, the capital stock of Globe Elastic Thread, Ltd. (which is in the process of being dissolved), immaterial assets used for the performance of those activities permitted to be performed by Holdings pursuant to Section 8.14(b) and any obligations held by it to the extent permitted by Section 8.05(vi)) or liabilities (other than those liabilities incurred under this Agreement and under the other Transaction Documents to which it is a party and those liabilities permitted to be incurred by it under this Agreement). 6.24 Insurance. Schedule 6.24 sets forth a true and complete listing of all insurance maintained by Holdings and its Subsidiaries as of the Closing Date, and with the amounts insured (and any deductibles) set forth therein. 6.25 Subordination Provisions. (a) The subordination provisions contained in the Borrower Senior Subordinated Notes and in other Borrower Senior Subordinated Note Documents are enforceable against the Borrower, the Subsidiary Guarantors and the holders of the Borrower Senior Subordinated Notes, and all Obligations and Guaranteed Obligations (as defined herein and in the Subsidiary Guaranty) are within the definition of "Senior Debt" or "Guarantor Senior Debt", as the case may be, included in such subordination provisions. (b) The subordination provisions contained in the Holdings Junior Subordinated Notes are enforceable against Holdings and the holders of the Holdings Junior Subordinated Notes and all Guaranteed Obligations are within the definition of "Superior Debt" included in such subordination provisions. 6.26 Year 2000. Holdings and its Subsidiaries have reviewed the areas within their business and operations which could be adversely affected by, and have developed or are developing a program to address on a timely basis, the risk that certain computer applications used by Holdings and its Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving dates on, prior to and after December 31, 1999. Such risk will not have a Material Adverse Effect. ARTICLE VII. AFFIRMATIVE COVENANTS --------------------- Each of Holdings and the Borrower agrees with the Administrative Agent and each Lender that, until all Commitments and Letters of Credit have terminated and all -79- Obligations (other than indemnities for which no request for payment has been made) have been paid and performed in full: 7.01 Financial Statements. Each of Holdings and the Borrower shall deliver to the Administrative Agent in form and detail reasonably satisfactory to the Administrative Agent and the Required Lenders: (a) as soon as available, but not later than 90 days after the end of each fiscal year of Holdings, (i) a copy of the audited consolidated balance sheet of Holdings and its Subsidiaries as at the end of such fiscal year and the related audited consolidated statements of income or operations, shareholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, and certified by Ernst & Young LLP or another nationally- recognized independent public accounting firm reasonably acceptable to the Administrative Agent, together with a report of such accounting firm stating that such consolidated financial statements present fairly, in all material respects, the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for changes agreed upon by Holdings and such auditors which are disclosed and described in such statements) and in the course of its regular audit of the financial statements of Holdings and its Subsidiaries, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm obtained no knowledge of any Default or Event of Default relating to accounting matters which has occurred and is continuing or, if in the opinion of such accounting firm a Default or an Event of Default has occurred and is continuing, a statement as to the nature thereof, and (ii) management's discussion and analyses of the material operational and financial developments during such fiscal year. The accountant's opinion referred to above shall not be qualified or limited because of a restricted or limited examination by such accountant of any material portion of the records of Holdings or any of its Subsidiaries; (b) as soon as available, but not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year of Holdings, (i) a copy of the unaudited consolidated balance sheet of Holdings and its Subsidiaries as of the end of such fiscal quarter and the related consolidated statements of income or operations, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such fiscal quarter and for the elapsed portion of the fiscal year ended with the last day of such fiscal quarter, and certified by a Responsible Officer of Holdings as being complete and correct and fairly presenting in all material respects, in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnote disclosure), the financial position and the results of operations of Holdings and its Subsidiaries, and (ii) management's discussion and analyses of the material operational and financial developments during such fiscal quarter and for the elapsed portion of the fiscal year ended with the last day of such fiscal quarter; (c) as soon as available, but not later than 45 days after the end of each fiscal month of each fiscal year of Holdings (other than the last fiscal month of any fiscal -80- quarter), a copy of the unaudited consolidated balance sheet of Holdings and its Subsidiaries as at the end of such fiscal month and the related consolidated statements of income or operations and cash flows for such fiscal month and for the elapsed portion of the fiscal year ended with the last day of such fiscal month, in each case setting forth comparative figures for the corresponding fiscal month in the prior fiscal year and comparable budgeted figures for such fiscal month; and (d) as soon as available, but not later than 30 days following the first day of each fiscal year of Holdings, a budget (including budgeted statements of income and sources and uses of cash and balance sheets) prepared by Holdings for (i) each of the twelve months of such fiscal year prepared in detail and (ii) such other budget information, if any, as Holdings or the Borrower may prepare for its internal use or for any Permitted Holder. 7.02 Certificates; Other Information. Holdings and the Borrower shall furnish to the Administrative Agent and each Lender: (a) concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), a compliance certificate in the form of Exhibit K, with such changes thereto as are satisfactory to the Administrative Agent (each, a "Compliance Certificate"); (b) to the extent not previously delivered with respect to any Adjustment Date, concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), a Leverage Ratio Certificate duly executed by a Responsible Officer of Holdings; (c) promptly after Holdings' or any of its Subsidiaries' receipt thereof, a copy of any "management letter" received from its certified public accountants and management's response thereto; (d) promptly after the same are sent, copies of all financial statements and reports which Holdings sends to its shareholders generally; and promptly after the same are filed, copies of all financial statements and regular, periodical or special reports which Holdings or any of its Subsidiaries may make to, or file with, the Securities and Exchange Commission; and (e) promptly, such additional business, financial and other information with respect to Holdings or any of its Subsidiaries as the Administrative Agent or any Lender may from time to time reasonably request. 7.03 Notices. Holdings and the Borrower shall, promptly upon (and in any event within five Business Days after) any Responsible Officer of Holdings or the Borrower obtaining knowledge thereof, give notice (accompanied by a reasonably detailed explanation with respect thereto) to the Administrative Agent, the Issuing Lender and each Lender of: (a) the occurrence of any Default or Event of Default; -81- (b) any litigation, arbitration or governmental investigation or proceeding which has been instituted or, to the knowledge of a Responsible Officer of Holdings or the Borrower, is threatened against Holdings or any of its Subsidiaries or to which any of their respective properties is subject (i) which could reasonably be expected to result in a Material Adverse Effect or (ii) relates to this Agreement, any other Transaction Document, the Transaction, any Holdings Senior Discount Note Document or any of the transactions contemplated hereby or thereby; and (c) one or more of the following environmental matters, unless such environmental matters could not, individually or when aggregated with all other such environmental matters, be reasonably expected to have a Material Adverse Effect: (i) any pending or threatened Environmental Claim against Holdings or any of its Subsidiaries or any real property owned, leased or operated by Holdings or any of its Subsidiaries; (ii) any condition or occurrence on or arising from any real property owned, leased or operated by Holdings or any of its Subsidiaries that (a) results in noncompliance by Holdings or any of its Subsidiaries with any applicable Environmental Law or (b) could be expected to form the basis of an Environmental Claim against Holdings or any of its Subsidiaries or any such real property; (iii) any condition or occurrence on any real property owned, leased or operated by Holdings or any of its Subsidiaries that could be expected to cause such real property to be subject to any restrictions on the ownership, occupancy, use or transferability by Holdings or any of its Subsidiaries of such real property under any Environmental Law; and (iv) the taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any real property owned, leased or operated by Holdings or any of its Subsidiaries as required by any Environmental Law or any governmental or other administrative agency; provided, that in any event Holdings shall deliver to the Administrative Agent and each Lender all notices received by Holdings or any of its Subsidiaries from any government or governmental agency under, or pursuant to, CERCLA which identify Holdings or any of its Subsidiaries as potentially responsible parties for remediation costs or which otherwise notify Holdings or any of its Subsidiaries of potential liability under CERCLA. (d) as soon as possible and, in any event, within ten (10) days after any Responsible Officer of Holdings or the Borrower knows or has reason to know of the occurrence of any of the following, Holdings will deliver to the Administrative Agent a certificate of a Responsible Officer of Holdings setting forth in reasonable detail information as to such occurrence and the action, if any, that Holdings, such Subsidiary or such ERISA Affiliate is required or proposes to take, together with any notices required or pro- -82- posed to be given to or filed with or by Holdings, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto: that a Reportable Event has occurred (except to the extent that Holdings has previously delivered to the Lenders a certificate and notices (if any) concerning such event pursuant to the next clause hereof); that a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof), and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected to occur with respect to such Plan within the following 30 days; that an accumulated funding deficiency, within the meaning of Section 412 of the Code or Section 302 of ERISA, has been incurred or an application may reasonably be expected to be or has been made for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan; that any contribution required to be made with respect to a Plan or a Foreign Pension Plan has not been timely made; that a Plan has been or may reasonably be expected to be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability which, when added to the amount of Unfunded Current Liabilities with respect to all other Plans, equals or exceeds $2,500,000; that proceedings may be reasonably expected to be or have been instituted to terminate or appoint a trustee to administer a Plan which is subject to Title IV of ERISA; that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that Holdings, any Subsidiary of Holdings or any ERISA Affiliate will or may reasonably be expected to incur any material liability (including any indirect, contingent, or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that Holdings or any Subsidiary of Holdings may incur any material liability pursuant to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) with respect to providing benefits to retired employees or other former employees (other than as required by Section 601 of ERISA or Section 4980B of the Code) or any Plan or any Foreign Pension Plan in addition to the liability that existed under the terms of such Plan or Plans on the Closing Date. Upon request of the Administrative Agent or any Lender, Holdings will deliver to the Administrative Agent (i) a complete copy of the annual report (on Internal Revenue Service Form 5500-series) of each Plan (including, to the extent required, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information) required to be filed with the Internal Revenue Service and (ii) copies of any records, documents or other information that must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA. In addition to any certificates or notices delivered to the Administrative Agent pursuant to the first sentence hereof, upon request of the Administrative Agent or any Lender, copies of annual reports and any records, documents or other information required to be -83- furnished to the PBGC, and any material notices received by Holdings, any Subsidiary of Holdings or any ERISA Affiliate with respect to any Plan or any Foreign Pension Plan shall be delivered to the Administrative Agent no later than ten (10) days after the date such annual report has been filed with the Internal Revenue Service or such records, documents and/or information has been furnished to the PBGC or such notice has been received by Holdings, the Subsidiary or the ERISA Affiliate, as applicable. 7.04 Books, Records and Inspections. Holdings shall, and shall cause each of its Subsidiaries to, keep proper books of record and accounts in which full, true and correct entries in conformity with GAAP and all requirements of law shall be made of all dealings and transactions in relation to its business and activities. Holdings shall, and shall cause each of its Subsidiaries to, permit officers and designated representatives of the Administrative Agent or any Lender to visit and inspect, under guidance of officers of Holdings or such Subsidiary, any of the properties of Holdings or such Subsidiary and, under guidance of officers of Holdings or such Subsidiary, to examine the books of account of Holdings or such Subsidiary and discuss the affairs, finances and accounts of Holdings or such Subsidiary with, and be advised as to the same by, its and their officers and independent accountants, all upon reasonable prior notice and at such reasonable times and intervals and to such reasonable extent as the Administrative Agent or such Lender may reasonably request. 7.05 Maintenance of Property; Insurance. (a) Holdings shall, and shall cause each of its Subsidiaries to, (i) keep all property necessary to the business of Holdings and its Subsidiaries in reasonably good working order and condition, ordinary wear and tear and damage by casualty excepted, (ii) maintain insurance on all such property in at least such amounts and against at least such risks as is consistent and in accordance with industry practice for companies similarly situated owning similar properties in the same general areas in which Holdings or any of its Subsidiaries operates, and (iii) furnish to the Administrative Agent, on each date on which financial statements are delivered pursuant to Section 7.01(a), full information as to the insurance carried. (b) Holdings shall, and shall cause each of its Subsidiaries to, at all times keep its property insured in favor of the Collateral Agent, and all policies or certificates from an acceptable insurance broker (or certified copies thereof) with respect to such insurance (and any other insurance maintained by Holdings and/or such Subsidiaries) (i) shall be endorsed to the Collateral Agent's satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as loss payee and/or additional insured), (ii) shall state that such insurance policies shall not be canceled without at least 30 days' prior written notice thereof (or 10 days' prior written notice in the case of nonpayment of premium) by the respective insurer to the Collateral Agent (or such shorter period of time as a particular insurance company policy generally provides) and (iii) shall be deposited with the Collateral Agent. (c) If Holdings or any of its Subsidiaries shall fail to insure its property in accordance with this Section 7.05, or if Holdings or any of its Subsidiaries shall fail to so endorse and deposit all policies or certificates with respect thereto, the Collateral Agent shall have the right (but shall be under no obligation) to procure such insurance and Holdings and the Borrower -84- agree to reimburse the Collateral Agent for all reasonable costs and expenses of procuring such insurance. 7.06 Franchises. Holdings shall, and shall cause each of its Subsidiaries to, do or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its material rights, franchises, licenses and patents; provided, however, that nothing in this Section 7.06 shall prevent (i) sales of assets and other transactions by Holdings or any of its Subsidiaries in accordance with Section 8.02 or (ii) the withdrawal by Holdings or any of its Subsidiaries of its qualification as a foreign corporation in any jurisdiction where such withdrawal could not reasonably be expected to have a Material Adverse Effect. 7.07 Compliance with Law. Holdings shall, and shall cause each of its Subsidiaries to, comply with all Requirements of Law of any Governmental Authority, except such noncompliances as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 7.08 Payment of Taxes. Holdings shall pay and discharge, and shall cause each of its Subsidiaries to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims for sums that have become due and payable which, if unpaid, might become a Lien not otherwise permitted under Section 8.01(i); provided, that neither Holdings nor any of its Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is immaterial or is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with GAAP. 7.09 Contributions. Except for (i) equity contributions and proceeds from the issuance of the Holdings' Junior Subordinated Notes in each case that are either received on the Closing Date and used to effect the Recapitalization or permitted to be used by Holdings as provided in Section 8.03(iv) or 8.11(v) and (ii) proceeds from the issuance of the Holdings Senior Discount Notes that are used by Holdings as provided in Section 8.11(vi), Holdings shall contribute as a common equity contribution to the capital of the Borrower upon its receipt thereof, any cash proceeds received by Holdings from any asset sale, any incurrence of Indebtedness (other than Intercompany Loans made pursuant to Section 8.05 (xv)), any Recovery Event, any sale or issuance of its equity, any cash capital contributions received by Holdings or any tax refunds received by Holdings. 7.10 End of Fiscal Years; Fiscal Quarters. Holdings shall, for financial reporting purposes, cause (i) each of its, and each of its Subsidiaries', fiscal years to end on December 31 of each year and (ii) each of its, and each of its Subsidiaries', fiscal quarters to end on March 31, June 30, September 30 and December 31 of each year. 7.11 Cash Management System. Holdings shall maintain, and shall cause each of its Subsidiaries to maintain, their cash management system on a basis reasonably satisfactory to the Administrative Agent (although no daily cash sweeps against outstanding Loans shall be required); provided, however, to the extent that any Credit Party maintains any bank account -85- (other than payroll accounts) with an institution other than the Administrative Agent in which more than $1,000,000 is maintained at any time for three or more consecutive Business Days, such Credit Party shall promptly notify the Administrative Agent thereof, and to the extent requested by Bank of America (or any successor Administrative Agent) or the Required Lenders, such Credit Party shall cause such other institution to enter into lockbox arrangements with the Collateral Agent on terms reasonably acceptable to Bank of America (or any successor Administrative Agent). 7.12 Additional Security; Further Assurances. (a) Subject to Section 7.11, Holdings shall, and shall cause each of the other Credit Parties to, grant to the Collateral Agent security interests and Mortgages in such assets and properties of Holdings and the other Credit Parties as are not covered by the original Security Documents, and as may be reasonably requested from time to time by the Administrative Agent or the Required Lenders (collectively, the "Additional Security Documents"); provided, however, that no such request for a Mortgage on a parcel of Real Property may be made pursuant to this Section 7.12(a) unless such Real Property (or, in the case of a Leasehold, such Credit Party's Leasehold interest) has a fair market value of at least $500,000. All such security interests and Mortgages shall be granted pursuant to documentation reasonably satisfactory in form and substance to the Administrative Agent and shall constitute valid and enforceable perfected security interests and Mortgages superior to and prior to the rights of all third Persons and subject to no other Liens except for Permitted Liens. The Additional Security Documents or instruments related thereto shall have been duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Collateral Agent required to be granted pursuant to the Additional Security Documents and all taxes, fees and other charges payable in connection therewith shall have been paid by Holdings and/or its Subsidiaries in full. (b) Holdings shall, and shall cause each of the other Credit Parties to, at the expense of Holdings, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, real property surveys, Mortgage Policies, reports and other assurances or instruments and take such further steps relating to the Collateral covered by any of the Security Documents as the Collateral Agent may reasonably require. Furthermore, Holdings will cause to be delivered to the Collateral Agent such opinions of counsel, title insurance and other related documents as may be reasonably requested by the Administrative Agent to assure itself that this Section 7.12 has been complied with. (c) Holdings agrees that each action required above by this Section 7.12 shall be completed as soon as possible, but in no event later than 90 days after such action is either requested to be taken by the Administrative Agent or the Required Lenders or required to be taken by Holdings and/or the other Credit Parties pursuant to the terms of this Section 7.12; provided that, in no event will Holdings or any of its Subsidiaries be required to take any action, other than using its reasonable efforts, to obtain consents from third parties with respect to its compliance with this Section 7.12. -86- 7.13 Foreign Subsidiaries Security. If following a change in the relevant sections of the Code or the regulations, rules, rulings, notices or other official pronouncements issued or promulgated thereunder, counsel for the Borrower reasonably acceptable to the Administrative Agent does not within 30 days after a request from the Administrative Agent or the Required Lenders deliver evidence, in form and substance mutually satisfactory to the Administrative Agent and the Borrower, with respect to any Foreign Subsidiary which has not already had all of its stock pledged pursuant to the Pledge Agreement that (i) a pledge of 65% or more of the total combined voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote, (ii) the entering into by such Foreign Subsidiary of a security agreement in substantially the form of the Security Agreement and (iii) the entering into by such Foreign Subsidiary of a guaranty in substantially the form of the Subsidiary Guaranty, in any such case could reasonably be expected to cause the undistributed earnings of such Foreign Subsidiary as determined for Federal income tax purposes to be treated as a deemed dividend to such Foreign Subsidiary's United States parent for Federal income tax purposes, then in the case of a failure to deliver the evidence described in clause (i) above, that portion of such Foreign Subsidiary's outstanding capital stock so issued by such Foreign Subsidiary and not theretofore pledged pursuant to the Pledge Agreement shall be pledged to the Collateral Agent for the benefit of the Lenders pursuant to the Pledge Agreement (or another pledge agreement in substantially similar form, if needed), and in the case of a failure to deliver the evidence described in clause (ii) above, such Foreign Subsidiary shall execute and deliver the Security Agreement (or another security agreement in substantially similar form, if needed) and the Pledge Agreement (or another pledge in substantially similar form, if needed), granting the Collateral Agent for the benefit of the Lenders a security interest in all of such Foreign Subsidiary's assets and securing the Obligations of the Borrower under the Loan Documents and, in the event the Subsidiary Guaranty shall have been executed by such Foreign Subsidiary, the obligations of such Foreign Subsidiary thereunder, and in the case of a failure to deliver the evidence described in clause (iii) above, such Foreign Subsidiary shall execute and deliver the Subsidiary Guaranty (or another guaranty in substantially similar form, if needed), guaranteeing the Obligations of the Borrower under the Loan Documents, in each case to the extent that the entering into such Security Agreement or Subsidiary Guaranty is permitted by the laws of the respective foreign jurisdiction and with all documents delivered pursuant to this Section 7.13 to be in form and substance reasonably satisfactory to the Administrative Agent. 7.14 Use of Proceeds; Margin Regulations. (a) All proceeds of the Term Loans shall be used to consummate the Transaction and to pay fees and expenses in connection therewith. All proceeds of the Revolving Loans shall be used (i) in part, to consummate the Transaction and to pay fees and expenses in connection therewith, in an aggregate amount not to exceed $8,500,000, and (ii) for the working capital and general corporate purposes of the Borrower and its Subsidiaries (including for Capital Expenditures and Permitted Acquisitions). (b) The Borrower shall ensure that no part of any Loan or Letter of Credit will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock or will violate or be inconsistent with the provisions of Regulations T, U and X of the Federal Reserve Board. -87- 7.15 Holdings Preferred Stock. Holdings shall pay all Dividends on the Holdings Preferred Stock in additional shares of Holdings Preferred Stock rather than in cash; provided that in lieu of issuing additional shares of Holdings Preferred Stock as Dividends, Holdings may increase the liquidation preference of the shares of the Holdings Preferred Stock in respect of which such Dividends have accrued. ARTICLE VIII. NEGATIVE COVENANTS ------------------ Each of Holdings and the Borrower agrees with the Administrative Agent and each Lender that, until all Commitments and Letters of Credit have terminated and all Obligations (other than indemnities for which no request for payment has been made) have been paid and performed in full: 8.01 Liens. Holdings will not, and will not permit any of its Subsidiaries to, create, incur, assume, or suffer to exist any Lien upon or with respect to any property or assets (real or personal, tangible or intangible) of Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with recourse to Holdings or any of its Subsidiaries), or assign any right to receive income or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute; provided that the provisions of this Section 8.01 shall not prevent the creation, incurrence, assumption or existence of the following (Liens described below are herein referred to as "Permitted Liens"): (i) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP or which are immaterial; (ii) Liens in respect of property or assets of Holdings or any of its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of Holdings' or such Subsidiary's property or assets or materially impair the use thereof in the operation of the business of Holdings or such Subsidiary or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien; (iii) Liens in existence on the Closing Date which are listed, and the property subject thereto described, in Schedule 8.01, but only to the respective date, if any, set forth in such Schedule 8.01 for the removal, replacement and termination of any such -88- Liens, plus renewals, replacements and extensions of such Liens to the extent set forth on Schedule 8.01, provided that (x) the aggregate principal amount of the Indebtedness, if any, secured by such Liens does not increase from that amount outstanding at the time of any such renewal, replacement or extension and (y) any such renewal, replacement or extension does not encumber any additional assets or properties of Holdings or any of its Subsidiaries; (iv) Liens created pursuant to the Collateral Documents; (v) licenses, sublicenses, leases or subleases granted to other Persons not materially interfering with the conduct of the business of Holdings or any of its Subsidiaries; (vi) Liens upon assets of the Borrower or any of its Subsidiaries subject to Capital Lease Obligations to the extent such Capital Lease Obligations are permitted by Section 8.04(iv), provided that (x) such Liens only serve to secure the payment of Indebtedness arising under such Capital Lease Obligation and (y) the Lien encumbering the asset giving rise to the Capital Lease Obligation does not encumber any other asset of Holdings or any of its Subsidiaries; (vii) Liens placed upon property acquired after the Closing Date and used in the ordinary course of business of the Borrower or any of its Subsidiaries at the time of the acquisition thereof by the Borrower or any such Subsidiary or within 90 days thereafter to secure Indebtedness incurred to pay all or a portion of the purchase price thereof or to secure Indebtedness incurred solely for the purpose of financing the acquisition of any such property or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided that (x) the aggregate outstanding principal amount of all Indebtedness secured by Liens permitted by this clause (vii) shall be permitted by Section 8.04(iv) and (y) in all events, the Lien encumbering the equipment so acquired does not encumber any other asset of Holdings or any of its Subsidiaries; (viii) Permitted Encumbrances and other easements, rights-of-way, restrictions, zoning rights, encroachments and other similar charges or encumbrances, and minor title deficiencies, in each case not securing Indebtedness and not materially interfering with the conduct of the business of Holdings or any of its Subsidiaries; (ix) Liens arising from precautionary UCC financing statement filings regarding operating leases; (x) Liens arising out of the existence of judgments or awards to the extent not constituting an Event of Default under Section 9.01(i); (xi) (i) statutory and common law landlords' liens under leases to which Holdings or any of its Subsidiaries is a party and (ii) landlord Liens in existence on the Closing Date arising under lease contracts and, after the Closing Date, such other landlord Liens arising under new or renewed lease contracts in the ordinary course of business, provided -89- that the Borrower and its Subsidiaries shall use reasonable efforts to ensure that no such lease contracts contain any such landlord Liens; (xii) (x) Liens (other than Liens imposed under ERISA) incurred in the ordinary course of business in connection with workers compensation claims, unemployment insurance and social security benefits and (y) Liens securing the performance of bids, tenders, leases and contracts in the ordinary course of business, statutory obligations, surety bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money), provided that the aggregate outstanding amount of obligations secured by Liens permitted by this clause (xii)(y) (and the value of all cash and property encumbered by Liens permitted pursuant to this clause (xii)(y)) shall not at any time exceed $1,000,000; (xiii) Liens on property or assets acquired pursuant to a Permitted Acquisition, or on property or assets of a Subsidiary of the Borrower in existence at the time such Subsidiary is acquired pursuant to a Permitted Acquisition, provided that (i) any Indebtedness that is secured by such Liens is permitted to exist under Section 8.04(viii) and (ii) such Liens are not incurred in connection with or anticipation of such Permitted Acquisition and do not attach to any other asset of Holdings or any of its Subsidiaries; (xiv) Liens securing reimbursement obligations in respect of documentary letters of credit permitted to be issued under Section 8.04, provided that such Liens attach only to the documents, the goods covered thereby and the proceeds thereof; (xv) Liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods; (xvi) Liens consisting of rights of set-off of a customary nature or bankers' liens on amounts on deposit, whether arising by contract or operation of law, incurred in the ordinary course of business; (xvii) Liens on property and assets of any Foreign Subsidiary of the Borrower securing Indebtedness permitted to be incurred by such Foreign Subsidiary pursuant to Section 8.04; and (xviii) additional Liens incurred by the Borrower and its Subsidiaries so long as (x) the value of the property subject to such Liens, and the Indebtedness and other obligations secured thereby, do not exceed $500,000 and (y) in the case of any consensual Liens, such Liens do not attach to any Collateral existing immediately prior to the creation of such Liens. In connection with the granting of Liens of the type described in clauses (vi), (vii), (xiii) and (xviii) (but, in the case of such clause (xviii), only in the case of a consensual Lien) of this Section 8.01 by the Borrower or any of its Subsidiaries, the Administrative Agent and the Collateral Agent shall be authorized to take any actions deemed appropriate by it in connection therewith (including, without limitation, by executing appropriate lien releases or lien subordina- -90- tion agreements in favor of the holder or holders of such Liens, in either case solely with respect to the item or items of equipment or other assets subject to such Liens). 8.02 Consolidation, Merger, Purchase or Sale of Assets, etc. Holdings will not, and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or convey, sell, lease or otherwise dispose of all or any part of its property or assets, or enter into any sale-leaseback transactions, or purchase or otherwise acquire (in one or a series of related transactions) any part of the property or assets (other than purchases or other acquisitions of inventory, materials and equipment in the ordinary course of business) of any Person (or agree to do any of the foregoing at any future time), except that: (i) Capital Expenditures by the Borrower and its Subsidiaries shall be permitted to the extent not in violation of Section 8.07; (ii) each of the Borrower and its Subsidiaries may make sales of inventory in the ordinary course of business; (iii) each of the Borrower and its Subsidiaries may sell obsolete or worn-out equipment or materials; (iv) each of the Borrower and its Subsidiaries may sell other assets, provided that the aggregate sale proceeds from all assets subject to such sales pursuant to this clause (iv) shall not exceed $150,000 in any fiscal year of the Borrower; (v) each of the Borrower and its Subsidiaries may sell assets (other than the capital stock of any Subsidiary Guarantor or any Mortgaged Property existing on the Closing Date), so long as (w) no Default or Event of Default then exists or would result therefrom, (x) each such sale is in an arm's-length transaction and the Borrower or the respective Subsidiary receives at least fair market value (as determined in good faith by the Borrower or such Subsidiary, as the case may be), (y) at least 75% of the total consideration received by the Borrower or such Subsidiary is cash and is paid at the time of the closing of such sale, and (z) the aggregate amount of the proceeds received from all assets sold pursuant to this clause (v) shall not exceed $2,000,000 in any fiscal year of the Borrower and $10,000,000 in the aggregate during the term of this Agreement; (vi) Investments may be made to the extent permitted by Section 8.05; (vii) each of the Borrower and its Subsidiaries may lease (as lessee) or license (as licensee) real or personal property (so long as any such lease or license does not create a Capital Lease Obligation except to the extent permitted by Section 8.04(iv)); (viii) each of the Borrower and its Subsidiaries may sell or discount, in each case without recourse and in the ordinary course of business, accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof and not as part of any financing transaction; -91- (ix) each of the Borrower and its Subsidiaries may grant licenses, sublicenses, leases or subleases to other Persons in the ordinary course of business and not materially interfering with the conduct of the business of the Borrower or any of its Subsidiaries; (x) on or after September 30, 1998, the Borrower and its Wholly- Owned Subsidiaries may acquire all or substantially all of the assets of any Person (or all or substantially all of the assets of a product line or division of any Person) or 100% (or at least 80% to the extent provided below) of the capital stock of any Person (any such acquisition permitted by this clause (x), a "Permitted Acquisition"), so long as (i) no Default or Event of Default then exists or would result therefrom, (ii) each of the representations and warranties contained in Article VI shall be true and correct in all material respects both before and after giving effect to such Permitted Acquisition, (iii) any Liens or Indebtedness assumed or issued in connection with such Permitted Acquisition are otherwise permitted under Section 8.01 or 8.04, as the case may be, (iv) at least 10 Business Days prior to the consummation of any Permitted Acquisition, Holdings shall deliver to the Administrative Agent and each of the Lenders a certificate of Holdings' Chief Financial Officer certifying (and showing the calculations therefor in reasonable detail) that Holdings would have been in compliance with the financial covenants set forth in Sections 8.08, 8.09,and 8.10 for the Measurement Period then most recently ended prior to the date of the consummation of such Permitted Acquisition, in each case with such financial covenants to be determined on a pro forma basis as if such Permitted Acquisition had been consummated on the first day of such Measurement Period (and assuming that any Indebtedness incurred, issued, assumed or repaid in connection therewith had been incurred, issued, assumed or repaid on the first day of, and (except for Indebtedness being repaid) had remained outstanding throughout, such Measurement Period, provided that in the case of any Permitted Acquisition effected before December 31, 1998, the pro forma Consolidated Leverage Ratio for such Measurement Period shall be no greater than 6.50:1.00, (v) the only consideration paid by the Borrower or any of its Wholly-Owned Subsidiaries in connection with any such Permitted Acquisition consists solely of cash (including as a result of any earnout, non-compete or deferred compensation arrangements), Indebtedness assumed or issued to the extent permitted by Section 8.04, Holdings Common Stock and/or Holdings Preferred Stock, (vi) the aggregate consideration paid in connection with all such Permitted Acquisitions effected after the Closing Date (including, without limitation, any earnout, non-compete or deferred compensation arrangements, the aggregate principal amount of any Indebtedness assumed or issued in connection therewith and the fair market value of any Holdings Common Stock or Holdings Preferred Stock issued in connection therewith (as determined in good faith by Holdings)) does not exceed, when added to the aggregate amount of all Capital Expenditures made to effect a Permitted Capital Expansion, the sum of (I) $35,000,000 plus (II) the Retained Equity Amount at such time, (vii) no more than the sum of (I) $10,000,000 plus (II) the Retained Equity Amount at such time in the aggregate may be expended on Permitted Acquisitions in which the Borrower or a Wholly-Owned Subsidiary thereof acquires less than 100% of the capital stock of any Person and (viii) and immediately after giving effect to any such Permitted Acquisition, the aggregate unutilized Revolving Commitments shall be at least $7,500,000; -92- (xi) any Subsidiary of the Borrower may transfer any of its assets to the Borrower and may be merged, consolidated or liquidated with or into the Borrower so long as the Borrower is the surviving corporation of such merger, consolidation or liquidation; (xii) any Subsidiary of the Borrower may transfer any of its assets to a Subsidiary Guarantor and may be merged, consolidated or liquidated with or into any other Subsidiary of the Borrower so long as (i) in the case of any such merger, consolidation or liquidation involving a Subsidiary Guarantor, the Subsidiary Guarantor is the surviving corporation of such merger, consolidation or liquidation, (ii) in the case of any such merger, consolidation or liquidation involving a Wholly-Owned Subsidiary of the Borrower, the Wholly-Owned Subsidiary is the surviving corporation of such merger, consolidation or liquidation and (iii) no more than $500,000 of assets in any fiscal year of the Borrower are transferred from a Subsidiary Guarantor that is a Wholly-Owned Subsidiary to a Subsidiary Guarantor that is a non-Wholly-Owned Subsidiary; (xiii) the Borrower and its Subsidiaries may sell or exchange specific items of equipment, so long as the purpose of each sale or exchange is to acquire (and results within 90 days of such sale or exchange in the acquisition of) replacement items of equipment which are, in the reasonable business judgment of the Borrower and its Subsidiaries, the functional equivalent of the item of equipment so sold or exchanged; (xiv) any Foreign Subsidiary of the Borrower may transfer any of its assets to a Wholly-Owned Foreign Subsidiary of the Borrower or to a Subsidiary Guarantor; (xv) the Borrower and its Subsidiaries may sell inventory to their respective Subsidiaries in the ordinary course of business and consistent with past practices for resale by such Subsidiaries in the ordinary course of their business; (xvi) the Borrower and its Subsidiary Guarantors may sell or otherwise transfer equipment to their Subsidiaries in the ordinary course of business so long as no more than $500,000 of equipment is sold or transferred in any fiscal year of the Borrower pursuant to this clause (xvi); and (xvii) the Recapitalization shall be permitted. To the extent the Required Lenders waive the provisions of this Section 8.02 with respect to the sale of any Collateral, or any Collateral is sold as permitted by this Section 8.02 (other than to Holdings or a Subsidiary thereof), such Collateral shall be sold free and clear of the Liens created by the Collateral Documents, and the Administrative Agent and the Collateral Agent shall be authorized to take any actions deemed appropriate in order to effect the foregoing. 8.03 Dividends. Holdings will not, and will not permit any of its Subsidiaries to, authorize, declare or pay any Dividends with respect to Holdings or any of its Subsidiaries, except that: -93- (i) (x) any Subsidiary of the Borrower may pay cash Dividends to the Borrower or to any Wholly-Owned Subsidiary of the Borrower and (y) so long as no Default or Event of Default then exist or would result therefrom, any non-Wholly-Owned Subsidiary of the Borrower may pay cash Dividends to its shareholders generally so long as the Borrower or its respective Subsidiary which owns the equity interest or interests in the Subsidiary paying such Dividends receives at least its proportionate share thereof (based upon its relative holdings of equity in interests in the Subsidiary paying such Dividends and taking into account the relative preferences, if any, of the various classes of equity interests in such Subsidiary); (ii) so long as there shall exist no Default or Event of Default (both before and after giving effect to the payment thereof), Holdings may repurchase outstanding shares of its stock (or options to purchase such stock) following the death, disability, retirement or termination of employment of employees of Holdings or any of its Subsidiaries, provided that (x) the only consideration paid by Holdings in respect of such repurchases shall be cash, forgiveness of debt owed by such employee to Holdings and/or Holdings Shareholder Subordinated Notes and (y) the sum of (1) the aggregate amount of cash paid by Holdings in respect of all such repurchases plus (2) the aggregate amount of all repurchases of all Holdings Junior Subordinated Notes pursuant to Section 8.11(iii) plus (3) the aggregate amount of all payments made on all Holdings Shareholder Subordinated Notes pursuant to Section 8.11(iv) shall not exceed $1,000,000 in any fiscal year of Holdings, provided that any unused amount thereof may be carried forward and utilized for such purposes in the immediately succeeding fiscal year of Holdings; (iii) so long as no Default or Event of Default then exists or would result therefrom, the Borrower may pay cash Dividends to Holdings so long as Holdings promptly uses such proceeds for the purposes described in clause (ii) of this Section 8.03 or Section 8.11(iii); (iv) so long as there shall exist no Default or Event of Default (both before and after giving effect to the payment thereof), Holdings may repurchase outstanding shares of its stock (or options to purchase such stock) held by officers or employees of Holdings or any of its Subsidiaries with the net cash proceeds received by Holdings from the substantially concurrent sale of Holdings Common Stock, Holdings Preferred Stock and/or Holdings Junior Subordinated Notes in each case to the extent that such proceeds utilize the Retained Equity Amount; (v) the Borrower may pay cash Dividends to Holdings so long as the proceeds thereof are promptly used by Holdings to pay operating expenses in the ordinary course of business (including, without limitation, outside directors and professional fees, expenses and indemnities) and other similar corporate overhead costs and expenses, provided that the aggregate amount of cash Dividends paid pursuant to this clause (v) shall not exceed $1,000,000 in any fiscal year of Holdings; -94- (vi) Holdings may pay regularly scheduled Dividends on the Holdings Preferred Stock pursuant to the terms thereof solely through the issuance of additional shares of Holdings Preferred Stock, provided that in lieu of issuing additional shares of Holdings Preferred Stock as Dividends, Holdings may increase the liquidation preference of the shares of the Holdings Preferred Stock in respect of which such Dividends have accrued; (vii) so long as there shall exist no Default or Event of Default (both before and after giving effect to the payment thereof), from and after January 31, 2004 the Borrower may pay cash Dividends to Holdings at the times, and in the amounts, necessary to enable Holdings to make regularly scheduled cash interest payments that are due on the Holdings Senior Discount Notes; (viii) at the time of the issuance of the Holdings Senior Discount Notes, the Borrower may pay a cash Dividend to Holdings in an amount not to exceed $1,000,000 the proceeds of which are used by Holdings to pay fees and expenses in connection with the issuance thereof or to repay any Holdings Junior Subordinated Notes which are not repaid with the proceeds from the Holdings Senior Discount Notes; (ix) the Recapitalization shall be permitted and the Borrower may pay a cash Dividend to Holdings to effectuate the same; and (x) the Borrower may pay cash Dividends to Holdings in connection with amounts owing by it under the Holdings Tax Sharing Agreement. 8.04 Indebtedness. Holdings will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except: (i) Indebtedness incurred pursuant to this Agreement and the other Loan Documents; (ii) existing Indebtedness (other than the Holdings Junior Subordinated Notes and the Borrower Senior Subordinated Notes) outstanding on the Closing Date and listed on Schedule 8.04, without giving effect to any subsequent extension, renewal or refinancing thereof except to the extent set forth on Schedule 8.04, provided that the aggregate principal amount of the Indebtedness to be extended, renewed or refinanced does not increase from that amount outstanding at the time of any such extension, renewal or refinancing; (iii) Indebtedness under Interest Rate Protection Agreements entered into with respect to other Indebtedness permitted under this Section 8.04; (iv) Indebtedness of the Borrower and its Subsidiaries evidenced by Capital Lease Obligations to the extent permitted pursuant to Section 8.07 and Indebtedness subject to Liens permitted under Sections 8.01(vii), provided that in no event shall the aggregate principal amount of all Indebtedness permitted by this clause (iv) exceed $5,000,000 at any time outstanding; -95- (v) (x) intercompany Indebtedness among the Borrower and its Subsidiaries to the extent permitted by Sections 8.05(xi) and 8.05(xii) and (y) Indebtedness of Holdings to the Borrower to the extent permitted by Section 8.05(xv); (vi) Indebtedness of the Borrower and the Subsidiary Guarantors incurred under the Borrower Senior Subordinated Note Documents in an aggregate principal amount not to exceed $150,000,000 (as reduced by any repayments of principal thereof); (vii) Indebtedness consisting of guaranties by the Borrower and its Subsidiaries of each other's Indebtedness and lease and other obligations permitted under this Agreement; (viii) Indebtedness of a Subsidiary acquired pursuant to a Permitted Acquisition or Indebtedness of the Borrower or a Subsidiary thereof assumed at the time of a Permitted Acquisition of an asset securing such Indebtedness, provided that (i) such Indebtedness was not incurred in connection with or anticipation of such Permitted Acquisition, and (ii) such Indebtedness does not constitute debt for borrowed money (other than in connection with industrial revenue or industrial development bond financing), it being understood and agreed that Capital Lease Obligations and purchase money Indebtedness shall not constitute debt for borrowed money for purposes of this clause (viii); (ix) Indebtedness of Holdings under the Holdings Junior Subordinated Notes, provided that issuances of Holdings Junior Subordinated Notes after the Closing Date may not be made other than in connection with a private sale of equity made by Holdings in an aggregate principal amount not to exceed 150% of the cash price paid for such related equity and no such additional Holdings Junior Subordinated Notes may be issued after the earlier of (x) a registered public equity offering by Holdings and (y) the issuance of the Holdings Senior Discount Notes, it being understood and agreed that, in any event, at the time of the issuance of the Holdings Senior Discount Notes all then outstanding Holdings Junior Subordinated Notes shall be repaid with the Net Debt Proceeds from the issuance of the Holdings Senior Discount Notes and with the Dividend permitted to be paid under Section 8.03(viii); (x) obligations of the Borrower or any of its Subsidiaries under incentive, earn-out or other similar arrangements incurred by it in connection with a Permitted Acquisition to the extent permitted under Sections 8.02(x); (xi) Indebtedness of Holdings under Holdings Shareholder Subordinated Notes in an aggregate principal amount not to exceed $5,000,000 at any time outstanding; (xii) Indebtedness in respect of Other Hedging Agreements to the extent permitted by Section 8.05(xiii); (xiii) Indebtedness subject to Liens permitted under Section 8.01(xii); -96- (xiv) so long as there shall exist no Default or Event of Default (both before and after giving effect to the issuance thereof), Indebtedness of Holdings under the Holdings Senior Discount Notes in an aggregate face amount not to exceed $50,000,000 (as reduced by any repayments of principal thereof) so long as (i) the terms of the Holdings Senior Discount Note Documents do not require (x) any cash interest payment before January 31, 2004 and (y) any amortization payment, maturity, sinking fund payment or similar payment prior to August 1, 2009, (ii) the proceeds therefrom are used to repay outstanding Holdings Junior Subordinated Notes, (iii) the proceeds therefrom do not exceed approximately $25,000,000 and (iv) the terms and conditions of the Holdings Senior Discount Note Documents (other than the interest rate) are no more restrictive than those set forth in the Borrower Senior Subordinated Note Documents and are otherwise reasonably satisfactory to Bank of America; and (xv) additional Indebtedness incurred by the Borrower or any of its Subsidiaries in an aggregate principal amount not to exceed $20,000,000 at any one time outstanding, of which no more than $500,000 at any time may be secured by a Lien permitted under Section 8.01(xviii) and with the remainder of such Indebtedness being unsecured. 8.05 Advances, Investments and Loans. Holdings will not, and will not permit any of its Subsidiaries to, directly or indirectly, lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or hold any cash or Cash Equivalents (each of the foregoing an "Investment" and, collectively, "Investments"), except that the following shall be permitted: (i) the Borrower and its Subsidiaries may acquire and hold accounts receivables owing to any of them, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms of the Borrower or such Subsidiary; (ii) the Borrower and its Subsidiaries may acquire and hold cash and Cash Equivalents, provided that during any time that Revolving Loans or Swingline Loans are outstanding the aggregate amount of cash and Cash Equivalents permitted to be held by the Borrower and its Subsidiaries shall not exceed $5,000,000 for any period of fifteen consecutive Business Days, it being understood and agreed, however, that so long as no Event of Default shall exist, the Borrower shall not be required to repay any Eurodollar Loan in the middle of an Interest Period as a result of complying with this clause (ii) and the failure to make such a payment will not give rise to an Event of Default; (iii) the Borrower and its Subsidiaries may hold the Investments held by them on the Closing Date and described on Schedule 8.05, provided that any additional Investments made with respect thereto shall be permitted only if independently justified under the other provisions of this Section 8.05; -97- (iv) the Borrower and its Subsidiaries may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in good faith settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (v) the Borrower and its Subsidiaries may make loans and advances in the ordinary course of business to their respective employees so long as the aggregate principal amount thereof at any time outstanding (determined without regard to any write-downs or write-offs of such loans and advances) shall not exceed $500,000; (vi) Holdings may acquire and hold obligations of one or more officers or other employees of Holdings or any of its Subsidiaries in connection with such officers' or employees' acquisition of shares of capital stock of Holdings and/or Holdings Junior Subordinated Notes so long as no cash is paid by Holdings or any of its Subsidiaries to such officers or employees in connection with the acquisition of any such obligations; (vii) the Borrower and its Subsidiaries may acquire and hold promissory notes issued by the purchaser of assets in connection with a sale of such assets to the extent permitted by Section 8.02; (viii) the Borrower and its Wholly-Owned Subsidiaries may make Permitted Acquisitions to the extent permitted by Section 8.02(x); (ix) the Borrower and its Subsidiaries may enter into Interest Rate Protection Agreements to the extent permitted by Section 8.04(iii); (x) Holdings may make cash and other property contributions (other than capital stock of the Borrower) to the capital of the Borrower and the Borrower and the Subsidiary Guarantors may make cash contributions to the capital of their respective Subsidiaries which are Subsidiary Guarantors, provided that no more than $500,000 of cash capital contributions in any fiscal year of the Borrower may be made to Subsidiary Guarantors which are not Wholly-Owned Subsidiaries; (xi) the Borrower and the Subsidiary Guarantors may make intercompany loans and advances between or among one another (collectively, "Intercompany Loans"), so long as each Intercompany Loan shall be evidenced by an Intercompany Note that is pledged to the Collateral Agent pursuant to the Pledge Agreement; (xii) the Borrower and the Subsidiary Guarantors may make additional loans and cash contributions to their respective Subsidiaries which are not Subsidiary Guarantors in an aggregate amount not to exceed $2,000,000 at any time outstanding (determined without regard to any write- downs or write-offs thereof); (xiii) the Borrower and its Subsidiaries may enter into Other Hedging Agreements providing protection against fluctuations in currency values in connection with the Borrower's or any of its Subsidiaries' operations so long as management of the Borrower or -98- such Subsidiary, as the case may be, has determined that the entering into of such Other Hedging Agreements are bona fide hedging activities and are not for speculative purposes; (xiv) Holdings and its Subsidiaries may hold additional investments in their respective Subsidiaries to the extent that such investments reflect an increase in the value of such Subsidiaries; (xv) to the extent that the Borrower may pay cash Dividends to Holdings pursuant to Sections 8.03(iii), (v), (vii), (viii) and (x) the Borrower may, in lieu of paying such cash Dividends, make an Intercompany Loan to Holdings for the purposes, and subject to the limitations, set forth in such Sections 8.03(iii), (v), (vii), (viii) and (x), in each case so long as each Intercompany Loan shall be evidenced by an Intercompany Note that is pledged to the Collateral Agent pursuant to the Pledge Agreement; (xvi) Holdings may effect the Asset Contribution; (xvii) the Borrower and its Subsidiaries may make transfers of assets to their respective Subsidiaries in accordance with Sections 8.02(xii), (xiv), (xv) and (xvi); and (xviii) the Borrower and its Subsidiaries may make additional Investments in an aggregate amount not to exceed the sum of (I) $1,000,000 in any fiscal year of the Borrower plus (II) the Retained Equity Amount at such time (in each case determined without regard to any write-downs or write-offs thereof). 8.06 Transactions with Affiliates. Holdings will not, and will not permit any of its Subsidiaries to, enter into any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate of Holdings or any of its Subsidiaries, other than in the ordinary course of business and on terms and conditions substantially as favorable to Holdings or such Subsidiary as would reasonably be obtained by Holdings or such Subsidiary at that time in a comparable arm's-length transaction with a Person other than an Affiliate, except that the following in any event shall be permitted: (i) Dividends may be paid to the extent provided in Section 8.03; (ii) loans may be made and other transactions may be entered into by Holdings and its Subsidiaries to the extent permitted by Sections 8.02, 8.04 and 8.05; (iii) customary fees may be paid to non-officer directors of Holdings and its Subsidiaries; (iv) so long as no Default under Section 7.01, 7.02(a), 9.01(a), 9.01(f) or 9.01(g) shall exist and no Event of Default shall exist, the Borrower may pay management fees to CHS Management and its Affiliates monthly in arrears pursuant to, and in accordance with, the terms of the CHS Management Agreement (as in effect on the Closing Date) in an aggregate amount for all such Persons taken together not to exceed $83,334 per month -99- plus the reasonable out-of-pocket expenses incurred by CHS Management and its Affiliates in performing management services for the Borrower pursuant to the CHS Management Agreement (it being understood and agreed that the reimbursement of such reasonable out-of-pocket expenses may be made whether or not any Default or Event of Default exists); (v) the Borrower may pay a one time transaction fee to CHS and its Affiliates on the Closing Date in the aggregate amount of $3,000,000 for all such Persons taken together plus the reasonable out-of-pocket expenses incurred by CHS and its Affiliates in connection with the Transaction and the Exchange Offer; (vi) the Borrower may pay, in connection with any Permitted Acquisition, a transaction fee to CHS Management and its Affiliates in an aggregate amount for all such Persons taken together not to exceed 1% of the aggregate value of any such Permitted Acquisition; (vii) Holdings and its Subsidiaries may enter into and perform their obligations under the Holdings Tax Sharing Agreement; (viii) transactions entered into between or among the Borrower and its Subsidiaries to the extent otherwise expressly permitted by this Agreement; (ix) Holdings and its Subsidiaries may enter into employment arrangements (including benefit compensation, bonuses and stock option and plans) with respect to the procurement of services with their respective officers and employees in the ordinary course of business; and (x) Holdings may issue and sell shares of its capital stock to its stockholders to the extent otherwise permitted by this Agreement. 8.07 Capital Expenditures. (a) Holdings will not, and will not permit any of its Subsidiaries to, make any Capital Expenditures, except that (i) during the period from the Closing Date through and including December 31, 1998, the Borrower and its Subsidiaries may make Capital Expenditures so long as the aggregate amount of all such Capital Expenditures does not exceed $4,000,000 and (ii) during any fiscal year of the Borrower set forth below (taken as one accounting period), the Borrower and its Subsidiaries may make Capital Expenditures so long as the aggregate amount of all such Capital Expenditures does not exceed in any fiscal year of the Borrower set forth below the amount set forth opposite such fiscal year below: Fiscal Year Ending Amount ------------------ ------ December 31, 1999 $7,000,000 December 31, 2000 $7,000,000 December 31, 2001 $7,000,000 December 31, 2002 $7,000,000 December 31, 2003 $7,000,000 -100- December 31, 2004 $7,000,000 December 31, 2005 $7,000,000 December 31, 2006 $7,000,000 (b) In addition to the foregoing, in the event that the amount of Capital Expenditures permitted to be made by the Borrower and its Subsidiaries pursuant to clause (a) above in any fiscal year of the Borrower (before giving effect to any increase in such permitted Capital Expenditure amount pursuant to this clause (b)) is greater than the amount of Capital Expenditures actually made by the Borrower and its Subsidiaries during such fiscal year, such excess (the "Rollover Amount") may be carried forward and utilized to make Capital Expenditures in the immediately succeeding fiscal year, provided that no amounts once carried forward pursuant to this Section 8.07(b) may be carried forward to any fiscal year thereafter and such amounts may only be utilized after the Borrower and its Subsidiaries have utilized in full the permitted Capital Expenditure amount for such fiscal year as set forth in the table in clause (a) above (without giving effect to any increase in such amount by operation of this clause (b)). (c) In addition to the foregoing, the Borrower and it Subsidiaries may make Capital Expenditures with the amount of Net Sale Proceeds received by the Borrower or any of its Subsidiaries from any Asset Sale so long as such Net Sale Proceeds are reinvested in assets used or to be used in the Borrower's or any of its Subsidiaries' business within 270 days following the date of such Asset Sale to the extent such Net Sale Proceeds are not otherwise required to be applied to reduce the Commitments pursuant to Section 2.07(c). (d) In addition to the foregoing, the Borrower and its Subsidiaries may make Capital Expenditures with the amount of Net Insurance Proceeds received by the Borrower or any of its Subsidiaries from any Recovery Event so long as such Net Insurance Proceeds are used to replace or restore any properties or assets in respect of which such Net Insurance Proceeds were paid within 365 days following the date of receipt of such Net Insurance Proceeds from such Recovery Event to the extent such Net Insurance Proceeds are not otherwise required to be applied to reduce the Commitments pursuant to Section 2.07(d). (e) In addition to the foregoing, the Borrower and its Wholly-Owned Subsidiaries may consummate Permitted Acquisitions in accordance with Section 8.02(x). (f) In addition to the foregoing, the Borrower may make up to $7,000,000 of Capital Expenditures in the aggregate to complete the current expansion of its Tuscaloosa, Alabama facility so long as such Capital Expenditures are made on or before December 31, 1999. (g) In addition to the foregoing, the Borrower and its Subsidiaries may make Capital Expenditures in connection with a Permitted Capital Expansion, provided that (i) the aggregate amount of all such Capital Expenditures, when added to the aggregate amount of all Permitted Acquisitions made pursuant to Section 8.02(x), does not exceed $35,000,000, and (ii) prior to commencing any Permitted Capital Expansion, the Borrower shall give the Administrative Agent and the Lenders notice thereof (which notice shall include the proposed amount and time projected to complete such Permitted Capital Expansion). -101- (h) In addition to the foregoing, the Borrower and its Subsidiaries may make Capital Expenditures (including for a Permitted Capital Expansion) utilizing the Retained Equity Amount at such time. 8.08 Consolidated Interest Coverage Ratio. Holdings and the Borrower will not permit the Consolidated Interest Coverage Ratio for any Measurement Period ending on the last day of a fiscal quarter of Holdings set forth below to be less than the ratio set forth opposite such fiscal quarter below: Fiscal Quarter Ending Ratio --------------------- ----- September 30, 1998 1.50:1.00 December 31, 1998 1.50:1.00 March 31, 1999 1.55:1.00 June 30, 1999 1.60:1.00 September 30, 1999 1.65:1.00 December 31, 1999 1.75:1.00 March 31, 2000 1.75:1.00 June 30, 2000 1.75:1.00 September 30, 2000 1.75:1.00 December 31, 2000 2.00:1.00 March 31, 2001 2.00:1.00 June 30, 2001 2.00:1.00 September 30, 2001 2.00:1.00 December 31, 2001 2.25:1.00 March 31, 2002 2.25:1.00 June 30, 2002 2.25:1.00 September 30, 2002 2.25:1.00 December 31, 2002 and the last day of each fiscal quarter thereafter 2.50:1.00 8.09 Consolidated Fixed Charge Coverage Ratio. Holdings and the Borrower will not permit the Consolidated Fixed Charge Coverage Ratio for any Measurement Period ending on or after December 31, 1999 to be less than 1.10:1.00: 8.10 Maximum Leverage Ratio. Holdings and the Borrower will not permit the Consolidated Leverage Ratio at any time during a period set forth below to be greater than the ratio set forth opposite such period below: -102- Period Ratio ------ ----- December 31, 1998 through and including June 29, 1999 6.50:1.00 June 30, 1999 through and including September 29, 1999 6.25:1.00 September 30, 1999 through and including December 30, 1999 5.75:1.00 December 31, 1999 through and including September 29, 2000 5.25:1.00 September 30, 2000 through and including December 30, 2000 5.00:1.00 December 31, 2000 through and including December 30, 2001 4.75:1.00 December 31, 2001 through and including December 30, 2002 4.50:1.00 December 31, 2002 through and including June 29, 2003 4.25:1.00 June 30, 2003 through and including December 30, 2003 4.00:1.00 December 31, 2003 through and including December 30, 2004 3.75:1.00 Thereafter 3.50:1.00 8.11 Limitation on Voluntary Payments and Modification of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; etc. (a) Holdings will not, and will not permit any of its Subsidiaries to: (i) make (or give any notice in respect of) any voluntary or optional payment or prepayment on or redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due) any Borrower Senior Subordinated Notes (other than in connection with the Borrower Senior Subordinated Note Exchange Offer) or any Holdings Senior Discount Notes (other than in connection with the Holdings Senior Discount Note Exchange Offer); -103- (ii) make (or give any notice in respect of) any prepayment or redemption of any Borrower Senior Subordinated Notes or any Holdings Senior Discount Notes as a result of any asset sale, change of control or similar event (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due any Borrower Senior Subordinated Notes or any Holdings Senior Discount Notes ); (iii) make (or give any notice in respect of) any payment, prepayment, redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due) any Holdings Junior Subordinated Notes (whether in respect of principal, interest or otherwise), provided that so long as no Default or Event of Default then exists or would result therefrom, Holdings may purchase or redeem Holdings Junior Subordinated Notes held by employees of Holdings or any of its Subsidiaries following their death, disability, retirement or termination of employment so long as the aggregate amount expended pursuant to this clause (iii), when added to the sum of the aggregate amount of all Dividends paid or made pursuant to Section 8.03(ii) and the aggregate amount of all payments made in respect of all Holdings Shareholder Subordinated Notes pursuant to Section 8.11(iv), shall not exceed $1,000,000 in any fiscal year of Holdings, provided that any unused amount thereof may be carried forward and utilized for such purposes in the immediately succeeding fiscal year of Holdings; (iv) make (or give any notice in respect of) any payment, prepayment, redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due) any Holdings Shareholder Subordinated Notes (whether in respect of principal, interest or otherwise), provided that so long as no Default or Event of Default then exists or would result therefrom, Holdings may make payments on Holdings Shareholder Subordinated Notes to the extent permitted by Section 8.03(ii); (v) so long as there shall exist no Default or Event of Default (both before and after giving effect to the payment thereof), Holdings may redeem or repurchase outstanding Holdings Junior Subordinated Notes held by officers or employees of Holdings or any of its Subsidiaries with the net cash proceeds received by Holdings from the substantially concurrent sale of Holdings Common Stock, Holdings Preferred Stock and/or new Holdings Junior Subordinated Notes in each case to the extent that such proceeds utilize the Retained Equity Amount; (vi) so long as there shall exist no Default or Event of Default (both before and after giving effect to the payment thereof), Holdings may redeem or repurchase outstanding Holdings Junior Subordinated Notes with the proceeds from the issuance of the Holdings Senior Discount Notes and with the Dividend paid pursuant to Section 8.03(viii); -104- (vii) amend or modify, or permit the amendment or modification of, any provision of any Borrower Senior Subordinated Note Document, any Holdings Senior Discount Note Document, any Holdings Junior Subordinated Notes or any Holdings Shareholder Subordinated Notes; (viii) amend, modify or change its certificate of incorporation (including, without limitation, by the filing or modification of any certificate of designation (other than to authorize the issuance of any Holdings Preferred Stock)) or by-laws (or the equivalent organizational documents) or any agreement entered into by it with respect to its capital stock, or enter into any new agreement with respect to its capital stock, unless such amendment, modification, change or other action contemplated by this clause (viii); could not reasonably be adverse to the interests of the Lenders in any material respect; or (ix) amend, modify or change any provision of the CHS Management Agreement or the Holdings Tax Sharing Agreement in a manner which is adverse to the Lenders. (b) Neither Holdings nor any of its Subsidiaries shall designate any Indebtedness, other than the Obligations, as "Designated Senior Debt" for purposes of the Borrower Senior Subordinated Note Documents. (c) Holdings will not make, nor shall it be required to make, any cash interest payment on the Holdings Senior Discount Notes prior to January 31, 2004. 8.12 Limitation on Certain Restrictions on Subsidiaries. Holdings will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by Holdings or any Subsidiary of Holdings, or pay any Indebtedness owed to Holdings or any Subsidiary of Holdings, (b) make loans or advances to Holdings or any Subsidiary of Holdings or (c) transfer any of its properties or assets to Holdings or any Subsidiary of Holdings, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement and the other Loan Documents, (iii) the Borrower Senior Subordinated Note Documents and the Holdings Senior Discount Note Documents, (iv) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of Holdings or any Subsidiary of Holdings, (v) customary provisions restricting assignment of any licensing agreement entered into by Holdings or any Subsidiary of Holdings in the ordinary course of business, (vi) restrictions on the transfer of any asset subject to a Lien permitted by Sections 8.01(vi), (vii), (xiii), (xiv), (xvii) and (xviii), (vii) restrictions which are imposed on any Subsidiary of the Borrower acquired pursuant to a Permitted Acquisition to the extent such restrictions are set forth in any Indebtedness assumed in connection with such Permitted Acquisition so long as such restrictions are not applicable to any Subsidiary of the Borrower other than the Subsidiary being acquired and such restrictions were not created or imposed in connection with or in contemplation of such Permitted Acquisition, (viii) restrictions on the transfer of any asset pending the close of the sale of such asset, (ix) restrictions which are imposed on any Foreign Subsidiary of the Borrower to the extent such -105- restrictions are set forth in any Indebtedness incurred by such Foreign Subsidiary pursuant to Section 8.04(xiv) so long as such restrictions are not applicable to any Subsidiary of the Borrower other than the Foreign Subsidiary that has incurred such Indebtedness and (x) customary restrictions set forth in any joint venture agreement entered in connection with an Investment made pursuant to Section 8.05(xviii). 8.13 Limitation on Issuance of Capital Stock. (a) Holdings will not, and will not permit any of its Subsidiaries to, issue (i) any preferred stock other than Holdings Preferred Stock issued by Holdings (as constituted on the Closing Date or upon such other terms as may be reasonably acceptable to Bank of America (or any successor Administrative Agent) or (ii) any redeemable common stock (other than common stock that is redeemable at the sole option of Holdings or such Subsidiary). (b) Holdings will not permit any of its Subsidiaries to issue any capital stock (including by way of sales of treasury stock) or any options or warrants to purchase, or securities convertible into, capital stock, except (i) for transfers and replacements of then outstanding shares of capital stock, (ii) for stock splits, stock dividends and issuances which do not decrease the percentage ownership of Holdings or any of its Subsidiaries in any class of the capital stock of such Subsidiary, (iii) to qualify directors to the extent required by applicable law or (iv) for issuances by newly created or acquired Subsidiaries in accordance with the terms of this Agreement. 8.14 Business. (a) Holdings and its Subsidiaries will not engage in any business other than the businesses engaged in by the Borrower and its Subsidiaries as of the Closing Date and reasonable extensions thereof and activities incidental thereto. (b) Notwithstanding the foregoing, Holdings will not engage in any business and, after giving effect to the Transaction, will not own any significant assets or have any material liabilities other than its ownership of the capital stock of the Borrower and the capital stock of Globe Elastic Thread, Ltd. (which is in the process of being dissolved) and those Investments permitted to be held by it pursuant to Section 8.05(vi) and having those liabilities which it is responsible for under this Agreement and the other Transaction Documents to which it is a party and other liabilities permitted to be incurred by it under this Agreement, provided that Holdings may engage in those activities that are incidental to (x) the maintenance of its corporate existence in compliance with applicable law, (y) legal, tax and accounting matters in connection with any of the foregoing activities and (z) the entering into, and performing its obligations under, this Agreement, the other Transaction Documents to which it is a party and the Holdings Senior Discount Note Documents. 8.15 Limitation on Creation of Subsidiaries. Notwithstanding anything to the contrary contained in this Agreement, Holdings will not, and will not permit any of its Subsidiaries to, establish, create or acquire after the Closing Date any Subsidiary, provided that the Borrower and its Wholly-Owned Subsidiaries shall be permitted to establish and create Wholly-Owned Subsidiaries and, to the extent permitted by Sections 8.02(x) and 8.05(xviii), acquire non-Wholly-Owned Subsidiaries, so long as (i) the capital stock of each such new -106- Subsidiary is pledged pursuant to, and to the extent required by, the Pledge Agreement and the certificates representing such stock, together with stock powers duly executed in blank, are delivered to the Collateral Agent for the benefit of the Lenders, and (ii) each such new Domestic Subsidiary, and to the extent required by Section 7.13, each such new Foreign Subsidiary, executes a Guarantor Supplement. In addition, each new Domestic Subsidiary, and to the extent required by Section 7.13, each such new Foreign Subsidiary, shall execute and deliver, or cause to be executed and delivered, all other relevant documentation of the type described in Article V as requested by the Administrative Agent and as such new Subsidiary would have had to deliver if such new Subsidiary were a Credit Party on the Closing Date. ARTICLE IX. EVENTS OF DEFAULT ----------------- 9.01 Event of Default. Any of the following shall constitute an "Event of Default": (a) Non-Payment. The Borrower fails to pay, (i) when and as required to be paid herein, any amount of principal of any Loan or any amount of any Letter of Credit Obligation, or (ii) within three Business Days after the same shall become due, any interest, fee or any other amount payable hereunder or pursuant to any other Loan Document; or (b) Representation or Warranty. Any representation or warranty by Holdings or any of its Subsidiaries made or deemed made herein or in any other Loan Document, or which is contained in any certificate, document or financial or other statement furnished by Holdings or any of its Subsidiaries at any time under this Agreement or under any other Loan Document, shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) Specific Defaults. Holdings or any of its Subsidiaries fails to perform or observe any term, covenant or agreement contained in Section 7.03(a), 7.10, 7.14 or Article VIII; or (d) Other Defaults. Holdings or any of its Subsidiaries fails to perform or observe any other term or covenant contained in this Agreement or in any other Loan Document, and such default shall continue unremedied for a period of 30 days after the date upon which written notice thereof is given to the Borrower by the Administrative Agent or any Lender; or (e) Cross-Default. Holdings or any of its Subsidiaries (i) fails to make any payment in respect of any Indebtedness having an aggregate principal amount of $3,000,000 or more when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the document relating thereto on the date of such -107- failure; or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness, and such failure continues after the applicable grace or notice period, if any, specified in the document relating thereto on the date of such failure if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity; or (f) Insolvency; Voluntary Proceedings. Holdings or any of its Subsidiaries (i) generally fails to pay its debts as they become due; (ii) commences any Insolvency Proceeding with respect to itself; or (iii) takes any action to effectuate or authorize any of the foregoing; or (g) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or filed against Holdings or any of its Subsidiaries, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of Holdings' or any of its Subsidiaries' properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) Holdings or any of its Subsidiaries admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) Holdings or any of its Subsidiaries acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (h) ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA shall be subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(i) thereof) and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur with respect to such Plan within the following 30 days, any Plan shall have had or is likely to have a trustee appointed to administer such Plan, any Plan is, shall have been or is likely to be terminated or the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a contribution required to be made to a Plan or a Foreign Pension Plan has not been timely made, Holdings or any Subsidiary of Holdings or any ERISA Affiliate has incurred or is likely to incur a liability to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, or 4975 of the Code, or on account of a group health plan (as defined in Section 607(i) of ERISA or Section 4980B(g)(2) of the Code) under -108- Section 4980B of the Code, or Holdings or any Subsidiary of Holdings has incurred or is likely to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) with respect to providing benefits to retired employees or other former employees (other than as required by Section 601 of ERISA or Section 4980B of the Code) or employee pension benefit plans (as defined in Section 3(2) of ERISA) or Plans or Foreign Pension Plans; (b) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (c) which lien, security interest or liability, individually, and/or in the aggregate, which arises from such event or events could reasonably be expected to have a Material Adverse Effect; or (i) Judgments. One or more judgments or decrees shall be entered against Holdings or any of its Subsidiaries involving a liability (not paid or not covered by a reputable and solvent insurance company) of $3,000,000 or more for all such judgments and decrees and all such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 30 days from the entry thereof; or (j) Change of Control. Any Change of Control shall occur; or (k) Collateral; Guaranties. (i) Except in each case to the extent resulting from the failure of the Collateral Agent to retain possession of the applicable Pledged Securities, any Collateral Document (other than the Guaranties) shall cease to be in full force and effect (except in accordance with its express terms), or shall cease to give the Collateral Agent the Liens, rights, powers and privileges purported to be created thereby in favor of the Collateral Agent; or (ii) any Guaranty or any provision thereof shall cease to be in full force and effect (except in accordance with its express terms), or any Guarantor or any Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations under its Guaranty. 9.02 Remedies. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, (a) declare the Commitments of each Lender and any obligation of the Issuing Lenders to issue Letters of Credit to be terminated, whereupon such Commitments and obligation shall forthwith be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower and Holdings; -109- (c) demand that the Borrower Cash Collateralize Letter of Credit Obligations to the extent of outstanding and wholly or partially undrawn Letters of Credit, whereupon the Borrower shall so Cash Collateralize; (d) exercise on behalf of itself, the Issuing Lenders and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable law; and (e) apply any cash collateral as provided in Section 3.07 to the payment of outstanding Obligations; provided, however, that upon the occurrence of any event specified above in paragraph (f) or (g) of Section 9.01 with respect to the Borrower, any Significant Subsidiary of the Borrower or any group of Subsidiaries of the Borrower that, taken together, would constitute a Significant Subsidiary of the Borrower, the obligation of each Lender to make Loans and any obligation of the Issuing Lenders to issue Letters of Credit shall automatically terminate, and all reimbursement obligations under Letters of Credit and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act or notice by the Administrative Agent, any Issuing Lender or any Lender, which are hereby expressly waived by the Borrower and Holdings. 9.03 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE X. THE GUARANTY ------------ 10.01 Guaranty from Holdings. (a) In order to induce the Lenders to make Loans to the Borrower under this Agreement and to induce the Issuing Lenders to issue Letters of Credit and to induce the Guaranteed Creditors to enter into the Interest Rate Protection Agreements and Other Hedging Agreements, Holdings hereby unconditionally and irrevocably guarantees the prompt payment and performance in full by the Borrower when due (whether at stated maturity, by acceleration or otherwise) of all Guaranteed Obligations of the Borrower. The obligations of Holdings hereunder are those of a primary obligor, and not merely a surety, and are independent of the Guaranteed Obligations of the Borrower. A separate action or actions may be brought against Holdings whether or not an action is brought against the Borrower, any other guarantor or other obligor in respect of the Guaranteed Obligations or whether the Borrower, any other guarantor or any other obligor in respect of the Guaranteed Obligations is joined in any such action or actions. Holdings waives, to the fullest extent permitted by applicable law, the benefit of any statute of limitation affecting its liability hereunder and agrees that its liability hereunder shall not be subject to any right of set-off, counterclaim or recoupment (each of which rights is hereby waived to the fullest extent permitted by applicable law). -110- (b) Holdings guarantees that the obligations guaranteed by it hereby will be paid and performed strictly in accordance with the terms of this Agreement, the other Loan Documents and the applicable Interest Rate Protection Agreements and Other Hedging Agreements regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent, the Collateral Agent, the Issuing Lenders, the Lenders or the other Guaranteed Creditors with respect thereto. The liability of Holdings under this guaranty shall be absolute and unconditional irrespective of, and Holdings hereby irrevocably waives (to the fullest extent permitted by applicable law) any defenses it may now or hereafter have in any way relating to, any and all of the following: (i) any lack of genuineness, validity, legality or enforceability against the Borrower or any other guarantor of this Agreement, any other Loan Document, any Interest Rate Protection Agreement or Other Hedging Agreement or any document, agreement or instrument relating hereto or any assignment or transfer of this Agreement, any other Loan Document or any Interest Rate Protection Agreement or Other Hedging Agreement or any defense that the Borrower may have with respect to its liability hereunder or thereunder; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any waiver, indulgence, compromise, renewal, extension, amendment, modification of, or addition, consent, supplement to, or consent to departure from, or any other action or inaction under or in respect of, this Agreement, any other Loan Document, any Interest Rate Protection Agreement or Other Hedging Agreement or any document, instrument or agreement relating to the Guaranteed Obligations or any other instrument or agreement referred to herein or any assignment or transfer of this Agreement or any Interest Rate Protection Agreement or Other Hedging Agreement; (iii) any release or partial release of any other guarantor or other obligor in respect of the Guaranteed Obligations; (iv) any exchange, impairment, release or non-perfection of any collateral for all or any of the Guaranteed Obligations, or any release, or amendment or waiver of, or consent to departure from, any guaranty or security, for any or all of the Guaranteed Obligations; (v) any furnishing of any additional security for any of the Guaranteed Obligations; (vi) the liquidation, bankruptcy, insolvency or reorganization of the Borrower, any other guarantor or other obligor in respect of the Guaranteed Obligations or any action taken with respect to this guaranty or otherwise by any trustee or receiver, or by any court, in any such proceeding; (vii) any modification or termination of any intercreditor or subordination agreement pursuant to which the claims of other creditors of the Borrower or any guarantor are -111- subordinated to those of the Lenders, the Issuing Lenders, the Administrative Agent, the Collateral Agent or the other Guaranteed Creditors; or (viii) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower or Holdings. (c) This guaranty shall continue to be effective or be reinstated, as the case may be, if at any time payment or performance of the Guaranteed Obligations, or any part thereof, is, upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise pursuant to applicable law, rescinded or reduced in amount or must otherwise be restored or returned by any of the Administrative Agent, any Issuing Lender, any Lender, the Collateral Agent or the other Guaranteed Creditors, all as though such payment or performance had not been made. (d) If an event permitting the acceleration of any of the Guaranteed Obligations shall at any time have occurred and be continuing and such acceleration shall at such time be prevented by reason of the pendency against the Borrower of a case or proceeding under any bankruptcy or insolvency law, Holdings agrees that, for purposes of this guaranty and its obligations hereunder, the Guaranteed Obligations shall be deemed to have been accelerated and Holdings shall forthwith pay such Guaranteed Obligations (including interest which but for the filing of a petition in bankruptcy with respect to the Borrower would accrue on such Guaranteed Obligations, whether or not interest is an allowed claim under applicable law), and the other obligations hereunder, forthwith upon demand. (e) Holdings hereby waives (i) promptness, diligence, presentment, notice of nonperformance, protest or dishonor, notice of acceptance and any and all other notices with respect to any of the Guaranteed Obligations or this Agreement, any other Loan Document or any Interest Rate Protection Agreement or Other Hedging Agreement, and (ii) to the extent permitted by applicable law, any right to require that the Administrative Agent, the Collateral Agent, any Issuing Lender, any Lender or any other Guaranteed Creditor protect, secure, perfect or insure any Lien in or any Lien on any property subject thereto or exhaust any right or pursue any remedy or take any action against the Borrower, any other guarantor or any other Person or any collateral or security or to any balance of any deposit accounts or credit on the books of the Administrative Agent, the Collateral Agent, any Issuing Lender, any Lender or any other Guaranteed Creditor in favor of the Borrower. (f) Holdings expressly waives until the Guaranteed Obligations are irrevocably paid in full in cash any and all rights of subrogation, reimbursement, contribution and indemnity (contractual, statutory or otherwise), including any claim or right of subrogation under the Bankruptcy Code or any successor statute, arising from the existence or performance of this guaranty and Holdings irrevocably waives until the Guaranteed Obligations are irrevocably paid in full in cash any right to enforce any remedy which the Administrative Agent, the Collateral Agent, the Issuing Lenders, the Lenders or the other Guaranteed Creditors now have or may hereafter have against the Borrower, and waives, to the fullest extent permitted by law, until the Guaranteed Obligations are irrevocably paid in full in cash any benefit of, and any right to -112- participate in, any security now or hereafter held by the Administrative Agent, the Collateral Agent, any Issuing Lender, any Lender or any other Guaranteed Creditor. (g) If, in the exercise of any of its rights and remedies, the Administrative Agent, the Collateral Agent, any Issuing Lender, any Lender or any other Guaranteed Creditor shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against the Borrower or any other Person, whether because of any applicable laws pertaining to "election of remedies" or the like, Holdings hereby consents to such action and waives any claim based upon such action (to the extent permitted by applicable law). Any election of remedies which results in the denial or impairment of the right of the Administrative Agent, the Collateral Agent, any Issuing Lender, any Lender or any other Guaranteed Creditor to seek a deficiency judgment against any Credit Party shall not impair Holdings' obligation to pay the full amount of the Guaranteed Obligations. (h) This guaranty is a continuing guaranty and shall (i) remain in full force and effect until payment in full of the Guaranteed Obligations and all other amounts payable under this guaranty and the termination of the Aggregate Commitment; (ii) be binding upon Holdings, its successors and assigns; and (iii) inure, together with the rights and remedies hereunder, to the benefit of the Guaranteed Creditors and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Guaranteed Creditor may, subject to the terms of this Agreement or the applicable Interest Rate Protection Agreement or Other Hedging Agreement, assign or otherwise transfer its rights and obligations under this Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect hereof granted to such Lender pursuant to this guaranty or otherwise, all as provided in, and to the extent set forth in, this Agreement. (i) Any obligations of the Borrower to Holdings, now or hereafter existing, are hereby subordinated to the Guaranteed Obligations. Such obligations of the Borrower to Holdings, if the Administrative Agent or the Required Lenders so request, shall be enforced and amounts recovered shall be received by Holdings as trustee for the Guaranteed Creditors and the proceeds thereof shall be paid over to the Lenders on account of the Guaranteed Obligations, but without reducing or affecting in any manner the liability of Holdings under the provisions of this guaranty. (j) Upon failure of the Borrower to pay any Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration or otherwise, Holdings hereby agrees immediately on demand by any of the Guaranteed Creditors to pay or cause to be paid in accordance with the terms hereof an amount equal to the full unpaid amount of the Guaranteed Obligations then due in Dollars. (k) All payments by Holdings hereunder shall be made free and clear of, and without deduction or withholding for or on account of, any Taxes, unless such deduction or withholding is required by law. If Holdings shall be required by law to make any such deduction or withholding, then Holdings shall pay such additional amounts as may be necessary in order that the net amount received by the applicable Lender, the applicable Issuing Lender or the Adminis- -113- trative Agent, as the case may be, after all deductions and withholdings, shall be equal to the full amount that such Person would have received, after all deductions and withholdings, had the Borrower discharged its obligations (including its tax gross-up obligations) pursuant to Section 4.01. Any amounts deducted or withheld by Holdings for or on account of Taxes shall be paid over to the government or taxing authority imposing such Taxes on a timely basis, and Holdings shall provide the applicable Lender, the applicable Issuing Lender or the Administrative Agent, as the case may be, as soon as practicable with such tax receipts or other official documentation (and such other certificates, receipts and other documents as may reasonably be requested by such Person) with respect to the payment of such Taxes as may be available. ARTICLE XI. THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE ISSUING LENDERS, THE ARRANGER AND THE SYNDICATION AGENT ------------------------------------------------------------------ 11.01 Appointment and Authorization. (a) Each of the Lenders, each of the Issuing Lenders and the Swingline Lender hereby irrevocably appoints, designates and authorizes Bank of America as Administrative Agent and as Collateral Agent (for purposes of this Article XI and Article XII, the term "Agent" shall mean Bank of America in its capacity as Administrative Agent and as Collateral Agent) to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Lender, any Issuing Lender or the Swingline Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. (b) Each Issuing Lender shall have all of the benefits and immunities (i) provided to the Agent in this Article XI with respect to any acts taken or omissions suffered by such Issuing Lender in connection with Letters of Credit issued by it or proposed to be issued by it and the Letter of Credit Applications pertaining to the Letters of Credit as fully as if the term "Agent", as used in this Article XI, included such Issuing Lender with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to such Issuing Lender. 11.02 Delegation of Duties. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The -114- Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 11.03 Liability of Agent. None of the Agent, its Affiliates or any of their officers, directors, employees, agents or attorneys-in-fact (collectively, the "Agent-Related Persons") shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document (except for their own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by Holdings, the Borrower or any Subsidiary or Affiliate thereof, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Borrower, Holdings or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower, Holdings or any of their respective Subsidiaries or Affiliates. 11.04 Reliance by Agent. (a) The Lenders agree that the Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Borrower, Holdings or any Subsidiary Guarantor), independent accountants and other experts selected by the Agent. The Lenders agree that the Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders or, as required by Section 12.01, all the Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders or, as required by Section 12.01 all the Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. (b) For purposes of determining compliance with the conditions specified in Section 5.01 as it relates to the initial Borrowing and issuances of Letters of Credit on the Closing Date, each Lender that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter either sent by the Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender, unless an officer of the Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the initial Borrowing and issuances of Letters of Credit -115- on the Closing Date specifying in reasonable detail its objection thereto and either such objection shall not have been withdrawn by notice to the Agent to that effect or such Lender shall not have made available to the Agent such Lender's ratable portion of such Borrowing. 11.05 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Lenders or the Issuing Lender, unless the Agent shall have received written notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give notice thereof to the Lenders and the Issuing Lenders. The Agent shall take such action with respect to such Default or Event of Default as shall be requested by the Required Lenders in accordance with Article IX; provided, however, that unless and until the Agent shall have received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Lenders. 11.06 Credit Decision. Each Lender expressly acknowledges that none of the Agent-Related Persons has made any representation or warranty to it and that no act by the Agent hereinafter taken, including any review of the affairs of Holdings and its Subsidiaries, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Holdings and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated thereby, and made its own decision to enter into this Agreement and extend credit to the Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon the Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Holdings and its Subsidiaries. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Agent, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Borrower, Holdings and their Subsidiaries which may come into the possession of any of the Agent-Related Persons. 11.07 Indemnification. Whether or not the transactions contemplated hereby shall be consummated, the Lenders shall indemnify, upon demand, each of the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Borrower and without limiting the obligation of the Borrower to do so), ratably from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind whatsoever which may at any time (including at any time following the expiration of the -116- Letters of Credit and the repayment of the Loans and the termination or resignation of the Agent) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement, any other Loan Document or any document contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by any such Person under or in connection with any of the foregoing; provided, however, that no Lender shall be liable for the payment to any of the Agent-Related Persons of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Borrower. Without limiting the generality of the foregoing, if the Internal Revenue Service or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify the Agent fully for all amounts paid as a result thereof, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section 11.07, together with all costs and expenses (including Attorney Costs). The obligation of the Lenders in this Section 11.07 shall survive the payment of all Obligations hereunder. 11.08 Agent in Individual Capacity. Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire and/or hold equity interests in and generally engage in any kind of banking, trust, financial advisory or other business with Holdings and its Subsidiaries and Affiliates as though Bank of America were not the Agent or an Issuing Lender hereunder and without notice to or consent of the Lenders. With respect to its Loans and participation in Letters of Credit, Bank of America shall have the same rights and powers under this Agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not the Agent or an Issuing Lender, and the terms "Lender" and "Lenders" shall include Bank of America in its individual capacity. 11.09 Successor Agent. The Agent may resign as Agent upon 30 days' notice to the Lenders and the Borrower. If the Agent shall resign as Agent under this Agreement, the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders which successor agent shall be subject to the approval of the Borrower if no Event of Default has occurred and is continuing, such approval not to be unreasonably withheld or delayed. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Lenders and subject to the approval of the Borrower if no Event of Default has occurred and is continuing, such approval not to be unreasonably withheld -117- or delayed, a successor agent from among the Lenders or any Lender Affiliate. Any successor Agent appointed under this Section 11.09 shall be a commercial bank organized under the laws of the United States or any State thereof, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article XI and Sections 12.04 and 12.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. 11.10 The Arranger and Syndication Agent. Neither the Arranger nor the Syndication Agent, in their capacity as such, shall have any duties or responsibilities, and shall incur no obligations or liabilities, under this Agreement. Each Lender acknowledges that it has not relied, and will not rely, on the Arranger or the Syndication Agent in deciding to enter into this Agreement. ARTICLE XII. MISCELLANEOUS ------------- 12.01 Amendments and Waivers. (a) No amendment or waiver of any provision of this Agreement or any other Loan Document and no consent with respect to any departure by the Borrower, Holdings or any Subsidiary Guarantor therefrom, shall be effective unless the same shall be in writing and signed by Holdings, the Borrower and the Required Lenders and acknowledged by the Agent, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment or consent shall, unless in writing and signed by all the Lenders affected thereby and acknowledged by the Agent, do any of the following: (i) increase or extend any Commitment of such Lender (or reinstate any Commitment terminated pursuant to Section 9.02(a)) (except as provided in Section 12.07); (ii) postpone or delay any date for any payment of interest or fees due to the Lenders (or any of them) hereunder or under any other Loan Document or extend the Revolving Termination Date or the final scheduled maturity date of any Term Loan; (iii) reduce the amount of any Scheduled Repayment or extend the date of payment of any Scheduled Repayment; -118- (iv) reduce the principal of, or the rate of interest specified herein on, any Loan or Letter of Credit Borrowing (other than with respect to post-default rates), or of any fees or other amounts payable hereunder or under any other Loan Document or reduce the Applicable Margin provided for herein (it being understood that any amendment or modification to the financial definitions in this Agreement shall not constitute a reduction in the rate of interest or fees for the purposes of this clause (iv) so long as the primary purpose of the respective amendment or modification to the financial definitions is not to reduce the interest rate or any fees payable hereunder); (v) reduce the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which shall be required for the Lenders or any of them to take any action hereunder; (vi) amend this Section 12.01 to the extent that any such amendment, modification or waiver would alter any of the voting provisions set forth in the other provisions of this Section 12.01, or reduce the percentage set forth in the definition of "Required Lenders" or any provision of this Agreement expressly requiring the consent of all the Lenders in order to take or refrain from taking any action; or (vii) release the guaranty of Holdings under its guaranty pursuant to Article X or discharge any Subsidiary Guarantor from its obligations under any Subsidiary Guaranty, or release all or substantially all of the Collateral except, in all such cases, in accordance with the express provisions hereof or thereof; and, provided further, that (A) in addition to the consent of the Administrative Agent and the Required Lenders, without the consent of the Majority Lenders of each Tranche which is being allocated a lesser prepayment, repayment or commitment reduction as a result of the actions described below (or without the consent of the Majority Lenders of each Tranche in the case of an amendment to the definition of Majority Lenders), amend the definition of Majority Lenders or alter the required application of any prepayments or repayments (or commitment reduction), as between the various Tranches, pursuant to Section 2.06 or Section 2.07(i) (although the Required Lenders may waive, in whole or in part, any such prepayment, repayment or commitment reduction, so long as the application, as amongst the various Tranches, of any such prepayment, repayment or commitment reduction which is still required to be made is not altered), (B) no amendment, waiver or consent shall, unless in writing and signed by the Issuing Lenders in addition to the Required Lenders or all the Lenders, as the case may be, affect the rights or duties of the Issuing Lenders under this Agreement or any Letter of Credit Related Document, (C) no amendment, waiver or consent shall, unless in writing and signed by the Swingline Lender in addition to the Required Lenders or all the Lenders, as the case may be, affect the rights and duties of the Swingline Lender under this Agreement and (D) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Required Lenders or all the Lenders, as the case may be, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document. -119- (b) If, in connection with any proposed change, waiver, discharge or any termination to any of the provisions of this Agreement as contemplated by clauses (ii) through (vii), inclusive, of the first proviso to Section 12.01(a), the consent of the Required Lenders is obtained but the consent of one or more other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated the same, to replace each such non-consenting Lender or Lenders with one or more Replacement Lenders pursuant to Section 4.08(b) so long as at such time of such replacement, each such Replacement Lender consents to the proposed change, waiver, discharge or termination. 12.02 Notices. (a) All notices, requests and other communications provided for hereunder shall be in writing (including, unless the context expressly otherwise provides, facsimile transmission) and mailed, transmitted by facsimile or delivered, (A) if to the Borrower, Holdings, the Agent, the Issuing Lender or the Swingline Lender, to the address or facsimile number specified for notices on the applicable signature page hereof; (B) if to any Lender, to the notice address of such Lender set forth on Schedule 1.01(a); or (C) as directed to the Borrower or the Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. (b) All such notices, requests and communications shall be effective when delivered or transmitted by facsimile machine, respectively, provided that any matter transmitted by the Borrower by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on the applicable signature page hereof or on Schedule 1.01(a), and (ii) shall be followed promptly by a hard copy original thereof; except that notices to the Agent shall not be effective until actually received by the Agent, notices to the Swingline Lender pursuant to Section 2.03(f) shall not be effective until received by the Swingline Lender, and notices pursuant to Article III to any Issuing Lender shall not be effective until actually received by such Issuing Lender. (c) The Borrower acknowledges and agrees that any agreement of the Agent, the Issuing Lenders, the Swingline Lender and the Lenders in Articles II and III herein to receive certain notices by telephone and facsimile is solely for the convenience and at the request of the Borrower. The Agent, the Issuing Lenders, the Swingline Lender and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Agent, the Issuing Lenders, the Swingline Lender and the Lenders shall not have any liability to such Borrower or any other Person on account of any action taken or not taken by the Agent, the Issuing Lenders, the Swingline Lender or the Lenders in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans and drawings under Letters of Credit shall not be affected in any way or to any extent by any failure by the Agent, the Issuing Lenders, the Swingline Lender and the Lenders to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent, the Issuing Lenders, the Swingline Lender and the Lenders of a confirmation which is at variance with the terms understood by the Agent, the Issuing Lenders, the Swingline Lender or the Lenders to be contained in the telephonic or facsimile notice. -120- 12.03 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent, any Issuing Lender, the Swingline Lender or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 12.04 Costs and Expenses. The Borrower shall, whether or not the transactions contemplated hereby shall be consummated: (a) pay or reimburse on demand for all reasonable costs and expenses incurred by the Agent, the Arranger and the Syndication Agent, in connection with the development, preparation, delivery, administration, syndication of the Commitments and Loans under and execution of, and, in the case of the Agent and the Arranger, any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any other Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including the Attorney Costs incurred by the Agent and the Arranger with respect thereto; (b) pay or reimburse each Lender, each Issuing Lender and the Agent on demand for all reasonable costs and expenses incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding) under this Agreement (including the guaranty contained in Article X), any other Loan Document, and any such other documents, including Attorney Costs incurred by the Agent, each Issuing Lender and any Lender and any reasonable cost of any consultants retained by the Agent in connection therewith; and (c) pay or reimburse the Agent and each Issuing Lender on demand for all appraisal (including, without duplication, the allocated cost of internal appraisal services), audit, environmental inspection and review (but, in the case of any such environmental inspection or review, only to the extent that a notice has been delivered pursuant to Section 7.03(c) or Holdings or any of its Subsidiaries shall be in violation of Section 7.07 to the extent that such violation relates to any Environmental Law or Environmental Claim) (including, without duplication, the allocated cost of such internal services), search and filing costs, fees and expenses, incurred or sustained by the Agent in connection with the matters referred to under paragraph (b) of this Section 12.04. 12.05 Indemnity. Whether or not the transactions contemplated hereby shall be consummated, the Borrower shall pay, indemnify, and hold each Lender, each Issuing Lender, the Swingline Lender, the Agent, the Arranger, the Syndication Agent and each of their respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including Attorney Costs) of any kind or nature whatsoever with respect to (a) any investigation, litigation -121- or proceeding (including any Insolvency Proceeding) related to this Agreement or the Loan Documents or the Loans or the Letters of Credit, or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto and (b) the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any property owned, leased or at any time operated by Holdings or any of its Subsidiaries, the generation, storage, transportation, handling or disposal of Hazardous Materials at any location by Holdings or any of its Subsidiaries, whether or not owned, leased or operated by Holdings or any of its Subsidiaries, the noncompliance of any property owned, leased or operated by Holdings or any of its Subsidiaries with Environmental Laws (including applicable permits thereunder) applicable to any such property, or any Environmental Claim asserted against Holdings, any of its Subsidiaries or any property owned, leased or at any time operated by Holdings or any of its Subsidiaries (all the foregoing described in (a) and (b) above, collectively, the "Indemnified Liabilities"); provided, however, that the Borrower shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnified Person as the same is determined by a final judgment of a court of competent jurisdiction. The obligations in this Section 12.05 shall survive payment of all other Obligations. 12.06 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that neither the Borrower nor Holdings may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent and each Lender. 12.07 Assignments, Participations, etc. (a) Any Lender may, with the written consent of the Borrower, the Agent, the Swingline Lender and Bank of America as Issuing Lender, which consents shall not be unreasonably withheld or delayed, at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of (x) the Borrower shall be required either in connection with any assignment and delegation by a Lender to an Eligible Assignee that is a Lender or a Lender Affiliate of such Lender or at any time that an Event of Default shall exist and (y) the Swingline Lender in its capacity as such and Bank of America in its capacity as an Issuing Lender shall be required in connection with an assignment of outstanding Term Loans) (each an "Assignee") all, or any ratable part of all, of the Loans, Commitments and the other rights and obligations of such Lender hereunder (although such assignments do not have to be pro rata among the respective Tranches); provided, however, that any such assignment to an Eligible Assignee which is not a Lender or a Lender Affiliate shall be in a minimum amount equal to the lesser of $5,000,000 or the full amount of the assignor Lender's outstanding Loans and Commitments; and provided, still further, that the Borrower, the Issuing Lenders, the Swingline Lender and the Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Borrower and the Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to the Borrower and the Agent an Assignment and Acceptance in the form of Exhibit L ("Assignment and Acceptance"); (iii) such assignment is recorded by the Agent in the Register pursuant to Section -122- 2.02 and (iv) in the case of any assignment to an Assignee which is not already a Lender, the assignor Lender or Assignee has paid to the Agent a processing fee in the amount of $3,500; and provided, still further, that any assignment hereunder of the Revolving Commitment and Revolving Loans must include an equal percentage of the assignor Lender's Revolving Commitment and Revolving Loans. At the time of each assignment pursuant to this Section 12.07(a) to a Person which is not already a Lender hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income taxes purposes, the respective assignee Lender shall provide to the Borrower and the Administrative Agent the appropriate Internal Revenue Service Form (and, if applicable a Section 4.01(f) Certificate) described in Section 4.01(f). (b) From and after the date that the Agent notifies the assignor Lender that the requirements of paragraph (a) above are satisfied, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. Anything herein to the contrary notwithstanding, any Lender assigning all of its Loans, Commitments and other rights and obligations hereunder to an Assignee shall continue to have the benefit of all indemnities hereunder following such assignment. (c) Immediately upon each Assignee's making its payment under the Assignment and Acceptance and the recordation of same by the Agent in the Register pursuant to Section 2.02, this Agreement, shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Aggregate Commitment and the outstanding Loans arising therefrom. (d) Any Lender may at any time sell to one or more banks or other Persons (a "Participant") participating interests in any Loans, the Commitments of such Lender and the other interests of such Lender (the "Originating Lender") hereunder and under the other Loan Documents; provided, however, that (i) the Originating Lender's obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Borrower, the Issuing Lenders and the Agent shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or grant any participating interest under which the Participant shall have rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, provided that such Participant shall have the right to approve any amendment, consent or waiver described in clauses (ii) and (iv) of the first proviso to Section 12.01. In the case of any such participation, the Participant shall be entitled to the benefit of Sections 4.01, 4.03, 4.06 and 12.05, subject to the same limitations, as though it were also a Lender hereunder, subject to clause (f) below, and if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the extent -123- permitted under applicable law, be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. (e) Notwithstanding any other provision contained in this Agreement or any other Loan Document to the contrary, (i) any Lender may assign all or any portion of the Loans held by it to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Federal Reserve Board and any Operating Circular issued by such Federal Reserve Bank, provided that any payment in respect of such assigned Loans made by the Borrower to or for the account of the assigning or pledging Lender in accordance with the terms of this Agreement shall satisfy the Borrower's obligations hereunder in respect to such assigned Loans to the extent of such payment and (ii) with the consent of the Agent, any Lender which is a fund may pledge all or any portion of its Loans to its trustee in support of its obligations to its trustee. No such assignment shall release the assigning Lender from its obligations hereunder. (f) No Participant shall be entitled to receive any greater payment under Sections 4.01, 4.03 or 4.06 than such Originating Lender would have been entitled to receive with respect to the rights transferred unless such transfer is made with the Borrower's prior written consent. 12.08 Confidentiality. Each Lender agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information provided to it by Holdings, the Borrower or any Subsidiary of Holdings, or by the Agent on Holdings', the Borrower's or such Subsidiary's behalf, in connection with this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information for any purpose or in any manner other than pursuant to the terms contemplated by this Agreement; except to the extent such information (a) was or becomes generally available to the public other than as a result of a disclosure by the Lender, or (b) was or becomes available on a non-confidential basis from a source other than the Borrower or Holdings, provided that such source is not bound by a confidentiality agreement with the Borrower or Holdings, known to the Lender; provided further, however, that any Lender may disclose such information (i) at the request or pursuant to any requirement of any Governmental Authority to which the Lender is subject or in connection with an examination of such Lender by any such authority; (ii) pursuant to subpoena or other court process; (iii) when required to do so in accordance with the provisions of any applicable Requirement of Law; (iv) to the extent reasonably required in connection with any litigation or proceeding to which the Agent, such Lender or their respective Affiliates may be party; (v) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; and (vi) to such Lender's independent auditors, other professional advisors and employees of such Lender's Lender Affiliates (or any Affiliate of such Lender engaged in capital market transactions generally) retained by such Lender in connection with this Agreement so long as such Persons agree to maintain the confidentiality of all such information disclosed to them. Notwithstanding the foregoing, the Borrower authorizes each Lender to disclose to any Participant or Assignee (each, a "Transferee") and to any prospective Transferee, such financial and other information in such Lender's possession concerning the Borrower or its Subsidiaries or Holdings which has been delivered to Agent or the Lenders pursuant to this Agreement or which has been delivered to the Agent or the Lenders by the Borrower or Holdings in connection with -124- the Lenders' credit evaluation of the Borrower prior to entering into this Agreement; provided that, unless otherwise agreed by the Borrower or Holdings, such Transferee agrees in writing to such Lender to keep such information confidential to the same extent required of the Lenders hereunder. 12.09 Set-off. In addition to any rights and remedies of the Lenders provided by law, if an Event of Default occurs and is continuing, each Lender is authorized at any time and from time to time, without prior notice to the Borrower or Holdings, any such notice being waived by the Borrower and Holdings to the fullest extent permitted by law, to set off and apply, to the extent permitted by applicable law, any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing to, such Lender to or for the credit or the account of the Borrower or Holdings against any and all Obligations owing to such Lender, now or hereafter existing, irrespective of whether or not the Agent or such Lender shall have made demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured. Each Lender agrees promptly to notify the Borrower or Holdings and the Agent after any such set-off and application made by such Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section 12.09 are in addition to the other rights and remedies (including other rights of set-off) which such Lender may have. 12.10 Notification of Addresses, Lending Offices, etc. Each Lender shall notify the Agent in writing of any changes in the address to which notices to such Lender should be directed, of addresses of its Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 12.11 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Agent. 12.12 Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 12.13 No Third Parties Benefited. This Agreement is made and entered into for the sole protection and legal benefit of the parties hereto and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. None of the Agent, the Issuing Lender, the Swingline Lender or any Lender shall have any obligation to any Person not a party to this Agreement or any other Loan Document. -125- 12.14 Governing Law and Jurisdiction. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND ANY OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE PARTIES HERETO EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. 12.15 Waiver of Jury Trial. THE PARTIES HERETO EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE PARTIES HERETO EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION 12.15 AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 12.16 Domicile of Loans. Each Lender may transfer and carry its Loans at, to or for the account of any office, Subsidiary or Affiliate of such Lender. Notwithstanding anything to the contrary contained herein, to the extent that a transfer of Loans pursuant to this Section 12.16 would, at the time of such transfer, result in increased costs under Sections 4.01, 4.03 or 4.06 from those being charged by the respective Lender prior to such transfer, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be -126- obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective transfer). * * * -127- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. GLOBE HOLDINGS, INC. By /s/ T.A. Rodgers, III ---------------------------------- Title: President and Chief Executive Officer Address for notices: 456 Bedford Street Fall River, MA 02720 Attn: Lawrence R. Walsh Tel: 508-674-3585 Facsimile: 508-674-3580 with a copy to: Code Hennessy & Simmons LLC 10 South Wacker Drive, Suite 3175 Chicago, IL 60606 Attn: Peter M. Gotsch Tel: 312-876-9589 Facsimile 312-876-3854 GLOBE MANUFACTURING CORP. By /s/ Lawrence R. Walsh ------------------------------- Title: Vice President Address for notices: 456 Bedford Street Fall River, MA 02720 Attn: Lawrence R. Walsh Tel: 508-674-3585 Facsimile: 508-674-3580 with a copy to: Code Hennessy & Simmons LLC 10 South Wacker Drive, Suite 3175 Chicago, IL 60606 Attn: Peter M. Gotsch Tel: 312-876-9589 Facsimile 312-876-3854 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrative Agent By /s/ Dietmar Schiel ----------------------------------------------- Title: Vice President Address for notices of borrowing, prepayments and other administrative matters: 1850 Gateway Boulevard, 5th Floor Concord, CA 94520 Attn.: Agency Administrative Services #5596 Josephine T. Flores, Vice President Facsimile: 925-675-8500 Tel: 925-675-8374 Address for all other notices (including with respect to amendments and waivers): 1455 Market Street, 12th Floor San Francisco, CA 94103 Attn.: Agency Management #10831 Dietmar Schiel, Vice President Facsimile: 415-436-3425 Tel: 415-436-2769 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Issuing Lender By /s/ Elizabeth R. Borow ---------------------------------------- Title: Managing Director Address for notices: Bank of America National Trust and Savings Association CBG Letters of Credit (#32054) 200 W. Jackson Blvd., 17th Floor Chicago, IL 60606 Attn.: Gail S. Miller Facsimile: 312-987-6828 Tel: 312-923-5924 with a copy to: 1850 Gateway Boulevard, 5th Floor Concord, CA 94520 Attn.: Agency Administrative Services #5596 Josephine T. Flores, Assistant Vice President Facsimile: 510-675-8500 Tel: 510-675-8374 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Swingline Lender By /s/ Elizabeth R. Borow --------------------------- Title: Managing Director 231 South LaSalle Street Chicago, IL 60697 Attn: Renee Waller Facsimile: (312) 974-9626 Telephone: (312) 828-3874 with a copy to: 1850 Gateway Boulevard, 5th Floor Concord, CA 94520 Attn: Agency Administrative Services #5596 Josephine T. Flores Facsimile: (510) 675-8500 Telephone: (510) 675-8374 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Lender By /s/ Elizabeth R. Borow ----------------------------- Title: Managing Director Address for notices: 231 South LaSalle Street Chicago, IL 60697 Attn.: Renee Waller Facsimile: 312-974-9626 Tel: 312-828-3874 With a copy to: 335 Madison Avenue, 6th Floor New York, NY 10017 Attn.: Leveraged Finance #9618 Elizabeth Borow Facsimile: 212-503-7502 Tel: 212-503-8236 MERRILL LYNCH CAPITAL CORPORATION, as a Lender By /s/ Brian O'Callahan ---------------------------- Name: Brian O'Callahan Title: Vice President Address for notices: World Financial Center North Tower - 7th Floor New York, New York 10281-1307 Cypress Tree Investment Fund, LLC By: CypressTree Investment Management Company, Inc., its Managing Manager By: /s/ Catherine C. McDermott --------------------------------- Title: Principal Tim Barns Cypress Tree Investment Management 125 High Street, 14th Floor Oliver Tower Boston, MA 02110 617-946-5670 Phone 617-946-5681 Fax Cypress Tree Institutional Fund, LLC By: CypressTree Investment Management Company, Inc., its Managing Manager By: /s/ Catherine C. McDermott --------------------------------- Title: Principal Tim Barns Cypress Tree Investment Management 125 High Street, 14th Floor Oliver Tower Boston, MA 02110 617-946-5670 Phone 617-946-5681 Fax Morgan Stanley Dean Witter Prime Income Trust By: c/o Morgan Stanley Dean Witter Advisors, Inc. By: /s/ Sheila Finnery -------------------------- Title: Vice President Kevin Egan c/o Morgan Stanley Dean Witter Advisors, Inc. Two World Trade Center, 72nd Floor New York, New York 10048 212-392-5845 Phone 212-392-5345 Fax National City Bank By: /s/ Diego Tobon -------------------------- Title: Vice President Frank Pagura National City Bank 20 North Wacker Drive, Suite 3012 Chicago, Illinois 60606 312-240-0301 Phone 312-240-0356 Fax BHF-Bank Aktiengesellschaft By: /s/ Linda Pace --------------------------- Title: Vice President By: /s/ Thomas Scifo --------------------------- Title: Assistant Vice President Linda Pace BHF-Bank AG 590 Madison Avenue, 30th Floor New York, New York 10022 212-756-5915 Phone 212-756-5536 Fax State Street Bank and Trust Company By: /s/ Thomas M. O'Reilly ------------------------------ Title: Vice President Tom O'Reilly State Street Bank 225 Franklin Street Boston, MA 02110 617-654-3833 Phone 617-664-4176 Fax First Source Financial LLP By: First Source Financial, Inc. its Agent/Manager By: /s/ James W. Wilson ----------------------------- Title: Senior Vice President Jason Gelberd First Source Financial, Inc. 2850 West Golf Road, 5th Floor Rolling Meadows, IL 60008 847-734-2045 Phone 847-734-7910 Fax Fleet National Bank /s/ Oliver Bennett By:____________________________________ Title: Vice President Oliver Bennett Fleet National Bank 111 Westminster Street MS: RI-MO-235 Providence, RI 02903 401-278-5289 Phone 401-278-5276 Fax Heller Financial, Inc. /s/ Kathi J. Inorio By:____________________________________ Title: Vice President Kathi J. Inorio Heller Financial, Inc. 500 West Monroe Street Chicago, IL 60661 312-441-7775 Phone 312-441-7357 Fax The Mitsubishi Trust and Banking Corporation /s/ Noboo Tominaga By:_____________________________________ Title: Chief Manager John Pastore Mitsubishi Trust 311 South Wacker Drive, Suite 6300 Chicago, IL 60606-6622 312-408-6051 Phone 312-663-0863 Fax Union Bank of California, N.A. By: /s/ Peter W. Clark -------------------------------- Title: Vice President Peter Clark Union Bank of California 350 California Street, 6th Floor San Francisco, CA 94104 415-705-7307 Phone 415-705-7567 Fax SunTrust Bank /s/ Bradley J. Staples By:__________________________________ Title: Vice President /s/ Brenda Zino By:__________________________________ Title: Banking Officer Brad Staples Brenda Zino SunTrust Bank 303 Peachtree Road Atlanta, GA 30305 404-230-5099 Phone 404-575-2594 Fax Allstate Insurance Company By: /s/ Patricia W. Wilson --------------------------- Title: Authorized Signatory By: /s/ Jerry D. Zinkula --------------------------- Title: Authorized Signatory Chris Goergen Allstate Insurance Company 3075 Sanders Road, Suite G3A Northbrook, IL 60062-7127 847-402-3095 Phone 847-402-3092 Fax Allstate Life Insurance Company By: /s/ Patricia W. Wilson ---------------------------- Title: Authorized Signatory By: /s/ Jerry D. Zinkula --------------------------- Title: Authorized Signatory Chris Goergen Allstate Insurance Company 3075 Sanders Road, Suite G3A Northbrook, IL 60062-7127 847-402-3095 Phone 847-402-3092 Fax KZH - CypressTree-1 Corporation By: /s/ James Westonhaus --------------------------- Title: Authorized Agent Virginia Conway KZH - CypressTree-1 Corporation c/o The Chase Manhattan Bank 450 West 33rd Street, 15th Floor New York, New York 10001 212-946-7575 Phone 212-946-7776 Fax Lee Ann Duffy Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10166-0193 212-351-3809 Phone 212-351-4035 Fax CypressTree Investment Management Company, Inc. As: Attorney-in-Fact and on behalf of First Allmerica Financial Life Insurance Company as Portfolio Manager By: /s/ Catherine C. McDermott ------------------------------- Title: Principal Tim Barns Cypress Tree Investment Management 125 High Street, 14th Floor Oliver Tower Boston, MA 02110 617-946-5670 Phone 617-946-5681 Fax ARCHIMEDES FUNDING, L.L.C. By: ING Capital Advisors, Inc., as Collateral Manger By: /s/ Jane M. Nelson ------------------------------------ Title: Senior Vice President ING HIGH INCOME PRINCIPAL PRESERVATION FUND HOLDINGS, LDC By: ING Capital Advisors, Inc., as Investment Advisor By: /s/ Jane M. Nelson ------------------------------------ Title: Senior Vice President Jane Nelson ING Capital Advisors 233 South Wacker Drive, Suite 5200 Chicago, IL 60606 312-496-7606 Phone 312-496-7611 Fax SCHEDULE 1.01(A) ---------------- LENDING OFFICES --------------- Bank of America National Trust & Savings Association 231 South LaSalle Street Chicago, IL 60697 Attn.: Renee Waller Facsimile: 312-974-9626 Tel: 312-828-3874 Merrill Lynch Capital Corporation World Financial Center North Tower - 7th Floor New York, NY 10281 Attn: Brian O'Callahan Facsimile: (212) 449-8230 Tel: (212) 449-3097 Cypress Tree Investment Fund, LLC 125 High Street, 14th Floor Oliver Tower Boston, MA 02110 Attn: Tim Barns Facsimile: 617-946-5681 Tel: 617-946-5670 Cypress Tree Institutional Fund, LLC 125 High Street, 14th Floor Oliver Tower Boston, MA 02110 Attn: Tim Barns Facsimile: 617-946-5681 Tel: 617-946-5670 Morgan Stanley Dean Witter Prime Income Trust c/o Morgan Stanley Dean Witter Advisors, Inc. Two World Trade Center, 72nd Floor New York, New York 10048 Attn: Kevin Egan Facsimile: 212-392-5345 Tel: 212-392-5845 National City Bank 20 North Wacker Drive, Suite 3012 Schedule 1.01(a) Page 2 Chicago, Illinois 60606 Attn: Facsimile: 312-240-0356 Tel: 312-240-0301 BHF-Bank Aktiengesellschaft 590 Madison Avenue, 30th Floor New York, New York 10022 Attn: Linda Pace Facsimile: 212-756-5536 Tel: 212-756-5915 State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 Attn: Tom O'Reilly Facsimile: 617-664-4176 Tel: 617-654-3833 First Source Financial LLP 2850 West Golf Road, 5th Floor Rolling Meadows, IL 60008 Attn: Jason Gelberd Facsimile: 847-734-7910 Tel: 847-734-2045 Fleet National Bank 111 Westminster Street MS: RI-MO-235 Providence, RI 02903 Attn: Oliver Bennett Facsimile: 401-278-5276 Tel: 401-278-5289 Heller Financial, Inc. 500 West Monroe Street Chicago, IL 60661 Attn: Kathi J. Inorio Facsimile: 312-441-7357 Tel: 312-441-7775 The Mitsubishi Trust and Banking Corporation 311 South Wacker Drive, Suite 6300 Chicago, IL 60606-6622 Attn: John Pastore Schedule 1.01(a) Page 3 Facsimile: 312-663-0863 Tel: 312-408-6051 Union Bank of California, N.A. 350 California Street, 6th Floor San Francisco, CA 94104 Attn: Peter Clark Facsimile: 415-705-7567 Tel: 415-705-7307 SunTrust Bank 303 Peachtree Road Atlanta, GA 30305 Attn: Brad Staples Facsimile: 404-575-2594 Tel: 404-230-5099 Allstate Insurance Company 3075 Sanders Road, Suite G3A Northbrook, IL 60062-7127 Attn: Chris Goergen Facsimile: 847-402-3092 Tel: 847-402-3095 Allstate Life Insurance Company 3075 Sanders Road, Suite G3A Northbrook, IL 60062-7127 Attn: Chris Goergen Facsimile: 847-402-3092 Tel: 847-402-3095 KZH - CypressTree-1 Corporation c/o The Chase Manhattan Bank 450 West 33rd Street, 15th Floor New York, New York 10001 Attn: Virginia Conway Facsimile: 212-946-7776 Tel: 212-946-7575 and Lee Ann Duffy Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10166-0193 Schedule 1.01(a) Page 4 Facsimile: 212-351-4035 Tel: 212-351-3809 CypressTree Investment Management Company, Inc. 125 High Street, 14th Floor Oliver Tower Boston, MA 02110 Attn: Tim Barns Facsimile: 617-946-5681 Tel: 617-946-5670 ING Capital Advisors 233 South Wacker Drive, Suite 5200 Chicago, IL 60606 Attn: Jane Nelson Facsimile: 312-496-7611 Tel: 312-496-7606 Schedule 1.01(b) COMMITMENTS -----------
- ----------------------------------------------------------------------------------------------------------- Tranche A Tranche B Term Loan Term Loan Revolving Lender Commitment Commitment Commitment - ------ ---------- ---------- ---------- - ----------------------------------------------------------------------------------------------------------- Bank of America National Trust & Savings Association $ 7,909,090.90 $ 22,000,000 $ 6,590,909.09 Merrill Lynch Capital Corporation $ 6,818,181.82 $ 0 $ 5,681,818.18 Fleet National Bank $ 6,000,000.00 $ 0 $ 5,000,000.00 BHF-Bank Aktiengesellschaft $ 4,909,090.91 $ 0 $ 4,090,909.09 First Source Financial LLP $ 4,909,090.91 $ 0 $ 4,090,909.09 Heller Financial, Inc. $ 4,909,090.91 $ 0 $ 4,090,909.09 Mitsubishi Trust and Banking Corporation $ 4,909,090.91 $ 0 $ 4,090,909.09 National City Bank $ 4,909,090.91 $ 0 $ 4,090,909.09 State Street Bank and Trust Company $ 4,909,090.91 $ 0 $ 4,090,909.09 Sun Trust Bank $ 4,909,090.91 $ 0 $ 4,090,909.09 Union Bank of California, N.A. $ 4,909,090.91 $ 0 $ 4,090,909.09 Allstate Insurance Company $ 0 $ 2,666,666.67 $ 0 Allstate Life Insurance Company $ 0 $ 5,333,333.33 $ 0 Morgan Stanley Dean Witter Prime Income Trust $ 8,000,000.00 $ 0 $ 0 KZH-Cypress Tree-1 Corporation $ 0 $ 5,500,000.00 $ 0 Cypress Tree Investment Management Company, $ 0 Inc. $ 0 $ 1,000,000.00 Cypress Tree Investment Funds, LLC $ 0 $ 1,000,000.00 $ 0 Cypress Tree Institutional Fund, LLC $ 0 $ 1,000,000.00 $ 0 Archimedes Funding, L.L.C. $ 0 $ 5,000,000.00 $ 0 ING High Income Principal Preservation Fund $ 0 $ 3,500,000.00 $ 0 Holdings, LDC Total $60,000,000.00 $55,000,000.00 $50,000,000.00 ============== ============== ============== - -----------------------------------------------------------------------------------------------------------
SCHEDULE 1.01(c) Subsidiary Guarantors None SCHEDULE 1.01(d) Indebtedness to be Refinanced Term and Revolving Credit $69,065,231.51 Facility with a syndicate of lenders and Fleet National Bank, as agent SCHEDULE 6.09 Real Property Schedule 6.09 lists Globe Manufacturing Corp's owned and leased real property. SCHEDULE 6.15 Subsidiaries Schedule 6.15 lists the subsidiaries of Globe Holdings, Inc. and Globe Manufacturing Corp. SCHEDULE 6.24 Insurance Schedule 6.24 lists the insurance coverage for Globe Holdings, Inc. and its subsidiaries. SCHEDULE 8.01 Existing Liens Schedule 8.01 lists the existing liens of Globe Holdings, Inc. and Globe Manufacturing Corp. SCHEDULE 8.04 Existing Indebtedness Schedule 8.04 lists certain existing indebtedness of Globe Holdings, Inc. and Globe Manufacturing Corp. SCHEDULE 8.05 Existing Investments Schedule 8.05 lists certain investments held by Globe Holdings, Inc. and Globe Manufacturing Corp. Exhibit A Form of Notice of Borrowing Exhibit B Form of Notice of Conversion/Continuation Exhibit C Form of Pledge Agreement Exhibit D Form of Subsidiary Guaranty Exhibit E Form of Guarantor Supplement Exhibit F Form of Security Agreement Exhibit G Form of Leverage Ratio Certificate Exhibit H-1 Form of Kirkland & Ellis Opinion Exhibit H-2 Form of Palmer & Dodge Opinion Exhibit H-3 Form of Maynard & Cooper Opinion Exhibit H-4 Form of Moore & Van Allen Opinion Exhibit I Form of White & Case LLP Opinion Exhibit J Form of Holdings Shareholder Subordinated Note Exhibit K Form of Compliance Certificate Exhibit L Form of Assignment and Acceptance Exhibit M Form of Intercompany Note Exhibit N Form of Section 4.01(f) Certificate EX-10.10 3 PLEDGE AGREEMENT, DATED JULY 31, 1998 EXHIBIT 10.10 PLEDGE AGREEMENT ---------------- PLEDGE AGREEMENT, dated as of July 31, 1998 (as amended, modified or supplemented from time to time, this "Agreement"), made by each of the undersigned pledgors (each, a "Pledgor" and, together with any other entity that becomes a party hereto pursuant to Section 22 hereof, the "Pledgors"), in favor of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent (the "Pledgee"), for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H : - - - - - - - - - - WHEREAS, Globe Holdings, Inc. ("Holdings"), Globe Manufacturing Corp. (the "Borrower"), the several financial institutions from time to time party thereto (the "Lenders"), Merrill Lynch, Pierce, Fenner & Smith, Inc., as Syndication Agent, Bank of America National Trust and Savings Association, as Administrative Agent (together with any successor agent, the "Administrative Agent"), and BancAmerica Robertson Stephens, as Arranger (and together with the Pledgee, the Lenders and the Syndication Agent, the "Lender Creditors"), have entered into a Credit Agreement, dated as of July 31, 1998 (as amended, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans to the Borrower and the issuance of, and participation in, Letters of Credit for the account of the Borrower, all as contemplated therein; WHEREAS, the Borrower may from time to time be party to one or more Interest Rate Protection Agreements or Other Hedging Agreements with one or more Lenders or with an affiliate of a Lender (each such Lender or affiliate, even if the respective Lender subsequently ceases to be a Lender under the Credit Agreement for any reason, together with such Lender's or affiliate's successors and assigns, collectively, the "Other Creditors," and together with Lender Creditors, the "Secured Creditors"); WHEREAS, pursuant to Article X of the Credit Agreement, Holdings has guaranteed to the Secured Creditors the payment when due of all obligations and liabilities of the Borrower under or with respect to the Loan Documents and the Interest Rate Protection Agreements and Other Hedging Agreements; WHEREAS, pursuant to the Subsidiary Guaranty, each Pledgor (other than Holdings and the Borrower) has jointly and severally guaranteed to the Secured Creditors the payment when due of all obligations and liabilities of the Borrower under or with respect to the Loan Documents and the Interest Rate Protection Agreements and Other Hedging Agreements; WHEREAS, it is a condition precedent to the making of Loans to the Borrower and the issuance of Letters of Credit for the account of the Borrower under the Credit Agreement that each Pledgor shall have executed and delivered to the Pledgee this Agreement; and Page 2 WHEREAS, each Pledgor desires to execute this Agreement to satisfy the conditions described in the preceding paragraph; NOW, THEREFORE, in consideration of the benefits accruing to each Pledgor, the receipt and sufficiency of which are hereby acknowledged, each Pledgor hereby makes the following representations and warranties to the Pledgee and hereby covenants and agrees with the Pledgee as follows: 1. SECURITY FOR OBLIGATIONS. This Agreement is made by each Pledgor for the benefit of the Secured Creditors to secure: (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations and liabilities (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) of such Pledgor, whether now existing or hereafter incurred under, arising out of or in connection with any Loan Document to which such Pledgor is a party and the due performance and compliance by such Pledgor with the terms of each such Loan Document (all such obligations and liabilities under this clause (i), except to the extent consisting of obligations or indebtedness with respect to Interest Rate Protection Agreements or Other Hedging Agreements, being herein collectively called the "Loan Document Obligations"); (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of such Pledgor, whether now existing or hereafter incurred under, arising out of or in connection with any Interest Rate Protection Agreement or Other Hedging Agreement including, in the case of the Pledgors other than the Borrower, all obligations of such Pledgor under Article X of the Credit Agreement or the Subsidiary Guaranty, as the case may be, in respect of Interest Rate Protection Agreements or Other Hedging Agreements (all such obligations and liabilities under this clause (ii) being herein collectively called the "Other Obligations"); (iii) any and all sums advanced by the Pledgee in order to preserve the Collateral (as hereinafter defined) or preserve its security interest in the Collateral; (iv) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities referred to in clauses (i), (ii) and (iii) above, after an Event of Default (such term, as used in this Agreement, shall mean any Event of Default under, and as defined in, the Credit Agreement, or any payment default by the Borrower under any Interest Rate Protection Agreement or Other Hedging Agreement and shall in any event include, without limitation, any payment default (after the expiration of any applicable grace period) on any of the Obligations (as hereinafter defined)) shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing or realizing on the Page 3 Collateral, or of any exercise by the Pledgee of its rights hereunder, together with reasonable attorneys' fees and court costs; and (v) all amounts paid by any Secured Creditor as to which such Secured Creditor has the right to reimbursement under Section 11 of this Agreement; all such obligations, liabilities, sums and expenses set forth in clauses (i) through (v) of this Section 1 being herein collectively called the "Obligations." 2. DEFINITION OF STOCK, NOTES, SECURITIES, ETC. As used herein: (i) the term "Stock" shall mean (x) with respect to corporations incorporated under the laws of the United States or any State or territory thereof (each, a "Domestic Corporation"), all of the issued and outstanding shares of capital stock of any Domestic Corporation at any time owned by each Pledgor and (y) with respect to corporations not Domestic Corporations (each, a "Foreign Corporation"), all of the issued and outstanding shares of capital stock at any time directly owned by any Pledgor of any Foreign Corporation (except for the stock of Globe Elastic Thread, Ltd., which is in the process of being dissolved), provided that, except as provided in the last sentence of this Section 2, such Pledgor shall not be required to pledge hereunder more than 65% of the total combined voting power of all classes of capital stock of any Foreign Corporation entitled to vote; (ii) the term "Notes" shall mean (x) all Intercompany Notes at any time issued to each Pledgor and (y) all other promissory notes from time to time issued to, or held by, each Pledgor; provided, that, except as provided in the last sentence of this Section 2, no Pledgor shall be required to pledge hereunder any promissory notes (including Intercompany Notes) issued to such Pledgor by any Subsidiary of such Pledgor which is a Foreign Corporation and (iii) the term "Securities" shall mean all of the Stock and Notes. Each Pledgor represents and warrants that on the date hereof (i) the Stock held by such Pledgor consists of the number and type of shares of the stock of the corporations as described in Annex A hereto; (ii) such Stock constitutes that percentage of the issued and outstanding capital stock of the issuing corporation as is set forth in Annex A hereto; (iii) the Notes held by such Pledgor consist of the promissory notes described in Annex B hereto where such Pledgor is listed as the lender; and (iv) on the date hereof, such Pledgor owns no other Securities. In the circumstances and to the extent provided in Section 7.13 of the Credit Agreement, the 65% limitation set forth in clause (i)(y) and the limitation in the proviso of clause (ii) in each case of the first sentence, the first sentence of this Section 2 and in Section 3.2 hereof shall no longer be applicable and such Pledgor shall duly pledge and deliver to the Pledgee such of the Securities not theretofore required to be pledged hereunder. 3. PLEDGE OF SECURITIES, ETC. 3.1. Pledge. To secure the Obligations and for the purposes set forth in Section 1 hereof, each Pledgor hereby: (i) grants to the Pledgee a security interest in all of the Collateral owned by such Pledgor; (ii) pledges and deposits as security with the Pledgee the Securities owned by such Pledgor on the date hereof, and delivers to the Pledgee certificates or instruments therefor, duly endorsed in blank in the case of Notes and accompanied by undated stock powers duly executed in blank by such Pledgor in the case of Stock, or such other instruments of transfer as are acceptable to the Pledgee; provided that, Globe Manufacturing Corp., shall not be required Page 4 to pledge the stock of Globe Manufacturing FSC Ltd. until it has received approval for the transfer of such stock from the appropriate governmental entity; and (iii) assigns, transfers, hypothecates, mortgages, charges and sets over to the Pledgee all of such Pledgor's right, title and interest in and to such Securities (and in and to all certificates or instruments evidencing such Securities), to be held by the Pledgee, upon the terms and conditions set forth in this Agreement. 3.2. Subsequently Acquired Securities. If any Pledgor shall acquire (by purchase, stock dividend or otherwise) any additional Securities at any time or from time to time after the date hereof, such Pledgor will forthwith pledge and deposit such Securities (or certificates or instruments representing such Securities) as security with the Pledgee and deliver to the Pledgee certificates therefor or instruments thereof, duly endorsed in blank in the case of Notes and accompanied by undated stock powers duly executed in blank in the case of Stock, or such other instruments of transfer as are acceptable to the Pledgee, and will promptly thereafter deliver to the Pledgee a certificate executed by any Responsible Officer of such Pledgor describing such Securities and certifying that the same have been duly pledged with the Pledgee hereunder. Subject to the last sentence of Section 2 hereof, no Pledgor shall be required at any time to pledge hereunder (x) any Stock which is more than 65% of the total combined voting power of all classes of capital stock of any Foreign Corporation entitled to vote or (y) any promissory notes (including Intercompany Notes) issued to such Pledgor by any Subsidiary of such Pledgor which is a Foreign Corporation. 3.3. Uncertificated Securities. Notwithstanding anything to the contrary contained in Sections 3.1 and 3.2 hereof, if any Securities (whether now owned or hereafter acquired) are uncertificated securities, the respective Pledgor shall promptly notify the Pledgee in writing thereof, and, if after such notification, the Pledgee so requests, such Pledgor shall promptly take all actions required to perfect the security interest of the Pledgee under applicable law (including, in any event, under the applicable provisions of the New York UCC). Each Pledgor further agrees to take such actions as the Pledgee deems reasonably necessary or desirable to effect the foregoing and to permit the Pledgee to exercise any of its rights and remedies hereunder, and agrees to provide an opinion of counsel reasonably satisfactory to the Pledgee with respect to any such pledge of uncertificated Securities promptly upon request of the Pledgee. 3.4. Definition of Pledged Stock, Pledged Notes, Pledged Securities and Collateral. All Stock at any time pledged or required to be pledged hereunder is hereinafter called the "Pledged Stock," all Notes at any time pledged or required to be pledged hereunder are hereinafter called the "Pledged Notes," all of the Pledged Stock and Pledged Notes together are hereinafter called the "Pledged Securities," which together with all dividends and interest thereon, as the case may be, and all proceeds thereof, including any securities and moneys received and at the time held by the Pledgee hereunder, is hereinafter called the "Collateral." 4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall have the right to appoint one or more sub-agents for the purpose of retaining physical possession of the Pledged Securities, which may be held (in the discretion of the Pledgee) in the name of such Pledgor, endorsed or assigned in blank or in favor of the Pledgee or any nominee Page 5 or nominees of the Pledgee or a sub-agent appointed by the Pledgee. The Pledgee agrees to promptly notify the relevant Pledgor after the appointment of any sub- agent; provided, however, that the failure to give such notice shall not affect the validity of such appointment. 5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until (i) an Event of Default shall have occurred and be continuing and (ii) written notice thereof shall have been given by the Pledgee to the relevant Pledgor (provided, that if an Event of Default specified in Section 9.01(f) or (g) of the Credit Agreement shall occur, no such notice shall be required), each Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Securities and to give all consents, waivers or ratifications in respect thereof; provided, that no vote shall be cast or any consent, waiver or ratification given or any action taken which would violate or be inconsistent with any of the terms of this Agreement, any other Loan Document or any Interest Rate Protection Agreement or Other Hedging Agreement (collectively, the "Secured Debt Agreements"), or which would have the effect of impairing the position or interests of the Pledgee or any other Secured Creditor, except to the extent such violation, inconsistency or impairment shall be waived in accordance with the terms of Section 20 hereof. All such rights of such Pledgor to vote and to give consents, waivers and ratifications shall cease in case an Event of Default shall occur and be continuing, and Section 7 hereof shall become applicable. 6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default shall have occurred and be continuing, all cash dividends payable in respect of the Pledged Stock and all payments in respect of the Pledged Notes shall be paid to the respective Pledgor; provided, that all cash dividends payable in respect of the Pledged Stock which are determined by the Pledgee to represent in whole or in part an extraordinary, liquidating or other distribution in return of capital shall be paid, to the extent so determined to represent an extraordinary, liquidating or other distribution in return of capital, to the Pledgee and retained by it as part of the Collateral. Subject to the last sentence of Section 3.2 hereof, the Pledgee shall also be entitled to receive directly, and to retain as part of the Collateral: (i) all other or additional stock or other securities or property (other than cash) paid or distributed by way of dividend or otherwise in respect of the Pledged Stock; (ii) all other or additional stock or other securities or property (including cash) paid or distributed in respect of the Pledged Stock by way of stock-split, spin-off, split-up, reclassification, combination of shares or similar rearrangement; and (iii) all other or additional stock or other securities or property (including cash) which may be paid in respect of the Collateral by reason of any consolidation, merger, exchange of stock, conveyance of assets, liquidation or similar corporate reorganization. 7. REMEDIES IN CASE OF EVENT OF DEFAULT. In case an Event of Default shall have occurred and be continuing, the Pledgee shall be entitled to exercise all of the rights, powers and remedies (whether vested in it by this Agreement or by any other Secured Debt Agreement or by law) for the protection and enforcement of its rights in respect of the Page 6 Collateral, and the Pledgee shall be entitled, without limitation, to exercise the following rights, which each Pledgor hereby agrees to be commercially reasonable: (i) to receive all amounts payable in respect of the Collateral payable to such Pledgor under Section 6 hereof; (ii) to transfer all or any part of the Pledged Securities into the Pledgee's name or the name of its nominee or nominees (the Pledgee agrees to promptly notify the relevant Pledgor after such transfer; provided, however, that the failure to give such notice shall not affect the validity of such transfer); (iii) to accelerate any Pledged Note which may be accelerated in accordance with its terms, and take any other action to collect upon any Pledged Note (including, without limitation, to make any demand for payment thereon); (iv) subject to the giving of written notice to the relevant Pledgor in accordance with clause (ii) of Section 5 hereof (to the extent such notice is required by such Section 5), to vote all or any part of the Pledged Stock (whether or not transferred into the name of the Pledgee) and give all consents, waivers and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (each Pledgor hereby irrevocably constituting and appointing the Pledgee the proxy and attorney-in-fact of such Pledgor, with full power of substitution to do so); and (v) at any time or from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Collateral, or any interest therein, at any public or private sale, without demand of performance, advertisement or notice of intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by each Pledgor), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk, and for such price or prices and on such terms as the Pledgee in its absolute discretion may determine; provided, that at least 10 days' written notice of the time and place of any such sale shall be given to such Pledgor. Each Pledgor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Obligations or otherwise. At any such sale, unless prohibited by applicable law, the Pledgee on behalf of the Secured Creditors may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. Neither the Pledgee nor any other Secured Creditor shall be liable for failure to collect or realize upon any or all of the Collateral or for any delay in so doing nor shall any of them be under any obligation to take any action whatsoever with regard thereto. 8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the Pledgee provided for in this Agreement or in any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Pledgee or any other Secured Creditor of any one or more of the rights, powers or Page 7 remedies provided for in this Agreement or in any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Pledgee or any other Secured Creditor of all such other rights, powers or remedies, and no failure or delay on the part of the Pledgee or any other Secured Creditor to exercise any such right, power or remedy shall operate as a waiver thereof. The Secured Creditors agree that this Agreement may be enforced only by the action of the Administrative Agent or the Pledgee, in each case acting upon the instructions of the Required Lenders (or, after the date on which all Loan Document Obligations have been paid in full, the holders of at least the majority of the outstanding Other Obligations) and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent or the Pledgee or the holders of at least a majority of the outstanding Other Obligations, as the case may be, for the benefit of the Secured Creditors upon the terms of this Agreement. 9. APPLICATION OF PROCEEDS. (a) All moneys collected by the Pledgee upon any sale or other disposition of the Collateral pursuant to the terms of this Agreement, together with all other moneys received by the Pledgee hereunder, shall be applied in the manner provided in the Security Agreement. (b) It is understood and agreed that the Pledgors shall remain jointly and severally liable to the extent of any deficiency between the amount of the proceeds of the Collateral hereunder and the aggregate amount of the Obligations. 10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the Pledgee hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt of the Pledgee or the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Pledgee or such officer or be answerable in any way for the misapplication or nonapplication thereof. 11. INDEMNITY. Each Pledgor jointly and severally agrees (i) to indemnify and hold harmless the Pledgee in such capacity and each other Secured Creditor from and against any and all claims, demands, losses, judgments and liabilities of whatsoever kind or nature, and (ii) to reimburse the Pledgee and each other Secured Creditor for all costs and expenses, including reasonable attorneys' fees, growing out of or resulting from this Agreement or the exercise by the Pledgee of any right or remedy granted to it hereunder or under any other Secured Debt Agreement except, with respect to clauses (i) and (ii) above, for those arising from the Pledgee's or such other Secured Creditor's gross negligence or willful misconduct. In no event shall the Pledgee be liable, in the absence of gross negligence or willful misconduct on its part, for any matter or thing in connection with this Agreement other than to account for moneys actually received by it in accordance with the terms hereof. If and to the extent that the obligations of the Pledgors under this Section 11 are unenforceable for any reason, each Pledgor hereby agrees to Page 8 make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 12. FURTHER ASSURANCES. Each Pledgor agrees that it will join with the Pledgee in executing and, at such Pledgor's own expense, file and refile under the applicable UCC or appropriate local equivalent, such financing statements, continuation statements and other documents in such offices as the Pledgee may deem reasonably necessary or appropriate and wherever required or permitted by law in order to perfect and preserve the Pledgee's security interest in the Collateral and hereby authorizes the Pledgee to file financing statements and amendments thereto relative to all or any part of the Collateral without the signature of such Pledgor where permitted by law, and agrees to do such further acts and things and to execute and deliver to the Pledgee such additional conveyances, assignments, agreements and instruments as the Pledgee may reasonably require or deem advisable to carry into effect the purposes of this Agreement or to further assure and confirm unto the Pledgee its rights, powers and remedies hereunder. 13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Pledgee as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement. The Pledgee shall act hereunder on the terms and conditions set forth herein and in Article XI of the Credit Agreement. 14. TRANSFER BY PLEDGORS. Except for sales or dispositions of Collateral permitted pursuant to the Credit Agreement, no Pledgor will sell or otherwise dispose of, grant any option with respect to, or mortgage, pledge or otherwise encumber any of the Collateral or any interest therein (except in accordance with the terms of this Agreement). 15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. Each Pledgor represents, warrants and covenants that (i) it is the legal, record and beneficial owner of, and has good and marketable title to, all Securities pledged by it hereunder, subject to no pledge, lien, mortgage, hypothecation, security interest, charge, option or other encumbrance whatsoever, except the liens and security interests created by this Agreement and liens permitted under clause (i) of Section 8.01 of the Credit Agreement; (ii) it has full power, authority and legal right to pledge all the Securities pledged by it pursuant to this Agreement; (iii) this Agreement has been duly authorized, executed and delivered by such Pledgor and constitutes a legal, valid and binding obligation of such Pledgor enforceable in accordance with its terms, except to the extent that the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law); (iv) no consent of any other party (including, without limitation, any stockholder or creditor of such Pledgor or any of its Subsidiaries) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required to be obtained by such Pledgor in connection with the execution, delivery or performance of this Agreement, or in connection with Page 9 the exercise of its rights and remedies pursuant to this Agreement, except as may be required in connection with the disposition of the Securities by laws affecting the offering and sale of securities generally and the legal transfer of the stock of Globe Manufacturing FSC Ltd.; (v) the execution, delivery and performance of this Agreement by such Pledgor does not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, or of the certificate of incorporation or by-laws of such Pledgor or of any securities issued by such Pledgor or any of its Subsidiaries, or of any mortgage, indenture, deed of trust, loan agreement, credit agreement or any other material agreement or material instrument to which such Pledgor or any of its Subsidiaries is a party or which purports to be binding upon such Pledgor or any of its Subsidiaries or upon any of their respective assets and will not result in the creation or imposition of any lien or encumbrance on any of the assets of such Pledgor or any of its Subsidiaries except as contemplated by this Agreement; (vi) all the shares of Stock of Subsidiaries of Holdings have been duly and validly issued, are fully paid and nonassessable; (vii) each of the Pledged Notes constituting Intercompany Notes, when executed by the obligor thereof, will be the legal, valid and binding obligation of such obligor, enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law); and (viii) the pledge and assignment of the Securities pursuant to this Agreement, together with the delivery of the Securities pursuant to this Agreement (which delivery has been made), creates a valid and perfected first security interest in such Securities and the proceeds thereof, subject to no prior lien or encumbrance or to any agreement purporting to grant to any third party a lien or encumbrance on the property or assets of such Pledgor which would include the Securities other than liens permitted under clause (i) of Section 8.01 of the Credit Agreement. Each Pledgor covenants and agrees that it will defend the Pledgee's right, title and security interest in and to the Securities and the proceeds thereof against the claims and demands of all persons whomsoever; and such Pledgor covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Pledgee as Collateral hereunder and will likewise defend the right thereto and security interest therein of the Pledgee and the other Secured Creditors. 16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each Pledgor under this Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including, without limitation: (i) any renewal, extension, amendment or modification of or addition or supplement to or deletion from any Secured Debt Agreement or any other instrument or agreement referred to therein, or any assignment or transfer of any thereof; (ii) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such agreement or instrument or this Agreement; (iii) any furnishing of any additional security to the Pledgee or its assignee or any acceptance thereof or any release of any security by the Pledgee or its assignee; (iv) any limitation on any party's liability or obligations under any such instrument or agreement or any invalidity or unenforceability, in whole or in part, of any such instrument or agreement or any term thereof; or (v) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Page 10 such Pledgor or any Subsidiary of such Pledgor, or any action taken with respect to this Agreement by any trustee or receiver, or by any court, in any such proceeding, whether or not such Pledgor shall have notice or knowledge of any of the foregoing. 17. REGISTRATION, ETC. (a) If an Event of Default shall have occurred and be continuing and any Pledgor shall have received from the Pledgee a written request or requests that such Pledgor cause any registration, qualification or compliance under any Federal or state securities law or laws to be effected with respect to all or any part of the Pledged Stock, such Pledgor as soon as practicable and at its expense will use its reasonable efforts to cause such registration to be effected (and be kept effective) and will use its reasonable efforts to cause such qualification and compliance to be effected (and be kept effective) as may be so requested and as would permit or facilitate the sale and distribution of such Pledged Stock, including, without limitation, registration under the Securities Act of 1933 as then in effect (or any similar statute then in effect), appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with any other government requirements; provided, that the Pledgee shall furnish to such Pledgor such information regarding the Pledgee as such Pledgor may request in writing and as shall be required in connection with any such registration, qualification or compliance. Such Pledgor will cause the Pledgee to be kept reasonably advised in writing as to the progress of each such registration, qualification or compliance and as to the completion thereof, will furnish to the Pledgee such number of prospectuses, offering circulars or other documents incident thereto as the Pledgee from time to time may reasonably request, and will indemnify the Pledgee, each other Secured Creditor and all others participating in the distribution of the Pledged Stock against all claims, losses, damages and liabilities caused by any untrue statement (or alleged untrue statement) of a material fact contained therein (or in any related registration statement, notification or the like) or by any omission (or alleged omission) to state therein (or in any related registration statement, notification or the like) a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same may have been caused by an untrue statement or omission based upon information furnished in writing to such Pledgor by the Pledgee or such other Secured Creditor expressly for use therein. (b) If at any time when the Pledgee shall determine to exercise its right to sell all or any part of the Pledged Securities pursuant to Section 7 hereof, such Pledged Securities or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as then in effect, the Pledgee may, in its sole and absolute discretion, sell such Pledged Securities or part thereof by private sale in such manner and under such circumstances as the Pledgee may deem necessary or advisable in order that such sale may legally be effected without such registration; provided, that at least 10 days' notice of the time and place of any such sale shall be given to such Pledgor. Without limiting the generality of the foregoing, in any such event the Pledgee, in its sole and absolute discretion: (i) may proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Securities or part thereof shall have been filed under such Securities Act; (ii) may approach and negotiate with a single possible purchaser to effect such sale; and (iii) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Pledged Page 11 Securities or part thereof. In the event of any such sale, the Pledgee shall incur no responsibility or liability for selling all or any part of the Pledged Securities at a price which the Pledgee, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might be realized if the sale were deferred until after registration as aforesaid. 18. TERMINATION, RELEASE. (a) After the Termination Date (as defined below), this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 11 hereof shall survive any such termination) and the Pledgee, at the request and expense of the respective Pledgor, will promptly execute and deliver to such Pledgor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly release from the security interest created hereby and assign, transfer and deliver to such Pledgor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Pledgee and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agreement, "Termination Date" shall mean the date upon which the Aggregate Commitment and all Interest Rate Protection Agreements and Other Hedging Agreements have been terminated, no promissory note or Letter of Credit under the Credit Agreement is outstanding (other than Letters of Credit, together with all fees that have accrued and will accrue thereon through the stated termination date of such Letters of Credit, which have been supported in a manner satisfactory to the Issuing Lender in its sole and absolute discretion) and all other Obligations (other than indemnities described in Section 11 hereof and in Section 12.05 of the Credit Agreement which are not then due and payable) have been paid in full. (b) In the event that any part of the Collateral is sold or otherwise disposed of in connection with a sale or other disposition permitted by Section 8.02 of the Credit Agreement or is otherwise released at the direction of the Required Lenders (or all the Lenders if required by Section 12.01 of the Credit Agreement), the Pledgee, at the request and expense of such Pledgor will duly release from the security interest created hereby and assign, transfer and deliver to such Pledgor (without recourse and without any representation or warranty) such of the Collateral as is then being (or has been) so sold or released and as may be in possession of the Pledgee and has not theretofore been released pursuant to this Agreement. (c) At any time that a Pledgor desires that Collateral be released as provided in the foregoing Section 18(a) or (b), it shall deliver to the Pledgee a certificate signed by an Responsible Officer of such Pledgor stating that the release of the respective Collateral is permitted pursuant to Section 18(a) or (b). 19. NOTICES, ETC. All notices and other communications hereunder shall be in writing and shall be delivered or mailed by first class mail, postage prepaid, addressed: (a) if to any Pledgor, at; c/o Globe Manufacturing Corp. 456 Bedford Street Fall River, MA 02720 Page 12 Attention: Lawrence Walsh Telephone No.: (508) 674-3585 Telecopier No.: (508) 679-9458 (b) if to the Pledgee, at: Bank of America National Trust and Savings Association 1455 Market Street, 12th Floor San Francisco, CA 94103 Attention: Agency Management #10831 Dietmar Schiel, Vice President Telephone No.: (415) 436-2769 Telecopier No.: (415) 436-3425 (c) if to any Lender (other than the Pledgee), at such address as such Lender shall have specified in the Credit Agreement; (d) if to any Other Creditor, at such address as such Other Creditor shall have specified in writing to each Pledgor and the Pledgee; or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. 20. WAIVER; AMENDMENT. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Pledgor directly affected thereby and the Pledgee (with the written consent of either (x) the Required Lenders (or all the Lenders if required by Section 12.01 of the Credit Agreement) at all times prior to the time on which all Loan Document Obligations have been paid in full or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Loan Document Obligations have been paid in full); provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class (as defined below) of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors (as defined below) of such Class. For the purpose of this Agreement, the term "Class" shall mean each class of Secured Creditors, i.e., whether (i) the Lender Creditors as holders of the Loan Document Obligations or (ii) the Other Creditors as holders of the Other Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (i) with respect to the Loan Document Obligations, the Required Lenders and (ii) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Interest Rate Protection Agreements and Other Hedging Agreements. 21. MISCELLANEOUS. This Agreement shall be binding upon the successors and assigns of each Pledgor and shall inure to the benefit of and be enforceable by the Pledgee and its successors and assigns; provided that no Pledgor may transfer or assign any or all of its rights and obligations hereunder without the prior written consent of the Pledgee. THIS Page 13 AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. The headings in this Agreement are for purposes of reference only and shall not limit or define the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. 22. ADDITIONAL PLEDGORS. It is understood and agreed that any Subsidiary of the Borrower that is required to execute a counterpart of this Agreement after the date hereof pursuant to Sections 7.12 and/or 8.15 of the Credit Agreement shall automatically become a Pledgor hereunder by executing a counterpart hereof and delivering the same to the Pledgee. * * * Page 14 IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this Agreement to be executed by their duly elected officers duly authorized as of the date first above written. GLOBE HOLDINGS, INC., as a Pledgor By: /s/ Lawrence R. Walsh ----------------------------- Title: Vice President GLOBE MANUFACTURING CORP., as a Pledgor By: /s/ Lawrence R. Walsh ----------------------------- Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Pledgee, Collateral Agent By: /s/ Dietmar Schiel --------------------------- Title: Vice President ANNEX A TO PLEDGE AGREEMENT ---------------- LIST OF STOCK ------------- ISSUER TYPE CERT NO. NO. OF SHARES Globe Manufacturing Corp. Voting Common 1 1,000 ANNEX B TO PLEDGE AGREEMENT ---------------- LIST OF NOTES ------------- None. EX-10.11 4 SECURITY AGREEMENT DATED JULY 31, 1998 EXHIBIT 10.11 ================================================================================ SECURITY AGREEMENT among GLOBE HOLDINGS, INC., GLOBE MANUFACTURING CORP., CERTAIN SUBSIDIARIES OF GLOBE MANUFACTURING CORP. and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent Dated as of July 31, 1998 ================================================================================ TABLE OF CONTENTS -----------------
Page ---- ARTICLE I SECURITY INTERESTS....................................................... 2 1.1. Grant of Security Interests................................. 2 1.2. Power of Attorney........................................... 2 ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS........................ 3 2.1. Necessary Filings........................................... 3 2.2. No Liens.................................................... 3 2.3. Other Financing Statements.................................. 3 2.4. Chief Executive Office; Records............................. 4 2.5. Location of Inventory and Equipment......................... 4 2.6. Recourse.................................................... 5 2.7. Trade Names; Change of Name................................. 5 ARTICLE III SPECIAL PROVISIONS CONCERNING RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS................................ 5 3.1. Additional Representations and Warranties................... 5 3.2. Maintenance of Records...................................... 5 3.3. Direction to Account Debtors; Contracting Parties; etc...... 6 3.4. Modification of Terms; etc.................................. 6 3.5. Collection.................................................. 6 3.6. Instruments................................................. 7 3.7. Further Actions............................................. 7 ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS................................. 7 4.1. Additional Representations and Warranties................... 7 4.2. Licenses and Assignments.................................... 8 4.3. Infringements............................................... 8 4.4. Preservation of Marks....................................... 8 4.5. Maintenance of Registration................................. 8 4.6. Future Registered Marks..................................... 8
(i)
Page ---- 4.7. Remedies.................................................... 9 ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS.................................... 9 5.1. Additional Representations and Warranties................... 9 5.2. Licenses and Assignments.................................... 10 5.3. Infringements............................................... 10 5.4. Maintenance of Patents...................................... 10 5.5. Prosecution of Patent Application........................... 10 5.6. Other Patents and Copyrights................................ 10 5.7. Remedies.................................................... 11 ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL..................................... 11 6.1. Protection of Collateral Agents Security.................... 11 6.2. Warehouse Receipts Non-Negotiable........................... 12 6.3. Further Actions............................................. 12 6.4. Financing Statements........................................ 12 ARTICLE VII REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT............................. 13 7.1. Remedies; Obtaining the Collateral Upon Default............. 13 7.2. Remedies; Disposition of the Collateral..................... 14 7.3. Waiver of Claims............................................ 15 7.4. Application of Proceeds..................................... 15 7.5. Remedies Cumulative......................................... 16 7.6. Discontinuance of Proceedings............................... 17 ARTICLE VIII INDEMNITY................................................................ 17 8.1. Indemnity................................................... 17 8.2. Indemnity Obligations Secured by Collateral; Survival....... 18 ARTICLE IX DEFINITIONS.............................................................. 18 ARTICLE X
(ii)
Page ---- MISCELLANEOUS.................................................................... 23 10.1. Notices............................................................. 23 10.2. Waiver; Amendment................................................... 23 10.3. Obligations Absolute................................................ 24 10.4. Successors and Assigns.............................................. 24 10.5. Headings Descriptive................................................ 24 10.6. Governing Law....................................................... 24 10.7. Assignors Duties.................................................... 25 10.8. Termination; Release................................................ 25 10.9. Counterparts........................................................ 25 10.10. The Collateral Agent................................................ 26 10.11. Additional Assignors................................................ 26 ANNEX A Schedule of Chief Executive Offices and other Record Locations ANNEX B Schedule of Inventory and Equipment Locations ANNEX C Trade and Fictitious Names ANNEX D List of Marks ANNEX E List of Patents and Applications ANNEX F List of Copyrights and Applications ANNEX G Grant of Security Interest in United States Trademarks and Patents ANNEX H Grant of Security Interest in United States Copyrights
(iii) SECURITY AGREEMENT ------------------ SECURITY AGREEMENT, dated as of July 31, 1998, among each of the undersigned assignors (each, an "Assignor" and, together with any other entity that becomes a party hereto pursuant to Section 10.11 hereof, the "Assignors") and Bank of America National Trust and Savings Association, as Collateral Agent (the "Collateral Agent"), for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H: - - - - - - - - - - WHEREAS, Globe Holdings, Inc. ("Holdings"), Globe Manufacturing Corp. (the "Borrower"), the several financial institutions from time to time party thereto (the "Lenders"), Merrill Lynch, Pierce, Fenner & Smith, Inc., as Syndication Agent, Bank of America National Trust and Savings Association, as Administrative Agent (together with any successor agent the "Administrative Agent"), and BancAmerica Securities, Inc., as Arranger (and together with the Collateral Agent, the Lenders and the Syndication Agent, the "Lender Creditors"), have entered into a Credit Agreement, dated as of July 31, 1998 (as amended, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans to the Borrower and the issuance of, and participation in, Letters of Credit for the account of the Borrower, all as contemplated therein; WHEREAS, the Borrower may from time to time be party to one or more Interest Rate Protection Agreements or Other Hedging Agreements with one or more Lenders or an affiliate of a Lender (each such Lender or affiliate, even if the respective Lender subsequently ceases to be a Lender under the Credit Agreement for any reason, together with such Lender's or affiliate's successors and assigns, collectively, the "Other Creditors", and together with the Lender Creditors, the "Secured Creditors"); WHEREAS, pursuant to Article X of the Credit Agreement, Holdings has guaranteed to the Secured Creditors the payment when due of all obligations and liabilities of the Borrower under or with respect to the Loan Documents and the Interest Rate Protection Agreements and Other Hedging Agreements; WHEREAS, pursuant to the Subsidiary Guaranty, each Assignor (other than Holdings and the Borrower) has jointly and severally guaranteed to the Secured Creditors the payment when due of all obligations and liabilities of the Borrower under or with respect to the Loan Documents and the Interest Rate Protection Agreements and Other Hedging Agreements; WHEREAS, it is a condition precedent to the making of Loans to the Borrower and the issuance of Letters of Credit for the account of the Borrower under the Credit Agreement that the Assignors shall have executed and delivered to the Collateral Agent this Agreement; and Page 2 WHEREAS, each Assignor desires to execute this Agreement to satisfy the condition described in the preceding paragraph; NOW, THEREFORE, in consideration of the benefits accruing to each Assignor, the receipt and sufficiency of which are hereby acknowledged, each Assignor hereby makes the following representations and warranties to the Collateral Agent and hereby covenants and agrees with the Collateral Agent as follows: ARTICLE I SECURITY INTERESTS 1.1. Grant of Security Interests. (a) As security for the prompt and complete payment and performance when due of all of its Obligations, each Assignor does hereby assign and transfer unto the Collateral Agent, and does hereby pledge and grant to the Collateral Agent for the benefit of the Secured Creditors, a continuing security interest of first priority in, all of the right, title and interest of such Assignor in, to and under all of the following, whether now existing or hereafter from time to time acquired: (i) each and every Receivable, (ii) all Contracts, together with all Contract Rights arising thereunder (other than Contracts which by their terms cannot be pledged (although the right to receive payments of money due or to become due thereunder shall not be excluded from the security interest created hereunder)), (iii) all Inventory, (iv) all Equipment, (v) all Marks, together with the registrations and right to all renewals thereof, and the goodwill of the business of such Assignor symbolized by the Marks, (vi) all Patents and Copyrights, (vii) all computer programs of such Assignor and all intellectual property rights therein (other than such programs and rights which by their terms cannot be pledged) and all other proprietary information of such Assignor, including, but not limited to, trade secrets, (viii) all other Goods, General Intangibles, Chattel Paper, Documents, Permits, Investment Property (other than Pledged Securities), Instruments and other assets (including cash), (ix) the Cash Collateral Account and all monies, securities and instruments deposited or required to be deposited in such Cash Collateral Account, (x) all other bank, demand, time savings, passbook, certificates of deposit and similar accounts maintained by such Assignor and all monies, securities, instruments and other investments deposited or required to be deposited in any of the foregoing accounts, and (xi) all Proceeds and products of any and all of the foregoing (all of the above, collectively, the "Collateral"). Notwithstanding anything to the contrary contained in the immediately preceding sentence, (x) the term Collateral shall not include any direct Contract between any United States Government Authority and any Assignor and (y) no Assignor shall be required to take any action to perfect any security interest in motor vehicles. (b) The security interest of the Collateral Agent under this Agreement extends to all Collateral of the kind which is the subject of this Agreement which any Assignor may acquire at any time during the continuation of this Agreement. 1.2. Power of Attorney. Each Assignor hereby constitutes and appoints the Collateral Agent its true and lawful attorney, irrevocably, with full power after the occurrence of and during the continuance of an Event of Default (in the name of such Assignor or otherwise) to act, require, demand, receive, compound and give acquittance for any and all monies and claims Page 3 for monies due or to become due to such Assignor under or arising out of the Collateral, to endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute any proceedings which the Collateral Agent may deem to be reasonably necessary or advisable to protect the interests of the Secured Creditors, which appointment as attorney is coupled with an interest. ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS Each Assignor represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows: 2.1. Necessary Filings. All filings, registrations and recordings necessary or appropriate to create, preserve and perfect the security interest granted by such Assignor to the Collateral Agent hereby in respect of the Collateral have been accomplished (or will have been accomplished on the Business Day immediately following the Effective Date) and the security interest granted to the Collateral Agent pursuant to this Agreement in and to the Collateral creates a perfected security interest therein prior to the rights of all other Persons therein and subject to no other Liens (other than Permitted Liens) and is entitled to all the rights, priorities and benefits afforded by the Uniform Commercial Code or other relevant law as enacted in any relevant jurisdiction to perfected security interests, in each case to the extent that the Collateral consists of the type of property in which a security interest may be perfected by filing a financing statement under the Uniform Commercial Code as enacted in any relevant jurisdiction or in the United States Patent and Trademark Office or United States Copyright Office or, to the extent provided in Section 6.3(b) hereof, in any foreign equivalent office of the United States Patent and Trademark or United States Copyright Office. 2.2. No Liens. Such Assignor is, and as to Collateral acquired by it from time to time after the date hereof such Assignor will be, the owner of, or has rights in, all Collateral free from any Lien, security interest, encumbrance or other right, title or interest of any Person (other than Permitted Liens), and such Assignor shall defend the Collateral to the extent of its rights therein against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Collateral Agent. 2.3. Other Financing Statements. As of the date hereof, there is no financing statement (or similar statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Collateral (other than financing statements filed in respect of Permitted Liens), and so long as the Aggregate Commitment has not been terminated or any promissory note issued under the Credit Agreement remains unpaid or any of the Obligations remain unpaid or any Interest Rate Protection Agreement or Other Hedging Agreement or Letter of Credit remains in effect (other than Letters of Credit, together with all fees that have accrued and will accrue thereon through the stated termination date of such Letters of Credit, which have been supported in a manner satisfactory to the Issuing Lender in its sole and absolute discretion) or any Obligations are owed with respect thereto, such Assignor will not execute or authorize to be filed in any public office any financing statement (or Page 4 similar statement or instrument of registration under the law of any jurisdiction) or statements relating to the Collateral, except (a) financing statements filed or to be filed in respect of and covering the security interests granted hereby by such Assignor or as permitted by the Credit Agreement and (b) financing statements with respect to Permitted Liens. 2.4. Chief Executive Office; Records. The chief executive office of such Assignor is located at the address or addresses indicated on Annex A hereto for such Assignor. Such Assignor will not move its chief executive office except to such new location as such Assignor may establish in accordance with the last sentence of this Section 2.4. The originals of all documents evidencing all Receivables and Contract Rights of such Assignor and the only original books of account and records of such Assignor relating thereto are, and will continue to be, kept at such chief executive office, at one or more of the locations set forth on Annex A hereto or at such new locations as such Assignor may establish in accordance with the last sentence of this Section 2.4. All Receivables and Contract Rights of such Assignor are, and will continue to be, maintained at, and controlled and directed (including, without limitation, for general accounting purposes) from, the office locations described above or such new location established in accordance with the last sentence of this Section 2.4. No Assignor shall establish new locations for such offices until it shall have given to the Collateral Agent notice of its intention to do so unless (i) such Assignor shall give to the Collateral Agent written notice of any such relocation of its chief executive office within 20 days following such relocation, clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may reasonably request and (ii) with respect to such new location, it shall take all action, reasonably satisfactory to the Collateral Agent, to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. 2.5. Location of Inventory and Equipment. All Inventory and Equipment held on the date hereof by each Assignor is located at one of the locations shown on Annex B hereto for such Assignor (other than (i) immaterial portions of Inventory sold on consignment or held on display for demonstration purposes (ii) Inventory transferred to another location in connection with a sale of such Inventory in the ordinary course of business, so long as such sale occurs within 90 days from the date of such transfer and (iii) various spare parts held for maintenance or repair of Equipment). Each Assignor agrees that all Inventory and Equipment now held or subsequently acquired by it shall be kept at (or shall be in transport to) any one of the locations shown on Annex B hereto, or such new location as such Assignor may establish in accordance with the last sentence of this Section 2.5 (other than (i) immaterial portions of Inventory sold on consignment or held on display for demonstration purposes (iii) Inventory transferred to another location in connection with a sale of such Inventory in the ordinary course of business, so long as such sale occurs within 90 days from the date of such transfer and (ii) various spare parts held for maintenance or repair of Equipment). Any Assignor may establish a new location for Inventory and Equipment only if (i) it shall have given to the Collateral Agent written notice within 20 days following any such relocation clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may request and (ii) with respect to such new location, it shall have taken all action reasonably satisfactory to the Collateral Agent to Page 5 maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. 2.6. Recourse. This Agreement is made with full recourse to each Assignor and pursuant to and upon all the warranties, representations, covenants and agreements on the part of such Assignor contained herein, in the other Loan Documents, in the Interest Rate Protection Agreements and Other Hedging Agreements and otherwise in writing in connection herewith or therewith. 2.7. Trade Names; Change of Name. No Assignor has or operates in any jurisdiction under, or in the preceding 12 months has had or has operated in any jurisdiction under, any trade names, fictitious names or other names except its legal name and such other trade or fictitious names as are listed on Annex C hereto. No Assignor shall change its legal name or assume or operate in any jurisdiction under any trade, fictitious or other name except those names listed on Annex C hereto and new names established in accordance with the last sentence of this Section 2.7. No Assignor shall assume or operate in any jurisdiction under any new trade, fictitious or other name unless (i) it shall have given to the Collateral Agent written notice within 20 days following any assumption of, or operation under, such new name clearly describing such new name and the jurisdictions in which such new name shall be used and providing such other information in connection therewith as the Collateral Agent may reasonably request and (ii) with respect to such new name, it shall have taken all action requested by the Collateral Agent, to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. ARTICLE III SPECIAL PROVISIONS CONCERNING RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS 3.1. Additional Representations and Warranties. As of the time when each of its Receivables arises, each Assignor shall be deemed to have represented and warranted that such Receivable, and all records, papers and documents relating thereto (if any) are what they purport to be, and that all papers and documents (if any) relating thereto will be the only original writings evidencing and embodying such obligation of the account debtor named therein (other than copies created for general accounting purposes). 3.2. Maintenance of Records. Each Assignor will keep and maintain at its own cost and expense accurate records of its Receivables and Contracts, records of all payments received, all credits granted thereon, all merchandise returned and all other dealings therewith, and such Assignor will make the same available on such Assignor's premises to the Collateral Agent for inspection, at such Assignor's own cost and expense, at any and all reasonable times upon prior notice to a Responsible Officer of such Assignor. Upon the occurrence and during the continuance of an Event of Default and at the request of the Collateral Agent, such Assignor shall, at its own cost and expense, deliver all tangible evidence of its Receivables and Contract Rights (including, without limitation, all documents evidencing the Receivables and all Contracts) and such books and records to the Collateral Agent or to its representatives (copies of Page 6 which evidence and books and records may be retained by such Assignor). Upon the occurrence and during the continuance of an Event of Default and if the Collateral Agent so directs, such Assignor shall legend, in form and manner reasonably satisfactory to the Collateral Agent, the Receivables and the Contracts, as well as books, records and documents (if any) of such Assignor evidencing or pertaining to such Receivables and Contracts with an appropriate reference to the fact that such Receivables and Contracts have been assigned to the Collateral Agent and that the Collateral Agent has a security interest therein. 3.3. Direction to Account Debtors; Contracting Parties; etc. Upon the occurrence and during the continuance of an Event of Default, and if the Collateral Agent so directs any Assignor, such Assignor agrees (x) to cause all payments on account of the Receivables and Contracts to be made directly to the Cash Collateral Account, (y) that the Collateral Agent may, at its option, directly notify the obligors with respect to any Receivables and/or under any Contracts to make payments with respect thereto as provided in the preceding clause (x) and (z) that the Collateral Agent may enforce collection of any such Receivables and Contracts and may adjust, settle or compromise the amount of payment thereof, in the same manner and to the same extent as such Assignor. Without notice to or assent by any Assignor, the Collateral Agent may apply any or all amounts then in, or thereafter deposited in, the Cash Collateral Account which application shall be effected in the manner provided in Section 7.4 of this Agreement. The costs and expenses (including reasonable attorneys' fees) of collection, whether incurred by the relevant Assignor or the Collateral Agent, shall be borne by the relevant Assignor. The Collateral Agent shall deliver a copy of each notice referred to in the preceding clause (y) to the relevant Assignor; provided, that the failure by the Collateral Agent to so notify such Assignor shall not affect the effectiveness of such notice or the other rights of the Collateral Agent created by this Section 3.3. 3.4. Modification of Terms; etc. No Assignor shall rescind or cancel any indebtedness evidenced by any Receivable or under any Contract, or modify in any material respect any term thereof or make any material adjustment with respect thereto, or extend or renew the same, or compromise or settle any material dispute, claim, suit or legal proceeding relating thereto, or sell any Receivable or Contract, or interest therein, without the prior written consent of the Collateral Agent, which consent shall not be unreasonably withheld, except as permitted by Section 3.5 hereof or in the Credit Agreement. Each Assignor will duly fulfill all obligations on its part to be fulfilled under or in connection with the Receivables and Contracts and will do nothing to impair the rights of the Collateral Agent in the Receivables or Contracts. 3.5. Collection. Each Assignor shall endeavor in accordance with reasonable business practices to cause to be collected from the account debtor named in each of its Receivables or obligor under any Contract, as and when due (including, without limitation, amounts which are delinquent, such amounts to be collected in accordance with generally accepted lawful collection procedures) any and all amounts owing under or on account of such Receivable or Contract, and apply forthwith upon receipt thereof all such amounts as are so collected to the outstanding balance of such Receivable or under such Contract, except that, in the absence of the occurrence and continuance of an Event of Default, any Assignor may allow in the ordinary course of business as adjustments to amounts owing under its Receivables and Page 7 Contracts (i) an extension or renewal of the time or times of payment, or settlement for less than the total unpaid balance, which such Assignor finds appropriate in accordance with reasonable business judgment and (ii) a refund or credit due as a result of returned or damaged merchandise or improperly performed services or for other reasons which such Assignor finds appropriate in accordance with reasonable business judgment. The reasonable costs and expenses (including, without limitation, attorneys' fees) of collection, whether incurred by an Assignor or the Collateral Agent, shall be borne by the relevant Assignor. 3.6. Instruments. If any Assignor owns or acquires any Instrument constituting Collateral, such Assignor will within 10 Business Days notify the Collateral Agent thereof, and upon request by the Collateral Agent will promptly deliver such Instrument to the Collateral Agent appropriately endorsed to the order of the Collateral Agent as further security hereunder. 3.7. Further Actions. Each Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to its Receivables, Contracts, Instruments and other property or rights covered by the security interest hereby granted, as the Collateral Agent may reasonably require. ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS 4.1. Additional Representations and Warranties. Each Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use the registered Marks listed in Annex D hereto for such Assignor and that said listed Marks constitute all the marks and applications for marks registered in the United States Patent and Trademark Office or the equivalent thereof in any foreign country that such Assignor presently owns or uses in connection with its business. Each Assignor represents and warrants that it owns, is licensed to use or otherwise has the right to use all Marks that it uses. Each Assignor further warrants that it has no knowledge of any third party claim that any aspect of such Assignor's present or contemplated business operations infringes or will infringe any trademark, service mark or trade name. Each Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use all trademark registrations and applications listed in Annex D hereto and that said registrations are valid, subsisting, have not been cancelled and that such Assignor is not aware of any third-party claim that any of said registrations is invalid or unenforceable, or is not aware that there is any reason that any of said registrations is invalid or unenforceable, or is not aware that there is any reason that any of said applications will not pass to registration. Each Assignor represents and warrants that upon the recordation of a Grant of Security Interest in United States Trademarks and Patents in the form of Annex G hereto in the United States Patent and Trademark Office, together with filings on Form UCC-1 pursuant to this Agreement, all filings, registrations and recordings necessary or appropriate to perfect the security interest granted to the Collateral Agent in the United States Marks covered by this Agreement under Page 8 federal law will have been accomplished. Each Assignor agrees to execute such a Grant of Security Interest in United States Trademark and Patents covering all right, title and interest in each United States Mark, and the associated goodwill, of such Assignor, and to record the same. Each Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of an Event of Default, any document which may be required by the United States Patent and Trademark Office or the equivalent thereof in any foreign country in order to effect an absolute assignment of the Assignor's right, title and interest in each Mark, and record the same. 4.2. Licenses and Assignments. Except as otherwise permitted by the Credit Agreement or this Agreement, each Assignor hereby agrees not to divest itself of any material right under any Mark absent prior written approval of the Collateral Agent. 4.3. Infringements. Each Assignor agrees, promptly upon learning thereof, to notify the Collateral Agent in writing of the name and address of, and to furnish such pertinent information that may be available with respect to, any party who such Assignor believes is infringing or diluting or otherwise violating in any material respect any of such Assignor's rights in and to any Mark, or with respect to any party claiming that such Assignor's use of any Mark violates in any material respect any property right of that party. Each Assignor further agrees, unless otherwise agreed by the Collateral Agent, to prosecute any Person infringing any Mark in accordance with commercially reasonable business practices. 4.4. Preservation of Marks. Each Assignor agrees to use its Marks in interstate commerce (or the equivalent thereof in any foreign jurisdiction) during the time in which this Agreement is in effect, sufficiently to preserve such Marks as trademarks or service marks under the laws of the United States or under the laws of the applicable foreign country, as the case may be; provided, that, to the extent permitted by the Credit Agreement, no Assignor shall be obligated to preserve any Mark in the event such Assignor determines, in its reasonable business judgment, that the preservation of such Mark is no longer desirable in the conduct of its business. 4.5. Maintenance of Registration. Each Assignor shall, at its own expense, diligently process all documents required by the Trademark Act of 1946, 15 U.S.C. (S)(S) 1051 et seq. (or the equivalent thereof in any foreign jurisdiction) to maintain trademark registrations, including but not limited to affidavits of use and applications for renewals of registration in the United States Patent and Trademark Office (or the equivalent thereof in any foreign jurisdiction) for all of its registered Marks pursuant to 15 U.S.C. (S)(S) 1058(a), 1059 and 1065 (or the equivalent thereof in any foreign jurisdiction), and shall pay all fees and disbursements in connection therewith and shall not abandon any such filing of affidavit of use or any such application of renewal prior to the exhaustion of all administrative and judicial remedies without prior written consent of the Collateral Agent; provided, that no Assignor shall be obligated to maintain registration of any Mark in the event that such Assignor determines, in its reasonable business judgment, that such maintenance of such Mark is no longer necessary or desirable in the conduct of its business. Each Assignor agrees to notify the Collateral Agent three (3) months prior to the dates on which the affidavits of use or the applications for renewal registration are due with respect to any Page 9 registered Mark that the affidavits of use or the renewal is being processed or being abandoned, as the case may be. 4.6. Future Registered Marks. If any registration for a Mark issues hereafter to any Assignor as a result of any application now or hereafter pending before the United States Patent and Trademark Office (or the equivalent thereof in any foreign jurisdiction), within 30 days of receipt of such certificate, such Assignor shall deliver to the Collateral Agent a copy of such certificate, and a grant of security in such Mark, to the Collateral Agent and at the expense of such Assignor, confirming the grant of security in such Mark to the Collateral Agent hereunder, the form of such security to be substantially the same as the form hereof or in such other form as may be reasonably satisfactory to the Collateral Agent. 4.7. Remedies. If an Event of Default shall occur and be continuing, the Collateral Agent may, by written notice to the relevant Assignor, take any or all of the following actions: (i) declare the entire right, title and interest of such Assignor in and to each of the Marks, together with all trademark rights and rights of protection to the same, vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such rights, title and interest shall immediately vest, in the Collateral Agent for the benefit of the Secured Creditors, and the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 4.1 hereof to execute, cause to be acknowledged and notarized and record said absolute assignment with the applicable agency; (ii) take and use or sell the Marks and the goodwill of such Assignor's business symbolized by the Marks and the right to carry on the business and use the assets of such Assignor in connection with which the Marks have been used; and (iii) direct such Assignor to refrain, in which event such Assignor shall refrain, from using the Marks in any manner whatsoever, directly or indirectly, and, if requested by the Collateral Agent, change such Assignor's corporate name to eliminate therefrom any use of any Mark and execute such other and further documents that the Collateral Agent may request to further confirm this and to transfer ownership of the Marks and registrations and any pending trademark application in the United States Patent and Trademark Office (or the equivalent thereof in any foreign jurisdiction) to the Collateral Agent. ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS 5.1. Additional Representations and Warranties. Each Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use (i) all material United States and foreign trade secrets and proprietary information necessary to operate the business of the Assignor (the "Trade Secret Rights"), (ii) the Patents listed in Annex E hereto for such Assignor and that said Patents constitute all the patents and applications for patents that such Assignor now owns or uses and (iii) the Copyrights listed in Annex F hereto for such Assignor and that said Copyrights constitutes all registrations of copyrights and applications for copyright registrations that such Assignor now owns or uses. Each Assignor further warrants that it has no knowledge of any third party claim that any aspect of such Assignor's present or Page 10 contemplated business operations infringes or will infringe any patent or any copyright or such Assignor has misappropriated any trade secret or proprietary information, except those claims which in the aggregate could not be reasonably expected to have a Material Adverse Effect. Each Assignor represents and warrants that upon the recordation of a Grant of Security Interest in United States Trademarks and Patents in the form of Annex G hereto in the United States Patent and Trademark Office and the recordation of a Grant of Security Interest in United States Copyrights in the form of Annex H hereto in the United States Copyright Office, together with filings on Form UCC-1 pursuant to this Agreement, all filings, registrations and recordings necessary or appropriate to perfect the security interest granted to the Collateral Agent in the United States Patents and United States Copyrights covered by this Agreement under federal law will have been accomplished. Each Assignor agrees to execute such a Grant of Security Interest in United States Trademarks and Patents covering all right, title and interest in each United States Patent of such Assignor and to record the same, and to execute such a Grant of Security Interest in United States Copyrights covering all right, title and interest in each United States Copyright of such Assignor and to record the same. Each Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of any Event of Default, any document which may be required by the United States Patent and Trademark Office (or the equivalent thereof in any foreign jurisdiction) or the United States Copyright Office (or the equivalent thereof in any foreign jurisdiction) in order to effect an absolute assignment of all right, title and interest in each Patent and Copyright, and to record the same. 5.2. Licenses and Assignments. Except as otherwise permitted by the Credit Agreement or this Agreement, each Assignor hereby agrees not to divest itself of any material right under any Patent or Copyright absent prior written approval of the Collateral Agent. 5.3. Infringements. Each Assignor agrees, promptly upon learning thereof, to furnish the Collateral Agent in writing with all pertinent information available to such Assignor with respect to any infringement, contributing infringement or active inducement to infringe any of such Assignor's rights in and to in any Patent or Copyright or to any claim that such Assignor's practice of any Patent or use of any Copyright violates any property right of a third party, or with respect to any misappropriation of any Trade Secret Right or any claim that such Assignor's practice of any Trade Secret Right violates any property right of a third party. Each Assignor further agrees, absent direction of the Collateral Agent to the contrary, diligently to prosecute any Person infringing any Patent or Copyright or any Person misappropriating any Trade Secret Right in accordance with commercially reasonable business practices. 5.4. Maintenance of Patents. At its own expense, each Assignor shall make timely payment of all post-issuance fees required pursuant to 35 U.S.C. (S) 41 (or the equivalent thereof in any foreign jurisdiction) to maintain in force rights under each Patent, absent prior written consent of the Collateral Agent; provided, that, to the extent permitted by the Credit Agreement, no Assignor shall be obligated to maintain any Patent in the event such Assignor determines, in its reasonable business judgment, that the maintenance of such Patent is no longer necessary or desirable in the conduct of its business. Page 11 5.5. Prosecution of Patent Application. At its own expense, each Assignor shall diligently prosecute all applications for Patents listed in Annex E hereto for such Assignor and shall not abandon any such application prior to exhaustion of all administrative and judicial remedies, absent written consent of the Collateral Agent; provided, that, to the extent permitted by the Credit Agreement, no Assignor shall be obligated to prosecute any application in the event such Assignor determines, in its reasonable business judgment, that the prosecuting of such application is no longer necessary or desirable in the conduct of its business. 5.6. Other Patents and Copyrights. Within 30 days of the acquisition or issuance of a Patent, registration of a Copyright, or acquisition of a registered Copyright, or of filing of an application for a Patent or registration of Copyright, the relevant Assignor shall deliver to the Collateral Agent a copy of said Copyright or certificate or registration of, or application therefor, said Patents, as the case may be, with an assignment for security as to such Patent or Copyright, as the case may be, to the Collateral Agent and at the expense of such Assignor, confirming the assignment for security, the form of such assignment for security to be substantially the same as the form hereof or in such other form as may be reasonably satisfactory to the Collateral Agent. 5.7. Remedies. If an Event of Default shall occur and be continuing, the Collateral Agent may by written notice to the relevant Assignor, take any or all of the following actions: (i) declare the entire right, title, and interest of such Assignor in each of the Patents and Copyrights vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such right, title, and interest shall immediately vest in the Collateral Agent for the benefit of the Secured Creditors, in which case the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 5.1 hereof to execute, cause to be acknowledged and notarized and to record said absolute assignment with the applicable agency; (ii) take and practice or sell the Patents and Copyrights; and (iii) direct such Assignor to refrain, in which event such Assignor shall refrain, from practicing the Patents and using the Copyrights directly or indirectly, and such Assignor shall execute such other and further documents as the Collateral Agent may request further to confirm this and to transfer ownership of the Patents and Copyrights to the Collateral Agent for the benefit of the Secured Creditors. ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL 6.1. Protection of Collateral Agent's Security. Each Assignor will do nothing to impair the rights of the Collateral Agent in the Collateral except to the extent such impairment shall be waived in accordance with the terms of Section 10.2 hereof. Each Assignor will at all times keep its Inventory and Equipment insured in favor of the Collateral Agent, at such Assignor's own expense to the extent and in the manner provided in the Credit Agreement; all policies or certificates with respect to such insurance (and any other insurance maintained by such Assignor) (i) shall be endorsed to the Collateral Agent's reasonable satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as additional insured and loss payee) and (ii) shall state that such insurance policies shall not be cancelled or revised without 30 days' prior written notice thereof (or 10 days prior written notice Page 12 in the case of nonpayment of premium) by the insurer to the Collateral Agent; and certified copies of such policies or certificates shall be deposited with the Collateral Agent. If any Assignor shall fail to insure its Inventory and Equipment in accordance with the preceding sentence, or if any Assignor shall fail to so endorse and deposit all policies or certificates with respect thereto, the Collateral Agent shall have the right (but shall be under no obligation) to procure such insurance and such Assignor agrees to promptly reimburse the Collateral Agent for all costs and expenses of procuring such insurance. Except as otherwise permitted to be retained by the relevant Assignor pursuant to the Credit Agreement, the Collateral Agent shall, at the time such proceeds of such insurance are distributed to the Secured Creditors, apply such proceeds in accordance with Section 7.4 hereof. Each Assignor assumes all liability and responsibility in connection with the Collateral acquired by it and the liability of such Assignor to pay the Obligations shall in no way be affected or diminished by reason of the fact that such Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to such Assignor. 6.2. Warehouse Receipts Non-Negotiable. Each Assignor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued with respect to any of its Inventory, such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as such term is used in Section 7-104 of the Uniform Commercial Code as in effect in any relevant jurisdiction or under other relevant law) or, if any warehouse receipt or any receipt in the nature of a warehouse receipt is "negotiable" (as such term is used in Section 7-104 of the Uniform Commercial Code as in effect in any relevant jurisdiction or under other relevant law) then the respective Assignor shall promptly take all action as may be required under the relevant jurisdiction to grant a perfected security interest in such Collateral to the Collateral Agent for the benefit of the Secured Creditors. 6.3. Further Actions. (a) Each Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such lists, descriptions and designations of its Collateral, warehouse receipts, receipts in the nature of warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, which the Collateral Agent deems reasonably appropriate or advisable to perfect, preserve or protect its security interest in the Collateral. (b) Each Assignor hereby agrees that it will from time to time, at its own expense and at the request of the Collateral Agent or the Required Lenders, take all actions (including making all appropriate filings) as may be necessary or in the reasonable opinion of the Collateral Agent desirable to perfect (and maintain the perfection of) any security interest in any material foreign Mark, Patent and/or Copyright, and in connection therewith shall deliver one or more opinions of foreign counsel confirming the validity and perfection of such foreign Marks, Patents and/or Copyrights. Page 13 6.4. Financing Statements. Each Assignor agrees to execute and deliver to the Collateral Agent such financing statements, in form reasonably acceptable to the Collateral Agent, as the Collateral Agent may from time to time reasonably request or as are necessary or desirable in the opinion of the Collateral Agent to establish and maintain a valid, enforceable, first priority perfected security interest in the Collateral as provided herein and the other rights and security contemplated hereby all in accordance with the Uniform Commercial Code as enacted in any and all relevant jurisdictions or any other relevant law. Each Assignor will pay any applicable filing fees, recordation taxes and related expenses relating to its Collateral. Each Assignor hereby authorizes the Collateral Agent to file any such financing statements without the signature of such Assignor where permitted by law. ARTICLE VII REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT 7.1. Remedies; Obtaining the Collateral Upon Default. Each Assignor agrees that, if any Event of Default shall have occurred and be continuing, then and in every such case, the Collateral Agent, in addition to any rights now or hereafter existing under applicable law, shall have all rights as a secured creditor under the Uniform Commercial Code in all relevant jurisdictions and may: (i) personally, or by agents or attorneys, immediately take possession of the Collateral or any part thereof, from such Assignor or any other Person who then has possession of any part thereof with or without notice or process of law, and for that purpose may enter upon such Assignor's premises where any of the Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of such Assignor; (ii) instruct the obligor or obligors on any agreement, instrument or other obligation (including, without limitation, the Receivables and the Contracts) constituting the Collateral to make any payment required by the terms of such agreement, instrument or other obligation directly to the Collateral Agent; (iii) withdraw all monies, securities and instruments in the Cash Collateral Account for application to the Obligations in accordance with Section 7.4 hereof; (iv) sell, assign or otherwise liquidate any or all of the Collateral or any part thereof in accordance with Section 7.2 hereof, or direct the relevant Assignor to sell, assign or otherwise liquidate any or all of the Collateral or any part thereof, and, in each case, take possession of the proceeds of any such sale or liquidation; (v) take possession of the Collateral or any part thereof, by directing the relevant Assignor in writing to deliver the same to the Collateral Agent at any place or places designated by the Collateral Agent, in which event such Assignor shall at its own expense: Page 14 (x) forthwith cause the same to be moved to the place or places so designated by the Collateral Agent and there delivered to the Collateral Agent; (y) store and keep any Collateral so delivered to the Collateral Agent at such place or places pending further action by the Collateral Agent as provided in Section 7.2 hereof; and (z) while the Collateral shall be so stored and kept, provide such guards and maintenance services as shall be reasonably necessary to protect the same and to preserve and maintain them in good condition; and (vi) license or sublicense, whether on an exclusive or nonexclusive basis, any Marks, Patents or Copyrights included in the Collateral for such term and on such conditions and in such manner as the Collateral Agent shall in its sole judgment determine (taking into account such provisions as may be necessary to protect and preserve such Marks, Patents or Copyrights); it being understood that each Assignor's obligation so to deliver the Collateral is of the essence of this Agreement and that, accordingly, upon application to a court of equity having jurisdiction, the Collateral Agent shall be entitled to a decree requiring specific performance by such Assignor of said obligation. The Secured Creditors agree that this Agreement may be enforced only by the action of the Administrative Agent or the Collateral Agent, in each case acting upon the instructions of the Required Lenders (or, after the date on which all Loan Document Obligations have been paid in full, the holders of at least the majority of the outstanding Other Obligations) and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent or the Collateral Agent or the holders of at least a majority of the outstanding Other Obligations, as the case may be, for the benefit of the Secured Creditors upon the terms of this Agreement. 7.2. Remedies; Disposition of the Collateral. Any Collateral repossessed by the Collateral Agent under or pursuant to Section 7.1 hereof and any other Collateral whether or not so repossessed by the Collateral Agent, may be sold, assigned, leased or otherwise disposed of under one or more contracts or as an entirety, and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms as the Collateral Agent may, in compliance with any mandatory requirements of applicable law, determine to be commercially reasonable. Any of the Collateral may be sold, leased or otherwise disposed of, in the condition in which the same existed when taken by the Collateral Agent or after any overhaul or repair at the expense of the relevant Assignor which the Collateral Agent shall determine to be commercially reasonable. Any such disposition which shall be a private sale or other private proceedings permitted by such requirements shall be made upon not less than 10 days' written notice to the relevant Assignor specifying the time at which such disposition is to be made and the intended sale price or other consideration therefor, and shall be subject, for the 10 days after the giving of such notice, to the right of the relevant Assignor or any nominee of such Assignor to acquire the Collateral involved at a price or for such other consideration at least equal to the intended sale price or other Page 15 consideration so specified. Any such disposition which shall be a public sale permitted by such requirements shall be made upon not less than 10 days' written notice to the relevant Assignor specifying the time and place of such sale and, in the absence of applicable requirements of law, shall be by public auction (which may, at the Collateral Agent's option, be subject to reserve), after publication of notice of such auction not less than 10 days prior thereto in two newspapers in general circulation in the City of New York. To the extent permitted by any such requirement of law, the Collateral Agent may bid for and become the purchaser of the Collateral or any item thereof, offered for sale in accordance with this Section without accountability to the relevant Assignor. If, under mandatory requirements of applicable law, the Collateral Agent shall be required to make disposition of the Collateral within a period of time which does not permit the giving of notice to the relevant Assignor as hereinabove specified, the Collateral Agent need give such Assignor only such notice of disposition as shall be reasonably practicable in view of such mandatory requirements of applicable law. 7.3. Waiver of Claims. Except as otherwise provided in this Agreement, EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH ASSIGNOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and each Assignor hereby further waives, to the extent permitted by law: (i) all damages occasioned by such taking of possession except any damages which are the direct result of the Collateral Agent's gross negligence or willful misconduct; (ii) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Collateral Agent's rights hereunder; and (iii) all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof, and each Assignor, for itself and all who may claim under it, insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Any sale of, or the grant of options to purchase, or any other realization upon, any Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the relevant Assignor therein and thereto, and shall be a perpetual bar both at law and in equity against such Assignor and against any and all Persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from, through and under such Assignor. 7.4. Application of Proceeds. (a) All moneys collected by the Collateral Agent (or, to the extent the Pledge Agreement, any Mortgage or any Additional Security Document Page 16 requires proceeds of collateral under such Collateral Documents to be applied in accordance with the provisions of this Agreement, the Pledgee or Mortgage under such other Collateral Document) upon any sale or other disposition of the Collateral, together with all other moneys received by the Collateral Agent hereunder, shall be applied as follows: (i) first, to the payment of all Obligations owing the Collateral Agent of the type provided in clauses (iii) and (iv) of the definition of Obligations; (ii) second, to the extent proceeds remain after the application pursuant to the preceding clause (i), an amount equal to the outstanding Obligations shall be paid to the Secured Creditors as provided in Section 7.4(c) hereof with each Secured Creditor receiving an amount equal to its outstanding Obligations or, if the proceeds are insufficient to pay in full all such Obligations, its Pro Rata Share (as defined below) of the amount remaining to be distributed; and (iii) third, to the extent proceeds remain after the application pursuant to the preceding clauses (i) and (ii) and following the termination of this Agreement pursuant to Section 10.8 hereof, to the relevant Assignor or, to the extent directed by such Assignor or a court of competent jurisdiction, to whomever may be lawfully entitled to receive such surplus. (b) For purposes of this Agreement, "Pro Rata Share" shall mean, when calculating a Secured Creditor's portion of any distribution or amount, that amount (expressed as a percentage) equal to a fraction the numerator of which is the then unpaid amount of such Secured Creditor's Obligations and the denominator of which is the then outstanding amount of all Obligations. (c) All payments required to be made to the Lender Creditors hereunder shall be made to the Administrative Agent under the Credit Agreement for the account of the Lender Creditors and all payments required to be made to the Other Creditors hereunder shall be made directly to the respective Other Creditor. (d) For purposes of applying payments received in accordance with this Section 7.4, the Collateral Agent shall be entitled to rely upon (i) the Administrative Agent under the Credit Agreement and (ii) the Other Creditors for a determination (which the Administrative Agent, each Other Creditor and the Secured Creditors agree (or shall agree) to provide upon request of the Collateral Agent) of the outstanding Obligations owed to the Lender Creditors or the Other Creditors, as the case may be. Unless it has actual knowledge (including by way of written notice from a Lender Creditor or an Other Creditor) to the contrary, the Administrative Agent under the Credit Agreement, in furnishing information pursuant to the preceding sentence, and the Collateral Agent, in acting hereunder, shall be entitled to assume that (x) no Loan Document Obligations other than principal, interest and regularly accruing fees are owing to any Lender Creditor and (y) no Interest Rate Protection Agreement or Other Hedging Agreement, or Other Obligations in respect thereof, are in existence. Page 17 (e) It is understood that the Assignors shall remain jointly and severally liable to the extent of any deficiency between the amount of the proceeds of the Collateral and the aggregate amount of the sums referred to in clause (a) of this Section 7.4 with respect to the relevant Assignor. 7.5. Remedies Cumulative. Each and every right, power and remedy hereby specifically given to the Collateral Agent shall be in addition to every other right, power and remedy specifically given under this Agreement, the Interest Rate Protection Agreements or Other Hedging Agreements, the other Loan Documents or now or hereafter existing at law, in equity or by statute and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Collateral Agent. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of the exercise of one shall not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Collateral Agent in the exercise of any such right, power or remedy and no renewal or extension of any of the Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Default or Event of Default or an acquiescence therein. No notice to or demand on any Assignor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Collateral Agent to any other or further action in any circumstances without notice or demand. In the event that the Collateral Agent shall bring any suit to enforce any of its rights hereunder and shall be entitled to judgment, then in such suit the Collateral Agent may recover reasonable expenses, including attorneys' fees, and the amounts thereof shall be included in such judgment. 7.6. Discontinuance of Proceedings. In case the Collateral Agent shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Agent, then and in every such case the relevant Assignor, the Collateral Agent and each holder of any of the Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral subject to the security interest created under this Agreement, and all rights, remedies and powers of the Collateral Agent shall continue as if no such proceeding had been instituted. ARTICLE VIII INDEMNITY 8.1. Indemnity. (a) Each Assignor jointly and severally agrees to indemnify, reimburse and hold the Collateral Agent, each other Secured Creditor and their respective successors, permitted assigns, employees, agents and servants (hereinafter in this Section 8.1 referred to individually as "Indemnitee," and collectively as "Indemnitees") harmless from any and all liabilities, obligations, damages, injuries, penalties, claims, demands, actions, suits, judgments and any and all costs, expenses or disbursements (including attorneys' fees and expenses) (for the purposes of this Section 8.1 the foregoing are collectively called "expenses") of whatsoever kind and nature imposed on, asserted against or incurred by any of the Page 18 Indemnitees in any way relating to or arising out of this Agreement, any Interest Rate Protection Agreement or Other Hedging Agreement, any other Loan Document or any other document executed in connection herewith or therewith or in any other way connected with the administration of the transactions contemplated hereby or thereby or the enforcement of any of the terms of, or the preservation of any rights under any thereof, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition, or use of the Collateral (including, without limitation, latent or other defects, whether or not discoverable), the violation of the laws of any country, state or other governmental body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Indemnitee), or property damage), or contract claim; provided that no Indemnitee shall be indemnified pursuant to this Section 8.1(a) for losses, damages or liabilities to the extent caused by the gross negligence or willful misconduct of such Indemnitee. Each Assignor agrees that upon written notice by any Indemnitee of the assertion of such a liability, obligation, damage, injury, penalty, claim, demand, action, suit or judgment, the relevant Assignor shall assume full responsibility for the defense thereof. Each Indemnitee agrees to use its best efforts to promptly notify the relevant Assignor of any such assertion of which such Indemnitee has knowledge. (b) Without limiting the application of Section 8.1(a) hereof, each Assignor agrees, jointly and severally, to pay, or reimburse the Collateral Agent for any and all reasonable fees, costs and expenses of whatever kind or nature incurred in connection with the creation, preservation or protection of the Collateral Agent's Liens on, and security interest in, the Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes or Liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral and all other fees, costs and expenses in connection with protecting, maintaining or preserving the Collateral and the Collateral Agent's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral. (c) Without limiting the application of Section 8.1(a) or (b) hereof, each Assignor agrees, jointly and severally, to pay, indemnify and hold each Indemnitee harmless from and against any loss, costs, damages and expenses which such Indemnitee may suffer, expend or incur in consequence of or growing out of any misrepresentation by any Assignor in this Agreement, any Interest Rate Protection Agreement or Other Hedging Agreement, any other Loan Document or in any writing contemplated by or made or delivered pursuant to or in connection with this Agreement, any Interest Rate Protection Agreement or Other Hedging Agreement or any other Loan Document. (d) If and to the extent that the obligations of any Assignor under this Section 8.1 are unenforceable for any reason, such Assignor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. Page 19 8.2. Indemnity Obligations Secured by Collateral; Survival. Any amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement shall constitute Obligations secured by the Collateral. The indemnity obligations of each Assignor contained in this Article VIII shall continue in full force and effect notwithstanding the full payment of all the promissory notes issued under the Credit Agreement, the termination of all Interest Rate Protection Agreements or Other Hedging Agreements and the payment of all other Obligations and notwithstanding the discharge thereof. ARTICLE IX DEFINITIONS The following terms shall have the meanings herein specified. Such definitions shall be equally applicable to the singular and plural forms of the terms defined. "Administrative Agent" shall have the meaning provided in the recitals to this Agreement. "Agreement" shall mean this Security Agreement as the same may be modified, supplemented or amended from time to time in accordance with its terms. "Assignor" shall have the meaning provided in the first paragraph of this Agreement. "Borrower" shall have the meaning provided in the recitals to this Agreement. "Cash Collateral Account" shall mean a cash collateral account maintained with, and in the sole dominion and control of, the Collateral Agent for the benefit of the Secured Creditors. "Chattel Paper" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Class" shall have the meaning provided in Section 10.2 of this Agreement. "Collateral" shall have the meaning provided in Section 1.1(a) of this Agreement. "Collateral Agent" shall have the meaning provided in the first paragraph of this Agreement. "Contract Rights" shall mean all rights of any Assignor (including, without limitation, all rights to payment) under each Contract. "Contracts" shall mean all contracts between any Assignor and one or more additional parties (including, without limitation, any Interest Rate Protection Agreements or Other Hedging Agreements and any partnership agreements, joint venture agreements or limited liability agreements). Page 20 "Copyrights" shall mean any United States or foreign copyright owned by any Assignor, including any registrations of any Copyrights, in the United States Copyright Office or the equivalent thereof in any foreign country, as well as any application for a United States or foreign copyright registration now or hereafter made with the United States Copyright Office or the equivalent thereof in any foreign country by any Assignor, other than those countries outside the United States where the grant of a security interest would invalidate such Copyrights. "Credit Agreement" shall have the meaning provided in the recitals to this Agreement. "Default" shall mean any event which, with notice or lapse of time, or both, would constitute an Event of Default. "Documents" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Equipment" shall mean any "equipment," as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now or hereafter owned by any Assignor and, in any event, shall include, but shall not be limited to, all machinery, equipment, furnishings, fixtures and vehicles now or hereafter owned by any Assignor and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Event of Default" shall mean any Event of Default under, and as defined in, the Credit Agreement and shall in any event, without limitation, include any payment default on any of the Obligations after the expiration of any applicable grace period. "General Intangibles" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York (and shall, in any event, include all partnership interests, limited liability company interests and membership interests). "Goods" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Holdings" shall have the meaning provided in the recitals to this Agreement. "Indemnitee" shall have the meaning provided in Section 8.1 of this Agreement. "Instrument" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Inventory" shall mean merchandise, inventory and goods, and all additions, substitutions and replacements thereof, wherever located, together with all goods, supplies, incidentals, packaging materials, labels, materials and any other items used or usable in Page 21 manufacturing, processing, packaging or shipping same; in all stages of production -- from raw materials through work-in-process to finished goods -- and all products and proceeds of whatever sort and wherever located and any portion thereof which may be returned, rejected, reclaimed or repossessed by the Collateral Agent from any Assignor's customers, and shall specifically include all "inventory" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now or hereafter owned by any Assignor. "Investment Property" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Lender Creditors" shall have the meaning provided in the recitals to this Agreement. "Lenders" shall have the meaning provided in the recitals to this Agreement. "Liens" shall mean any security interest, mortgage, pledge, lien, claim, charge, encumbrance, title retention agreement, lessor's interest in a financing lease or analogous instrument, in, of, or on any Assignor's property. "Loan Document Obligations" shall have the meaning provided in the definition of "Obligations" in this Article IX. "Marks" shall mean all right, title and interest in and to any United States or foreign trademarks, service marks and trade names now held or hereafter acquired by any Assignor, including any registration of any trademarks and service marks in the United States Patent and Trademark Office, or the equivalent thereof in any foreign country, other than those countries outside the United States, where the grant of a security interest would invalidate such trademarks, service marks and trade names, and any trade dress including logos and/or designs used by any Assignor in the United States or any foreign country. "Obligations" shall mean (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of each Assignor, whether now existing or hereafter incurred under, arising out of or in connection with any Loan Document to which such Assignor is a party and the due performance and compliance by each Assignor with the terms of each such Loan Document (all such obligations and liabilities under this clause (i), except to the extent consisting of obligations or indebtedness with respect to Interest Rate Protection Agreements or Other Hedging Agreements, being herein collectively called the "Loan Document Obligations"); (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of each Assignor now existing or hereafter incurred under, arising out of or in connection with any Interest Rate Protection Agreement or Other Hedging Agreement including, in the case of the Assignors other than the Borrower, all obligations of such Assignor under Article X of the Credit Agreement or under the Subsidiary Guaranty, as the case may be, in respect of Interest Rate Protection Agreements or Other Page 22 Hedging Agreements (all such obligations and liabilities under this clause (ii) being herein collectively called the "Other Obligations"); (iii) any and all sums advanced by the Collateral Agent in order to preserve the Collateral or preserve its security interest in the Collateral; (iv) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities of each Assignor referred to in clauses (i) and (ii), after an Event of Default shall have occurred and be continuing, the reasonable expenses of re-taking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the Collateral, or of any exercise by the Collateral Agent of its rights hereunder, together with reasonable attorneys' fees and court costs; and (v) all amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement under Section 8.1 of this Agreement. "Other Creditors" shall have the meaning provided in the recitals to this Agreement. "Other Obligations" shall have the meaning provided in the definition of "Obligations" in this Article IX. "Patents" shall mean any United States or foreign patent to which any Assignor now or hereafter has title and any divisions or continuations thereof, as well as any application for a United States or foreign patent now or hereafter made by any Assignor, except those patents or patent applications in those countries outside the United States where the granting of a security interest in such patents is not permissible under the laws of that country. "Permits" shall mean, to the extent permitted to be assigned by the terms thereof or by applicable law, all licenses, permits, rights, orders, variances, franchises or authorizations of or from any governmental authority or agency. "Pro Rata Share" shall have the meaning provided in Section 7.4(b) of this Agreement. "Proceeds" shall have the meaning provided in the Uniform Commercial Code as in effect in the State of New York on the date hereof or under other relevant law and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Collateral Agent or any Assignor from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to any Assignor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority) and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Receivables" shall mean any "account" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now or hereafter owned by any Assignor and, in any event, shall include, but shall not be limited to, all of such Assignor's rights to payment for goods sold or leased or services performed by such Assignor, whether now in existence or arising from time to time hereafter, including, without limitation, rights evidenced by an account, note, contract, security agreement, chattel paper, or other Page 23 evidence of indebtedness or security, together with (a) all security pledged, assigned, hypothecated or granted to or held by such Assignor to secure the foregoing, (b) all of any Assignor's right, title and interest in and to any goods, the sale of which gave rise thereto, (c) all guarantees, endorsements and indemnifications on, or of, any of the foregoing, (d) all powers of attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith, (e) all books, records, ledger cards, and invoices relating thereto, (f) all evidences of the filing of financing statements and other statements and the registration of other instruments in connection therewith and amendments thereto, notices to other creditors or secured parties, and certificates from filing or other registration officers, (g) all credit information, reports and memoranda relating thereto and (h) all other writings related in any way to the foregoing. "Requisite Creditors" shall have the meaning provided in Section 10.2 of this Agreement. "Secured Creditors" shall have the meaning provided in the recitals to this Agreement. "Termination Date" shall have the meaning provided in Section 10.8 of this Agreement. "Trade Secret Rights" shall have the meaning provided in Section 5.1 of this Agreement. ARTICLE X MISCELLANEOUS 10.1. Notices. Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been duly given or made when delivered to the party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, addressed: (a) if to any Assignor, at: c/o Globe Manufacturing Corp. 456 Bedford Street Fall River, MA 02720 Attention: Lawrence Walsh Telephone No.: (508) 674-3588 Telecopier No.: (508) 679-9458 (b) if to the Collateral Agent, at: Page 24 Bank of America National Trust and Savings Association 1455 Market Street, 12th Floor San Francisco, California 94103 Attention: Agency Management #10831 Dietmar Schiel, Vice President Telephone No.: (415) 436-2769 Facsimile No.: (415) 436-3425; (c) if to any Lender Creditor (other than the Collateral Agent), at such address as such Lender Creditor shall have specified in the Credit Agreement; (d) if to any Other Creditor, at such address as such Other Creditor shall have specified in writing to each Assignor and the Collateral Agent; or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. 10.2. Waiver; Amendment. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Assignor directly affected thereby and the Collateral Agent (with the consent of (x) either the Required Lenders (or, to the extent required by Section 12.01 of the Credit Agreement, all of the Lenders) at all times prior to the time on which all Loan Document Obligations have been paid in full or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Loan Document Obligations have been paid in full); provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors of such Class of Secured Creditors. For the purpose of this Agreement the term "Class" shall mean each class of Secured Creditors, i.e., whether (x) the Lender Creditors as holders of the Loan Document Obligations or (y) the Other Creditors as the holders of the Other Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (x) with respect to the Loan Document Obligations, the Required Lenders and (y) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Interest Rate Protection Agreements or Other Hedging Agreements. 10.3. Obligations Absolute. The obligations of each Assignor hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of such Assignor; (b) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement, any other Loan Document or any Interest Rate Protection Agreement or Other Hedging Agreement; or (c) any amendment to or modification of any Loan Document or any Interest Rate Protection Agreement or Other Hedging Agreement or any security for any of the Obligations; whether or not any Assignor shall have notice or knowledge of any of the foregoing. Page 25 10.4. Successors and Assigns. This Agreement shall be binding upon each Assignor and its successors and assigns and shall inure to the benefit of the Collateral Agent and its successors and assigns; provided, that no Assignor may transfer or assign any or all of its rights or obligations hereunder without the prior written consent of the Collateral Agent. All agreements, statements, representations and warranties made by each Assignor herein or in any certificate or other instrument delivered by such Assignor or on its behalf under this Agreement shall be considered to have been relied upon by the Secured Creditors and shall survive the execution and delivery of this Agreement, the other Loan Documents and the Interest Rate Protection Agreements and Other Hedging Agreements regardless of any investigation made by the Secured Creditors or on their behalf. 10.5. Headings Descriptive. The headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 10.6. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 10.7. Assignor's Duties. It is expressly agreed, anything herein contained to the contrary notwithstanding, that each Assignor shall remain liable to perform all of the obligations, if any, assumed by it with respect to the Collateral and the Collateral Agent shall not have any obligations or liabilities with respect to any Collateral by reason of or arising out of this Agreement, nor shall the Collateral Agent be required or obligated in any manner to perform or fulfill any of the obligations of each Assignor under or with respect to any Collateral. 10.8. Termination; Release. (a) After the Termination Date, this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 8.1 hereof shall survive such termination) and the Collateral Agent, at the request and expense of the respective Assignor, will promptly execute and deliver to such Assignor a proper instrument or instruments (including Uniform Commercial Code termination statements on form UCC-3) acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to such Assignor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Collateral Agent and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agreement, "Termination Date" shall mean the date upon which the Aggregate Commitment and all Interest Rate Protection Agreements and Other Hedging Agreements have been terminated, no promissory note or Letter of Credit under the Credit Agreement is outstanding (other than Letters of Credit, together with all fees that have accrued and will accrue thereon through the stated termination date of such Letters of Credit, which have been supported in a manner satisfactory to the Issuing Lender in its sole and absolute discretion) and all other Obligations (other than any indemnities described in Section 8.1 hereof and in Section 12.05 of the Credit Agreement which are not then due and payable) have been paid in full. Page 26 (b) In the event that any part of the Collateral is sold or otherwise disposed of in connection with a sale or other disposition permitted by Section 8.02 of the Credit Agreement or is otherwise released at the direction of the Required Lenders (or all the Lenders if required by Section 12.01 of the Credit Agreement), the Collateral Agent, at the request and expense of such Assignor, will duly release from the security interest created hereby and assign, transfer and deliver to such Assignor (without recourse and without any representation or warranty) such of the Collateral as is then being (or has been) so sold or released and as may be in the possession of the Collateral Agent and has not theretofore been released pursuant to this Agreement. (c) At any time that the respective Assignor desires that Collateral be released as provided in the foregoing Section 10.8(a) or (b), it shall deliver to the Collateral Agent a certificate signed by a Responsible Officer of such Assignor stating that the release of the respective Collateral is permitted pursuant to Section 10.8(a) or (b) hereof. 10.9. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Collateral Agent. 10.10. The Collateral Agent. The Collateral Agent will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Collateral Agent as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement and as provided in the Uniform Commercial Code in the State of New York. The Collateral Agent shall act hereunder on the terms and conditions set forth in Article XI of the Credit Agreement. 10.11. Additional Assignors. It is understood and agreed that any Subsidiary of the Borrower that is required to execute a counterpart of this Agreement after the date hereof pursuant to Sections 7.12 and/or 8.15 of the Credit Agreement shall automatically become an Assignor hereunder by executing a counterpart hereof and delivering the same to the Collateral Agent. * * * Page 27 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. GLOBE HOLDINGS, INC., as an Assignor By: /s/ T.A. Rodgers III -------------------- Title: President and Chief Executive Officer GLOBE MANUFACTURING CORP., as an Assignor By: /s/ T.A Rodgers III ------------------- Title: President and Chief Executive Officer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent By: /s/ Dietmar Schiel ------------------ Title: Vice President ANNEX A to SECURITY AGREEMENT ------------------ SCHEDULE OF CHIEF EXECUTIVE OFFICES ----------------------------------- AND OTHER RECORD LOCATIONS -------------------------- Annex A lists the offices and record locations of Globe Holdings, Inc. and Globe Manufacturing Corp. ANNEX B to SECURITY AGREEMENT ------------------ SCHEDULE OF INVENTORY AND EQUIPMENT LOCATIONS --------------------------------------------- Annex B lists inventory and equipment locations. ANNEX C to SECURITY AGREEMENT ------------------ TRADE AND FICTITIOUS NAMES -------------------------- Annex C lists the trade names for Globe Holdings, Inc. and Globe Manufacturing Corp. ANNEX D to SECURITY AGREEMENT ------------------ LIST OF MARKS ------------- Annex D lists registered trademarks and trademark applications. ANNEX E to SECURITY AGREEMENT ------------------ LIST OF PATENTS AND APPLICATIONS -------------------------------- Annex E lists patents and patent applications. ANNEX F to SECURITY AGREEMENT ------------------ LIST OF COPYRIGHTS AND APPLICATIONS ----------------------------------- None. ANNEX G TO SECURITY AGREEMENT ------- GRANT OF SECURITY INTEREST IN UNITED STATES TRADEMARKS AND PATENTS --------------------------------------- FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which are hereby acknowledged, [Name of Grantor], a ____________ (the Grantor") with principal offices at _______________________________, hereby grants to Bank of America National Trust and Savings Association, as Collateral Agent, with principal offices at 1455 Market Street, 12th Floor, San Francisco, CA 94103 (the "Grantee"), a security interest in (i) all of the Grantor's right, title and interest in and to the United States trademarks, trademark registrations and trademark applications (the "Marks") set forth on Schedule A attached hereto, (ii) all of the Grantor's rights, title and interest in and to the United States patents (the "Patents") set forth on Schedule B attached hereto, in each case together with (iii) all Proceeds (as such term is defined in the Security Agreement referred to below) and products of the Marks and Patents, (iv) the goodwill of the businesses with which the Marks are associated and (v) all causes of action arising prior to or after the date hereof for infringement of any of the Marks and Patents or unfair competition regarding the same. THIS AGREEMENT is made to secure the satisfactory performance and payment of all the Obligations of the Grantor, as such term is defined in the Security Agreement among Grantor, the other assignors from time to time party thereto and the Grantee, dated as of July 31, 1998 (as amended from time to time, the "Security Agreement"). Upon the occurrence of the Termination Date (as defined in the Security Agreement), the Grantee shall, upon such satisfaction, execute, acknowledge, and deliver to the Grantor an instrument in writing releasing the security interest in the Marks and Patents acquired under this Agreement. Annex G Page 2 This Agreement has been granted in conjunction with the security interest granted to the Grantee under the Security Agreement. The rights and remedies of the Grantee with respect to the security interest granted herein are without prejudice to, and are in addition to those set forth in the Security Agreement, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this Agreement are deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall govern. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the ___ day of ____________. [NAME OF GRANTOR], as Grantor By_____________________________ Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent and Grantee By_______________________________________ Name: Title: Annex G Page 3 STATE OF ) ) ss.: COUNTY OF ) On this ____ day of ______________, _____, before me personally came _________________ who, being by me duly sworn, did state as follows: that [s]he is _______________ of [Name of Grantor], that [s]he is authorized to execute the foregoing Agreement on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. ___________________________ Notary Public Annex G Page 4 STATE OF ) ) ss.: COUNTY OF ) On this ___ day of _____________, _____, before me personally came _____________________ who, being by me duly sworn, did state as follows: that [s]he is __________________ of Bank of America National Trust and Savings Association, that [s]he is authorized to execute the foregoing Agreement on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. ___________________________ Notary Public Annex G Page 5 SCHEDULE A ---------- MARK REG. NO. REG. DATE - ---- -------- --------- Annex G Page 6 SCHEDULE B ---------- PATENT PATENT NO. ISSUE DATE - ------ ---------- ---------- GRANT OF SECURITY INTEREST IN UNITED STATES COPYRIGHTS --------------------------- WHEREAS, [Name of Grantor], a _____________ ___________ (the "Grantor"), having its chief executive office at ______________________________________________ is the owner of all right, title and interest in and to the United States copyrights and associated United States copyright registrations and applications for registration set forth in Schedule A attached hereto; WHEREAS, Bank of America National Trust and Savings Association, as Collateral Agent, having its principal offices at 1455 Market Street, 12th Floor, San Francisco, CA 94103 (the "Grantee"), desires to acquire a security interest in said copyrights and copyright registrations and applications therefor; and WHEREAS, the Grantor is willing to grant to the Grantee a security interest in the copyrights and copyright registrations and applications therefor described above; NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, and subject to the terms and conditions of the Security Agreement, dated as of July 31, 1998, made by the Grantor, the other assignors from time to time party thereto and the Grantee (as amended from time to time, the "Security Agreement"), the Grantor hereby grants to the Grantee a security interest in the copyrights and copyright registrations and applications therefor set forth in Schedule A attached hereto. This Agreement has been granted in conjunction with the security interest granted to the Grantee under the Security Agreement. The rights and remedies of the Grantee with respect to the security interest granted herein are without prejudice to, and are in addition to those set forth in the Security Agreement, all terms and provisions of which are incorporated herein by reference. In the event that any provisions of this Agreement are deemed to conflict with the Security Agreement, the provisions of the Security Agreement shall govern. Executed at ________, ________, the ___ day of _____ _____. [NAME OF GRANTOR], as Grantor By_____________________________ Name: Title: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Collateral Agent and Grantee By______________________________________ Name: Title: STATE OF ) ) ss.: COUNTY OF ) On this ___ day of _____ ______, before me personally came _______________, who being duly sworn, did depose and say that [s]he is ___________________ of [Name of Grantor], that [s]he is authorized to execute the foregoing Agreement on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. ___________________________ Notary Public STATE OF ) ) ss.: COUNTY OF ) On this ___ day of ______, _______, before me personally came _____________________ who, being by me duly sworn, did state as follows: that [s]he is __________________ of Bank of America National Trust and Savings Association, that [s]he is authorized to execute the foregoing Agreement on behalf of said corporation and that [s]he did so by authority of the Board of Directors of said corporation. ___________________________ Notary Public SCHEDULE A ---------- U.S. COPYRIGHTS --------------- REGISTRATION PUBLICATION COPYRIGHT NUMBERS DATE TITLE - ------------ ----------- --------- EX-10.12 5 AMENDED & RESTATED PERFORMANCE OPTION AGREEMENT Exhibit 10.12 GLOBE HOLDINGS, INC. Amended and Restated Performance Option Agreement This Amended and Restated Performance Option Agreement (this "Agreement") amends and restates the Globe Manufacturing Co. Performance Option Agreement under the Management Incentive Plan by and between the Optionee (as hereinafter defined) and the Company (as hereinafter defined), which option agreement was effective immediately prior to the consummation of the merger (the "Merger") contemplated by the Agreement and Plan of Merger dated June 23, 1998 by and between the Company and Globe Acquisition Company, as amended. Such option agreement provided for the right to purchase 2246.5 shares of Class C Common Stock of the Company. Effective upon the Merger, each share of Class C Common Stock represented the right to receive a Unit (as hereinafter defined). 1. Grant of Option. Globe Holdings, Inc,. a Massachusetts corporation formerly known as Globe Manufacturing Co. (the "Company"), hereby grants to _____________ (the "Optionee") an option (the "Option") to purchase an aggregate of 2,246.5 Units (as defined below) at a price of thirty dollars ($30.00) per Unit, purchasable as set forth in, and subject to the terms and conditions of, the Globe Manufacturing Co. Management Incentive Plan (the "Plan"), the Executive Securities Agreement of even date herewith by and between the Optionee and the Company (the "Executive Securities Agreement") and this Option. Except where the context otherwise requires, the term "Company" shall include the parent and all present and future subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from time to time (the "Code"). For purposes hereof, a Unit shall consist of ten (10) shares of the Company's Class A Common Stock, par value $.01 per share ("Class A Common Stock:"), and .13354106 shares of the Company's Class A Preferred Stock, par value $.01 per share ("Preferred Stock"). 2. Non-Qualified Stock Option. This Option is not intended to qualify as an incentive stock option under Section 422 of the Code. 3. Exercise of Option and Provisions for Termination. 3.1 Vesting Schedule. Except as otherwise provided in this Agreement or the Executive Securities Agreement, this Option may be exercised at any time and from time to time after the date hereof as to part or all of the Units hereunder prior to termination of this Option as provided herein. 3.2 Exercise Procedure. Subject to the conditions set forth in this Agreement, this Option shall be exercised by the Optionee's delivery of written notice of exercise to the Treasurer of the Company specifying the number of Units to be purchased and the purchase price to be paid therefor 1 and accompanied by payment in full in accordance with Section 4. Such exercise shall be effective upon receipt by the Treasurer of the Company of such written notice together with the required payment. The Optionee may purchase fewer than the total number of Units covered hereby, provided that no partial exercise of this Option may be for fewer than ten Units. This Option shall expire and shall not be exercisable after July 31, 2008. 3.3 Continuous Relationship with the Company Required. Except as otherwise provided in this Section 3 or as otherwise provided in the Executive Securities Agreement, this Option may not be exercised unless the Optionee, at the time he or she exercises this Option, is, and has been at all times since the date of grant of this Option, an employee or officer of the Company (an "Eligible Optionee"). 4. Payment of Purchase Price. 4.1 Method of Payment. Payment of the purchase price for Units purchased upon exercise of this Option shall be made by (i) delivery to the Company of cash or a check to the order of the Company in an amount equal to the purchase price of such Units, (ii) subject to the consent of the Company, by delivery to the Company of shares of common stock of the Company then owned by the Optionee having a Fair Market Value (as defined in the Executive Securities Agreement) equal in amount to the purchase price of such Units, (iii) by any other means which the Board of Directors determines are consistent with the purpose of the Plan and applicable laws and regulations (including, without limitation, Regulation T promulgated by the Federal Reserve Board), or (iv) by any combination of such methods of payment. 4.2 Delivery of Shares Tendered in Payment of Purchase Price. If the Company permits the Optionee to exercise options by delivery of shares of common stock of the Company, the certificate or certificates representing the shares of common stock of the Company to be delivered shall be duly executed in blank by the Optionee or shall be accompanied by a stock power duly executed in blank suitable for purposes of transferring such shares to the Company. Fractional shares of common stock of the Company will not be accepted in payment of the purchase price of shares acquired upon exercise of this Option. 4.3 Restrictions Upon Use of Option Stock. Notwithstanding the foregoing, no shares of common stock of the Company may be tendered in payment of the purchase price of Units purchased upon exercise of this Option if the shares to be so tendered were acquired within twelve (12) months before the date of such tender, through the exercise of an option granted under the Plan or any other stock option or restricted stock plan of the Company. 5. Delivery of Shares; Compliance With Securities Law, Etc. 5.1 General. The Company shall, upon payment of the option price for the number of Units purchased and paid for, make prompt delivery of the shares comprising such Units to the Optionee, provided that if any law or regulation requires the Company to take any action with respect to such shares before the issuance thereof, then the date of delivery of such securities shall be extended for the period necessary to complete such action. 2 5.2 Listing, Qualification, Etc. This Option shall be subject to the requirement that if, at any time, counsel to the Company shall determine that the listing, registration or qualification of the shares comprising the Units subject hereto upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, or that the disclosure of non-public information or the satisfaction of any other condition is necessary as a condition of, or in connection with, the issuance or purchase of Units hereunder, this Option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval, disclosure, or satisfaction of such other condition shall have been effected or obtained on terms acceptable to the Board of Directors. Nothing herein shall be deemed to require the Company to apply for, effect or obtain such listing, registration, qualification, or disclosure or satisfy such other condition. 6. Legend on Certificates. Each outstanding certificate representing shares comprising Units that are subject to this Agreement shall bear legends substantially in the following form: These securities have not been registered under the Securities Act of 1933. They may not be offered or transferred by sale, assignment, pledge or otherwise unless (i) a registration statement for the securities under the Securities Act of 1933 is in effect or (ii) the corporation has received an opinion of counsel, which opinion is satisfactory to the corporation, to the effect that such registration is not required under the Securities Act of 1933. The sale, assignment, pledge, encumbrance or other transfer of the securities represented by this certificate is subject to the provisions of an executive securities agreement by and between the corporation and the holder of such securities, a copy of each of which is on file at the principal executive office of the corporation. 7. No Special Employment or Similar Rights. Nothing contained in the Plan or this Option shall be construed or deemed by any person under any circumstances to bind the Company to continue the employment or other relationship of the Optionee with the Company for the period within which this Option may be exercised. 8. Rights as a Shareholder. The Optionee shall have no rights as a shareholder with respect to any shares comprising Units which may be purchased by exercise of this Option (including, without limitation, any rights to receive dividends or non-cash distributions with respect to such shares) unless and until a certificate representing such shares is duly issued and delivered to the Optionee. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 3 9. Adjustment Provisions. 9.1 General. If, through or as a result of any merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, conversion or other similar transaction, (i) the outstanding shares of Class A Common Stock or Preferred Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or (ii) additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Class A Common Stock, Preferred Stock or other securities, the Optionee shall, with respect to this Option or any unexercised portion hereof, be entitled to the rights and benefits, and be subject to the limitations, set forth in Section 15(a) of the Plan. 9.2 Board Authority to Make Adjustments. Any adjustments under this Section 9 will be made by the Board of Directors, whose determination as to what adjustments, if any, will be made and the extent thereof will be final, binding and conclusive. 10. Subject to Terms of Executive Securities Agreement. This Option, the shares of Class A Common Stock and Preferred Stock issuable pursuant to this Agreement and the rights of the Optionee hereunder are subject to the terms and conditions of the Executive Securities Agreement. In the event of any conflict between the terms of the Executive Securities Agreement, on the one hand, and the Plan or this Agreement, on the other hand, the terms of the Executive Securities Agreement shall control. 11. Withholding Taxes. The Company's obligation to deliver shares upon the exercise of this Option shall be subject to the Optionee's satisfaction of all applicable federal, state and local income and employment tax withholding requirements. 12. Miscellaneous. 12.1 Except as provided herein, this Option may not be amended or otherwise modified unless evidenced in writing and signed by the Company and the Optionee. 12.2 All notices under this Option shall be mailed or delivered by hand to the parties at their respective addresses set forth beneath their names below or at such other address as may be designated in writing by either of the parties to one another. 12.3 This Option shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. Date of Grant: July 31, 1998 GLOBE HOLDINGS, INC. By:__________________________ Title:_______________________ Address: 456 Bedford Street Fall River, MA 02720 4 OPTIONEE'S ACCEPTANCE The undersigned hereby accepts the foregoing option and agrees to the terms and conditions thereof. The undersigned hereby acknowledges receipt of a copy of the Company's Management Incentive Plan. OPTIONEE _______________________________ ADDRESS: _____________________ _____________________ 5 EX-10.14 6 CONSULTING AGREEMENT, DATED JULY 31, 1998 Exhibit 10.14 CONSULTING AGREEMENT -------------------- THIS AGREEMENT is entered into as of July 31, 1998, by and between Thomas A. Rodgers, Jr. ("Consultant") and Globe Manufacturing Corp., an Alabama corporation formerly known as Globe Elastic Co. Inc. (the "Company"). The Company and Consultant are sometimes collectively referred to herein as the "Parties" and individually as a "Party". Consultant has been (i) an officer of the Company and (ii) an officer, director and stockholder of Globe Holdings, Inc., a Massachusetts corporation formerly known as Globe Manufacturing Co. and the parent of the Company ("Holdings"), and as such, possesses special knowledge, abilities and experience regarding the business of the Company. Holdings and Globe Acquisition Company, a Delaware corporation ("Acquisition"), are parties to an Agreement and Plan of Merger, dated as of June 23, 1998, as amended (the "Merger Agreement"), whereby Acquisition shall merge with and into Holdings and Holdings shall be the surviving corporation in the merger (the "Merger"). Upon the Merger becoming effective, the Company desires to obtain the services of Consultant to consult with and perform services as an independent contractor for the Company with respect to its businesses, and Consultant desires to provide services to the Company upon the terms and conditions set forth in this Agreement. In consideration of the mutual covenants and agreements set forth herein, the Parties agree as follows: 1. Consulting Services. The Company hereby engages Consultant as an independent contractor, and not as an employee, to render consulting services to the Company as hereinafter provided, and Consultant hereby accepts such engagement, for a period commencing on the Closing Date (as defined in the Merger Agreement) and terminating on December 31, 1998 (the "Consulting Period"); provided that the Consulting Period shall automatically be renewed thereafter on a year-to-year basis unless, at least 30 days prior to the end of the then effective term, one party gives written notice to the other of its desire to terminate the Consulting Period. Consultant shall not have any authority to bind or act on behalf of the Company. During the Consulting Period, Consultant shall render such consulting services ("Consulting Services") to the Company in connection with the Company's business as the Company's board of directors from time to time requests. The Consulting Services shall initially include Consultant serving as chairman ("Chairman") of the board of directors of Holdings (the "Board") until such time as (i) the Consultant gives notice to the Board that he intends to cease serving as Chairman, (ii) the Board gives notice to the Consultant that he shall no longer serve as Chairman, or (iii) the Consultant ceases to be a director of Holdings. 2. Compensation; Reimbursement. During the Consulting Period, in consideration of Consultant's consulting services set forth in paragraph 1 above, the Company (i) shall pay to Consultant compensation of $100,000 per annum and (ii) shall pay Consultant's health insurance premiums consistent with the Company's practice immediately prior to the date hereof, with payment of such compensation and health insurance premiums (together, the "Consulting Payments") being pro rated throughout each applicable twelve-month period in accordance with the Company's normal payroll practices. Except as expressly set forth in the immediately preceding sentence, Consultant shall not be entitledto any fringe benefits or perquisites from the Company. The Company shall reimburse Consultant for all reasonable expenses incurred by him in the course of performing his duties under this Agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses. 3. Other Remedies. In the event of a material breach by the Consultant of any provision of the noncompetition and confidentiality agreement between Consultant and Holdings, of even date herewith (the "Noncompete Agreement"), which is not cured within 10 days of Consultant's receiving notice of such material breach from the Company, then, in addition and supplementary to any other rights and remedies provided herein or therein, the Company shall cease making any further Consulting Payments to Consultant hereunder. 4. Tax Returns. Consultant shall file all tax returns and reports required to be filed by him on the basis that Consultant is an independent contractor, rather than an employee, as defined in Treasury Regulation (S)31.3121(d)-1(c)(2), and Consultant shall indemnify the Company for the amount of any employment taxes paid by the Company as the result of Consultant not withholding employment taxes from the Consulting Payment. 5. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its affiliates, successors and assigns and shall be binding upon and inure to the benefit of Consultant and his legal representatives and assigns; provided that in no event shall Consultant's obligations to perform future services for the Company be delegated or transferred by Consultant without the prior written consent of the Company (which consent may be withheld in its sole discretion). The Company may assign or transfer its rights hereunder to any of its affiliates or to a successor corporation in the event of merger, consolidation or transfer or sale of all or substantially all of the assets of the Company. 6. Modification or Waiver. No amendment, modification or waiver of this Agreement shall be binding or effective for any purpose unless it is made in a writing signed by the Party against who enforcement of such amendment, modification or waiver is sought. No course of dealing between the Parties to this Agreement shall be deemed to affect or to modify, amend or discharge any provision or term of this Agreement. No delay on the part of the Company or Consultant in the exercise of any of their respective rights or remedies shall operate as a waiver thereof, and no single or partial exercise by the Company or Consultant of any such right or remedy shall preclude other or further exercises thereof. A waiver of right or remedy on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on any other occasion. 2 7. Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Massachusetts, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Massachusetts or any other jurisdiction that would cause the application of the laws of any jurisdiction other than the State of Massachusetts. 8. Severability. Whenever possible each provision and term of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or term of this Agreement shall be held to be prohibited by or invalid under such applicable law, then such provision or term shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provision or term or the remaining provisions or terms of this Agreement. 9. No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the Parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any Party. 10. Consultant's Representations. Consultant represents and warrants to the Company that (i) his execution, delivery and performance of this Agreement does not and shall not conflict with, or result in the breach of or violation of, any other agreement, instrument, order, judgment or decree to which he is a party or by which he is bound, (ii) except for the Noncompete Agreement, he is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity, and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of his, enforceable in accordance with its terms. 11. Notice. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office mail, postage prepaid, addressed to the other Party hereto at his or its address shown below: If to the Company: ----------------- Globe Manufacturing Corp. 456 Bedford Street Fall River, MA 02720 Attention: President with a copy to: -------------- Code Hennessy & Simmons LLC 10 South Wacker Drive Suite 3175 Chicago, IL 60606 3 Attention: Peter M. Gotsch and with a copy to: ------------------ Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attention: Stephen L. Ritchie If to Consultant: ---------------- Thomas A. Rodgers, Jr. 19 Defenders Row Goat Island Newport, RI 02840 with a copy to: -------------- Hale and Dorr LLP 60 State Street Boston, MA 02109 Attention: John A. Burgess, Esq. or at such other address as such Party may designate by ten days advance written notice to the other Party. 12. Captions. The captions used in this Agreement are for convenience of reference only and do not constitute a part of this Agreement and shall not be deemed to limit, characterize or in any way affect any provision of this Agreement, and all provisions of this Agreement shall be enforced and construed as if no caption had been used in this Agreement. 13. Counterparts; Facsimile Signature. This Agreement may be executed in counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same instrument. This Agreement may be executed by facsimile signature. * * * * 4 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. GLOBE MANUFACTURING CORP. By: /s/ Lawrence R. Walsh ---------------------- Its: Vice President -------------- /s/ Thomas A. Rodgers, Jr. ____________________________________ THOMAS A. RODGERS, JR. 5 EX-12.1 7 STATEMENT OF COMPUTATION OF RATIOS Globe Manufacturing Corp. Exhibit 12.1 Statement Re: Computation of ratio of earnings to fixed charges
Fiscal Year Ended: Nine Months Ended: December 31, September 30, ------------------------------------------------- ------------------------- Pro forma Pro forma 1993 1994 1995 1996 1997 1997 1997 1998 1998 ------ ------ ------ ------ ------ --------- ------ ------ --------- Fixed Charges: - -------------- Interest expense 2,256 3,646 6,027 5,347 4,067 25,703 3,451 6,198 18,818 Interest capitalized 0 1,558 422 0 506 635 313 828 959 Interest portion of rental expense 21 22 18 6 7 7 5 6 6 Net amortization of debt issuance expense 490 438 297 151 94 0 73 48 0 ------ ------ ------ ------ ------ --------- ------ ------ --------- 2,767 5,664 6,764 5,504 4,674 26,345 3,842 7,080 19,783 Earnings: - --------- Consolidated pretax income from continuing operations 14,884 6,706 4,127 13,346 25,232 3,592 20,516 14,956 8,703 Fixed charges per above 2,767 5,664 6,764 5,504 4,674 26,345 3,842 7,080 19,783 Less interest capitalized 0 1,558 422 0 506 635 313 828 959 ------ ------ ------ ------ ------ --------- ------ ------ --------- 17,651 10,812 10,469 18,850 29,400 29,302 24,045 21,208 27,527 Ratio of earnings to fixed charges 6.38 1.91 1.55 3.42 6.29 1.11 6.26 3.00 1.39 ========================================================================================================= =========================
EX-23.1 8 CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 24, 1998 (except Note 12, as to which the date is August 6, 1998) in Amendment No. 1 to the Registration Statement (Form S-4 No. 333-64675) and related Prospectus of Globe Manufacturing Corp. for the registration of $150,000,000 of its 10% Senior Subordinated Notes due 2008, Series B. /s/ Ernst & Young LLP Ernst & Young LLP Providence, Rhode Island December 22, 1998 EX-27.1 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GLOBE MANUFACTURING CORP. FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR 9-MOS DEC-31-1997 DEC-31-1998 JAN-01-1997 JAN-01-1998 DEC-31-1997 SEP-30-1998 1,947 1,766 0 0 25,822 28,380 2,746 2,746 13,764 14,843 42,810 48,069 121,631 148,011 63,681 71,304 105,133 140,327 23,357 23,649 56,917 270,889 0 0 0 0 18 0 67,254 (152,775) 105,133 140,327 170,941 133,321 170,941 133,321 115,099 84,682 142,113 107,091 372 6,425 0 0 3,968 6,143 25,232 14,956 8,383 5,609 0 0 0 0 301 187 0 0 16,548 9,160 0 0 0 0
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