AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1997
REGISTRATION NO. 333-26995
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ANVIL KNITWEAR, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2253 13-3801709
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
--------------------------
ANVIL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2253 13-3801705
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
--------------------------
COTTONTOPS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2261 56-2005760
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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228 EAST 45TH STREET
NEW YORK, NEW YORK 10017
TELEPHONE: (212) 476-0300
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)
--------------------------
BERNARD GELLER, CHIEF EXECUTIVE COPY TO:
OFFICER DENNIS M. MYERS
Anvil Knitwear, Inc. Kirkland & Ellis
228 East 45th Street 200 East Randolph Drive
New York, New York 10017 Chicago, Illinois 60601
Telephone: (212) 476-0300 (312) 861-2000
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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If the 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 any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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.
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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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
SUBJECT TO COMPLETION, DATED JULY 23, 1997
PROSPECTUS
JULY 24, 1997
ANVIL KNITWEAR, INC.
OFFER TO EXCHANGE ITS 10 7/8% SERIES B SENIOR NOTES DUE 2007 FOR ANY AND ALL OF
ITS
OUTSTANDING 10 7/8% SERIES A SENIOR NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON AUGUST
22, 1997, UNLESS EXTENDED.
Anvil Knitwear, Inc., a Delaware corporation ("Anvil"), 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 Series B 10 7/8%
Senior Notes due 2007, (the "New Senior 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 7/8% Senior Notes due 2007 (the "Old Senior Notes"), of
which $130,000,000 principal amount is outstanding. The form and terms of the
New Senior Notes are the same as the form and term of the Old Senior Notes
(which they replace), except that the New Senior Notes will bear a Series B
designation and will have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer and will not contain
certain provisions relating to liquidated damages which were included in the
terms of the Old Senior Notes in certain circumstances relating to the timing of
the Exchange Offer. The New Senior Notes will evidence the same debt as the Old
Senior Notes (which they replace) and will be issued under and be entitled to
the benefits of an Indenture, dated as of March 14, 1997 (the "Senior
Indenture"), between Anvil, Anvil's parent, Anvil Holdings, Inc., a Delaware
corporation ("Holdings"), Cottontops, Inc., a Delaware corporation
("Cottontops") (a subsidiary of Anvil), the other Subsidiary Guarantors (as
defined therein) and United States Trust Company of New York, as trustee,
governing the Old Senior Notes and the New Senior Notes. The Old Senior Notes
and the New Senior Notes are sometimes referred to herein collectively as the
"Senior Notes." See "The Exchange Offer" and "Description of Securities--Senior
Notes."
The Senior Notes bear interest at a rate of 10 7/8% per annum, payable
semi-annually on March 15 and September 15 of each year, commencing on September
15, 1997. The Senior Notes will mature on March 15, 2007 and will not be subject
to any sinking fund requirement. The Senior Notes will be redeemable by Anvil,
in whole or in part, at any time on or after March 15, 2002, at the redemption
prices set forth herein, plus accrued and unpaid interest and Liquidated Damages
(as defined herein), if any, to the redemption date. Notwithstanding the
foregoing, at any time on or before March 15, 2000, Anvil, at its option, may
redeem in the aggregate up to 40% of the original principal amount of the Senior
Notes at 110% of the aggregate principal amount so redeemed plus accrued and
unpaid interest and Liquidated Damages, if any, to the redemption date with the
net proceeds of one or more Public Equity Offerings (as defined herein),
PROVIDED that at least 60% of the principal amount of the Senior Notes
originally issued remain outstanding immediately after the occurrence of any
such redemption and that any such redemption occurs within 60 days following the
closing of any such Public Equity Offering. See "Description of
Securities--Senior Notes-- Optional Redemption."
The New Senior Notes will be, as the Old Senior Notes (which they replace)
are, senior unsecured obligations of Anvil, and will, as the Old Senior Notes
(which they replace), rank PARI PASSU in right of payment to all existing and
future senior indebtedness of Anvil and senior in right of payment to any
subordinated indebtedness of Anvil. THE COMPANY HAS NOT ISSUED, AND DOES NOT
HAVE ANY CURRENT FIRM ARRANGEMENTS TO ISSUE, ANY SIGNIFICANT INDEBTEDNESS TO
WHICH THE SENIOR NOTES WOULD BE SENIOR. The New Senior Notes will be, as the Old
Senior Notes (which they replace) are, fully and unconditionally, jointly and
severally guaranteed, on an unsecured senior basis by Holdings, Cottontops and
the other Subsidiary Guarantors, if any, of Anvil (the "Guarantees"). The Senior
Notes and the Guarantees will be effectively subordinated to all existing and
future secured indebtedness of Anvil, Holdings and Cottontops, respectively, to
the extent of the value of the assets securing such indebtedness and will be
structurally subordinated to all existing and future indebtedness of their
respective subsidiaries. As of May 3, 1997, the aggregate principal amount of
senior indebtedness of Anvil and Holdings, including the Senior Notes and the
Guarantees, respectively, was approximately $156.5 million (including the
discount on the Senior Notes) and approximately $26.5 million of indebtedness of
Anvil and Holdings was secured. In addition, as of May 3, 1997, Anvil had $28.5
million of additional borrowing availability under the New Credit Agreement (as
defined). The Senior Indenture permits Anvil and its restricted subsidiaries to
incur additional indebtedness, subject to certain limitations, and contains no
limitation on the ability of Holdings to incur additional indebtedness.
(COVER PAGE CONTINUED ON FOLLOWING PAGE)
--------------------------
SEE "RISK FACTORS," BEGINNING ON PAGE 16, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD SENIOR 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.
(COVER PAGE CONTINUED)
The Company's borrowings under the New Credit Agreement are secured by a first
priority perfected security interest in all assets and properties of Anvil and
its domestic subsidiaries. As a result, any amounts borrowed under the New
Credit Agreement are senior in right of payment to the Senior Notes. As of July
14, 1997, the Company had borrowings under the New Credit Agreement of
approximately $24.5 million. See "Risk Factors--Subordination of Securities to
Current and Future Obligations," "Capitalization" and "Description of
Securities--Senior Notes."
In the event of a Change of Control (as defined), holders of the Senior
Notes will have the right to require Anvil to repurchase its Senior Notes at
101% of the aggregate principal amount thereof plus accrued and unpaid interest
and Liquidated Damages, if any, to the repurchase date. There is no assurance
that Anvil will have sufficient funds to repurchase the Senior Notes upon a
Change in Control. See "Risk Factors--Change of Control Provisions; Limitations
on Right of Repayment," "Description of Securities--Senior Notes--Certain
Covenants," "--Certain Definitions" and "--Repurchase at the Option of
Holders--Change of Control Offer." In addition, Anvil is obligated in certain
instances to make offers to repurchase the Senior Notes at a repurchase price in
cash equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of repurchase with the
proceeds of certain asset sales. See "Description of Securities--Senior
Notes--Certain Covenants."
Anvil will accept for exchange any and all Old Senior Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on August 22, 1997,
unless extended by Anvil in its reasonable discretion (the "Expiration Date").
Tenders of Old Senior 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. The Old Senior Notes were sold by Anvil on March 14, 1997 to the
Initial Purchasers (as defined) in a transaction not registered under the
Securities Act in a private placement pursuant to the exemption contained in
Section 4(2) of the Securities Act (the "Initial Offering"). The Initial
Purchasers subsequently placed the Old Senior Notes with qualified institutional
buyers in reliance upon Rule 144A under the Securities Act and with a limited
number of institutional accredited investors in reliance upon Rule 501(a) under
the Securities Act. Accordingly, the Old Senior 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 Senior Notes are being
offered hereunder in order to satisfy the obligations of Anvil, Holdings and
Cottontops under the Registration Rights Agreement (as defined) entered into by
Anvil, Holdings, Cottontops and the Initial Purchasers in connection with the
Initial Offering. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, Anvil believes the New
Senior Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of Anvil 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 Senior 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 Senior Notes. Each holder of Old Senior Notes accepting the Exchange
Offer is required to represent to Anvil that (i) the New Senior Notes are to be
acquired by the holder or the person receiving such New Senior 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) is not engaging and
does not intend to engage, in the distribution of the New Senior 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 Senior Notes, (iv) neither
the holder nor any such other person is an "affiliate" of Anvil 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 Senior Notes it must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale of the New Senior Notes and cannot
rely on those no-action letters. See "The Exchange Offer--Resale of the New
Senior Notes." Each broker-dealer (a "Participating Broker-Dealer") that
receives New Senior 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 Senior 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 Senior Notes received in exchange for Old Senior Notes where such Old
Senior Notes were acquired by such Participating Broker-Dealer as a result of
marketmaking activities or other trading activities. Anvil 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."
Holders of Old Senior Notes not tendered and accepted in the Exchange Offer
will continue to hold such Old Senior Notes and will be entitled to all the
rights and benefits and will be subject to the limitations applicable thereto
ii
under the Senior Indenture and with respect to transfer under the Securities
Act. Anvil will pay all the expenses incurred by it incident to the Exchange
Offer. See "The Exchange Offer."
There has not previously been any public market for the Old Senior Notes or
the New Senior Notes. Anvil does not intend to list the New Senior Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. The Old Senior Notes are currently eligible for trading in the
Private Offerings, Resales and Trading through Automated Linkages ("PORTAL")
market. However, there can be no assurance that an active market for the New
Senior Notes will develop. See "Risk Factors--Absence of a Public Market Could
Adversely Affect the Value of the Senior Notes." Moreover, to the extent that
Old Senior Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Senior Notes could be
adversely affected.
Concurrent with the Initial Offering, Holdings sold 30,000 Units (the
"Units"), each consisting of 40 shares of 13% Senior Exchangeable Preferred
Stock due 2009 (the "Old Senior Preferred Stock") of Holdings and 13 shares of
Class B Common Stock, $0.01 par value per share (the "Class B Common"), of
Holdings (the "Initial Units Offering" and, together with the Initial Offering,
the "Initial Offerings").
Concurrent with the Exchange Offer, Holdings is offering (the "Preferred
Exchange Offer") to exchange $1,000 liquidation preference of its Series B 13%
Senior Exchangeable Preferred Stock due 2009 (the "New Senior Preferred Stock")
for each $1,000 liquidation preference of its outstanding Old Senior Preferred
Stock. The New Senior Preferred Stock and the Old Senior Preferred Stock are
sometimes referred to herein collectively as the "Senior Preferred Stock." The
Senior Preferred Stock are exchangeable, at the option of Holdings, into
Holdings' 13% Subordinated Exchange Debentures due 2009 (the "Exchange
Debentures"). The Exchange Offer and the Preferred Exchange Offer are sometimes
referred to herein collectively as the "Exchange Offers." See
"Summary--Concurrent Preferred Exchange Offer." The Old Senior Notes, the New
Senior Notes, the New Senior Preferred Stock, the Old Senior Preferred Stock and
the Exchange Debentures are sometimes referred to herein collectively as the
"Securities."
The New Senior Notes will be available initially in book-entry form and
Anvil expects that the New Senior Notes issued pursuant to this Exchange Offer
will be issued in the form of a Global Note, which will be deposited with, or on
behalf of, The Depository Trust Company (the "Depositary") and registered in its
name or in the name of Cede & Co., its nominee, except with respect to
institutional "accredited investors" (within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act) who will receive New Senior Notes in
certificated form. Beneficial interests in the Global Note will be shown on, and
transfer thereof will be effected through, records maintained by the Depositary
and its participants. After the initial issuance of the Global Note, New Senior
Notes in certificated form will be issued in exchange for the Global Note on the
terms set forth in the Senior Indenture. See "Description of Securities--Senior
Notes--Book-Entry, Delivery and Form."
Market data used throughout this Prospectus were obtained from internal
surveys and industry publications. Industry publications generally indicate that
the information contained therein has been obtained from sources believed to be
reliable, but that the accuracy and completeness of such information is not
guaranteed. Neither Anvil nor Holdings have independently verified such market
data. Similarly, internal surveys, while believed to be reliable, have not been
verified by any independent source.
This Prospectus, including the documents incorporated by reference herein,
contains certain forward-looking statements. While Anvil and Holdings believe
these statements are reasonable, prospective investors should be aware that
actual results could differ materially from those projected by such
forward-looking statements as a result of the risk factors set forth in this
Prospectus or other factors. Prospective investors should consider carefully the
risk factors as well as the other information and data included in this
Prospectus before tendering the Old Senior Notes in exchange for the New Senior
Notes. Anvil and Holdings caution the reader, however, that the list of risk
factors set forth herein may not be exhaustive and that these or other factors
could have an adverse effect on the ability of Anvil to service its
indebtedness, including principal and interest payments on the Senior Notes or
an adverse effect on the ability of Holdings and Cottontops to perform their
obligations under the Guarantees. See "Risk Factors."
--------------------------
ANVIL, COTTON DELUXE and the COTTON DELUXE design are registered trademarks
of Anvil.
iii
AVAILABLE INFORMATION
Anvil, Holdings and Cottontops have 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 New Senior Notes being offered hereby. This Prospectus
does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to Anvil 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 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, 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, at the Regional Offices of
the Commission at 7 World Trade Center, 13th Floor, New York, New York 10048 and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. 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.
As the result of the filing of the Exchange Offer Registration Statement
with the Commission, Anvil, Holdings and Cottontops will become subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith will be required to file periodic
reports and other information with the Commission. The obligation of Anvil,
Holdings and Cottontops to file periodic reports and other information with the
Commission will be suspended if the New Senior Notes are held of record by fewer
than 300 holders as of the beginning of any fiscal year of Anvil, Holdings or
Cottontops other than the fiscal year in which the Exchange Offer Registration
Statement is declared effective. Holdings has agreed pursuant to the Senior
Indenture 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 Senior Notes remain
outstanding, it will furnish to the holders of the Senior Notes (within 15 days
after it is or would have been required to file with the Commission) and file
with the Commission (unless the Commission will not accept such a filing) (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 Holdings was
required to file such forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, with respect to the
annual information only, a report thereon by Holdings' certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if Holdings was required to file such reports. In
addition, for so long as any of the Senior Notes remain outstanding, Anvil,
Holdings, Cottontops and any other Subsidiary Guarantor, if any, agree to
furnish to the holders of the Senior Notes or any prospective transferee of any
such holder, upon their request, the information required to be delivered by
Rule 144A(d)(4) under the Securities Act.
iv
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. ANVIL
HOLDINGS, INC. ("HOLDINGS") WAS FORMED TO ACQUIRE SUBSTANTIALLY ALL OF THE
ASSETS OF THE ANVIL KNITWEAR DIVISION (THE "PREDECESSOR") OF MCGREGOR
CORPORATION ("MCGREGOR") AS OF JANUARY 28, 1995 (THE "ACQUISITION"). UNLESS THE
CONTEXT OTHERWISE REQUIRES, ALL REFERENCES TO THE "COMPANY" IN THIS PROSPECTUS
SHALL MEAN HOLDINGS AND ITS CONSOLIDATED SUBSIDIARIES, INCLUDING ANVIL KNITWEAR,
INC. ("ANVIL"). WHERE THE CONTEXT SO REQUIRES, REFERENCES TO THE "COMPANY" IN
RELATION TO PERIODS PRIOR TO THE ACQUISITION SHALL MEAN THE PREDECESSOR.
FINANCIAL STATEMENTS PRESENTED HEREIN REFLECT THE CONSOLIDATED FINANCIAL
STATEMENTS OF THE COMPANY OR THE COMBINED FINANCIAL STATEMENTS OF THE
PREDECESSOR. HOLDINGS' SOLE ASSET IS THE CAPITAL STOCK OF ANVIL. THE FISCAL YEAR
OF THE COMPANY ENDS ON THE SATURDAY CLOSEST TO JANUARY 31. FISCAL YEARS ARE
IDENTIFIED HEREIN ACCORDING TO THE CALENDAR YEAR IN WHICH THEY BEGIN. FOR
EXAMPLE, THE FISCAL YEAR ENDED FEBRUARY 1, 1997 IS REFERRED TO HEREIN AS "FISCAL
1996."
THE COMPANY
Anvil Knitwear, Inc. is a leading designer, manufacturer and marketer of
high quality activewear for sale principally into the "imprinted" or "decorated"
segment of the U.S. apparel industry. The Company offers an extensive line of
activewear products designed for men, women and children, including short and
long sleeve T-shirts, classic button and collar knit sport shirts (known as
"plackets"), collarless short and long sleeve knit shirts (known as "henleys"),
fleeced sweatshirts, athletic shorts and caps. The Company markets and sells its
products primarily to distributors and screen printers under the ANVIL and
COTTON DELUXE brand names as well as under private labels. Prior to their
ultimate resale to the consumer, the Company's products typically are printed or
embroidered with logos, designs or characters. The Company believes that its
strong operating performance is due to: (i) its broad range of high quality
products; (ii) its strong relationships with customers and suppliers; (iii) its
flexible, vertically integrated manufacturing operations; (iv) its commitment to
controlling costs and improving manufacturing processes; and (v) the strong
growth of the activewear market. For the fiscal year ended February 1, 1997, the
Company generated net sales and EBITDA of $204.2 million and $32.6 million,
respectively. See "Business-- General," "--Products," "--Sales and Marketing"
and "--Customers."
The Company has achieved significant increases in net sales and EBITDA in
recent years. From fiscal 1991 through fiscal 1996, the Company's net sales grew
from $124.6 million to $204.2 million, representing a compound annual growth
rate ("CAGR") of 10.4%. The yearly growth rates for net sales during this period
were as follows: fiscal 1992--13.1%; fiscal 1993--6.8%; fiscal 1994--13.0%;
fiscal 1995--13.8%; and fiscal 1996--5.6%. EBITDA grew from $15.5 million to
$32.6 million, representing a CAGR of 16.0%. This improvement resulted primarily
from the Company's operating leverage, management's initiatives to reduce costs
and improve productivity and the Company's successful introduction of higher
priced products. In addition, net income grew during this period from $6.3
million to $10.3 million, representing a CAGR of 10.3%. See "Business--General"
and "--Products."
The Company offers high quality activewear in a variety of styles, colors,
fabric weights and blends, enabling it to serve effectively a number of market
niches as well as the traditional T-shirt market. The Company works closely with
its distributor and screen printer customers to meet their needs for style and
color innovation. The Company continues to compete successfully by: (i)
targeting niche products on which larger competitors have not traditionally
focused; (ii) responding quickly to market developments; and (iii) regularly
introducing new products. In addition, the Company has made significant
investments to modernize and expand its domestic manufacturing and distribution
facilities in order to improve quality, reduce costs, manage inventories and
shorten production cycles. See "Business--General," "--Products," "--Sales and
Marketing," "--Customers" and "--Manufacturing Operations and Facilities."
1
The Company operates primarily in the U.S. imprinted activewear market,
which accounted for approximately $13.8 billion of retail sales and $6.7 billion
of factory level sales in 1995. From 1990 through 1995, industry retail dollar
sales and unit sales of imprinted activewear (T-shirts, knit shirts, fleecewear
and athletic shorts) in the U.S. market grew at CAGRs of 8.0% and 5.7%,
respectively. The yearly growth rates for industry retail dollar sales during
this period were as follows: 1991--8.9%; 1992--11.6%; 1993--9.2%; 1994--5.2%;
and 1995--5.2%. The yearly growth rates for industry unit sales during this
period were as follows: 1991--6.9%; 1992--7.5%; 1993--7.0%; 1994--5.5%; and
1995--1.8%. From fiscal 1990 through fiscal 1995, the Company's net sales and
unit sales increased at CAGRs of 12.7% and 9.3%, respectively. The yearly growth
rates for the Company's net sales during this period were as follows: fiscal
1991--16.8%; fiscal 1992--13.1%; fiscal 1993--6.8%; fiscal 1994--13.0%; and
fiscal 1995--13.8%. The yearly growth rates for the Company's unit sales during
this period were as follows: fiscal 1991--17.3%; fiscal 1992-- 11.1%; fiscal
1993--5.6%; fiscal 1994--6.5%; and fiscal 1995--5.6%. The Company believes sales
of activewear products has been driven primarily by: (i) the increased consumer
preference for comfortable apparel selections; (ii) more flexible dress codes,
including the greater acceptance of casual wear in the workplace; and (iii) the
heightened emphasis on physical fitness. In addition, activewear products have
registered a number of significant improvements in product characteristics that
have contributed to enhanced consumer appeal, including improvements in fabric
weight, blends and construction as well as increased offerings of size, color
and style. See "Business--Industry."
The activewear market is characterized by low fashion risk relative to many
other apparel markets. While substantial opportunity exists for product
innovation and differentiation, basic garment styles are generally not driven by
trends or fads. The industry is also characterized by certain barriers to entry,
including: (i) significant capital expenditures required for vertically
integrated production; (ii) strong supplier relationships; and (iii) established
customer relationships. Furthermore, the Company believes that the relatively
low labor portion of the cost of manufacturing activewear and the short delivery
times required by distributors and screen printers have impeded the penetration
of imports. See "Business-- Industry."
BUSINESS STRATEGY
The Company's objective is to continue to increase net sales and EBITDA by
implementing the following key elements of its business strategy:
/ / OFFER A BROAD RANGE OF HIGH QUALITY PRODUCTS. The Company offers high
quality activewear in a wide variety of styles, colors, fabric weights
and blends, enabling it to serve effectively a number of market niches.
During the past five years, the Company has strengthened its position in
the activewear market by successfully introducing higher priced products
to supplement its traditional T-shirt offerings. From fiscal 1991
through fiscal 1996, the Company's gross sales of henleys and plackets,
both higher priced products, increased at a CAGR of 51.8%. The yearly
growth rates for henleys and plackets during this period were as
follows: fiscal 1992--91.3%; fiscal 1993--59.1%; fiscal 1994--58.9%;
fiscal 1995--30.1%; and fiscal 1996--23.8%. In addition, the Company
expects to continue to expand its product offerings under its ANVIL and
COTTON DELUXE brands, capitalizing on the growth in the higher priced
branded products segment of the activewear market. Furthermore, the
Company is working closely with third parties to market complementary
imprintable products, such as caps, bags, carryalls and jackets, through
the Company's established distribution channels. See
"Business--Products."
/ / ENHANCE AND EXPAND CUSTOMER RELATIONSHIPS. The Company continually seeks
to strengthen and expand its customer relationships by promoting the
Company's: (i) broad product offerings; (ii) ability to design
customized products; (iii) quick, reliable delivery; and (iv) ability to
accommodate modifications to customer orders. The Company's direct
salesforce focuses on developing strong relationships with distributors,
who have accounted for an increasing percentage of activewear sales in
recent years. In fiscal 1996, sales to distributors accounted for
approximately
2
64% of the Company's net sales and from fiscal 1994 through fiscal 1996
sales to distributors accounted for, on average, approximately 56% of
the Company's net sales. In the Company's experience, distributors place
larger purchase orders, purchase a broader product mix, maintain higher
inventory levels and develop more predictable order and re-order
patterns than certain of its other customers. The Company estimates that
distributors resell products to approximately 20,000 smaller screen
printers and embroiderers. The Company's expanded product offerings have
enabled it to more effectively service distributors and satisfy the
disparate preferences of consumers. See "Business--Customers."
/ / FLEXIBLE, VERTICALLY INTEGRATED MANUFACTURING OPERATIONS. The Company is
a vertically integrated manufacturer (i.e., performing substantially all
of the manufacturing processes required to produce its products) which
knits (exclusively from purchased yarn), bleaches, dyes, finishes, cuts
and sews its activewear products at its efficient manufacturing
facilities. The Company believes that being vertically integrated allows
it to maintain a competitive cost structure, minimize delivery time and
provide consistent, high quality products. The Company's manufacturing
flexibility enables it to complete smaller volume production runs
efficiently, respond quickly to customer needs and accommodate last
minute modifications to customer orders. The Company reduces inventory
risk by maintaining a supply of goods in a "greige" (undyed and
unbleached) state until relatively late in the production process and by
turning its finished goods inventory (costs of sales divided by ending
finished goods inventory) frequently (for example, approximately 7.6
times in fiscal 1996). In addition, the Company typically is able to
deliver specialized products to its customers within four to five weeks
of receiving an order. See "Business--Manufacturing Operations and
Facilities."
/ / CONTINUE TO CONTROL COSTS AND IMPROVE MANUFACTURING. From fiscal 1991
through fiscal 1996, the Company invested approximately $42 million to
modernize and expand its domestic manufacturing and distribution
facilities in order to improve quality, reduce costs, manage inventories
and shorten production cycles. The Company believes it can continue to
improve its operating efficiency by: (i) increasing the use of offshore
sewing operations; (ii) utilizing its 660,000 square foot centralized
distribution facility to deliver its products in a more cost efficient
manner; and (iii) opportunistically redesigning manufacturing processes
to shorten production cycles and improve inventory management. The
Company believes that it manages its working capital and inventory
better than any of its primary publicly-traded competitors. See
"Business--Manufacturing Operations and Facilities."
/ / CAPITALIZE ON THE GROWTH OF THE ACTIVEWEAR MARKET. From 1990 through
1995, industry retail dollar sales and unit sales of imprinted
activewear (T-shirts, knit shirts, fleecewear and athletic shorts) in
the U.S. market grew at CAGRs of 8.0% and 5.7%, respectively. The yearly
growth rates for industry retail dollar sales during this period were as
follows: 1991--8.9%; 1992--11.6%; 1993-- 9.2%; 1994--5.2%; and
1995--5.2%. The yearly growth rates for industry unit sales during this
period were as follows: 1991--6.9%; 1992--7.5%; 1993--7.0%; 1994--5.5%;
and 1995--1.8%. From fiscal 1990 through fiscal 1995, the Company's net
sales and unit sales increased at CAGRs of 12.7% and 9.3%, respectively.
The yearly growth rates for the Company's net sales during this period
were as follows: fiscal 1991--16.8%; fiscal 1992--13.1%; fiscal
1993--6.8%; fiscal 1994-- 13.0%; and fiscal 1995--13.8%. The yearly
growth rates for the Company's unit sales during this period were as
follows: fiscal 1991--17.3%; fiscal 1992--11.1%; fiscal 1993--5.6%;
fiscal 1994-- 6.5%; and fiscal 1995--5.6%. The Company believes the sale
of activewear products has been driven primarily by: (i) the increased
consumer preference for comfortable apparel selections; (ii) more
flexible dress codes, including the greater acceptance of casual wear in
the workplace; and (iii) the heightened emphasis on physical fitness. In
addition, the Company believes that it has identified significant growth
opportunities in several international markets, including certain
markets in Europe, South America and Japan. See "Business--Industry."
3
THE RECAPITALIZATION
On February 12, 1997, Holdings, Anvil VT, Inc., Vestar Equity Partners, L.P.
("Vestar"), 399 Venture Partners, Inc. and certain of its employees and
affiliates (collectively, "399 Venture"), the Management Investors and Culligan
International Company, Leonard Lieberman, Peter H. Rothschild and the Seelig
Family Lifetime Trust (collectively, the "Existing Stockholders") and Bruckmann,
Rosser, Sherrill & Co., L.P. and certain of its employees and affiliates
(collectively, "BRS") entered into a Recapitalization Agreement (as amended, the
"Recapitalization Agreement"). Pursuant to the Recapitalization Agreement: (i)
Holdings redeemed and repurchased a substantial portion (i.e., 82.8%) of its
outstanding shares of capital stock; (ii) 399 Venture and the Management
Investors reinvested a portion of their old shares of common stock of Holdings
(the "Retained Shares"), which converted into shares of Class A Common Stock,
$0.01 par value per share ("Class A Common"), and Class B Common; (iii) 399
Venture exchanged a portion of its old preferred stock for 3,333 Units; and (iv)
BRS purchased shares of Class A Common and Class B Common. As of June 15, 1997,
399 Venture, BRS and the Management Investors owned 38.0%, 38.0% and 14.0%,
respectively, of the issued and outstanding capital stock of the Company. The
Class A Common and the Class B Common are sometimes collectively referred to
herein as the "Common Stock." See "The Recapitalization."
The Company used approximately $225.5 million to complete the
Recapitalization, including the payment of related fees and expenses. In order
to finance the Recapitalization: (i) Anvil issued $130.0 million in aggregate
principal amount of Old Senior Notes in the Initial Offering; (ii) Holdings
issued 30,000 Units, consisting of an aggregate of 1.2 million shares of Old
Senior Preferred Stock and 390,000 shares of Class B Common, in the Initial
Units Offering for gross proceeds of $26.7 million; (iii) Anvil borrowed
approximately $33.3 million under a $55.0 million amended and restated credit
agreement (the "New Credit Agreement"); and (iv) 399 Venture, the Management
Investors and BRS, collectively, contributed in the form of equity securities
and cash an aggregrate of approximately $35.5 million to Holdings (the "Equity
Contribution"). See "Use of Proceeds."
4
THE INITIAL OFFERING
OLD SENIOR NOTES............. The Old Senior Notes were sold by Anvil on March 14, 1997 to
Donaldson, Lufkin and Jenrette Securities Corporation
("DLJ"), Wasserstein Perella Securities, Inc. and
NationsBanc Capital Markets, Inc. (collectively, the
"Initial Purchasers") pursuant to a Purchase Agreement,
dated as of March 11, 1997 (the "Purchase Agreement") and in
a private placement pursuant to the exemption from
registration contained in Section 4(2) of the Securities
Act. The Initial Purchasers subsequently resold the Old
Senior Notes to qualified institutional buyers pursuant to
Rule 144A under the Securities Act and to a limited number
of institutional accredited investors pursuant to Rule
501(a) of the Securities Act.
CONCURRENT INITIAL UNITS
OFFERING................... Concurrent with the Initial Offering, Holdings sold 26,667
Units on March 14, 1997 to DLJ (the "Initial Purchaser") and
3,333 Units, for which DLJ acted as agent in connection with
the sale by Holdings, pursuant to a Purchase Agreement,
dated as of March 11, 1997 (the "Units Purchase Agreement")
and in a private placement pursuant to the exemption from
registration contained in Section 4(2) of the Securities
Act. Each Unit consisted of 40 shares of Old Senior
Preferred Stock and 13 shares of Class B Common Stock.
REGISTRATION RIGHTS
AGREEMENT.................. Pursuant to the Purchase Agreement, Anvil, Holdings,
Cottontops and the Initial Purchasers entered into a
Registration Rights Agreement, dated as of March 14, 1997
(the "Registration Rights Agreement"), which grants the
holders of the Old Senior 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.
THE EXCHANGE OFFER
SECURITIES OFFERED........... $130,000,000 aggregate principal amount of 10 7/8% Series B
Senior Notes due 2007 of Anvil.
THE EXCHANGE OFFER........... $1,000 principal amount of New Senior Notes in exchange for
each $1,000 principal amount of Old Senior Notes. As of the
date hereof, $130,000,000 aggregate principal amount of Old
Senior Notes are outstanding. Anvil will issue the New
Senior Notes to holders on or promptly after the Expiration
Date.
Based on an interpretation by the staff of the Commission
set forth in no-action letters issued to third parties,
Anvil believes that New Senior Notes issued pursuant to the
Exchange Offer in exchange for Old Senior Notes may be
offered for resale, resold and otherwise transferred by any
holder thereof (other than any such holder which is an
"affiliate" of Anvil 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 Senior Notes are acquired in the
ordinary course of such
5
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 Senior
Notes. Each holder accepting the Exchange Offer is required
to represent to Anvil in the Letter of Transmittal that,
among other things, the New Senior Notes will be acquired by
the holder in the ordinary course of business and the holder
does not intend to participate and has no arrangement or
understanding with any person to participate in the
distribution of such New Senior Notes.
Any Participating Broker that acquired Old Senior Notes for
its own account as a result of market-making activities or
other trading activities may be a statutory underwriter.
Each Participating Broker-Dealer that receives New Senior
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 Senior 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
resale of New Senior Notes received in exchange for Old
Senior Notes where such Old Senior Notes were acquired by
such Participating Broker-Dealer as a result of
market-making activities or other trading activities. Anvil
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 Senior 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 requirements 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 indeminified by
Anvil.
EXPIRATION DATE.............. 5:00 p.m., New York City time, on August 22, 1997 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 extended.
ACCRUED INTEREST ON THE
NEW SENIOR NOTES AND THE
OLD SENIOR NOTES........... Each New Senior Note will bear interest from its issuance
date. Holders of Old Senior Notes that are accepted for
exchange will receive, in cash, accrued interest thereon to,
but not including, the issuance date of the New Senior
Notes. Such interest will be paid with the first interest
payment on the New Senior Notes. Interest on the Old Senior
Notes accepted for exchange will cease to accrue upon
issuance of the New Senior Notes.
6
CONDITIONS TO THE
EXCHANGE OFFER............. Anvil is not required to accept for exchange, or exchange
New Senior Notes for, any Old Senior Notes, and may
terminate or amend the Exchange Offer before the acceptance
of such Old Senior Notes, if: (i) 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 Anvil, might materially
impair the ability of Anvil to proceed with the Exchange
Offer or any material adverse development has occurred in
any existing action or proceeding with respect to Anvil,
Holdings or any of their subsidiaries; or (ii) any law,
statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in
the reasonable judgment of Anvil, might materially impair
the ability of Anvil to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange
Offer to Anvil; or (iii) any governmental approval has not
been obtained, which approval Anvil shall, in its reasonable
discretion, deem necessary for the consummation of the
Exchange Offer as contemplated hereby. Anvil may not waive
any condition to the Exchange Offer unless such condition is
legally waivable. See "The Exchange Offer--Conditions."
PROCEDURES FOR TENDERING
OLD SENIOR NOTES........... Each holder of Old Senior Notes wishing to accept the
Exchange Offer must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof or transmit an
Agent's Message (as defined) in connection with a book-entry
transfer, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such
Letter of Transmittal, such facsimile or such Agent's
Message, together with the Old Senior Notes and any other
required documentation to the Exchange Agent (as defined) at
the address set forth herein. By executing the Letter of
Transmittal or Agent's Message, each holder will represent
to Anvil that, among other things, the New Senior Notes
acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving
such New Senior Notes, whether or not such person is the
holder, that neither the holder nor any such other person
(i) has any arrangement or understanding with any person to
participate in the distribution of such New Senior Notes,
(ii) is engaging or intends to engage in the distribution of
such New Notes, or (iii) is an "affiliate," as defined under
Rule 405 of the Securities Act, of Anvil. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and
"--Procedures for Tendering."
UNTENDERED OLD SENIOR
NOTES...................... Following the consummation of the Exchange Offer, holders of
Old Senior Notes eligible to participate but who do not
tender their Old Senior Notes will not have any further
exchange rights and such Old Senior Notes will continue to
be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Senior Notes could
be adversely affected.
7
CONSEQUENCES OF FAILURE TO
EXCHANGE................... The Old Senior Notes that are not exchanged pursuant to the
Exchange Offer will remain restricted securities.
Accordingly, such Old Senior Notes may be resold only (i) to
Anvil, (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."
SHELF REGISTRATION
STATEMENT.................. If any holder of the Old Senior Notes (other than any such
holder which is an "affiliate" of Anvil 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 provided information regarding
such holder and the distribution of such holder's Old Senior
Notes to Anvil for use therein, Anvil has agreed to register
the Old Senior Notes on a shelf registration statement (the
"Shelf Registration Statement") and use its best efforts to
cause it to be declared effective by the Commission as
promptly as practical on or after the consummation of the
Exchange Offer. Anvil has agreed to maintain the
effectiveness of the Shelf Registration Statement for, under
certain circumstances, a maximum of three years, to cover
resales of the Old Senior Notes held by any such holders.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Old Senior 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 delivering its Old
Senior Notes, either make appropriate arrangements to
register ownership of the Old Senior 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. Anvil will keep the Exchange Offer
open for not less than twenty business days in order to
provide for the transfer of registered ownership.
GUARANTEED DELIVERY
PROCEDURES................. Holders of Old Senior Notes who wish to tender their Old
Senior Notes and whose Old Senior Notes are not immediately
available or who cannot deliver their Old Senior Notes, the
Letter of Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent (or comply with
the procedures for book-entry transfer) prior to the
Expiration Date must tender their Old Senior Notes according
to the guaranteed delivery procedures set forth in "The
Exchange 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.
8
ACCEPTANCE OF OLD SENIOR
NOTES AND DELIVERY OF NEW
NOTES...................... Anvil will accept for exchange any and all Old Senior Notes
which are properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration Date. The
New Senior 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 Anvil from the exchange
pursuant to the Exchange Offer. See "Use of Proceeds."
FEDERAL INCOME TAX
CONSEQUENCES............... In the opinion of Kirkland & Ellis, counsel to Anvil, the
exchange pursuant to the Exchange Offer will not be a
taxable event for federal income tax purposes. See "Certain
Federal Income Tax Consequences."
EXCHANGE AGENT............... United States Trust Company of New York.
9
THE NEW SENIOR NOTES
GENERAL...................... The form and terms of the New Senior Notes are the same as
the form and terms of the Old Senior Notes (which they
replace) except that (i) the New Senior Notes bear a Series
B designation, (ii) the New Senior Notes have been
registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof, and (iii) the
holders of New Senior Notes will not be entitled to certain
rights under the Registration Rights Agreement, including
the provisions providing for liquidated damages 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 Senior Notes will evidence the
same debt as the Old Senior Notes and will be entitled to
the benefits of the Senior Indenture. See "Description of
Securities--Senior Notes." The Old Senior Notes and the New
Senior Notes are sometimes referred to herein collectively
as the "Senior Notes."
MATURITY DATE................ March 15, 2007.
INTEREST PAYMENT DATES....... March 15 and September 15 of each year, commencing September
15, 1997.
OPTIONAL REDEMPTION.......... On or after March 15, 2002, Anvil may redeem the Senior
Notes, at the redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated Damages, if any,
to the date of redemption. Notwithstanding the foregoing, at
any time on or before March 15, 2000, Anvil may redeem up to
40% of the original aggregate principal amount of the Senior
Notes with the net proceeds of one or more Public Equity
Offerings at a redemption price equal to 110% of the
principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, to the date of redemption;
PROVIDED that at least 60% of the original aggregate
principal amount of the Senior Notes remains outstanding
after each such redemption. See "Description of
Securities--Senior Notes--Optional Redemption."
CHANGE OF CONTROL............ Upon a Change of Control, Anvil will be required to make an
offer to repurchase all of the outstanding Senior Notes at a
price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any,
to the date of repurchase. There is no assurance that Anvil
will have sufficient funds to repurchase the Senior Notes
upon a Change in Control. See "Description of
Securities--Senior Notes--Repurchase at the Option of
Holders." Except as described under "Description of
Securities-- Senior Notes--Repurchase at the Option of
Holders--Change of Control," the Senior Indenture does not
contain provisions that permit the holders of Senior Notes
to require Anvil to redeem the Senior Notes in the event of
a takeover, recapitalization or similar restructuring,
including an issuer recapitalization or similar transaction
with management. Consequently, the Change of Control
provisions will not afford any protection in a highly
leveraged
10
transaction, including such a transaction initiated by
Anvil, management of Anvil or an affiliate of Anvil, if such
transaction does not result in a Change of Control. See
"Description of Securities-- Senior Notes--Repurchase at the
Option of Holders--Change of Control."
RANKING...................... The New Senior Notes will be, as the Old Senior Notes (which
they replace) are, senior unsecured obligations of Anvil and
will rank PARI PASSU in right of payment to all existing and
future senior indebtedness of Anvil and senior in right of
payment to all subordinated indebtedness of Anvil. The New
Senior Notes will be, as the Old Senior Notes (which they
replace) are, effectively subordinated to all existing and
future secured indebtedness of Anvil, including indebtedness
pursuant to the New Credit Agreement, to the extent of the
value of the assets securing such indebtedness and will be
structurally subordinated to all existing and future
indebtedness of its subsidiaries. The Company has not
issued, and does not have any current firm arrangements to
issue, any significant indebtedness to which the Senior
Notes would be senior. As of May 3, 1997, the aggregate
principal amount of senior indebtedness of Anvil and
Holdings, including the Senior Notes and the Guarantees,
respectively, was approximately $156.5 million and
approximately $26.5 million of indebtedness of Anvil and
Holdings was secured. In addition, as of May 3, 1997, Anvil
had $28.5 million of additional borrowing availability under
the New Credit Agreement. The Company's borrowings under the
New Credit Agreement are secured by a first priority
perfected security interest in all assets and properties of
Anvil and its domestic subsidiaries. As a result, any
amounts borrowed under the New Credit Agreement are senior
in right of payment to the Senior Notes. As of July 14,
1997, the Company had borrowings under the New Credit
Agreement of approximately $24.5 million. See "Description
of Securities--Senior Notes-- General."
GUARANTEES................... The New Senior Notes will be, as the Old Senior Notes (which
they replace) are, fully and unconditionally, jointly and
severally guaranteed by Holdings and Cottontops. The
Guarantees will be a senior unsecured obligation of Holdings
and Cottontops and will be effectively subordinated to all
secured indebtedness of Holdings and Cottontops,
respectively to the extent of the value of the assets
securing such indebtedness and will be structurally
subordinated to all existing and future indebtedness of
their subsidiaries. As of May 3, 1997, the aggregate
principal amount of senior indebtedness of Anvil and
Holdings, including the Senior Notes and the Guarantees,
respectively, was approximately $156.5 million and
approximately $26.5 million of indebtedness of Anvil and
Holdings was secured. In addition, Anvil had $28.5 million
of additional borrowing availability under the New Credit
Agreement.
CERTAIN COVENANTS............ The Senior Indenture contains certain covenants which, among
other things, limit the ability of Anvil and its Restricted
Subsidiaries to: (i) incur additional indebtedness and issue
preferred stock; (ii) repay
11
certain other indebtedness; (iii) pay dividends or make
certain other distributions; (iv) repurchase equity
interests; (v) consummate certain asset sales; (vi) enter
into certain transactions with affiliates; (vii) enter into
sale and leaseback transactions; (viii) incur liens; (ix)
merge or consolidate with any other person; or (x) sell,
assign, transfer, lease, convey or otherwise dispose of all
or substantially all of the assets of Anvil. In addition,
under certain circumstances, Anvil will be required to make
an offer to purchase the Senior Notes at a price equal to
the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of
purchase, with the proceeds of certain Asset Sales. See
"Description of Securities-- Senior Notes--Certain
Covenants."
CONCURRENT PREFERRED EXCHANGE OFFER
Concurrent with the Exchange Offer, Holdings is offering to exchange $1,000
liquidation preference of its New Senior Preferred Stock for each $1,000
liquidation preference of its outstanding Old Senior Preferred Stock. The Senior
Preferred Stock is exchangeable, at the option of Holdings, into Holdings'
Exchange Debentures, subject to certain conditions.
RISK FACTORS
Prospective investors should carefully consider the factors set forth under
"Risk Factors," as well as the other information set forth in this Prospectus
before tendering the Old Senior Notes in exchange for the New Senior Notes. The
risks of investing in the Senior Notes include, among other things, the
following factors (i) Holdings and Anvil have substantial leverage and debt
service obligations; (ii) the Senior Preferred Stock is subordinated to current
and future obligations of Holdings and Anvil; (iii) there are risks associated
with the Company's current holding company structure; (iv) the Company and the
holders of Securities are restricted by the terms of the Company's indebtedness
including change of control provisions and provisions relating to limitations on
rights of repayment; (v) the executive officers, directors and existing
stockholders of the Company realized substantial benefits pursuant to the
Recapitalization; (vi) the Company is subject to both domestic and international
competition; (vii) a significant disruption in the Company's supply and price of
yarn could have a material adverse effect on the Company's results of
operations; (viii) the Company is dependent upon the efforts, relationships and
abilities of its senior management; (ix) the Company is subject to increasingly
stringent environmental standards; (x) the Company is controlled by two
principal stockholders; (xi) the absence of a public market could adversely
affect the value of the Senior Notes; (xii) the failure to follow the Exchange
Offer procedures could adversely affect the holders of the Senior Notes; (xiii)
the Company is subject to fraudulent transfer laws in relation to the incurrence
of its indebtedness; and (xiv) there may be tax consequences to the holders of
the Senior Preferred Stock and Exchange Debentures upon distribution and a
potential for unplanned deemed dividend income to such holders.
------------------------
Anvil and Holdings were incorporated under the laws of the State of Delaware
on November 23, 1994 and December 16, 1994, respectively. Anvil and Holdings
were formed to acquire substantially all of the assets of the Anvil Knitwear
division of McGregor, which was completed as of January 28, 1995. The aggregate
acquisition price was approximately $105 million, plus acquisition costs. The
Acquisition was a leveraged buyout transaction led by Vestar Equity Partners,
L.P. and was funded with the procceds of $20 million of preferred stock, $6.4
million of common stock, $52.5 million of long-term bank debt, $7.5 million in
subordinated notes and $25.5 million with a revolving line of credit. The
principal executive offices of Anvil and Holdings are located at 228 East 45th
Street, New York, New York 10017, and their telephone number is (212) 476-0300.
12
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS AND UNITS IN THOUSANDS)
The following summary historical financial data were derived from the
historical financial statements of the Predecessor and the Company and the
unaudited pro forma financial data were derived from the "Pro Forma Financial
Statements" of the Company. The historical combined financial statements of the
Predecessor for fiscal years 1992 and 1994 and the five and seven month periods
ended June 30, 1993 and January 29, 1994, respectively, were audited by KPMG
Peat Marwick LLP. The historical consolidated financial statements of the
Company for fiscal years 1995 and 1996 were audited by Deloitte & Touche LLP.
The financial data as of May 3, 1997 and for the three months ended May 3, 1997
and April 27, 1996 have been derived from the Company's unaudited consolidated
financial statements which, in the opinion of management, contain all
adjustments, consisting of normal recurring adjustments, necessary for fair
presentation of the financial condition and results of operations for each
period. The results of operations for the three months ended May 3, 1997 are not
necessarily indicative of the operating results that may be expected for the
full year. The financial statements presented herein reflect the consolidated
financial statements of the Company or the combined financial statements of the
Predecessor. Holdings has no independent operations apart from its wholly owned
subsidiary, Anvil, and its sole asset is the capital stock of Anvil. The Old
Senior Notes surrendered in exchange for the New Senior Notes will be retired
and canceled and cannot be reissued. Likewise, the Old Senior Preferred Stock
surrendered in exchange for the New Senior Preferred Stock will be returned and
canceled and cannot be reissued. Accordingly, neither the issuance of the New
Senior Notes nor the New Senior Preferred Stock will result in any increase or
decrease in the indebtedness of the Company. As such, no effect has been given
to the Exchange Offers in the pro forma financial data included herein. The
information contained in this table should be read in conjunction with "Selected
Historical Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Unaudited Pro Forma Financial Statements"
and the combined and consolidated financial statements and the notes thereto
included elsewhere in this Prospectus.
PREDECESSOR(1) THE COMPANY(1)
------------------------------------------------ -----------------------------------
FISCAL YEAR FIVE SEVEN THREE
ENDED MONTHS MONTHS FISCAL YEAR ENDED MONTHS
----------- ENDED ENDED --------------------------------- ENDED
JAN. 31, JUNE 30, JAN. 29, JAN. 28, JAN. 27, FEB. 1, -----------
1993 1993 1994(2) 1995(2) 1996 1997
----------- ----------- ----------- --------- --------- ----------- APRIL 27,
1996
-----------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 140,839 $ 75,743 $ 74,691 $ 169,923 $ 193,389 $ 204,154 $ 58,552
Gross profit.............................. 24,112 14,546 12,283 38,017 43,666 47,341 11,716
Selling, general and administrative
expenses................................ 11,103 5,788 6,632 14,704 17,778 21,678 5,276
Operating income (loss)................... 13,009 8,703 (1,066) 9,878 25,152 24,705 6,237
Net income (loss)......................... 8,073 4,972 (3,338) 1,057 10,154 10,325 2,448
OTHER DATA:
EBITDA(3)................................. $ 16,329 $ 10,617 $7,830 $ 28,639 $ 31,615 $ 33,550 $ 8,017
Cash provided by (used in):
Operating activities.................... (4,186 ) 21,919 (996 ) 13,654 7,163 23,811 1,967
Investing activities.................... (9,242 ) (3,003 ) (4,764 ) (7,888) (7,703) (6,519 ) (564)
Financing activities.................... 13,376 (18,813 ) 4,125 (5,313) 775 (16,997 ) (227)
Depreciation and amortization............. 3,320 1,914 8,896 18,761 6,463 7,287 1,962
Capital expenditures...................... 9,372 3,003 4,764 7,888 7,703 4,815 564
Ratio of earnings to fixed charges(6)..... -- -- -- -- 2.9x 3.1x 3.3x
Ratio of earnings to fixed charges and
preferred stock dividends(6)............ -- -- -- -- 2.4x 2.6x 2.6x
SELECTED OPERATING DATA:
Dozens of units sold...................... 4,187 2,198 2,224 4,711 4,973 5,319
Unit growth............................... 11.1% * * 6.5% 5.6% 7.0%
Net sales growth.......................... 13.0% * * 13.0% 13.8% 5.6%
MAY 3, 1997
-----------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 60,288
Gross profit.............................. 14,429
Selling, general and administrative
expenses................................ 6,128
Operating income (loss)................... (2,864)
Net income (loss)......................... (6,467)
OTHER DATA:
EBITDA(3)................................. $ 9,979
Cash provided by (used in):
Operating activities.................... 1,732
Investing activities.................... (1,231 )
Financing activities.................... (959 )
Depreciation and amortization............. 2,139
Capital expenditures...................... 1,231
Ratio of earnings to fixed charges(6)..... --
Ratio of earnings to fixed charges and
preferred stock dividends(6)............ --
SELECTED OPERATING DATA:
Dozens of units sold......................
Unit growth...............................
Net sales growth..........................
*SEE FOOTNOTE 2. (FOOTNOTES APPEAR ON NEXT PAGE)
13
PREDECESSOR(1) THE COMPANY(1)
------------------------------------------------ -----------------------------------
FISCAL YEAR FIVE SEVEN THREE
ENDED MONTHS MONTHS FISCAL YEAR ENDED MONTHS
----------- ENDED ENDED --------------------------------- ENDED
JAN. 31, JUNE 30, JAN. 29, JAN. 28, JAN. 27, FEB. 1, -----------
1993 1993 1994(2) 1995(2) 1996 1997
----------- ----------- ----------- --------- --------- ----------- APRIL 27,
1996
-----------
(UNAUDITED)
PRO FORMA DATA:
Cash interest expense(4)......................................................................... $ 16,752
Ratio of EBITDA to cash interest expense(4)...................................................... 2.0x
Ratio of net debt to EBITDA(5)................................................................... 4.8x
Ratio of earnings to fixed charges(6)............................................................ 1.4x
Ratio of earnings to fixed charges and preferred stock dividends(6).............................. 1.3x
Pro forma net income (loss) per share: (7)
Class A Common Stock:
Income before extraordinary item............................................................... $ 13.72
Extraordinary item............................................................................. --
-----------
Net income..................................................................................... $ 13.72
-----------
-----------
Class B Common Stock:
Income (loss) before extraordinary item........................................................ $ .63
Extraordinary loss............................................................................. --
-----------
Net loss....................................................................................... $ .63
-----------
-----------
Weighted average shares used in computation of pro forma income (loss) per share:
Class A Common................................................................................. 290
Class B Common................................................................................. 3,590
-----------
-----------
MAY 3, 1997
-----------
(UNAUDITED)
PRO FORMA DATA:
Cash interest expense(4)............ $ 4,071
Ratio of EBITDA to cash interest exp 2.5x
Ratio of net debt to EBITDA(5)......
Ratio of earnings to fixed charges(6 1.8x
Ratio of earnings to fixed charges a 1.5x
Pro forma net income (loss) per shar
Class A Common Stock:
Income before extraordinary item.. $ 2.03
Extraordinary item................ (.71)
-----------
Net income........................ $ 1.32
-----------
-----------
Class B Common Stock:
Income (loss) before extraordinary $ (1.51)
Extraordinary loss................ (.71)
-----------
Net loss.......................... $ (2.22)
-----------
-----------
Weighted average shares used in comp
Class A Common.................... 290
Class B Common.................... 3,590
-----------
-----------
AS OF FEBRUARY AS OF MAY
1, 1997 3, 1997
--------------- -----------
ACTUAL
ACTUAL -----------
---------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents....................................................................... $ 1,863 $ 1,405
Total assets.................................................................................... 136,832 142,588
Total debt (including the discount on the Senior Notes)......................................... 68,594 156,500
Preferred stock (liquidation value)............................................................. 25,582 30,488
Total stockholders' equity (deficiency)......................................................... 43,386 (64,613)
- ------------------------
(FOOTNOTES FROM PRIOR PAGE)
(1) The periods prior to and including January 28, 1995 reflect the combined
financial data of the Predecessor, which was acquired by the Company as of
January 28, 1995 from McGregor, a wholly owned subsidiary of Astrum
International Corp. ("Astrum"). The periods beginning January 29, 1995
reflect the consolidated financial data of the Company after the
Acquisition. Because of the revaluation of the assets and liabilities
acquired and the related impact to the consolidated statements of
operations, the financial statements of the Predecessor for the periods
prior to January 29, 1995 are not comparable to those of the Company
subsequent to that date although the information regarding net sales is
comparable with net sales reported for other periods.
(2) In connection with Astrum's emergence from its Chapter 11 bankruptcy
proceeding, the Predecessor adopted "fresh-start" accounting (the
Predecessor was not a party to Astrum's Chapter 11 bankrupty proceeding).
Accordingly, effective June 30, 1993, the assets of the Predecessor were
recorded at their fair market values with the excess of the reorganization
value over the fair value of the assets recorded as an intangible asset. As
a result of these adjustments, the financial statements for the seven months
ended January 29, 1994 and for the year ended January 28, 1995 are not
comparable to the prior periods. The Company has omitted unit growth and net
sales growth for the five and seven month periods ended June 30, 1993 and
January 29, 1994, respectively, because such periods may not be comparable
to the other periods presented.
(3) EBITDA is defined as operating income plus depreciation and amortization.
The fiscal 1996 EBITDA excludes a non-cash charge of $0.6 million for the
estimated loss on disposal of certain fixed assets and in the three month
period ended May 3, 1997 excludes non-recurring items of $10.9 million of
charges for special compensation. EBITDA is not a measure of performance
under generally accepted accounting principles ("GAAP"). EBITDA should not
be considered in isolation or as a substitute for net income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with GAAP, or as a measure of profitability or
liquidity. Management believes, however, that EBITDA represents a useful
measure of assessing the performance of the Company's ongoing operating
activities as it reflects earnings trends of the Company without the impact
of purchase accounting applied in connection with the Acquisition. In
addition, management believes EBITDA is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness and is
used by the Company's creditors in assessing debt covenant compliance.
EBITDA should not be construed as an indication of the Company's operating
performance or as a measure of liquidity. EBITDA does not take into account
the Company's debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be available
for discretionary uses. The EBITDA measure presented in this Prospectus may
not be comparable to other similarly titled measures of other companies.
(4) Cash interest expense was calculated assuming an interest rate of 10.875% on
the Senior Notes and 8.0% on borrowings under the New Credit Agreement. See
"Unaudited Pro Forma Financial Statements." Management believes that the
ratio of EBITDA to cash interest expense is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness.
14
(5) Net debt represents total debt less cash and cash equivalents and was
calculated based on pro forma debt balances as of February 1, 1997.
Management believes that the ratio of net debt to EBITDA is a widely
accepted financial indicator of a company's ability to service and/or incur
indebtedness. The calculation of the ratio of net debt to EBITDA is not
meaningful on a quarterly basis.
(6) Earnings used in computing the historical and pro forma ratio of earnings to
fixed charges consist of income before provision for income taxes plus fixed
charges. Fixed charges consist of interest expense on all indebtedness
(including amortization of deferred debt issuance costs) and a portion of
operating lease rental expense that is representative of the interest factor
(approximately 1/3). The calculation of these ratios is not meaningful for
the Predecessor as its interest expense and rental expense were DE
MINIMUS. Preferred stock dividends consist of dividends paid and dividends
accumulated in arrears on preferred stock and Class A common. Earnings were
insufficent to cover fixed charges and fixed charges and preferred stock
dividends by $2,938 and $4,298, respectively, for the three months ended May
3, 1997.
(7) Pro forma net income (loss) per share is computed by dividing net income
(loss) applicable to each class of Common Stock by the average number of
shares of such stock outstanding, as follows (in thousands):
THREE
YEAR ENDED MONTHS
FEBRUARY 1, ENDED
1997 MAY 3, 1997
--------------- -----------
Net income (loss)............................................................... $ 10,325 $ (6,467)
Less: preferred dividends....................................................... (4,094) (1,108)
Class A common preference..................................................... (3,798) (1,025)
--------------- -----------
Net income (loss) applicable to common stockholders............................. $ 2,433 $ (8,600)
--------------- -----------
--------------- -----------
Preference per Class A common share............................................. $ 13.10 $ 3.53
Net income (loss) per common share.............................................. .63 (2.22)
--------------- -----------
Net income per Class A common share............................................. $ 13.72 $ 1.32
--------------- -----------
--------------- -----------
Net income (loss) per Class B common share...................................... $ .63 $ (2.22)
--------------- -----------
--------------- -----------
15
RISK FACTORS
PROSPECTIVE INVESTORS OF THE SECURITIES SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS
PROSPECTUS BEFORE TENDERING THE OLD SENIOR NOTES IN EXCHANGE FOR THE NEW SENIOR
NOTES.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS; CONSEQUENCES TO HOLDERS
Anvil and Holdings incurred substantial indebtedness and debt service
obligations in connection with the Recapitalization. As of May 3, 1997, Holdings
had total consolidated indebtedness of approximately $156.5 million (including
the discount on the Senior Notes), Senior Preferred Stock with an aggregate
liquidation preference of $30.5 million and a stockholders' deficiency of
approximately $64.6 million. As of May 3, 1997, Anvil had total consolidated
indebtedness of approximately $156.5 million (including the discount on the
Senior Notes) and a stockholder's deficiency of approximately $64.6 million. The
Company's earnings were insufficent to cover fixed charges by $2.9 million for
the quarter ended May 3, 1997 and its earnings were insufficent to cover fixed
charges and preferred stock dividends by $4.3 million for the same period. In
addition, Anvil had approximately $28.5 million, subject to an asset based
formula, available under the New Credit Agreement, and all borrowings under such
facility are guaranteed by Holdings and secured by substantially all of Anvil's
assets and a pledge by Holdings of all of the capital stock of Anvil. Subject to
certain restrictions under the New Credit Agreement, the Senior Indenture and,
if the Exchange Debentures are issued, the Exchange Debenture Indenture, Anvil
and its subsidiaries may incur additional indebtedness (including additional
secured indebtedness and senior indebtedness) from time to time. The New Credit
Agreement and the Senior Indenture do not contain limitations on the ability of
Holdings to incur additional indebtedness and, if the Exchange Debentures are
issued, the Exchange Debenture Indenture will permit Holdings and its
subsidiaries to incur additional indebtedness, subject to certain restrictions.
Holdings has outstanding Senior Preferred Stock with an aggregate liquidation
preference of $30.5 million at May 3, 1997 which, subject to certain conditions,
may be exchanged for Exchange Debentures. On or before March 15, 2002, Holdings
may pay dividends on the Senior Preferred Stock in cash or in additional shares
of Senior Preferred Stock; thereafter, all dividends must be paid in cash.
Similarly, if the Exchange Debentures are issued, Holdings will be able to pay
interest thereon in cash or in additional Exchange Debentures on or before March
15, 2002; thereafter, all interest must be paid in cash. See "Use of Proceeds,"
"Capitalization," "Description of Securities--Senior Notes," "--Senior Preferred
Stock" and "--Exchange Debentures."
The level of indebtedness and dividend obligations could have important
consequences to holders of the Securities, including, but not limited to, the
following: (i) a substantial portion of cash flow from operations must be
dedicated to debt service and dividend obligations and will not be available for
other purposes; (ii) additional debt financing in the future for working
capital, capital expenditures or acquisitions may be limited; (iii) the level of
indebtedness could limit flexibility in reacting to changes in the operating
environment and economic conditions generally; and (iv) the level of
indebtedness and debt service obligations could have a material adverse impact
on the ability of Anvil and Holdings to pay the holders of the Securities.
The ability of Anvil and Holdings (as the case may be) to pay principal and
interest on the Senior Notes and, if issued, the Exchange Debentures, to satisfy
their other debt obligations, and to pay cash dividends on the Senior Preferred
Stock will depend upon future operating performance, which will be affected by
prevailing economic conditions and financial, business and other factors,
certain of which are beyond their control, as well as the availability of
revolving credit borrowings under the New Credit Agreement. If operating cash
flow of Anvil and Holdings is insufficient to meet their operating expenses, to
service their debt requirements as they become due and to pay cash dividends on,
and the mandatory redemption price for, the Senior Preferred Stock to the extent
required by the Certificate of Designation related thereto, Anvil and Holdings
may be required to refinance a portion of the principal of the Senior Notes and,
if issued, the Exchange Debentures prior to their maturity. If Anvil and
Holdings are unable to
16
service their indebtedness, and, in the case of Holdings, to pay dividends on
the Senior Preferred Stock or the mandatory redemption price therefor, they will
be forced to take actions such as reducing or delaying capital expenditures,
selling assets, restructuring or refinancing their indebtedness or seeking
additional equity capital. There can be no assurance that any of these remedies
can be effected on satisfactory terms, if at all. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-- Liquidity and
Capital Resources," "Description of Securities--Senior Notes," "--Senior
Preferred Stock" and "--Exchange Debentures."
SUBORDINATION OF SECURITIES TO CURRENT AND FUTURE OBLIGATIONS
The New Senior Notes will be, as the Old Senior Notes (which they replace)
are, senior unsecured obligations of Anvil and will, as the Old Senior Notes
(which they replace), rank PARI PASSU in right of payment with all senior
Indebtedness of Anvil. The New Senior Notes will, as the Old Senior Notes (which
they replace), effectively rank junior to any secured Indebtedness of Anvil,
including Indebtedness incurred under the New Credit Agreement, to the extent of
the value of the assets securing such indebtedness and will be, as the Old
Senior Notes (which they replace) are, structurally subordinated to any
Indebtedness of Anvil's subsidiaries. The New Senior Notes will be, as the Old
Senior Notes (which they replace), fully and unconditionally guaranteed on a
senior unsecured basis by Holdings. The Guarantee effectively ranks junior to
any secured Indebtedness of Holdings, including Indebtedness incurred under the
New Credit Agreement, to the extent of the value of the assets securing such
indebtedness and is structurally subordinated to any Indebtedness of Holdings'
subsidiaries. The New Senior Preferred Stock will rank senior in right of
payment with respect to all Junior Securities and PARI PASSU in right of payment
with respect to all Parity Securities. The New Senior Preferred Stock will, as
the Old Senior Preferred Stock (which they replace), rank junior to all
Indebtedness and other obligations of Holdings and its subsidiaries, including
Anvil (the issuer of the Senior Notes). The Exchange Debentures, if issued, will
be unsecured obligations of Holdings and will be subordinated in right of
payment to all existing and future Senior Indebtedness of Holdings and to any
Indebtedness of Holdings' subsidiaries. As of May 3, 1997, the aggregate
principal amount of outstanding Indebtedness of Anvil and its subsidiaries to
which the Senior Notes were effectively junior was approximately $26.5 million,
the aggregate principal amount of outstanding Indebtedness of Holdings and its
subsidiaries to which the Senior Preferred Stock or the Exchange Debentures, if
issued, would have been junior would have been approximately $156.5 million
(including the discount on the Senior Notes). In addition, Anvil had
approximately $28.5 million available, subject to an asset based formula, under
the New Credit Agreement and all borrowings under such facility are guaranteed
by Holdings and secured by substantially all of Anvil's assets and a pledge by
Holdings of all the capital stock of Anvil. Subject to certain restrictions
under the New Credit Agreement and the Senior Indenture, Anvil and its
subsidiaries may incur additional indebtedness (including additional secured
indebtedness and senior indebtedness) from time to time. The New Credit
Agreement and the Senior Indenture do not contain limitations on the ability of
Holdings to incur additional indebtedness and, if the Exchange Debentures are
issued, the Exchange Debenture Indenture will permit Holdings and its
subsidiaries to incur additional indebtedness, subject to certain restrictions.
See "Description of Securities--Senior Notes," "--Senior Preferred Stock,"
"--Exchange Debentures" and "Description of Certain Indebtedness."
Upon any dividend, liquidation or any other distribution by Holdings,
holders of Class A Common will be entitled to be paid out of the assets of
Holdings then available for distribution, a preference equal to $100 per share
(the "Class A Preference") before any distribution is paid on any other class of
Common Stock, including the Class B Common offered in the Initial Units
Offering. The Class A Preference accretes at a rate of 12.5% per annum. Only
after satisfaction of all liabilities, the payment of the liquidation preference
of any outstanding shares of preferred stock and the payment of the Class A
Preference, will the holders of shares of Class B Common be entitled to share
ratably with all other classes of Common Stock in the distribution of all of
Holdings' assets remaining available for distribution. See "Description of
Capital Stock--Common Stock."
17
RISKS ASSOCIATED WITH HOLDING COMPANY STRUCTURE
Holdings is a holding company that conducts substantially all of its
business through its direct and indirect subsidiaries, including Anvil. As a
holding company, Holdings is dependent on dividends or other intercompany
transfers of funds from its subsidiaries to meet its debt service and other
obligations, including its obligations under the Guarantee, the Senior Preferred
Stock and, if issued, the Exchange Debentures. The New Credit Agreement and the
Senior Indenture contain certain restrictions on the ability of Anvil and its
subsidiaries to make dividends and other distributions to Holdings. In addition,
under the terms of the Senior Indenture and the Exchange Debenture Indenture
(collectively, the "Indentures"), Anvil and its subsidiaries may incur certain
indebtedness pursuant to agreements that may restrict the ability to make such
dividends or other intercompany transfers necessary to service Holdings' debt
and/or dividend obligations. Any failure by Holdings to satisfy its obligations
with respect to the Exchange Debentures, if issued, at maturity (with respect to
payments of principal) or prior thereto (with respect to payments of interest or
required repurchases) would constitute a default under the Exchange Debenture
Indenture and the New Credit Agreement and could cause a default under
agreements governing other indebtedness of Holdings and its subsidiaries,
including the Senior Indenture. Any failure by Holdings to satisfy its
obligations under the Senior Preferred Stock would permit the holders thereof
only to elect certain Directors to Holdings' Board of Directors. The Exchange
Debentures, if issued, will be obligations exclusively of Holdings and will not
be guaranteed by any of Holdings' subsidiaries. In addition, because Holdings
conducts its business through its subsidiaries, all existing and future
indebtedness and other obligations of Holdings and its subsidiaries (including
the Senior Notes and borrowings under the New Credit Agreement) will be
effectively senior to the Senior Preferred Stock and, if issued, the Exchange
Debentures. Consequently, Holdings' cash flow and ability to service its debt,
including the Exchange Debentures and the Guarantee, and to pay cash dividends
on the Senior Preferred Stock are dependent upon the earnings of its
subsidiaries and the distribution of those earnings to Holdings, or upon loans,
advances or other payments made by its subsidiaries to Holdings. See
"Description of Securities-- Senior Notes," "--Senior Preferred Stock" and
"--Exchange Debentures."
RESTRICTIONS IMPOSED BY CERTAIN COVENANTS
The Senior Indenture restricts, among other things, Anvil's and its
Restricted Subsidiaries' (as defined in the Senior Indenture) ability to pay
dividends or make certain other restricted payments, including the payment of
cash dividends on or the redemption of its capital stock, to incur additional
indebtedness, to encumber or sell assets, to enter into transactions with
affiliates, to enter into certain guarantees of indebtedness, to make restricted
investments, to merge or consolidate with any other entity and to transfer or
lease all or substantially all of their assets. The Exchange Debenture Indenture
contains similar restrictions applicable to Holdings and its Restricted
Subsidiaries (as defined in the Exchange Debenture Indenture) and the
Certificate of Designation contains certain restrictions on Holdings' ability,
directly or indirectly, to make certain junior payments and Restricted
Investments (as defined in the Certificate of Designation), to enter into
transactions with affiliates or to merge or consolidate with any other entity or
to transfer or lease all or substantially all of its assets. In addition, the
New Credit Agreement contains certain other and more restrictive covenants and
prohibits Anvil and its subsidiaries from prepaying other indebtedness,
including the Senior Notes and the Exchange Debentures, and from redeeming the
Senior Preferred Stock. The New Credit Agreement also requires Anvil to maintain
specified financial ratios and satisfy certain financial condition tests,
including (i) an average funded debt to consolidated EBITDA ratio test, (ii) a
consolidated fixed charge coverage ratio test and (iii) a consolidated interest
coverage ratio test. Anvil's ability to meet those financial ratios and tests
can be affected by events beyond its control, and there can be no assurance that
Anvil will meet those tests. See "Description of Securities--Senior Notes,"
"--Senior Preferred Stock," "--Exchange Debentures" and "Description of Certain
Indebtedness--New Credit Agreement."
18
The ability of Anvil and Holdings to comply with the covenants contained in
the New Credit Agreement, the Indentures and the Certificate of Designation (as
the case may be) may be affected by events beyond their control, including
prevailing economic, financial and industry conditions. The breach of any
covenant or restriction could result in a default which would permit the secured
lenders or the holders of the Senior Notes (as the case may be) to declare all
amounts borrowed thereunder to be due and payable, together with accrued and
unpaid interest, and the commitments of the secured lenders to make further
extensions of credit under the New Credit Agreement could be terminated. If
Anvil or Holdings was unable to repay their indebtedness to their secured
lenders, the secured lenders could proceed against any or all of the collateral
securing such indebtedness, which collateral consists of the capital stock and
substantially all of the assets of Anvil. The inability of Anvil and Holdings
(as the case may be) to pay principal and interest on the Senior Notes, and if
issued, the Exchange Debentures, to satisfy their other debt obligations, or to
pay cash dividends on the Senior Preferred Stock could have a material adverse
effect on the Company's financial condition and results of operations.
CHANGE OF CONTROL PROVISIONS; LIMITATIONS ON RIGHTS OF REPAYMENT
Upon the occurrence of a Change of Control, each holder of Senior Notes,
Senior Preferred Stock and, if issued, Exchange Debentures, will have the right
to require Anvil or Holdings (as the case may be) to repurchase all or part of
such holder's Senior Notes, Senior Preferred Stock or Exchange Debentures (as
the case may be) at a repurchase price equal to 101% of the aggregate principal
amount or the liquidation preference (as the case may be) plus accrued and
unpaid interest or dividends (as the case may be). The repurchase of the Senior
Notes, Senior Preferred Stock or, if issued, the Exchange Debentures, in
relation to a Change of Control will constitute a default under the New Credit
Agreement. In addition, the Change of Control purchase feature of the Senior
Notes, the Senior Preferred Stock and, if issued, the Exchange Debentures may in
certain circumstances discourage or make more difficult a sale or takeover of
Anvil or Holdings and, thus, the removal of incumbent management. See
"Description of Securities-- Senior Notes," "--Senior Preferred Stock,"
"--Exchange Debentures" and "Description of Certain Indebtedness."
The holders of the Senior Notes, the Senior Preferred Stock and, if issued,
the Exchange Debentures have limited rights to require the repurchase or
redemption of the Senior Notes, the Senior Preferred Stock and the Exchange
Debentures in the event of a takeover, recapitalization or similar
restructuring, including a recapitalization or similar transaction with
management. Consequently, the Change of Control provisions will not afford any
protection in a highly leveraged transaction, including such a transaction
initiated by Anvil or Holdings, management of Anvil or Holdings or an affiliate
of Anvil or Holdings, if such transaction does not result in a Change of
Control. In addition, the New Credit Agreement provides that certain change of
control events with respect to Holdings and/or Anvil constitutes a default
thereunder permitting the lending parties thereto to accelerate the Indebtedness
thereunder. In addition, certain events that may obligate Anvil or Holdings to
offer to repay all outstanding obligations under the New Credit Agreement may
not constitute a Change of Control under the Senior Indenture, the Certificate
of Designation or the Exchange Debenture Indenture. Furthermore, neither Anvil
nor Holdings may have sufficient resources to repay Indebtedness under the New
Credit Agreement and may have insufficient resources to repurchase tendered
Securities. Furthermore, any future credit agreements or other agreements
relating to senior Indebtedness to which Anvil or Holdings become a party may
contain similar restrictions and provisions.
In the event a Change of Control occurs at a time when Anvil and/or Holdings
is directly or indirectly prohibited from repurchasing Securities, Anvil and/or
Holdings could seek the consent of its creditors to the purchase of Securities
or could attempt to refinance the indebtedness that contains such prohibition.
If Anvil and/or Holdings do not obtain such a consent or refinance such
indebtedness, the purchase of Securities would remain prohibited. The failure by
Anvil or Holdings (as the case may be) to repurchase tendered Securities would
constitute a breach of the Senior Indenture, the Certificate of Designation and/
19
or the Exchange Debenture Indenture which would, in turn, constitute a default
under the New Credit Agreement and could lead to the acceleration of the
indebtedness thereunder. In any such event, the security granted in respect of
the New Credit Agreement, the legal and structural subordination of the Senior
Preferred Stock and the structural and contractual subordination of the Exchange
Debentures would likely result in the holders of the Securities receiving less
ratably than other creditors.
In addition, the terms of the Senior Notes include provisions similar to
those contained in the Exchange Debentures enabling holders thereof to require
Anvil to repurchase all or any part of such securities under circumstances
constituting a Change of Control. However, Anvil and Holdings may not have
sufficient resources to repurchase tendered Exchange Debentures and/or Senior
Notes and any such failure may constitute a default under the terms of the New
Credit Agreement, the Senior Notes, the Senior Indenture, the Exchange
Debentures and the Exchange Debenture Indenture. Again, in any such event, the
structural and contractual subordination of the Exchange Debentures and the
security granted in respect of the New Credit Agreement would likely result in
the holders of the Exchange Debentures receiving less ratably than other
creditors of Holdings. See "Description of Securities--Senior Notes-- Mandatory
Offers to Purchase Senior Notes--Change of Control," and "--Exchange
Debentures-- Mandatory Offers to Purchase Exchange Debentures--Change of
Control."
SUBSTANTIAL BENEFITS OF RECAPITALIZATION TO EXECUTIVE OFFICERS, DIRECTORS AND
EXISTING STOCKHOLDERS
In connection with the Recapitalization, Holdings redeemed and repurchased
substantially all of its outstanding shares of capital stock. Vestar, Culligan
International Company ("Culligan") and 399 Venture, the principal stockholders
of Holding immediately prior the Recapitalization, received proceeds in
aggregate amounts of approximately $47.9 million, $41.1 million and $7.2
million, respectively, in connection with such repurchases. Members of
management (including certain then-existing Directors) who held shares of
capital stock of Holdings received proceeds in an aggregate amount of
approximately $17.7 million in connection with such repurchases. Furthermore,
the Company's four senior executives received an aggregate of approximately $5.3
million pursuant to the terms of the Company's Phantom Equity Plan, an aggregate
of approximately $470,000 representing transaction fees in connection with the
Recapitalization and an aggregate of $500,000 representing a transaction bonus
awarded in connection with the Recapitalization (the "Management Bonus"). See
"Management," "Security Ownership of Certain Beneficial Owners and Management"
and "Certain Relationships and Related Transactions."
DOMESTIC AND INTERNATIONAL COMPETITION
The domestic activewear industry is highly competitive. The Company faces
competition principally from large vertically integrated U.S.-based
manufacturers of activewear, which are generally larger than the Company and
have greater financial and other resources. There can be no assurances that the
Company can continue to compete successfully with such competitors. In addition,
certain competitors have greater vertical integration than the Company insofar
as certain of such competitors spin their own yarn, which under certain market
conditions may give them a competitive advantage. Prices for the Company's
products are typically determined by market conditions. To remain competitive,
the Company reviews and adjusts its pricing structure from time to time in
response to industry-wide price changes. To the extent that the Company may be
obligated to adjust its pricing policies to meet competition, the Company's
financial performance may be adversely affected by price reductions implemented
by significant competitors or by the failure of such competitors to increase
prices in line with increases in the Company's costs and expenses.
The Company also faces competition from foreign manufacturers of activewear
who generally have substantially lower labor costs than domestic manufacturers.
Historically, the Company has benefited from quotas and tariffs imposed by the
United States on the importation of apparel. The General Agreement on Tariffs
and Trade ("GATT"), which became effective on January 1, 1995, requires a
complete phase-out of all existing quotas over a ten-year period. The phase-out
of such quotas is scheduled to take place in four
20
stages as follows (expressed in a percentage of total imports): 16% in 1995; 17%
in 1999; 18% in 2003; and 49% in 2005. To date, no products manufactured by the
Company have been subject to quota reductions under GATT. The products that will
be subject to quota eliminations in 1999 and 2003 have not yet been selected. In
addition to the phasing-out of the use of quotas, GATT also requires that the
United States reduce tariffs on textile and apparel imports over the same
ten-year period. To date, the United States has not lowered such tariffs.
Although the Company believes that it is less susceptible to import competition
than many other textile and apparel manufacturers due to the capital intensive
nature of its vertically integrated business, its focus on high-quality,
relatively low labor content of its products and its rapid delivery
capabilities, no assurance can be given that the elimination or substantial
reduction of quotas and tariffs as contemplated by GATT will not have a material
adverse effect on the Company's results of operations or that the Company can
continue to compete successfully with such competitors. See
"Business--Competition."
SUPPLY AND PRICE OF YARN
The principal raw material used by the Company in the production of its
products is cotton yarn. Unlike certain of its competitors, the Company does not
spin its own yarn. Instead, the Company obtains substantially all of its yarn
from five domestic yarn suppliers pursuant to purchase orders for quantities
ranging from 30 days' to one year's supply, based upon the Company's
expectations as to yarn prices and levels of supply. The Company does not have
and does not typically enter into long-term supply contracts (more than one
year) relating to cotton yarn. In fiscal 1996, one yarn supplier accounted for
approximately 35% of the Company's total yarn purchases. Although to date the
Company has always been able to obtain sufficient quantities of yarn for its
manufacturing processes, a significant disruption in the ability or willingness
of the Company's yarn suppliers to deliver a sufficient quantity of quality yarn
or any other interruption in the Company's ability to obtain yarn could have a
material adverse effect on the Company's results of operations. See
"Business--Raw Materials."
The price of cotton yarn used by the Company in its manufacturing operations
is subject to volatility. The Company is sensitive to fluctuations in cotton
yarn prices as cotton yarn is the largest component of the manufacturing cost of
its products. Although the Company generally attempts to pass on any increase in
raw materials prices to its customers, no assurance can be given that the
Company will be successful in passing on such price increases in the future.
DEPENDENCE UPON SENIOR MANAGEMENT
The Company is dependent on the personal efforts, relationships and
abilities of its senior management team, who on average have more than 20 years
of experience in the apparel industry. At the time of the Acquisition, the
Company entered into four-year employment agreements with Bernard Geller, its
Chief Executive Officer and Jacob Hollander, Anthony Corsano and William H.
Turner, each an executive officer. The loss of services of any of the members of
the Company's senior management team could have a material adverse effect on the
future performance of the Company. The Company does not maintain "key man"
insurance on any of the members of its senior management team. In addition, the
Company believes that its success is dependent on its ability to attract and
retain additional qualified employees, and the failure to recruit such other
skilled personnel could have a material adverse effect on the Company's
financial condition and results of operations. See "Management--Employment
Agreements."
ENVIRONMENTAL CONSIDERATIONS
Apparel manufacturers such as the Company have become subject to
increasingly stringent environmental standards imposed by federal, state and
local environmental laws and regulations. The Company has made, and will
continue to make, expenditures to comply with such environmental standards. The
Company regularly reviews its procedures and policies for compliance with
environmental laws. Based upon the Company's experience to date, the cost of
compliance with environmental laws has not had, and
21
is not expected to have a material adverse effect on the Company's financial
condition, liquidity or results of operations. However, future events, such as
changes in existing laws and regulations, may give rise to additional compliance
costs that could have a material adverse effect on the Company's financial
condition or results of operations. See "Business--Environmental Matters."
CONTROL BY PRINCIPAL STOCKHOLDERS
399 Venture and BRS together own shares of Common Stock that represent
approximately 76% of voting power of the outstanding Common Stock. In addition,
pursuant to the Stockholders Agreement (as defined), 399 Venture, BRS and the
Management Investors have agreed to vote all of their shares of Common Stock for
the election of directors designated by certain stockholders, including 399
Venture and BRS. As a result, 399 Venture and BRS together have the effective
voting power to elect a majority of the Directors of the Company and generally
exercise control over the business, policies and affairs of the Company.
Furthermore, the Stockholders Agreement contains certain restrictions on the
transfer by the holders of Common Stock (other than holders of Class B Common
issued in the Initial Units Offering), including certain participation rights
and rights of first refusal for the Company and certain holders to purchase the
shares of Common Stock prior to transfer by any other current holder, which
could prevent or cause a change of control of the Company. See "Security
Ownership of Certain Beneficial Owners and Management--Stockholders Agreement."
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF THE SENIOR NOTES
The Old Senior Notes were issued to, and Anvil 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 Senior Notes. The Old Senior
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 Senior Notes by holders who are entitled to participate in this Exchange
Offer. The holders of Old Senior Notes (other than any such holder that is an
"affiliate" of Anvil 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 Anvil is required to file a Shelf Registration
Statement with respect to such Old Senior Notes. The New Senior Notes will
constitute a new issue of securities with no established trading market. Anvil
does not intend to list the New Senior Notes on any national securities exchange
or seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. The Initial Purchasers have
advised Anvil that they currently intend to make a market in the New Senior
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 Senior Notes or as to the liquidity of the trading
market for the New Senior Notes. If a trading market does not develop or is not
maintained, holders of the New Senior Notes may experience difficulty in
reselling the New Senior Notes or may be unable to sell them at all. If a market
for the New Senior Notes develops, any such market may be discontinued at any
time.
If a public trading market develops for the New Senior Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, Anvil's results of operations and the market
for similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of
Anvil, the New Senior Notes may trade at a discount from their principal amount.
If the Senior Notes trade at a discount from their principal amount, Anvil might
experience difficulty in arranging additional financings of this type in the
future. The Company's inability to arrange necessary future financings could
have a material adverse effect on the Company's financial condition and results
of operation.
22
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the New Senior Notes in exchange for the Old Senior Notes
pursuant to the Exchange Offer will be made only after a timely receipt by Anvil
of such Old Senior Notes, a properly completed and duly executed Letter of
Transmittal or Agent's Message (as defined) and all other required documents.
Therefore, holders of the Old Senior Notes desiring to tender such Old Senior
Notes in exchange for New Senior Notes should allow sufficient time to ensure
timely delivery. Anvil is under no duty to give notification of defects or
irregularities with respect to the tenders of Old Senior Notes for exchange. Old
Senior 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 Senior Notes who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the New Senior 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 Senior Notes for its own
account in exchange for Old Senior Notes, where such Old Senior 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 Senior Notes. See "Plan of Distribution."
To the extent that Old Senior Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Senior
Notes could be adversely affected. See "The Exchange Offer."
FRAUDULENT TRANSFER CONSIDERATIONS
Under fraudulent transfer law, if a court were to find in a lawsuit by an
unpaid creditor or representative of creditors of Anvil or Holdings, that Anvil
or Holdings received less than fair consideration or reasonable equivalent value
for incurring the indebtedness represented by the Senior Notes or the Guarantees
and, if issued, the Exchange Debentures, and, at the time of such incurrence,
Anvil or Holdings (as the case may be) (i) was insolvent or was rendered
insolvent by reason of such incurrence, (ii) was engaged or about to engage in a
business or transaction for which its remaining property constituted
unreasonably small capital or (iii) intended to incur, or believed it would
incur, debts beyond it ability to pay as such debts mature, such court could,
among other things, (a) void all or a portion of Anvil's obligations to the
holders of Senior Notes and the Guarantees and, if issued, Holdings' obligations
to the holders of the Exchange Debentures and/or (b) subordinate Anvil's
obligations to the holders of the Senior Notes or Holdings' obligations under
the Guarantees and, if issued, Holdings' obligations to the holders of the
Exchange Debentures to other existing and future indebtedness of Anvil or
Holdings (as the case may be) the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the Senior
Notes or the Guarantees and, if issued, the Exchange Debentures. 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 of its liabilities were greater than the value of all of 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 liability on its
debts as they become absolute and mature. There can be no assurance as to what
standard a court would apply in order to determine solvency.
Management believes the Senior Notes and the Guarantees were issued without
the intent to hinder, defraud or delay creditors, for proper purposes and in
good faith. Management believes that Anvil and Holdings received equivalent
value at the time the indebtedness under the Senior Notes and the Guarantee
incurred. As of May 3, 1997, the Company had a stockholders' deficiency of
approximately $64.6 million. See "Capitalization," "Pro Forma Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." Management believes that, for purposes of the Federal Bankruptcy
Code and state fraudulent transfer or conveyance laws, Anvil and Holdings are
23
and will be, solvent, will have sufficient capital for carrying on their
business and will be able to pay their debts as they mature. These beliefs are
based upon the Company's operating history, management's analysis of cash flows,
the estimated fair value of the Company's assets and the Company's estimated
liabilities. In determining the estimated fair value of the Company's assets,
the Board of Directors utilized a written report of an expert in appraisals as
to the equity value of Holdings and as to certain other valuation and solvency
matters. The various factors considered by the Board as enumerated above,
supported the Board's conclusions regarding the sufficiency of the Company's
capital and no one factor was given more significance than others by the Board
in reaching its conclusions. As a result of the uncertainty of the application
of fraudulent transfer or conveyance law in transactions similar to the
Recapitalization, including the distribution to stockholders, there can be no
assurance that a court passing on any of the foregoing issues would agree with
management's views.
TAX CONSEQUENCES OF DISTRIBUTIONS WITH RESPECT TO THE SENIOR PREFERRED STOCK AND
EXCHANGE DEBENTURES; POTENTIAL FOR UNPLANNED DEEMED DIVIDEND INCOME
Holdings believes, based on advice from its tax counsel, that if the
redemption price of the Senior Preferred Stock exceeds its issue price by more
than a DE MINIMIS amount, such excess may be treated as a constructive
distribution with respect to the Senior Preferred Stock of additional stock over
the term of the Senior Preferred Stock using a constant interest rate method
similar to that used for accruing original issue discount. As a result of the
allocation of a portion of the purchase price of the Units to the Class B
Common, the Senior Preferred Stock initially purchased by holders may have a
redemption price that exceeds its issue price by more than a DE MINIMIS amount,
resulting in such constructive distributions. In addition, because the issue
price of the Senior Preferred Stock distributed in lieu of payments of cash
dividends will be equal to the fair market value of the Senior Preferred Stock
at the time of distribution, it is possible, depending on its fair market value
at that time, that such Senior Preferred Stock will be issued with a redemption
premium large enough to be considered a dividend as described above. In such
event holders would be required to include such premium in income as a
distribution over some period in advance of receiving the cash attributable to
such income, and such Senior Preferred Stock might trade separately, which might
adversely affect the liquidity of the Senior Preferred Stock.
Holdings may, at its option and under certain circumstances, issue Exchange
Debentures in exchange for the Senior Preferred Stock. Any such exchange will be
a taxable event to holders of the Senior Preferred Stock. Furthermore, the
Exchange Debentures may in certain circumstances be treated as having been
issued with original issue discount ("OID") for federal income tax purposes. In
such event, holders of Exchange Debentures will be required to include such OID
(as ordinary income) in income over the life of the Exchange Debentures, in
advance of the receipt of the cash attributable to such income.
24
THE RECAPITALIZATION
On February 12, 1997, Holdings, Anvil VT, Inc., Vestar, 399 Venture, the
Management Investors, the other Existing Stockholders and BRS entered into the
Recapitalization Agreement. Pursuant to the Recapitalization Agreement: (i)
Holdings redeemed a substantial portion (i.e., 83.3%) of its outstanding
preferred stock (the "Old Preferred Stock") and repurchased a substantial
portion (i.e., 82.8%) of its old common stock (the "Old Common Stock"); (ii) 399
Venture and the Management Investors reinvested 1,770,672 shares of Old Common
Stock, which converted into 167,516 shares of Class A Common and 1,848,446
shares of Class B Common; (iii) 399 Venture exchanged 33,330 shares of its Old
Preferred Stock for 3,333 Units; and (iv) BRS purchased 117,645 shares of Class
A Common and 1,298,152 shares of Class B Common at a price equal to
approximately $10.50 per share (with no discounts). As part of the
Recapitalization, the Company also: (i) repaid all of Anvil's outstanding
borrowings under its existing credit agreement (the "Old Credit Agreement");
(ii) repaid a subordinated promissory note issued to Culligan in connection with
Acquisition (the "Subordinated Note"); (iii) made payments to the Management
Investors pursuant to the Phantom Equity Plan; (iv) paid the Management Bonus;
and (v) paid fees and expenses related to the Recapitalization. The foregoing
transactions together with the related financing transactions discussed below
are collectively referred to herein as the "Recapitalization." See "Use of
Proceeds."
The Company used approximately $225.5 million to complete the
Recapitalization, including the payment of related fees and expenses. In order
to finance the Recapitalization: (i) Anvil issued $130.0 million in aggregate
principal amount of Old Senior Notes in the Offering; (ii) Holdings issued
30,000 Units, consisting of an aggregate of 1,200,000 shares of Old Senior
Preferred Stock and 390,000 shares of Class B Common, in the Initial Units
Offering for gross proceeds of $26.7 million; (iii) Anvil borrowed approximately
$33.3 million under the New Credit Agreement; and (iv) 399 Venture, BRS and the
Management Investors made the Equity Contribution of $35.5 million to Holdings.
The Equity Contribution was comprised of: (i) a cash investment of $13.1 million
and reinvestment of $0.5 million of equity securities by BRS; (ii) the
reinvestment of $16.9 million of equity securities by 399 Venture; and (iii) the
reinvestment of $5.0 million of equity securities by the Management Investors.
See "Description of Securities--Senior Notes," "--Senior Preferred Stock" and
"Description of Certain Indebtedness."
The capital structure of Holdings as reflected in its historical
consolidated financial statements consists of three classes of Old Common Stock
(Classes A, B and C) and three classes of Old Preferred Stock (Classes A, B and
C). The various classes of Old Common Stock and Old Preferred Stock were
substantially identical except with respect to voting and conversion rights. In
connection with the Recapitalization, Holdings filed with the Secretary of State
of Delaware a Restated Certificate of Incorporation, which among other things,
sets forth the terms of the Common Stock and the Senior Preferred Stock.
Holdings has outstanding 290,000 shares of Class A Common and 3,590,000 shares
of Class B Common. The Class A Common is nonvoting and is entitled to the Class
A Preference upon any distribution by Holdings to holders of its capital stock
(whether by dividend, liquidation distribution or otherwise). The Class B Common
entitles the holder thereof to one vote per share. See "Security Ownership of
Certain Beneficial Owners and Management," "Description of Securities--Senior
Preferred Stock" and "Description of Capital Stock."
399 Venture, BRS and the Management Investors own (and owned, prior to the
completion of the Recapitalization) the following shares of capital stock of
Holdings:
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
(PRE-RECAPITALIZATION) (POST-RECAPITALIZATION) PERCENTAGE OF VOTING POWER
----------------------- --------------------- ------------------------------------
OLD CLASS A CLASS B PRE- POST-
NAME OLD COMMON PREFERRED COMMON COMMON RECAPITALIZATION RECAPITALIZATION
- ----------------------------------- ---------- ----------- --------- ---------- ----------------- -----------------
399 Venture........................ 1,792,511 41,249 122,484 1,351,553 17.0% 38.0%
BRS................................ 77,489 1,783 122,484 1,351,553 0.7 38.0
Management Investors............... 2,100,000 4,400 45,032 496,894 19.5 14.0
---------- ----------- --------- ---------- --- ---
Total........................ 3,970,000 47,432 290,000 3,200,000 37.2% 90.0%
---------- ----------- --------- ---------- --- ---
---------- ----------- --------- ---------- --- ---
25
USE OF PROCEEDS
(IN MILLIONS, EXCEPT SHARE DATA)
The Exchange Offer is intended to satisfy certain of Anvil's obligations
under the Registration Rights Agreement. Anvil will not receive any cash
proceeds from the issuance of the New Senior Notes offered hereby. In
consideration for issuing the New Senior Notes contemplated in this Prospectus,
Anvil will receive Old Senior Notes in like principal amount, the form and terms
of which are the same as the form and terms of the New Senior Notes (which
replace the Old Senior Notes), except as described herein.
The proceeds from the Initial Offerings were approximately $156.7 million
before deducting commissions and estimated expenses thereof. The proceeds from
the Initial Offerings, together with borrowings of approximately $33.3 million
under the New Credit Agreement and proceeds from the Equity Contribution of
$35.5 million, were used to: (i) repay all outstanding borrowings under the Old
Credit Agreement; (ii) repay the Subordinated Note; (iii) redeem or exchange all
of the outstanding shares of the Old Preferred Stock (including all accrued
dividends thereon); (iv) repurchase all of Holdings' Old Common Stock (other
than the Retained Shares); (v) make payments to the Company's senior management
team pursuant to the Company's Phantom Equity Plan; (vi) pay the Management
Bonus; and (vii) pay the fees and expenses of the Recapitalization. The New
Credit Agreement permits borrowings of up to $55.0 million for working capital
and for general corporate purposes, including future acquisitions. Certain
former stockholders of Holdings received a significant portion of the net
proceeds of the Initial Offerings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources,"
"Description of Certain Indebtedness" and "Certain Relationships and Related
Transactions."
The following table sets forth the sources and uses of funds relating to the
Recapitalization:
SOURCES OF FUNDS:
Borrowings under the New Credit Agreement......................... $ 33.3
Old Senior Notes due 2007 (including original issue discount)..... 130.0
Units(1).......................................................... 26.7
Equity Contribution............................................... 35.5
---------
Total sources................................................. $ 225.5
---------
---------
USES OF FUNDS:
Repay borrowings under the Old Credit Agreement(2)................ $ 61.3
Repay the Subordinated Note(3).................................... 9.6
Redeem or exchange the Old Preferred Stock(4)..................... 26.1
Repurchase shares of Old Common Stock(5).......................... 91.6
Payment under the Phantom Equity Plan(6).......................... 5.3
Payment of Management Bonus(7).................................... 0.5
Retained Shares(8)................................................ 19.1
Fees and expenses(9).............................................. 12.0
---------
Total uses.................................................... $ 225.5
---------
---------
- --------------------------
(1) In connection with the Initial Units Offering, Holdings offered 30,000
Units, each consisting of 40 shares of Old Senior Preferred Stock with a
liquidation preference of $25.00 per share and 13 shares of Class B Common.
Accordingly, an aggregate of 1,200,000 shares of Old Senior Preferred Stock
and 390,000 shares of Class B Common were issued in the Initial Units
Offering.
(2) Borrowings under the Old Credit Agreement as of March 14, 1997 consisted of:
(i) $30.5 million principal amount of a tranche A term loan that matures
quarterly in varying amounts from April 29, 1995 through February 3, 2001
(the "Tranche A Term Loan"), and $14.8 million principal amount of a tranche
B term loan that matures quarterly
26
in varying amounts from April 29, 1995 through February 2, 2002 (the
"Tranche B Term Loan," together with the Tranche A Term Loan, the "Term
Loans"), and (ii) $15.8 million principal amount of revolving credit loans
that mature on January 30, 2001, subject to certain required temporary
interim reductions and $0.2 million of accrued interest. As of February 1,
1997, the weighted average interest rate with respect to all borrowings
under the Old Credit Agreement was approximately 8%.
(3) The Subordinated Note was issued by Holdings to Culligan in the principal
amount of $7.5 million in connection with the Acquisition. The Subordinated
Note would have matured on January 30, 2005 or earlier upon a change in
ownership of Holdings (as defined therein) and bore interest, payable
semiannually, at 10% per annum if paid in cash, or at 12% per annum if such
interest payments are deferred by Holdings. See "Certain Relationships and
Related Transactions."
(4) The Old Preferred Stock was issued by Holdings to finance a portion of the
Acquisition. Dividends on the Old Preferred Stock accrued at a rate of 12.5%
per annum on the sum of the liquidation value of the Old Preferred Stock
($100 per share) plus all accumulated and unpaid dividends thereon,
compounded quarterly. Pursuant to the Recapitalization Agreement, 399
Venture exchanged 33,330 shares of its Old Preferred Stock for 3,333 Units
included in the Initial Units Offering.
(5) Pursuant to the Recapitalization Agreement, Holdings agreed to repurchase
Old Common Stock at a purchase price equal to approximately $10.50 per
share. All Old Common Stock held by the Existing Stockholders was redeemed,
except for the Retained Shares. The aggregate repurchase amount for the Old
Common Stock was net of the payment of: (i) the price to be paid by the
Management Investors in connection with the exercise of the currently
outstanding options and (ii) the repayment of certain loans made to certain
Management Investors in connection with their original purchase of the Old
Common Stock.
(6) In connection with the Acquisition, the Company and the Management Investors
entered into a Phantom Equity Plan. The Phantom Equity Plan provided that
the Management Investors were entitled to a cash payment upon certain
events, including the Recapitalization. See "Management--Phantom Equity
Plan."
(7) As part of the Recapitalization, the Company agreed to pay the Company's
senior management team a transaction bonus of $500,000 in the aggregate.
(8) Pursuant to the Recapitalization Agreement, 399 Venture, BRS and the
Management Investors reinvested a portion of their shares of Old Common
Stock, having a value of $13.6 million, $0.5 million and $5.0 million,
respectively, which converted into shares of Class A Common, Class B Common
and Old Senior Preferred Stock.
(9) Includes discounts, commissions and fees and expenses incurred in connection
with the Recapitalization and the New Credit Agreement. A portion of such
fees was paid in the form of dividends to holders of Class C Common.
27
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth the unaudited consolidated capitalization of
the Company as of May 3, 1997 which reflects the Recapitalization which was
completed on March 14, 1997. The Old Senior Notes surrendered in exchange for
the New Senior Notes will be retired and canceled and cannot be reissued.
Likewise, the Old Senior Preferred Stock surrendered in exchange for the New
Senior Preferred Stock will be retired and canceled and cannot be reissued.
Accordingly, neither the issuance of the New Senior Notes nor the New Senior
Preferred Stock will result in any increase or decrease in the indebtedness of
the Company. As such, no effect has been given to the Exchange Offers in this
capitalization table. This table should be read in conjunction with "Use of
Proceeds," "Selected Historical Financial Data" and "Unaudited Pro Forma
Financial Statements" and the financial statements and notes thereto included
elsewhere in this Prospectus.
AS OF
MAY 3, 1997
-----------
ACTUAL
-----------
Cash and cash equivalents........................................................ $ 1,405
-----------
-----------
Total debt:
Revolving credit facility borrowings under the New Credit Agreement............ $ 26,500
10 7/8% Senior Notes due 2007 (including the original issue discount).......... 130,000
-----------
Total debt................................................................. 156,500
13% Senior Exchangeable Preferred Stock due 2009 (at liquidation value).......... 30,488
Total stockholders' deficiency................................................... (64,613)
-----------
Total capitalization....................................................... $ 122,375
-----------
-----------
DIVIDEND POLICY
Holdings is not required to pay cash dividends on the Senior Preferred Stock
until after March 15, 2002. Holdings intends to retain future earnings, if any,
for use in its business and does not anticipate paying any cash dividends on the
Senior Preferred Stock for any period ending on or prior to March 15, 2002 or on
the Common Stock. In addition, the terms of the Senior Indenture and the New
Credit Agreement limit the amount of cash dividends Anvil may distribute to
Holdings to pay dividends with respect to the Senior Preferred Stock, the Common
Stock and other equity securities both before and after that date. Further,
holders of Class A Common are entitled to the Class A Preference upon a
distribution by Holdings to holders of its capital stock (whether by dividend,
liquidation or other distribution). See "Description of Securities--Senior
Notes--Certain Covenants," "--Senior Preferred Stock--Dividends" and
"Description of Certain Indebtedness."
28
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS AND UNITS IN THOUSANDS)
Set forth below are the selected historical financial data of the
Predecessor and the Company as of the dates and for the periods shown. The
selected historical financial data of the Predecessor for fiscal years 1992 and
1994 and the five and seven month periods ended June 30, 1993 and January 29,
1994, respectively, were derived from the combined financial statements of the
Predecessor for such periods, which were audited by KPMG Peat Marwick LLP. The
selected historical financial data of the Company for fiscal years 1995 and 1996
were derived from the consolidated financial statements for such periods, which
were audited by Deloitte & Touche LLP. The financial data as of May 3, 1997 and
for the three months ended May 3, 1997 and April 27, 1996 have been derived from
the Company's unaudited consolidated financial statements which, in the opinion
of management, contain all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial condition and
results of operations for such period. The results of operations for the three
months ended May 3, 1997 are not necessarily indicative of the operating results
that may be expected for the full year. The financial statements presented
herein reflect the consolidated financial statements of the Company or the
combined financial statements of the Predecessor. Holdings has no independent
operations apart from its wholly owned subsidiary, Anvil, and its sole asset is
the capital stock of Anvil. The information presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the combined and consolidated financial
statements and notes thereto included elsewhere in this Prospectus.
PREDECESSOR (1) THE COMPANY (1)
-------------------------------------------------- ----------------------------------------------
SEVEN
FISCAL YEAR FIVE MONTHS MONTHS FISCAL YEAR ENDED
ENDED ENDED ENDED ---------------------------------
JAN. 31, JUNE 30, JAN. 29, JAN. 28, JAN. 27, FEB. 1,
1993 1993 1994 (2) 1995 (2) 1996 1997
----------- ----------- ----------- ----------- --------- ---------
THREE MONTHS ENDED
------------------------
APRIL 27, MAY 3,
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales..................... $ 140,839 $ 75,743 $ 74,691 $ 169,923 $ 193,389 $ 204,154 $ 58,552 $ 60,288
Cost of goods sold............ 116,727 61,197 62,408 131,906 149,723 156,813 46,836 45,859
----------- ----------- ----------- ----------- --------- --------- ----------- -----------
Gross profit.................. 24,112 14,546 12,283 38,017 43,666 47,341 11,716 14,429
Selling, general and
administrative expenses..... 11,103 5,788 6,632 14,704 17,778 21,678 5,276 6,128
Special compensation (3)...... -- -- -- -- -- -- -- 10,915
Amortization of intangible
assets...................... -- 55 6,717 13,435 736 958 203 250
----------- ----------- ----------- ----------- --------- --------- ----------- -----------
Operating income (loss)....... 13,009 8,703 (1,066) 9,878 25,152 24,705 6,237 (2,864)
Other income (expense):
Interest income and other--
net....................... 244 6 88 2,451 616 415 (447) (178)
Interest expense............ (188) (74) (107) (227) (8,844) (7,912) (1,710) (3,142)
----------- ----------- ----------- ----------- --------- --------- ----------- -----------
Income (loss) before
provision for income
taxes, extraordinary item
and cumulative effect of
change in accounting
principle................. 13,065 8,635 (1,085) 12,102 16,924 17,208 4,080 (6,184)
Provision (benefit) for
income taxes.............. 5,845 3,663 2,253 11,045 6,770 6,883 1,632 (2,474)
----------- ----------- ----------- ----------- --------- --------- ----------- -----------
Income (loss) before
extraordinary item and
cumulative effect of change
in accounting principle..... 7,220 4,972 (3,338) 1,057 10,154 10,325 2,448 (3,710)
Extraordinary item--loss on
extinguishment of debt, net
of $1,838 tax benefit (4)... -- -- -- -- -- -- -- (2,757)
Cumulative effect of change in
accounting principle (5).... (853) -- -- -- -- -- -- --
----------- ----------- ----------- ----------- --------- --------- ----------- -----------
Net income (loss)............. $ 8,073 $ 4,972 $ (3,338) $ 1,057 $ 10,154 $ 10,325 $ 2,448 $ (6,467)
----------- ----------- ----------- ----------- --------- --------- ----------- -----------
----------- ----------- ----------- ----------- --------- --------- ----------- -----------
29
PREDECESSOR (1) THE COMPANY (1)
-------------------------------------------------- -----------------------------------
SEVEN
FISCAL YEAR FIVE MONTHS MONTHS FISCAL YEAR ENDED
ENDED ENDED ENDED ---------------------------------
JAN. 31, JUNE 30, JAN. 29, JAN. 28, JAN. 27, FEB. 1,
1993 1993 1994 (2) 1995 (2) 1996 1997
----------- ----------- ----------- ----------- --------- --------- THREE MONTHS
ENDED
-------------
APRIL 27,
1996
-------------
(UNAUDITED)
OTHER DATA:
EBITDA (6).................... $ 16,329 $ 10,617 $ 7,830 $ 28,639 $ 31,615 $ 33,550 $ 8,017
Cash provided by (used in)....
Operating activities........ (4,186) 21,919 (996) 13,654 7,163 23,811 1,967
Investing activities........ (9,242) (3,003) (4,764) (7,888) (7,703) (6,519) (564)
Financing activities........ 13,376 (18,813) 4,125 (5,313) 775 (16,997) (959)
Depreciation and
amortization................ 3,320 1,914 8,896 18,761 6,463 7,287 1,962
Capital expenditures.......... 9,372 3,003 4,764 7,888 7,703 4,815
Ratio of earnings to fixed
charges (7)................. -- -- -- -- 2.9x 3.1x 3.3x
Ratio of earnings to fixed
charges and preferred stock
dividends (7)............... -- -- -- -- 2.4x 2.6x 2.6x
SELECTED OPERATING DATA:
Dozens of units sold.......... 4,187 2,198 2,224 4,711 4,973 5,319
Unit growth................... 11.1% * * 6.5% 5.6% 7.0%
Net sales growth.............. 13.0% * * 13.0% 13.8% 5.6%
PRO FORMA INCOME (LOSS) PER COMMON SHARE: (9)
Class A Common Stock:
Income before extraordinary item........................................................... $ 13.72
Extraordinary item......................................................................... --
---------
Net income................................................................................. $ 13.72
---------
---------
Class B Common Stock:
Income (loss) before extraordinary item.................................................... $ .63
Extraordinary loss......................................................................... --
---------
Net loss................................................................................... $ .63
---------
---------
Weighted average shares used in computation of pro forma income (loss) per share:
Class A Common............................................................................. 290
Class B Common............................................................................. 3,590
---------
---------
MAY 3,
1997
-------------
(UNAUDITED)
OTHER DATA:
EBITDA (6).................... $ 9,979
Cash provided by (used in)....
Operating activities........ 1,732
Investing activities........ (1,231)
Financing activities........ (227)
Depreciation and
amortization................ 2,139
Capital expenditures..........
Ratio of earnings to fixed
charges (7).................
Ratio of earnings to fixed
charges and preferred stock
dividends (7)...............
SELECTED OPERATING DATA:
Dozens of units sold..........
Unit growth...................
Net sales growth..............
PRO FORMA INCOME (LOSS) PER CO
Class A Common Stock:
Income before extraordinary $ 2.03
Extraordinary item.......... (.71)
-------------
Net income.................. $ 1.32
-------------
-------------
Class B Common Stock:
Income (loss) before extraor $ (1.51)
Extraordinary loss.......... (.71)
-------------
Net loss.................... $ (2.22)
-------------
-------------
Weighted average shares used i
Class A Common.............. 290
Class B Common.............. 3,590
-------------
-------------
*SEE FOOTNOTE 2.
PREDECESSOR (1) THE COMPANY (1)
--------------------------------- ---------------------------------
JAN. 31, JAN. 29, JAN. 28, JAN. 27 FEB. 1,
1993 1994(2) 1995(2) 1996 1997
----------- --------- --------- --------- --------- MAY 3,
1997
-----------
(UNAUDITED)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............................... $ 2,078 $ 546 $ 999 $ 1,568 $ 1,863 $ 1,405
Total assets............................................ 82,315 110,956 109,141 136,527 136,832 142,588
Total debt.............................................. -- -- -- 84,457 68,594 156,500
Preferred stock (liquidation value)..................... -- -- -- 22,620 25,582 30,488
Total stockholders' equity (deficiency) (8)............. 67,230 91,759 87,503 33,008 43,386 (64,613)
- ------------------------------
(1) The periods prior to and including January 28, 1995 reflect the combined
financial data of the Predecessor, which was acquired by the Company as of
January 28, 1995 from McGregor. The periods beginning January 29, 1995
reflect the consolidated financial data of the Company after the
Acquisition. Because of the revaluation of the assets and liabilities
acquired and the related impact to the consolidated statements of
operations, the financial statements of the Predecessor (other than net
sales) for the periods prior to January 29, 1995 are not comparable to those
of the Company subsequent to that date.
30
(2) In connection with Astrum's emergence from Chapter 11 bankruptcy
proceedings, the Predecessor adopted "fresh-start" accounting (the
Predecessor was not a party to Astrum's Chapter 11 bankruptcy proceeding).
Accordingly, effective June 30, 1993, the assets by the Predecessor were
recorded at their fair market values with the excess of the reorganization
value over the fair value of the assets recorded as an intangible asset. As
a result of the adjustments, the financial statements as of and for the year
ended January 28, 1995 and the seven months ended January 29, 1994 are not
comparable to prior periods. The Company has omitted unit growth and net
sales growth for the five and seven month periods ended June 30, 1993 and
January 29, 1994, respectively, because such periods may not be comparable
to the other periods presented.
(3) In connection with the Recapitalization, the Company recorded a special
charge in the three months ended May 3, 1997 for compensation related to the
exercise of options by members of management, payment of a special
transaction bonus to members of management and payments under a then
existing equity buy-out plan to members of management. These charges
aggregated $10,915, and are considered by management to be nonrecurring in
nature.
(4) In connection with the Recapitalization and refinancing, the Company
recorded an extraordinary charge of $2,757, net of an income tax benefit, in
the three months ended May 3, 1997, as a result of losses incurred in
connection with the early extinguishment of debt.
(5) Cumulative effect of change in accounting principle relates to the
Predecessor's adoption of Statement of Financial Accounting Standards No.
109, effective February 2, 1992.
(6) EBITDA is defined as operating income plus depreciation and amortization.
The fiscal 1996 EBITDA excludes a non-cash charge of $0.6 million for the
estimated loss on disposal of certain fixed assets and in the three month
period ended May 3, 1997 excludes non-recurring items of $10.9 million for
charges to special compensation. EBITDA is not a measure of performance
under GAAP. EBITDA should not be considered in isolation or as a substitute
for net income, cash flows from operating activities and other income or
cash flow statement data prepared in accordance with GAAP, or as a measure
of profitability or liquidity. Management believes, however, that EBITDA
represents a useful measure of assessing the performance of the Company's
ongoing operating activities as it reflects earnings trends of the Company
without the impact of purchase accounting applied in connection with the
Acquisition. In addition, management believes EBITDA is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness and is used by the Company's creditors in assessing debt
covenant compliance. EBITDA should not construed as an indication of the
Company's operating performance or as a measure of liquidity. EBITDA does
not take into account the Company's debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary uses. The EBITDA measure presented in
this Prospectus may not be comparable to other similarly titled measures of
other companies.
(7) Earnings used in computing the historical and pro forma ratio of earnings to
fixed charges consist of income before provision for income taxes, net of an
income tax benefit, plus fixed charges. Fixed charges consist of interest
expense on all indebtedness (including amortization of deferred debt
issuance costs) and a portion of operating lease rental expense that is
representative of the interest factor (approximately 1/3). The calculation
of these ratios is not meaningful for the Predecessor as its interest
expense and rental expense were DE MINIMUS. Preferred stock dividends
consist of dividends paid and dividends accumulated in arrears on preferred
stock and Class A Common. Earnings were insufficient to cover fixed charges
and fixed charges and preferred stock dividends by $2,938 and $4,298,
respectively, for the three months ended May 3, 1997.
(8) Stockholder's equity for the Predecessor represents McGregor's investment in
the Predecessor.
(9) Pro forma net income (loss) per share is computed by dividing net income
(loss) applicable to each class of Common Stock by the average number of
shares of such stock outstanding, as follows (in thousands):
THREE MONTHS
YEAR ENDED ENDED
FEBRUARY 1, 1997 MAY 3, 1997
----------------- -------------
Net income (loss).................................................. $ 10,325 $ (6,467)
Less: preferred dividends.......................................... (4,094) (1,108)
Class A common preference........................................ (3,798) (1,025)
------- -------------
Net income (loss) applicable to common stockholders................ $ 2,433 $ (8,600)
------- -------------
------- -------------
Preference per Class A common share................................ $ 13.10 $ 3.53
Net income (loss) per common share................................. .63 (2.22)
------- -------------
Net income per Class A common share................................ $ 13.72 $ 1.32
------- -------------
------- -------------
Net income (loss) per Class B common share......................... $ .63 $ (2.22)
------- -------------
------- -------------
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion provides information with respect to the results of
operations of the Company for the three months ended May 3, 1997 and April 27,
1996, the fiscal years ended February 1, 1997 and January 27, 1996 and of the
Predecessor for the year ended January 28, 1995. As of January 28, 1995, the
Company acquired the assets and assumed certain liabilities of the Anvil
Knitwear division of McGregor in the Acquisition. Because of the revaluation of
the assets and liabilities of the Predecessor and the related impact on cost of
sales and expenses, the financial statements of the Predecessor for the periods
prior to January 29, 1995 are not comparable to those of the Company for
subsequent periods. In addition, as a result of adjustments made when the
Predecessor adopted "fresh-start" accounting in connection with Astrum's
emergence from its Chapter 11 bankruptcy proceeding, the financial statements of
the Predecessor for the years ended January 28, 1995 and January 29, 1994 are
not comparable to the Predecessor's financial statements for other years. The
following information should be read in conjunction with "Selected Historical
Financial Data" and the combined and consolidated financial statements and the
notes thereto included elsewhere in this Prospectus.
The aggregate purchase price of the Acquisition of $105.0 million (plus fees
and expenses of $6.9 million) was funded with $6.4 million of common equity,
$20.0 million of preferred equity, $52.5 million of long-term bank debt, $7.5
million of a subordinated note and $25.5 million of revolving credit facility
borrowings. The Acquisition was led by: (i) Vestar; (ii) an affiliate of 399
Venture; and (iii) the Management Investors. In addition, Culligan retained a
30.6% ownership interest in Holdings. As a result, in allocating the purchase
price of the net assets acquired in the Acquisition, the net assets were valued
at the sum of (i) their carryover cost basis to the extent of 30.6% plus (ii)
their estimated fair market value to the extent of the new ownership interest of
69.4%.
RESULTS OF OPERATIONS
The Company's results of operations are affected by numerous factors,
including competition, general economic conditions, raw material costs, mix of
products sold and plant utilization. Certain activewear products of the type
manufactured by the Company are generally available from multiple sources and
the Company's customers often purchase products from more than one source. To
remain competitive, the Company reviews and adjusts its pricing structure from
time to time in response to industry-wide price changes. In the basic T-shirt
market, for example, the Company does not lead its competitors in setting the
current pricing structure and modifies its prices to the extent necessary to
remain competitive with prices set by its larger competitors in this segment.
The Company has been able to mitigate pricing pressures by: (i) increasing
its average product margin by continuing to introduce new higher priced
products; (ii) continuing to improve and modernize its manufacturing processes
in order to reduce production costs; and (iii) moving a portion of its sewing
operations offshore in January 1996 to Honduras to take advantage of lower wage
rates. The gross profit margins of the Company's products vary significantly.
Accordingly, the Company's overall gross profit margin is affected by its
product mix. In addition, plant utilization levels are important to
profitability due to the capital intensive nature of the Company's textile
operations.
The largest component of the Company's cost of goods sold is the cost of
cotton yarn. Unlike certain of its competitors, the Company does not spin its
own yarn. Instead, the Company obtains substantially all of its yarn from five
yarn suppliers, generally placing orders for quantities ranging from 30 days' to
one year's supply depending upon management's expectations regarding future yarn
prices and levels of supply. Yarn prices fluctuate from time to time principally
as a result of competitive conditions in the yarn market and supply and demand
for raw cotton. The Company adjusts the timing and size of its purchase orders
for cotton yarn in an effort to minimize fluctuations in its raw material costs
resulting from changes in yarn
32
prices. Historically, the Company has been successful in mitigating the impact
of fluctuating yarn prices. See "Risk Factors--Supply and Price of Yarn" and
"Business--Raw Materials."
The Company seeks to minimize inventory risk by maintaining a supply of
goods in a "greige" (undyed and unbleached) state until relatively late in the
production process and by turning its finished goods inventory frequently (for
example, approximately 7.8 times in fiscal 1996). The Company believes these
efforts have been a major contributing factor to Anvil's ability to compete
successfully in the imprinted activewear market.
The following table sets forth, for each of the periods indicated, certain
statement of operations data, expressed as a percentage of net sales, for the
Predecessor for the year ended January 28, 1995 and the Company for the years
ended January 27, 1996 and February 1, 1997 and for the three months ended April
27, 1996 and May 3, 1997:
PREDECESSOR THE COMPANY
------------- ----------------------------------------------------
FISCAL YEAR ENDED
---------------------------------------
JAN. 28, JAN. 27, FEB. 1,
1995 1996 1997
------------- ----------- ----------- THREE MONTHS ENDED
--------------------------
APRIL 27, MAY 3, 1997
1996 -----------
------------- (UNAUDITED)
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................... 77.6 77.4 76.8 80.0 76.1
----- ----- ----- ----- -----------
Gross profit......................................... 22.4 22.6 23.2 20.0 23.9
Selling, general and administrative expenses......... 8.7 9.2 10.6 9.0 10.2
Special compensation................................. -- -- -- -- 18.1
Amortization of intangible assets.................... 7.9 0.4 0.5 0.3 0.4
----- ----- ----- ----- -----------
Operating income (loss).............................. 5.8 13.0 12.1 10.7 (4.8)
Interest and other income (expense), net............. 1.4 0.3 0.2 (0.8) (0.3)
Interest expense..................................... (0.1) (4.6) (3.9) (2.9) (5.2)
----- ----- ----- ----- -----------
Income (loss) before provision for income taxes and
extraordinary item................................. 7.1 8.8 8.4 7.0 (10.3)
Provision (benefit) for income taxes................. 6.5 3.5 3.4 2.8 (4.1)
----- ----- ----- ----- -----------
Income (loss) before extraordinary item.............. 0.6 5.3 5.0 4.2 (6.2
Extraordinary item--loss on extinguishment of debt,
net of $1,838 tax benefit.......................... -- -- -- -- (4.6)
----- ----- ----- ----- -----------
Net income (loss).................................... 0.6% 5.3% 5.0% 4.2% (10.8)%
----- ----- ----- ----- -----------
----- ----- ----- ----- -----------
OTHER DATA:
EBITDA (1)........................................... 16.9% 16.3% 16.4% 13.7% 16.6%
- ------------------------
(1) EBITDA is defined as operating income plus depreciation and amortization.
The fiscal 1996 EBITDA excludes a non-cash charge of $0.6 million for the
disposal of certain fixed assets and in the three month period ended May 3,
1997 excludes non-recurring items of $10.9 million of charges for special
compensation. EBITDA is not a measure of performance under GAAP. EBITDA
should not be considered in isolation or as a substitute for net income,
cash flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP, or as a measure of profitability or
liquidity. Management believes, however, that EBITDA represents a useful
measure of assessing the performance of the Company's ongoing operating
activities as it reflects earnings trends of the Company without the impact
of purchase accounting applied in connection with the Acquisition. In
addition, management believes EBITDA is a widely accepted financial
indicator of a company's ability to service and/or incur indebtedness and is
used by the Company's creditors in assessing debt covenant compliance.
EBITDA should not be construed as an indication of the Company's operating
performance or as a measure of liquidity. EBITDA does not take into account
the Company's debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be available
for discretionary uses. The EBITDA measure presented in this Prospectus may
not be comparable to other similarly titled measures of other companies.
33
COMPANY THREE MONTHS ENDED MAY 3, 1997 COMPARED TO COMPANY THREE MONTHS ENDED
APRIL 27, 1996
NET SALES for the three months ended May 3, 1997 increased $1.7 million, or
3.0%, to $60.3 million from $58.6 million for the three months ended April 27,
1996. This increase in net sales was primarily the result of a 5.2% increase in
sales volume (including $.6 million for a recently acquired subsidiary),
partially offset by a 2.3% decline in average selling price. The decline in
average selling price was primarily the result of lower T-shirt prices due to
competitive market conditions partially offset by a favorable change in product
mix to higher priced products such as plackets and henleys.
GROSS PROFIT for the three months ended May 3, 1997 increased by $2.7
million, or 23.2%, to $14.4 million from $11.7 million for the three months
ended April 27, 1996. Gross profit margin increased to 23.9% for the three
months ended May 3, 1997 from 20.0% in the comparable period of the prior year.
The improvement in gross profit margin was primarily the result of lower yarn
costs, manufacturing cost reductions, a favorable shift in product mix, and
volume improvements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the three months ended May
3, 1997 increased by $.9 million, or 16.2% to $6.1 million from $5.3 million for
the three months ended April 27, 1996. As a percentage of net sales, selling,
general and administrative expenses increased to 10.2% from 9.0% in the three
months ended May 3, 1997 compared to the three months ended April 27, 1996. This
increase was primarily the result of higher selling expenses such as
advertising, travel, samples and selling materials, and higher general and
administrative expenses such as salaries and wages and legal and professional
fees. These increases were primarily the result of $.2 million for co-op
advertising to meet competition and promote sales of new products, $.3 million
caused by selling, general and administrative wage increases, $.1 million in
legal and professional expenses, and $.3 million for the inclusion of the
operating expenses of the recently acquired subsidiary.
INTEREST EXPENSE for the three months ended May 3, 1997 increased by $1.4
million, or 83.7%, to $3.1 million from $1.7 million for the three months ended
April 27, 1996. This increase in interest expense was the result of higher
borrowings in connection with the Recapitalization. Interest rates were also
higher during the current period compared to the same period in the prior year.
NET LOSS for the three months ended May 3, 1997 was $6.5 million compared
to net income of $2.4 million for the three months ended April 27, 1996. The net
effect of the factors discussed above were a small positive increase. However,
offsetting these factors in the current quarter were a charge of $10,915 for
"special compensation" (see Note 2 to the consolidated financial statements) and
an extraordinary loss of $2,757 (net of taxes) on extinguishment of debt (see
Note 2 to the consolidated financial statements).
COMPANY YEAR ENDED FEBRUARY 1, 1997 COMPARED TO COMPANY YEAR ENDED JANUARY 27,
1996
NET SALES for the year ended February 1, 1997 increased $10.8 million, or
5.6%, to $204.2 million from $193.4 million for the year ended January 27, 1996.
This increase in net sales was primarily the result of a 7.0% increase in sales
volume, partially offset by a 1.3% decline in average selling price. The decline
in average selling price was primarily the result of lower T-shirt prices due to
competitive market conditions partially offset by a favorable change in product
mix to higher priced products such as plackets and henleys.
GROSS PROFIT for the year ended February 1, 1997 increased by $3.7 million,
or 8.4%, to $47.3 million from $43.7 million for the year ended January 27,
1996. Gross profit margin increased to 23.2% for the year ended February 1, 1997
from 22.6% in the comparable period of the prior year. Gross profit for the year
ended January 27, 1996 was reduced by approximately $1.7 million (or 0.9% of net
sales) as a result of the increase in cost of goods sold due to the inventory
revaluation in connection with the Acquisition. The change in gross profit
margin (0.3% decrease after considering the inventory revaluation in fiscal
1995) was primarily the result of increased markdowns, increased sales promotion
expenses, and selling price
34
reductions (principally on white T-shirts) offset by the result of a favorable
shift in product mix, lower yarn costs, manufacturing costs reductions and
volume improvements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the year ended February 1,
1997 increased by $3.9 million, or 21.9%, to $21.7 million from $17.8 million
for the year ended January 27, 1996. As a percentage of net sales, selling,
general and administrative expenses increased to 10.6% in fiscal 1996 from 9.2%
in fiscal 1995. This 1.4% increase, as a percentage of net sales, in selling,
general and administrative expenses was primarily the result of start-up costs
relating to the opening of the Company's 660,000 square foot distribution
facility in Dillon, South Carolina. This facility was acquired in November 1995
and became fully operational by the end of the first quarter of 1996. The
remainder of the increase was principally attributable to increases in
advertising and selling expenses related to increased efforts in the retail and
export markets, salaries related to administrative personnel and a charge for
the estimated loss on the disposal of certain fixed assets.
AMORTIZATION OF INTANGIBLE ASSETS for the year ended February 1, 1997
increased by $0.2 million to $1.0 million from $0.7 million for the year ended
January 27, 1996.
OPERATING INCOME for the year ended February 1, 1997 decreased by $0.5
million, or 1.8% to $24.7 million from $25.2 million for the year ended January
27, 1996 as a result of the factors described above.
INTEREST AND OTHER INCOME for the year ended February 1, 1997 decreased by
$0.2 million to $0.4 million from $0.6 million for the year ended January 27,
1996.
INTEREST EXPENSE for the year ended February 1, 1997 decreased by $0.9
million, or 10.5%, to $7.9 million from $8.8 million for the year ended January
27, 1996. This decrease in interest expense was the result of reduced borrowings
under the Old Credit Agreement and lower average interest rates.
PROVISION FOR INCOME TAXES for the year ended February 1, 1997 increased by
$0.1 million to $6.9 million from $6.8 million for the year ended January 27,
1996 due to an increase in pre-tax earnings. As a percentage of income before
provision for income taxes, income tax expense was approximately 40.0% in each
period.
NET INCOME for the year ended February 1, 1997 increased by $0.2 million,
or 1.7%, to $10.3 million from $10.2 million for the year ended January 27,
1996, as a result of the factors described above.
COMPANY YEAR ENDED JANUARY 27, 1996 COMPARED TO PREDECESSOR YEAR ENDED JANUARY
28, 1995
NET SALES for the year ended January 27, 1996 increased by $23.5 million,
or 13.8%, to $193.4 million from $169.9 million in the year ended January 28,
1995. This increase in net sales was the result of a 5.6% increase in sales
volume, principally due to increased sales of plackets, and an 8.0% increase in
average selling price, principally due to a favorable change in product mix
(including the introduction of a higher priced placket style) and higher selling
prices for plackets and henleys.
GROSS PROFIT for the year ended January 27, 1996 increased by $5.6 million,
or 14.9%, to $43.7 million from $38.0 million in the year ended January 28,
1995. Gross profit margin increased to 22.6% in fiscal 1995 from 22.4% in the
prior year. This increase in gross profit margin was primarily the result of a
higher utilization of plant capacity due to the Company's increased sales volume
and an increase in average selling price, the combination of which more than
offset the $1.7 million (or 0.9% of net sales) increase in cost of goods sold as
a result of the inventory revaluation in connection with the Acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES in fiscal 1995 increased by
$3.1 million, or 20.9%, to $17.8 million from $14.7 million in fiscal 1994. As a
percentage of net sales, selling, general and administrative expenses increased
to 9.2% in fiscal 1995 from 8.7% in fiscal 1994. Approximately one-half of this
increase was the result of an increase in compensation expense primarily due to
the Company's increased sales efforts. The remainder of this increase is
attributable to a combination of advertising expenses, start-up costs associated
with the Company's new distribution facility and management fees.
35
AMORTIZATION OF INTANGIBLE ASSETS for the year ended January 27, 1996
decreased $12.7 million to $0.7 million from $13.4 million in the year ended
January 28, 1995. Fiscal 1995 amortization of intangible assets for the Company
is not comparable to the Predecessor due to the revaluation of assets in
connection with the Acquisition of the Predecessor in January 1995. Fiscal 1994
amortization expense resulted from the reorganization value in excess of fair
value of assets related to the adoption of "fresh-start" accounting in
connection with Astrum's emergence from its Chapter 11 bankruptcy proceeding.
OPERATING INCOME for the year ended January 27, 1996 increased by $15.3
million to $25.2 million from $9.9 million for the year ended January 28, 1995
as a result of the factors described above.
INTEREST AND OTHER INCOME for the year ended January 27, 1996 decreased by
$1.8 million to $0.6 million from $2.5 million for the year ended January 28,
1995. This decrease is attributable to the reversal into income in fiscal 1994
of approximately $2.5 million of expenses accrued in prior years that were no
longer required.
INTEREST EXPENSE for the year ended January 27, 1996 increased by $8.6
million to $8.8 million from $0.2 million for the year ended January 28, 1995.
The increase was the result of increased borrowings at the beginning of fiscal
1995 to finance the Acquisition in January 1995.
PROVISION FOR INCOME TAXES for the year ended January 27, 1996 decreased by
$4.3 million to $6.8 million from $11.0 million for the year ended January 28,
1995. As a percentage of income before provision for income taxes, income tax
expense was 40.0% and 91.3%, respectively. The percentage for the year ended
January 28, 1995 reflects non-deductible amortization of the reorganization
value described above.
NET INCOME for the year ended January 27, 1996 increased by $9.1 million to
$10.2 million from $1.1 million for the year ended January 28, 1995, as a result
of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically utilized funds generated from operations and
borrowings under the Old Credit Agreement to meet working capital and capital
expenditure requirements. Net cash generated by operating activities for its
previous two fiscal years totaled approximately $7.2 million and $23.8 million,
respectively.
During its preceding two fiscal years, the Company made capital expenditures
of approximately $7.7 million and $4.8 million, respectively. The Company's
major capital expenditures related to: (i) the acquisition of the 660,000 square
foot distribution center in Dillon, South Carolina; (ii) the acquisition and
maintenance of machinery and equipment; and (iii) the acquisition of management
information systems hardware and software. Through May 3, 1997, the Company has
made $1.2 million in capital expenditures. The Company currently has no material
capital commitments for the next twelve months outside the ordinary course of
business.
The Company's principal working capital requirements are financing accounts
receivable and inventories. As of May 3, 1997, the Company had working capital
of approximately $24.0 million, including approximately $32.9 million of
accounts receivable, approximately $30.3 million of inventories and
approximately $49.3 million in accounts payable, accrued expenses and revolving
credit loans.
The Company's Old Credit Agreement provided for term loans of $52.5 million,
of which approximately $46.3 million was outstanding as of February 1, 1997, and
a revolving credit facility, which, as amended, permitted borrowings of up to
$47.5 million (subject to borrowing base eligibility) to finance working
capital, letters of credit and other general corporate needs.
On March 14, 1997, the Company completed the Recapitalization. Pursuant to
the Recapitalization: (i) Holdings redeemed and repurchased a substantial
portion (i.e., 82.8%) of its outstanding shares of capital stock; (ii) 399
Venture and the Management Investors reinvested the Retained Shares, which
converted into shares of Class A Common and Class B Common; (iii) 399 Venture
exchanged a portion of
36
its old preferred stock for 3,333 Units; and (iv) BRS purchased shares of Class
A Common and Class B Common. See "The Recapitalization."
The Company used approximately $225.5 million to complete the
Recapitalization, including payment of related fees and expenses. In order to
finance the Recapitalization: (i) Anvil issued $130.0 million in aggregate
principal amount of Old Senior Notes in the Initial Offering; (ii) Holdings
issued 30,000 Units, consisting of an aggregate of 1.2 million shares of Old
Senior Preferred Stock and 390,000 shares of Class B Common, in the Initial
Units Offering for gross proceeds of $26.7 million; (iii) Anvil borrowed
approximately $33.3 million under the New Credit Agreement; and (iv) 399
Venture, the Management Investors and BRS, collectively, contributed the Equity
Contribution in an aggregate amount of approximately $35.5 million. The
Recapitalization was undertaken in order to permit for certain of the Company's
existing stockholders to eliminate their equity ownership in the Company and to
permit 399 Venture and BRS & Co. to acquire control of the Company. See "Use of
Proceeds."
Anvil and Holdings incurred substantial indebtedness and debt service
obligations in connection with the Recapitalization. As of May 3, 1997, Holdings
had total consolidated indebtedness of approximately $156.5 million (including
the discount on the Senior Notes), Senior Preferred Stock with an aggregate
liquidation preference of approximately $30.5 million and a stockholders'
deficiency of approximately $64.6 million. As of May 3, 1997, Anvil had total
consolidated indebtedness of approximately $156.5 million (including the
discount on the Senior Notes) and a stockholder's deficiency of approximately
$64.6 million. The Company's earnings were insufficient to cover fixed charges
by $2.9 million for the quarter ended May 3, 1997 and its earnings were
insufficient to cover fixed charges and preferred stock dividends by $4.3
million for the same period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The ability of Anvil and Holdings (as the case may be) to pay principal and
interest on the Senior Notes and, if issued, the Exchange Debentures, to satisfy
their other debt obligations, and to pay cash dividends on the Senior Preferred
Stock will depend upon future operating performance, which will be affected by
prevailing economic conditions and financial, business and other factors,
certain of which are beyond their control, as well as the availability of
revolving credit borrowings under the New Credit Agreement. If operating cash
flow of Anvil and Holdings is insufficient to meet their operating expenses, to
service their debt requirements as they become due and to pay cash dividends on,
and the mandatory redemption price for, the Senior Preferred Stock to the extent
required by the Certificate of Designation related thereto, Anvil and Holdings
may be required to refinance a portion of the principal of the Senior Notes and,
if issued, the Exchange Debentures prior to their maturity. If Anvil and
Holdings are unable to service their indebtedness, and, in the case of Holdings,
to pay dividends on the Senior Preferred Stock or the mandatory redemption price
therefor, they will be forced to take actions such as reducing or delaying
capital expenditures, selling assets, restructuring or refinancing their
indebtedness or seeking additional equity capital. There can be no assurance
that any of these remedies can be effected on satisfactory terms, if at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources," "Description of
Securities--Senior Notes," "--Senior Preferred Stock" and "--Exchange
Debentures."
In connection with the Recapitalization, the Company refinanced its existing
indebtedness under the Old Credit Agreement. The New Credit Agreement provides
for borrowings of up to $55.0 million for working capital and other general
corporate purposes, and bears interest, at the Company's option, at LIBOR or
prime rate plus a margin. The indebtedness under the New Credit Agreement is
guaranteed by Holdings and certain subsidiaries and is secured by substantially
all of Anvil's assets and a pledge by Holdings of all of the capital stock of
Anvil. As of May 3, 1997, Anvil had borrowings of $26.5 million under the New
Credit Agreement and had $28.5 million of additional borrowing availability.
The New Credit Agreement requires the Company to meet certain financial
tests, including minimum levels of consolidated net worth, minimum levels of
consolidated EBITDA (as defined therein), minimum interest coverage and maximum
leverage ratio. The New Credit Agreement also contains covenants which,
37
among other things, limit: (i) the incurrence of additional indebtedness; (ii)
the payment of dividends; (iii) transactions with affiliates; (iv) asset sales,
acquisitions and mergers; (v) prepayments of other indebtedness; (vi) creation
of liens and encumbrances; and (vii) other matters customarily restricted in
such agreements. See "Description of Indebtedness--New Credit Agreement."
The Company's ability to satisfy its debt obligations, including, in the
case of Anvil, to pay principal and interest on the Senior Notes and, in the
case of Holdings, to pay principal and interest on the Exchange Debentures, if
issued, to perform its obligations under its guarantees and to pay cash
dividends on the Senior Preferred Stock, will depend upon the Company's future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, certain of which are beyond its
control, as well as the availability of revolving credit borrowings under the
New Credit Agreement. However, the Company may be required to refinance a
portion of the principal of the Senior Notes and, if issued, the Exchange
Debentures prior to their maturity and, if the Company is unable to service its
indebtedness, it will be forced to take actions such as reducing or delaying
capital expenditures, selling assets, restructuring or refinancing its
indebtedness, or seeking additional equity capital. There can be no assurance
that any of these remedies can be effected on satisfactory terms, if at all. See
"Risk Factors."
Holdings has no independent operations with its sole asset being the capital
stock of Anvil, which stock is pledged to secure the obligations under the New
Credit Agreement. As a holding company, Holdings' ability to pay cash dividends
on the Senior Preferred Stock or, if issued, principal and interest on the
Exchange Debentures is dependent upon the earnings of Anvil and its subsidiaries
and their ability to declare dividends or make other intercompany transfers to
Holdings. Under the terms of the Senior Indenture, Anvil may incur certain
indebtedness pursuant to agreements that may restrict its ability to pay such
dividends or other intercompany transfers necessary to service Holdings'
obligations, including its obligations under the terms of the Senior Preferred
Stock and, if issued, the Exchange Debentures. The Senior Note Indenture
restricts, among other things, Anvil's and certain of its subsidiaries' ability
to pay dividends or make certain other "restricted" payments, to incur
additional indebtedness, to encumber or sell assets, to enter into transactions
with affiliates, to enter into certain guarantees of indebtedness, to make
certain investments, to merge or consolidate with any other entity and to
transfer or lease all or substantially all of their assets. In addition, the New
Credit Agreement contains other and more restrictive covenants and prohibits
Anvil's subsidiaries from declaring dividends or making other intercompany
transfers to Anvil in certain circumstances.
The Company believes that based upon current levels of operations and
anticipated growth, funds generated from operations, together with other
available sources of liquidity, including borrowings under the New Credit
Agreement, will be sufficient over the next twelve months for the Company to
make anticipated capital expenditures, fund working capital requirements and
satisfy its debt service requirements.
SEASONALITY
The Company's business is not significantly seasonal as it manufactures and
sells a wide variety of activewear products that may be worn throughout the
year.
EFFECT OF INFLATION
Inflation generally affects the Company by increasing the interest expense
of floating rate indebtedness and by increasing the cost of labor, equipment and
raw materials. The Company does not believe that inflation has had any material
effect on the Company's business during the periods discussed herein.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 128, EARNINGS PER
SHARE, effective for interim and annual periods ending after December 15, 1997,
establishes standards for computing and
38
presenting earnings per share ("EPS") and simplifies the standards for computing
EPS currently found in Accounting Principles Board Opinion No. 15, EARNINGS PER
SHARE. Common stock equivalents under APB No. 15, with the exception of
contingently issuable shares (shares issuable for little or no cash
consideration), are no longer included in the calculation of primary, or basic
EPS. Under SFAS No. 128, contingently issuable shares are included in the
calculation of basic EPS. The Company will report EPS calculated in accordance
with SFAS No. 128 commencing with the fourth quarter of fiscal year ending
January 31, 1998. This change in reporting EPS is not expected to have a
material effect on reported EPS.
SFAS No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE, effective
for periods ending after December 15, 1997, establishes standards for disclosing
information about an entity's capital structure. This statement requires
disclosure of the pertinent rights and privileges of various securities
outstanding (stock, options, warrants, preferred stock, debt and participation
rights) including dividend and liquidation preferences, participant rights, call
prices and dates, conversion or exercise prices and redemption requirements.
Adoption of this statement will have no effect on the Company as it currently
discloses the information required.
39
BUSINESS
GENERAL
Anvil Knitwear, Inc. is a leading designer, manufacturer and marketer of
high quality activewear for sale principally into the "imprinted" or "decorated"
segment of the U.S. apparel industry. The Company offers an extensive line of
activewear products designed for men, women and children, including short and
long sleeve T-shirts, classic button and collar knit sport shirts (known as
"plackets"), collarless short and long sleeve knit shirts (known as "henleys"),
fleeced sweatshirts, athletic shorts and caps. The Company markets and sells its
products primarily to distributors and screen printers under the ANVIL and
COTTON DELUXE brand names as well as under private labels. Prior to their
ultimate resale to the consumer, the Company's products typically are printed or
embroidered with logos, designs or characters. The Company believes that its
strong operating performance is due to: (i) its broad range of high quality
products; (ii) its strong relationships with customers and suppliers; (iii) its
flexible, vertically integrated manufacturing operations; (iv) its commitment to
controlling costs and improving manufacturing processes; and (v) the strong
growth of the activewear market. For the fiscal year ended February 1, 1997, the
Company generated net sales and EBITDA of $204.2 million and $32.6 million,
respectively.
The Company has achieved significant increases in net sales and EBITDA in
recent years. From fiscal 1991 through fiscal 1996, the Company's net sales grew
from $124.6 million to $204.2 million, representing a CAGR of 10.4%. The yearly
growth rates for the Company's net sales during this period were as follows:
fiscal 1992--13.1%; fiscal 1993--6.8%; fiscal 1994--13.0%; fiscal 1995--13.8%;
and fiscal 1996--5.6%. EBITDA grew from $15.5 million to $32.6 million,
representing a CAGR of 16.0%. This improvement resulted primarily from the
Company's operating leverage, management's initiatives to reduce costs and
improve productivity and the Company's successful introduction of higher priced
products. In addition, net income grew during this period from $6.3 million to
$10.3 million, representing a CAGR of 10.3%.
The Company offers high quality activewear in a variety of styles, colors,
fabric weights and blends, enabling it to serve a number of market niches
effectively as well as to serve the traditional T-shirt market segment. The
Company works closely with its distributor and screen printer customers to meet
their needs for style and color innovation. The Company continues to compete
successfully by: (i) targeting niche products on which larger competitors have
not traditionally focused; (ii) responding quickly to market developments; and
(iii) regularly introducing new products. In addition, the Company has made
significant investments to modernize and expand its domestic manufacturing and
distribution facilities in order to improve quality, reduce costs, manage
inventories and shorten production cycles.
BUSINESS STRATEGY
The Company's objective is to continue to increase net sales and EBITDA by
implementing the following key elements of its business strategy:
/ / OFFER A BROAD RANGE OF HIGH QUALITY PRODUCTS. The Company offers high
quality activewear in a wide variety of styles, colors, fabric weights
and blends, enabling it to serve a number of market niches effectively.
During the past five years, the Company has strengthened its position in
the activewear market by successfully introducing higher priced products
to supplement its traditional T-shirt segment. From fiscal 1991 through
fiscal 1996, the Company's gross sales of henleys and plackets, both
higher priced products, increased at a CAGR of 51.8%. The yearly growth
rates for henleys and plackets during this period were as follows:
fiscal 1992--91.3%; fiscal 1993--59.1%; fiscal 1994--58.9%; fiscal
1995--30.1%; and fiscal 1996--23.8%. In addition, the Company expects to
continue to expand its product offerings under its ANVIL and COTTON
DELUXE brands, capitalizing on the growth in the higher priced branded
products segment of the activewear market. Furthermore, the Company is
working closely with third parties to market complementary imprintable
products, such as caps, bags, carryalls and jackets, through the
Company's established distribution channels.
40
/ / ENHANCE AND EXPAND CUSTOMER RELATIONSHIPS. The Company continually seeks
to strengthen and expand its customer relationships by promoting the
Company's: (i) broad product offerings; (ii) ability to design
customized products; (iii) quick, reliable delivery; and (iv) ability to
accommodate modifications to customer orders. The Company's direct
salesforce focuses on developing strong relationships with distributors,
who have accounted for an increasing percentage of activewear sales in
recent years. In fiscal 1996, sales to distributors accounted for
approximately 64% of the Company's net sales and from fiscal 1994
through fiscal 1996 sales to distributors accounted for, on average,
approximately 56% of the Company's net sales. In the Company's
experience, distributors typically place larger purchase orders,
purchase a broader product mix, maintain higher inventory levels and
develop more predictable order and re-order patterns than certain of its
other customers. The Company estimates that distributors resell products
to approximately 20,000 smaller screen printers and embroiderers. The
Company's expanded product offerings have enabled it to more effectively
service distributors and satisfy the disparate preferences of consumers.
/ / FLEXIBLE, VERTICALLY INTEGRATED MANUFACTURING OPERATIONS. The Company is
a vertically integrated manufacturer (i.e., performing substantially all
of the manufacturing processes required to produce its products) which
knits (exclusively from purchased yarn), bleaches, dyes, finishes, cuts
and sews its activewear products at its efficient manufacturing
facilities. The Company believes that being vertically integrated allows
it to maintain a competitive cost structure, minimize delivery time and
provide consistent, high quality products. The Company's manufacturing
flexibility enables it to efficiently complete smaller volume production
runs, respond quickly to customer needs and accommodate last minute
modifications to customer orders. The Company reduces inventory risk by
maintaining a supply of goods in a "greige" (undyed and unbleached)
state until relatively late in the production process and by turning its
finished goods inventory (costs of sales divided by ending finished
goods inventory) frequently (for example, approximately 7.6 times in
fiscal 1996). In addition, the Company typically is able to deliver
specialized products to its customers within four to five weeks of
receiving an order.
/ / CONTINUE TO CONTROL COSTS AND IMPROVE MANUFACTURING. From fiscal 1991
through fiscal 1996, the Company invested approximately $42 million to
modernize and expand its domestic manufacturing and distribution
facilities in order to improve quality, reduce costs, manage inventories
and shorten production cycles. The Company believes it can continue to
improve its operating efficiency by: (i) increasing the use of offshore
sewing operations; (ii) utilizing its 660,000 square foot centralized
distribution facility to deliver its products in a more cost efficient
manner; and (iii) opportunistically redesigning manufacturing processes
to shorten production cycles and improve inventory management. The
Company believes that it manages its working capital and inventory
better than any of its primary publicly-traded competitors.
/ / CAPITALIZE ON THE GROWTH OF THE ACTIVEWEAR MARKET. From 1990 through
1995, industry retail dollar sales and unit sales of imprinted
activewear (T-shirts, knit shirts, fleecewear and athletic shorts) in
the U.S. market grew at CAGRs of 8.0% and 5.7%, respectively. The yearly
growth rates for industry retail dollar sales during this period were as
follows: 1991--8.9%; 1992--11.6%; 1993-- 9.2%; 1994--5.2%; and
1995--5.2%. The yearly growth rates for industry unit sales during this
period were as follows: 1991--6.9%; 1992--7.5%; 1993--7.0%; 1994--5.5%;
and 1995--1.8%. From fiscal 1990 through fiscal 1995, the Company's net
sales and unit sales increased at CAGRs of 12.7% and 9.3%, respectively.
The yearly growth rates for the Company's net sales during this period
were as follows: fiscal 1991--16.8%; fiscal 1992--13.1%; fiscal
1993--6.8%; fiscal 1994-- 13.0%; and fiscal 1995--13.8%. The yearly
growth rates for the Company's unit sales during this period were as
follows: fiscal 1991--17.3%; fiscal 1992--11.1%; fiscal 1993--5.6%;
fiscal 1994-- 6.5%; and fiscal 1995--5.6%. The Company believes sales of
activewear products has been driven primarily by: (i) the increased
consumer preference for comfortable apparel selections; (ii) more
41
flexible dress codes, including the greater acceptance of casual wear in
the workplace; and (iii) the heightened emphasis on physical fitness. In
addition, the Company believes that it has identified significant growth
opportunities in several international markets, including certain
markets in Europe, South America and Japan.
INDUSTRY
The Company is a participant in the domestic activewear market. In 1995 (the
latest period for which data is available), this market accounted for
approximately $16.5 billion in factory level sales. The Company focuses
primarily on the imprinted activewear segment of the activewear market, which
accounted for approximately $13.8 billion of retail sales and $6.7 billion of
activewear factory level sales in 1995. Imprinted activewear, which is either
branded or private label, typically is imprinted or embroidered with a logo,
design or character before it reaches the end-user. Branded products reach
end-users carrying the manufacturer's label, whereas products sold under a
private label reach the end-user carrying a customer's label. From 1990 through
1995, retail dollar sales and unit sales of imprinted activewear (T-shirts, knit
shirts, fleecewear and athletic shorts) grew at CAGRs of 8.0% and 5.7%,
respectively. The yearly growth rates for industry retail dollar sales during
this period were as follows: 1991--8.9%; 1992-- 11.6%; 1993--9.2%; 1994--5.2%;
and 1995--5.2%. The yearly growth rates for industry unit sales during this
period were as follows: 1991--6.9%; 1992--7.5%; 1993--7.0%; 1994--5.5%; and
1995--1.8%. From fiscal 1990 through fiscal 1995, the Company's net sales and
unit sales increased at CAGRs of 12.7% and 9.3%, respectively. The yearly growth
rates for the Company's net sales during this period were as follows: fiscal
1991--16.8%; fiscal 1992--13.1%; fiscal 1993--6.8%; fiscal 1994--13.0%; and
fiscal 1995--13.8%. The yearly growth rates for the Company's unit sales during
this period were as follows: fiscal 1991-- 17.3%; fiscal 1992--11.1%; fiscal
1993--5.6%; fiscal 1994--6.5%; and fiscal 1995--5.6%.
The following tables set forth retail level dollar sales and industry unit
sales, respectively, for each of the Company's major product categories:
DOMESTIC IMPRINTED ACTIVEWEAR MARKET RETAIL SALES
(IN BILLIONS OF DOLLARS)
1990-1995
1990 1991 1992 1993 1994 1995 $ CAGR
--------- --------- --------- --------- --------- --------- ---------------
T-shirts.................................. $ 5.0 $ 5.4 $ 5.8 $ 6.3 $ 6.9 $ 7.3 7.9%
Knit shirts............................... 1.5 1.6 1.8 1.9 2.1 2.4 10.3
Fleecewear................................ 2.2 2.4 2.7 3.0 2.9 3.1 7.2
Athletic shorts........................... 0.7 0.9 1.1 1.1 1.1 1.0 6.4
--------- --------- --------- --------- --------- --------- ---
Total................................. $ 9.4 $ 10.2 $ 11.4 $ 12.4 $ 13.1 $ 13.8 8.0%
--------- --------- --------- --------- --------- --------- ---
--------- --------- --------- --------- --------- --------- ---
(IN MILLIONS OF DOZENS OF UNITS)
1990-1995
1990 1991 1992 1993 1994 1995 UNITS CAGR
--------- --------- --------- --------- --------- --------- ---------------
T-shirts.................................... 58.8 62.6 65.7 70.3 76.1 77.1 5.6%
Knit shirts................................. 8.2 9.1 9.6 10.2 10.4 12.4 8.6
Fleecewear.................................. 13.7 14.4 15.8 16.9 16.7 16.5 3.8
Athletic shorts............................. 6.8 7.5 9.4 10.1 10.2 9.4 6.7
--------- --------- --------- --------- --------- --------- ---
Total................................... 87.5 93.5 100.5 107.5 113.4 115.4 5.7%
--------- --------- --------- --------- --------- --------- ---
--------- --------- --------- --------- --------- --------- ---
- ------------------------
SOURCE: THE CONTEXT GROUP
42
The Company believes that the long-term growth of the domestic activewear
market has been driven by: (i) the increased consumer preference for comfortable
apparel selections; (ii) more flexible dress codes, including the greater
acceptance of casual wear in the workplace; and (iii) the heightened emphasis on
physical fitness. Casual wear has become acceptable in a wider array of
settings. For example, many employers have adopted more flexible dress codes,
resulting in greater acceptance of knit shirts, sweatshirts and T-shirts.
Concurrent with this shift in consumer preferences, consumers' increased
participation in sports and their heightened focus on regular physical activity
have contributed to growth in the activewear market. For example, a study of
sports participation conducted by the National Sporting Goods Association
suggests that from 1987 to 1995 the number of people in the United States
participating in the 10 most popular sports increased by approximately 31
million people. In addition, activewear products have registered a number of
significant improvements in product characteristics that have contributed to
enhanced consumer appeal, including improvements in fabric weight, blends and
construction as well as increased offerings of size, color and style. The
Company believes that these trends should continue to generate demand for
activewear products for the foreseeable future.
The activewear market is characterized by low fashion risk compared to many
other apparel markets. While substantial opportunity exists for product
innovation and differentiation, basic garment styles are not generally driven by
trends or fads. The activewear industry is also characterized by certain
barriers to entry, including: (i) significant capital expenditures required for
vertically integrated production; (ii) strong supplier relationships; and (iii)
established customer relationships.
The primary distribution channel for activewear sales to the imprinted
segment of the activewear market is through distributors who, in turn, sell
their products primarily to, in the Company's estimation, approximately 20,000
smaller screen printers and embroiderers. Manufacturers of activewear for the
imprinted market, such as the Company, also sell directly to the major screen
printers and to retailers. In recent years, the Company has sold products
primarily through distributors and major screen printers, which represent
approximately 80% of total industry imprinted activewear sales.
The Company's net sales and profitability depend primarily on sales of
T-shirts and knit shirts (which includes plackets and henleys). Industry data
for 1995 suggest that the five largest domestic manufacturers of T-shirts for
sale into the imprinted activewear market through distributors and screen
printers (i.e., Fruit of the Loom, Inc.; Hanes Corporation, a division of Sara
Lee Corporation; Jerzees, a division of Russell Corporation; Oneita Industries,
Inc.; and Anvil) accounted for approximately 68% of 1995 T-shirt sales through
these distribution channels. In addition, in 1995, the five largest domestic
manufacturers of knit shirts for sale into the imprinted market through
distributors and screen printers (i.e., Jasper/Outer Banks; Crystal Springs;
Anvil; Stedman Corporation; and J. Corey Corporation) accounted for
approximately 61% of 1995 knit shirt sales through these distribution channels.
Competition among these manufacturers and smaller industry participants is
intense and is primarily based on price, quality, service and breadth of product
offerings. The Company's management believes that the Company competes favorably
in these and its other imprinted activewear product offerings.
Each of the Company's major categories of activewear products experiences
import competition. Industry data for 1995 suggest that imports accounted for
approximately 31% of all imprinted activewear unit sales. The Company believes
the threat of significant import competition in the domestic activewear market
segment to be lower than certain other market segments in the apparel industry
due in part to the relatively low labor content in activewear products. In
addition, domestic manufacturers serving the imprinted activewear market have
been able to differentiate themselves from foreign competitors by their ability
to meet the short delivery time requirements of distributors and screen
printers, especially with respect to niche products which have more styling
elements than basic black and white T-shirts. Furthermore, in an effort to
reduce the labor costs associated with the production of activewear items and to
compete more effectively with import competition, domestic manufacturers,
including the Company, have begun to move sewing operations offshore primarily
to countries located in Central and South America. See "Competition."
43
PRODUCTS
The Company's activewear products, which are designed for men, women and
children, include short and long sleeve T-shirts, tank tops, classic button and
collar knit sport shirts (known as "plackets") and collarless short and long
sleeve knit shirts (known as "henleys") as well as a variety of other niche
activewear products, such as fleeced sweatshirts, athletic shorts and caps. This
broad array of casual knitwear and athletic wear is marketed and sold by the
Company under its ANVIL and COTTON DELUXE brand names as well as under private
labels. The Company manufactures its products in a variety of fabrics and fabric
blends, principally in 100% pre-shrunk heavyweight and mediumweight jerseys and
also in combed cotton and polyester blend jerseys. The Company also offers its
activewear products in a broad array of colors ranging from black and white to a
variety of alternative shades such as bark, sand, slate blue, ivy and maroon.
Prior to their ultimate resale to the consumer, the Company's products typically
are printed or embroidered with logos, designs or characters.
44
The following table sets forth certain information regarding sales of the
Company's activewear products:
SALES BY PRODUCT LINE
(DOLLARS IN MILLIONS)
PREDECESSOR THE COMPANY
--------------- ----------------------------------
FISCAL YEAR ENDED
-----------------------------------------------------
JAN. 28, 1995 JAN. 27, 1996 FEB. 1, 1997
--------------- --------------- ---------------
CATEGORY AMOUNT % AMOUNT % AMOUNT %
- ---------------------------------------- ------ ------ ------ ------ ------ ------
Basic and Specialty T-shirts............ $111.0 63.9% $116.8 58.0% $115.3 54.6%
Tank Tops, Plackets and Henleys......... 53.8 31.0 67.1 33.3 80.0 37.9
Other Products.......................... 9.0 5.1 17.5 8.7 16.0 7.5
------ ------ ------ ------ ------ ------
Gross sales......................... $173.8 100% $201.4 100% 211.3 100%
------ ------ ------
------ ------ ------
Returns, discounts and allowances....... (3.9) (8.0) (7.1)
------ ------ ------
Net sales........................... $169.9 $193.4 $204.2
------ ------ ------
------ ------ ------
BASIC AND SPECIALTY T-SHIRTS. Basic and speciality T-shirts are the
Company's principal products. The basic T-shirt was the first product introduced
by the Company in the early 1970s. In addition to basic T-shirts, the Company
also manufactures a variety of specialty T-shirts, which have additional
features such as double needle stitching and color blocking. From fiscal 1991
through fiscal 1996, the Company's gross sales of basic and specialty T-shirts
increased at a CAGR of approximately 3%.
TANK TOPS, PLACKETS AND HENLEYS. The Company began manufacturing and
selling tank tops in the late 1970s. The Company introduced its first line of
plackets in the early 1980s and its first line of henleys in the early 1990s.
Plackets include classic button and collar knit sport shirts which are produced
in both short and long sleeve versions. The Company's newest item in its placket
line is its pique knit golf shirt, which it introduced in the first quarter of
fiscal 1996. Henleys are three button collarless knit shirts, which are produced
in both short and long sleeve versions. The Company produces tank tops, plackets
and henleys in a broad range of colors, fabrics and weights. From fiscal 1991
through fiscal 1996, the Company's gross sales of tank tops, plackets and
henleys increased at a CAGR of approximately 38%.
OTHER PRODUCTS. The Company's other products include fleeced sweatshirts,
knit shorts and caps, most of which are produced in a variety of colors and
designs. In addition to products which it manufactures in-house, this category
includes those products which the Company purchases from other activewear
manufacturers to complement its activewear product line. From fiscal 1991
through fiscal 1996, the Company's gross sales of other products increased at a
CAGR of approximately 8%.
SALES AND MARKETING
The Company markets its activewear products primarily to a wide range of
distributors, screen printers and private label customers through a direct
salesforce comprised of approximately 16 salespersons, two regional sales
managers and a director of sales. The Company has one sales representative in
Europe. Each member of the salesforce receives a base salary and is eligible to
receive an incentive bonus payment.
The Company seeks to differentiate itself from other larger activewear
manufacturers by marketing niche products to its customers and encouraging its
customers to purchase a broader product mix. The Company believes that by
encouraging its customers to expand their product mix towards higher priced
products with more style elements, it has been able to compete effectively
against other companies that
45
concentrate primarily on basic, lower priced T-shirts. The Company believes that
this strategy has enabled it to penetrate the large and middle-tier wholesale
imprinted T-shirt distributor market.
Although the Company's sales and marketing efforts historically have focused
on the domestic activewear market, the Company anticipates expanding its sales
efforts in international markets. In fiscal 1996, the Company's net sales
directly into international markets were a relatively insignificant portion of
the Company's aggregate net sales. The Company believes that it has identified
several international markets, including certain markets in Europe, South
America and Japan, which offer significant opportunities for increased sales.
CUSTOMERS
The Company sells its products primarily to distributors and screen
printers. The Company also sells a small percentage of its products to retail
buyers. The Company currently services over 500 customers, of which the top
twenty account for approximately 60% of the Company's net sales. No individual
customer accounts for more than 10% of the Company's net sales.
The Company has significantly increased its sales to distributors in recent
years. In fiscal 1996, sales to distributors accounted for approximately 64% of
the Company's net sales and from fiscal 1994 through fiscal 1996, sales to
distributors accounted for, on average, 56% of the Company's net sales. The
Company targets distributors in its sales efforts because distributors typically
place larger orders, purchase a broader product mix, maintain higher inventory
levels and establish more predictable order and re-order patterns than the
Company's other customers. The Company estimates that distributors resell
products to approximately 20,000 smaller screen printers and embroiderers
throughout the United States. Screen printers and private label customers
accounted for the remaining 36% of the Company's net sales in fiscal 1996.
RAW MATERIALS
The Company's primary raw material is cotton yarn. Unlike certain of its
competitors, the Company does not spin its own yarn. Instead, the Company
purchases substantially all of its yarn pursuant to purchase orders from five
domestic spinners. These five domestic spinners, along with the percentage of
yarn purchased by the Company in fiscal 1996 from such spinners, are as follows:
(i) Parkdale Mills, Inc. -- 35%; (ii) Unifi Spun Yarns--29%; (iii) Harriet &
Henderson Yarns, Inc.--15%; (iv) TNS Mills, Inc.-- 10%; and (v) Ameritex Yarn
Corporation-- 3%. No individual spinner accounted for more than 35% of the
Company's purchased yarn in fiscal 1996. The vast majority of the yarn used by
the Company is readily available and could be and is purchased from a number of
sources. Accordingly, the Company does not have to rely on its orders with or
delivery from any single supplier. With the ability to substitute its supply of
yarn, the Company believes that the failure to deliver by any one supplier would
not have a long term material adverse effect on the Company's ability to
manufacture. Other raw materials purchased by the Company include dyes and other
chemicals used in the dyeing and bleaching of fabrics.
The Company believes that it is one of the largest purchasers of yarn in its
industry segment and has a sound relationship with each of its suppliers. The
Company believes these relationships allow the Company to order precise
quantities of yarn at highly competitive prices, thereby permitting the Company
to minimize working capital requirements. The Company's relationships with its
suppliers help the Company's continued access to supplies of raw materials
during periods when yarn is in peak demand. As a result, the Company has never
experienced any significant shortages of raw materials.
The Company determines the size of its purchase orders for yarn based on its
estimate of future yarn prices and levels of supply and periodically places
large purchase orders as a means of fixing its raw materials costs. This
practice helps to insulate the Company from fluctuations in yarn prices. The
Company's purchase orders typically are for quantities of yarn ranging from 30
days' to one-year's supply.
46
Certain of the Company's primary competitors spin their own yarn. The
Company estimates that in-house yarn production could reduce overall yarn costs,
but believes that such reductions would not be realized consistently.
Furthermore, the Company has concluded that the benefits achieved by acquiring
in-house spinning capacity would not justify the investment required to achieve
that capacity. In addition, the Company believes that the quality of its
purchased yarn is at least equal to the quality of yarn produced by fully
integrated manufacturers in its industry market segment.
MANUFACTURING OPERATIONS AND FACILITIES
The Company conducts its operations principally through seven manufacturing
facilities and a centralized distribution center. The Company utilizes a
vertically integrated manufacturing process, with fabric being knit, bleached
and dyed from purchased yarn at its two textile facilities and the cutting and
sewing of such fabric occurring at its five sewing facilities. The Company
utilizes offshore and domestic contractors as it deems necessary.
TEXTILE FACILITY OPERATIONS. The Company conducts textile operations at two
facilities owned by the Company located in Kings Mountain and Asheville, North
Carolina. The Company operates over 150 knitting machines at its textile
facilities where cotton yarn is knitted into tubes of basic fabric constructions
such as jersey and fleece. These tubes of fabric correspond in weight and
diameter to the various styles and sizes required to make the Company's
activewear products. The knitted fabric is then batched for bleaching and
dyeing. Substantially all of the Company's products are either bleached to
remove the ecru color of natural cotton or dyed for colored products. Each of
the Company's textile facilities contains computerized controls, dye simulators
and spectrometers and modern jet vessels to assist the Company in maintaining an
efficient and quality controlled environment for the dyeing and bleaching
process. The Company's in-house dyeing capabilities allow the Company to control
the stage in the production process at which the fabric will be dyed thereby
allowing it to maintain excess unfinished inventory available to respond quickly
to customized orders. The Company's textile facilities each operated at
approximately 80% of capacity for the quarter ending May 3, 1997. The Company
believes it has the capability to increase the operating capacity of its textile
facilities with only relatively modest capital expenditures.
SEWING FACILITY OPERATIONS. The Company conducts its sewing operations at
three facilities owned by the Company located in Whiteville, Red Springs, and
Gibson, North Carolina and in two leased facilities located in Mullins, South
Carolina and in Honduras. Fabric produced at the Company's textile operations is
shipped to the Company's sewing facilities where it is marked by hand from
design patterns, cut and then sewn. Sewn garments are first sorted by style,
color and size and then packaged. The Company's quality control personnel check
the sewn garments at varying stages of the manufacturing process and immediately
prior to such garments being placed into cartons.
During the quarter ending May 3, 1997, the Company's sewing facilities on
average operated at 85% capacity. The Company began its offshore sewing
operations in January 1996 at its leased facility in Honduras in order to take
advantage of lower wage rates. During the quarter ended May 3, 1997, 21% of the
Company's production (sewing hours) was sewn offshore (including in-house
production and outside sources), and the Company expects its percentage of
offshore sewing labor hours to continue to increase. As of May 3, 1997, outside
sources accounted for approximately 60% of the Company's offshore sewing hours.
With the increasing shift to offshore production, it is expected that one of the
Company's domestic sewing facilities will be closed in the third quarter of
fiscal 1997.
DISTRIBUTION OPERATIONS. The Company performs all of its distribution
functions at its centralized distribution facility located in Dillon, South
Carolina. The Company acquired this 660,000 square foot facility in fiscal 1995
for an aggregate purchase price of $4.0 million and thereafter spent
approximately $2.0 million on subsequent improvements through February 1, 1997.
In the first quarter of fiscal 1996, the Company's centralized distribution
facility became fully operational, enabling the Company to consolidate its
formerly fragmented distribution operations and minimize distribution
inefficiencies. The Company's
47
centralized distribution system also has enhanced the Company's ability to
provide efficient and responsive customer service and to more efficiently manage
inventory.
The following table sets forth certain information regarding the Company's
facilities:
APPROX. SQ.
LOCATION PRINCIPAL USE FT. OWNED/LEASED
- ------------------------------------------------------- -------------- -------------
New York, NY....................... Executive Offices 22,100 Leased(1)
Kings Mountain, NC................. Textile Facility 225,000 Owned
Asheville, NC...................... Textile Facility 175,000 Owned
Mullins, SC........................ Cut and Sew 149,000 Leased(2)
Whiteville, NC..................... Cut and Sew 104,000 Owned
Red Springs, NC.................... Sew 54,000 Owned
Gibson, NC......................... Sew 21,000 Owned
Dillon, SC......................... Distribution 660,000 Owned
Honduras........................... Sew 33,000 Leased(3)
- ------------------------
(1) The lease for the Company's executive office space expires in 2002.
(2) The lease for this facility (including option periods) can be extended to
2012.
(3) The lease for this facility (including option periods) can be extended to
2003.
The Company also owns a 142,000 square foot manufacturing facility located
in Aynor, South Carolina, that is currently being held for sale. This facility
became excess space after the consolidation of certain operations in connection
with the Company's acquisition of its centralized distribution center.
From fiscal 1991 through fiscal 1996, the Company made aggregate capital
expenditures of approximately $42 million to maintain, modernize and update its
manufacturing facilities. The Company anticipates the level of capital
expenditures to continue at an annual rate of approximately $5.0 million. Recent
capital expenditures have improved the Company's ability to match colors, reduce
energy costs and control product shrinkage at its textile facilities. They also
have enabled the Company to improve its productivity and ability to develop new
products and styles through increased automation at its manufacturing
facilities. The Company currently has no material capital commitments for the
next twelve months outside of the ordinary course of business.
The Company considers its owned and leased facilities and equipment to be in
good condition and suitable and adequate for the Company's current operations.
The Company's ongoing maintenance and improvement of its manufacturing
facilities enable it to accommodate anticipated sales growth.
MANAGEMENT INFORMATION SYSTEMS. The Company has a sophisticated, computer
based data collection and information processing system at each of its domestic
manufacturing facilities. This system is designed to improve piece-work
productivity, automate payroll, control work-in-process and improve supervisor
and management effectiveness by providing immediately accessible feedback
concerning sewing machine operator performance, current production and inventory
information and the location of lagging inventory bundles. In addition, among
other improvements made in connection with its new centralized distribution
facility, the Company installed an in-house radio frequency warehousing system.
The Company currently has plans to implement an advanced order processing,
allocation and customer service system which will provide the Company with
extensive inquiry and reporting capabilities for customer service personnel and
management and user defined allocation and shipping rules and immediate updates
concerning the status of customer orders. The Company believes that the proposed
system will allow it to service its customers more efficiently.
48
RECENT ACQUISITION
On January 31, 1997, the Company completed the acquisition of Cottontops (a
subsidiary of Anvil), a small marketer and distributor of activewear products
which, prior to the acquisition, supplied finished activewear products to the
Company for redistribution by the Company as well as directly into the retail
market. The aggregate amount of consideration payable in connection with this
acquisition (including the Company's assumption of certain liabilities) totaled
$3.5 million, subject to a purchase price reduction for unsaleable inventory. At
the time of the acquisition, the Company entered into a four-year employment
agreement with Tom Glennon. The employment agreement between Cottontops and Mr.
Glennon provides for an initial base salary of $60,000 per annum plus an annual
bonus based upon operating performance targets of Cottontops. Mr. Glennon's
employment may be terminated: (i) by Cottontops at any time for Cause (as
defined therein) or (ii) upon Mr. Glennon's resignation, death, or permanent
disability or incapacity (as determined by the Board of Directors of
Cottontops). If Mr. Glennon is terminated for Substandard Performance (as
defined therein) or pursuant to clause (ii), he is entitled to receive his base
salary and a pro rata share of his bonus through the date of termination,
otherwise Mr. Glennon is only entitled to receive his base salary through the
date of termination. Mr. Glennon is subject to confidentiality, non-competition
and non-solicitation provisions. Mr. Glennon currently serves as President of
Cottontops and was a principal owner of the predecessor before the asset
acquisition by the Company.
COMPETITION
The imprinted activewear segment of the apparel market includes a number of
significant competitors and the activewear segment of the industry overall is
extremely competitive. Competition in this activewear segment of the apparel
industry is generally based upon price, quality, service and breadth of product
offerings. In response to market conditions and industry-wide adjustments in
price, the Company reviews and adjusts its product offerings and pricing
structure from time to time. The Company believes that its overall turnaround
time provides a competitive advantage and enables it to seek to continue to
capitalize on its timely responsiveness to its customers' requests. In addition,
the Company focuses on providing its customers with a broad array of branded and
private label niche products at competitive prices on a timely basis. By seeking
to promote and encourage a broader, higher priced product mix to its customers,
the Company believes it can continue to compete effectively in its market
segments.
The Company's principal domestic competitors include three large domestic
manufacturers of activewear (i.e., Fruit of the Loom, Inc.; Hanes Corporation, a
division of Sara Lee Corporation; and Jerzees, a division of Russell
Corporation), all of which are larger and have greater financial and other
resources than the Company. The Company also faces competition from foreign
manufacturers of activewear who generally have substantially lower labor costs
than domestic manufacturers. Historically, the Company has benefited from quotas
and tariffs imposed by the United States on the importation of apparel. The
Uruguay Round of GATT, which became effective on January 1, 1995, requires a
complete phase-out of all existing quotas over a ten-year period. The phase-out
of such quotas is scheduled to take place in four stages as follows (expressed
in a percentage of total imports): 16% in 1995; 17% in 1999; 18% in 2003; and
49% in 2005. To date, no products manufactured by the Company have been subject
to quota reductions under GATT. The products that will be subject to quota
eliminations in 1999 and 2003 have not yet been selected. In addition to the
phasing-out of the use of quotas, GATT also requires that the United States
reduce tariffs on textile/apparel imports over the same ten-year period. To
date, the United States has not lowered such tariffs.
Increased foreign competition has caused many domestic apparel manufacturers
to move a portion of their sewing operations offshore to lower costs. The
Company performs a portion of its sewing activities offshore, principally for
basic products which are less time sensitive to take advantage of lower offshore
wage rates. The Company's activewear products do not require a significant
amount of manual labor as compared with certain other items in the apparel
industry. For example, the Company estimates the sewing
49
time required to produce a dozen T-shirts is approximately 30 minutes,
accounting for no more than one-quarter of such product's overall production
costs. For this reason, the Company believes that its segment is less vulnerable
to foreign competition than other segments of the apparel industry, which tend
to be more labor intensive. In addition, the Company believes that its domestic
knitting, bleaching and dyeing operations will continue to provide it with a
competitive advantage which should help protect the Company from the negative
effects of GATT. The Company believes that imports pose a larger threat to the
operations of manufacturers of lower priced, lower quality, high volume
products. The Company believes that its current strategy of emphasizing higher
quality, niche products and promoting a broader product mix should enable it to
compete with imported activewear products.
EMPLOYEES
As of May 3, 1997, the Company employed a total of 231 full-time salaried
employees and 2,717 full-time and part-time hourly employees. Of the Company's
employees, 2,838 are involved in manufacturing, 54 in marketing and sales and 56
in finance and administration. Of the Company's 2,838 employees involved in
manufacturing, approximately 656 of such employees are employed at the Company's
textile facilities and 2,129 are employed at the Company's sewing facilities.
None of the Company's employees are covered by a collective bargaining
agreement. The Company has not experienced any work stoppages and considers its
relations with its employees to be good.
INTELLECTUAL PROPERTY
The Company attempts to register its material trademarks and trade names.
The Company believes that it has developed strong brand awareness among its
targeted customer base and as a result regards its brand names as valuable
assets. The Company has registered or applied for trademark registrations for
ANVIL and COTTON DELUXE (and the COTTON DELUXE design) in the United States and
certain foreign countries.
ENVIRONMENTAL MATTERS
The Company, like other apparel manufacturers, is subject to federal, state
and local environmental and occupational health and safety laws and regulations.
While there can be no assurance that the Company is at all times in complete
compliance with all such requirements, the Company believes that any
noncompliance is unlikely to have a material adverse effect on the Company. The
Company has made, and will continue to make, expenditures to comply with
environmental and occupational health and safety requirements. The Company
currently does not anticipate material capital expenditures for environmental
control equipment in fiscal 1997 or fiscal 1998. As is the case with
manufacturers in general, if a release of hazardous substances occurs on or from
the Company's properties or any associated offsite disposal location, or if
contamination from prior activities is discovered at any of the Company's
properties, the Company may be held liable. While the amount of such liability
could be material, the Company endeavors to conduct its operations in a manner
that reduces such risks.
Prior to the Acquisition, groundwater contamination was discovered at the
Asheville, North Carolina facility. In 1990, Winston Mills, Inc., a subsidiary
of McGregor, entered into an Administrative Order on Consent ("AOC") with the
North Carolina Department of Environment, Health and Natural Resources ("DEHNR")
concerning such contamination. Since that time, McGregor has been conducting
investigation and corrective action under DEHNR oversight and has remained
responsible to the DEHNR with respect to the contamination that is subject to
the AOC. While the total cost of the cleanup at the facility will depend upon
the extent of contamination and the corrective action approved by the DEHNR,
preliminary cleanup cost estimates range from $1.0 to $4.0 million. McGregor
continues to be a party to the Asheville, North Carolina facility's hazardous
waste permit and Culligan, an affiliate of McGregor, has guaranteed McGregor's
obligations under the AOC. McGregor also contractually agreed to fully indemnify
the Company with respect to the contamination as part of the terms of the
Acquisition. This indemnity
50
is guaranteed by Culligan and by Astrum (now known as Samsonite Corporation) in
the event Culligan is unable to perform its guarantor obligations. The Company
could be held responsible for the cleanup of this contamination if McGregor and
Culligan were to become unable to fulfill their obligations to DEHNR and the
Company was not successful in obtaining indemnification for the clean-up from
either McGregor, Culligan or Astrum.
McGregor also agreed to fully indemnify the Company for any costs associated
with certain other environmental matters identified at the time of the
Acquisition. The Company believes that, even if McGregor were unable to fulfill
its indemnification obligations, these other matters would not have a material
adverse effect on the Company. McGregor also agreed to indemnify the Company,
subject to certain limitations, with respect to environmental liabilities that
arise from events that occurred or conditions in existence prior to the
Acquisition. Culligan and Astrum have also guaranteed McGregor's obligations
under these indemnities.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of it business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company. See
"Environmental Matters."
51
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES OF ANVIL
The following sets forth certain information with respect to the Directors,
executive officers and certain key employees of Anvil. The Board of Directors of
Holdings is identical to that of Anvil.
NAME AGE (1) POSITION
- ----------------------------------- ------- ------------------------------------------------------------
Bernard Geller..................... 63 Chief Executive Officer, Chairman of the Board and Director
Jacob Hollander.................... 55 Executive Vice President, Chief Administrative Officer,
Secretary, General Counsel and Director
Anthony Corsano.................... 37 Executive Vice President of Sales and Marketing
William H. Turner.................. 49 Executive Vice President of Manufacturing
Pasquale Branchizio................ 58 Vice President of Finance
Bruce C. Bruckmann................. 43 Director
Stephen F. Edwards................. 33 Director
David F. Thomas.................... 47 Director
John D. Weber...................... 33 Director
- ------------------------
(1) All ages are as of December 31, 1996.
BERNARD GELLER has served as the Chief Executive Officer of Anvil,
President of Holdings and has been a Director of Anvil and Holdings since the
Acquisition. Since the Recapitalization, Mr. Geller has served as Chairman of
the Board of Anvil and Holdings. From 1989 to 1995, Mr. Geller served as
Chairman of the Predecessor. From 1986 to 1989, Mr. Geller served as President
of McGregor's Anvil division, and from 1975 to 1986, as Controller and then
President of the Predecessor. Before joining the Predecessor, Mr. Geller was
with Union Underwear Co., Inc., a subsidiary of Fruit of the Loom, Inc., where
he worked for 14 years, principally as the company's controller.
JACOB HOLLANDER has served as Executive Vice President, Chief
Administrative Officer, Secretary and General Counsel of Anvil and Vice
President, Secretary and General Counsel of Holdings since the Acquisition.
Since the Recapitalization, Mr. Hollander has served as a Director of Anvil and
Holdings. From 1991 to 1995, Mr. Hollander served as Vice President and General
Counsel of Astrum. From 1985 to 1990, Mr. Hollander served as Vice President and
General Counsel of McGregor and Faberge, Incorporated, and from 1987 to 1989,
Mr. Hollander also served as Vice President and General Counsel of Elizabeth
Arden, Inc. During 1990, Mr. Hollander provided legal consulting services to the
Unilever group of companies and to McGregor. Prior to its acquisition by
McGregor, Mr. Hollander was Vice President of Faberge, Incorporated.
ANTHONY CORSANO has served as Executive Vice President of Sales and
Marketing of Anvil since the Acquisition. From 1993 to 1995, Mr. Corsano served
as Vice President of Sales and Marketing of the Predecessor. From 1988 to 1993,
Mr. Corsano served as Vice President--Sales of the Predecessor and from 1985 to
1988 Mr. Corsano served as National Sales Manager of the Predecessor.
WILLIAM H. TURNER has served as Executive Vice President of Manufacturing
of Anvil since the Acquisition. From 1992 to 1995, Mr. Turner served as
Executive Vice President of Manufacturing of the Predecessor. From 1985 to 1992,
Mr. Turner held the position of Vice President of Manufacturing (Cut and Sew) of
the Predecessor and from 1982 to 1985 he was the Predecessor's Plant Manager.
PASQUALE BRANCHIZIO has served as Vice President of Finance of Anvil and
Holdings since the Acquisition. From 1986 until 1995, Mr. Branchizio served as
Vice President of Finance of the Predecessor.
52
From 1981 to 1986, Mr. Branchizio served as the Controller of the Predecessor.
Prior to that, Mr. Branchizio served as the Predecessor's Senior Accountant.
BRUCE C. BRUCKMANN has served as a Director of Anvil and Holdings since the
Recapitalization. Since 1994, Mr. Bruckmann has served as a principal of BRS.
From 1983 until 1994, Mr. Bruckmann served as an officer and subsequently a
Managing Director of Citicorp Venture Capital, Ltd. ("CVC"). CVC is an affiliate
of 399 Venture. Prior to joining CVC, Mr. Bruckmann was an associate at the New
York law firm of Patterson, Belknap, Webb & Tyler. Mr. Bruckmann is currently a
director of Jitney Jungles Stores of America, Inc., Mohawk Industries, Inc.,
AmeriSource Distribution Corporation, Chromcraft Revington Corporation and CORT
Business Services Corporation and a director of several private companies.
STEPHEN F. EDWARDS has served as a Director of Anvil and Holdings since the
Recapitalization. Since 1994, Mr. Edwards has served as a principal of BRS. From
1993 until 1994, Mr. Edwards served as an officer of CVC. From 1988 through
1991, he was an associate of CVC. Prior to joining CVC, Mr. Edwards worked with
Citicorp/Citibank in various corporate finance positions. Mr. Edwards is
currently a director of several private companies.
DAVID F. THOMAS has served as a Director of Anvil and Holdings since the
Recapitalization. Mr. Thomas has been President of 399 Venture since December
1994. In addition, Mr. Thomas has been a Managing Director of CVC for over five
years. Mr. Thomas is currently a director of Furnishings International, Inc.,
Galey & Lord, Inc. and a number of private companies.
JOHN D. WEBER has served as a Director of Anvil and Holdings since the
Recapitalization. Since 1994, Mr. Weber has been a Vice President at CVC and a
Vice President at 399 Venture. From 1992 until 1994, Mr. Weber worked at Putnam
Investments. Mr. Weber is currently a director of a number of private companies.
Directors are elected at the annual meeting of stockholders and each
director so elected holds office until the next annual meeting of stockholders
and until a successor is duly elected and qualified. There are no family
relations between any of the Directors or executive officers of Anvil and
Holdings.
Prior to the Recapitalization, the Boards of Holdings and Anvil were
controlled by Vestar. Following the Recapitalization, pursuant to the
Stockholders Agreement (as defined), 399 Venture, BRS and the Management
Investors have agreed to vote their shares of Common Stock so that each of the
Boards of Holdings and Anvil have up to eight members, comprised of up to three
members of each Board designated by 399 Venture, three members of each Board
designated by BRS and two members of each Board designated by the Management
Investors. The Directors that are designated by BRS are Messrs. Bruckmann and
Edwards, the Directors that are designated by 399 Venture are Messrs. Thomas and
Weber, and the Directors that are designated by the Management Investors are
Messrs. Geller and Hollander. See "Security Ownership of Certain Beneficial
Owners and Management--Stockholders Agreement."
COMPENSATION OF DIRECTORS
Directors of Anvil and Holdings will not receive compensation for services
rendered in that capacity, but will be reimbursed for any out-of-pocket expenses
incurred by them in connection with their travel to and attendance of board
meetings and committees thereof.
COMPENSATION OF EXECUTIVE OFFICERS
Compensation of all executive officers of the Company is fixed by the Board
and no executive officer is prevented from receiving compensation by virtue of
the fact that he is also a Director. The following table sets forth information
for the periods presented concerning the compensation for the Company's
53
Chief Executive Officer and each of the three other most highly compensated
executive officers of the Company who were serving as executive officers of the
Company at the end of fiscal 1996 (collectively, the "Named Executive Officers")
for services rendered in all capacities to the Company during such period. The
Company has no other executive officers.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------------------------
NAME AND FISCAL OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) COMPENSATION(3)
- -------------------------------------------------- ------- -------- ---------- -------------- --------------
Bernard Geller.................................... 1996 $396,000 $ 373,535(4) $ 15,924 $ 14,004
Chief Executive Officer
Jacob Hollander................................... 1996 275,000 135,000 9,651 7,897
Executive Vice President, Chief Administrative
Officer, Secretary and General Counsel
Anthony Corsano................................... 1996 270,096 115,000 12,301 7,868
Executive Vice President of Sales and Marketing
William H. Turner................................. 1996 179,519 170,000 4,353 7,491
Executive Vice President of Manufacturing
- ------------------------
(1) The Company provides bonus compensation based on the Company's operating
performance. See "--Bonus Plan."
(2) None of the Named Executive Officers received any Other Annual Compensation
in an amount in excess of either $50,000 or 10% of such Named Executive
Officer's salary and bonus.
(3) All Other Compensation includes: (i) matching contributions under the
Company's Savings Plan relating to before-tax contributions made by each of
the Named Executive Officers in the following amounts: Mr. Geller--$6,750,
Mr. Hollander--$6,750, Mr. Corsano--$6,750, and Mr. Turner-- $6,750; (ii)
insurance premiums paid by the Company with respect to term life insurance
for the benefit of the Named Executive Officers in the following amounts:
Mr. Geller--$1,651, Mr. Hollander--$1,147, Mr. Corsano--$1,118, and Mr.
Turner--$741; and (iii) the amount of premiums paid by the Company under a
life insurance policy designed to fund certain retirement benefits for Mr.
Geller--$5,603.
(4) Includes a bonus payment of $100,535 received by Mr. Geller pursuant to an
agreement entered into at the time of the Acquisition.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has created two standing committees: (i) an Audit Committee and
(ii) a Compensation Committee. The Board may also establish other committees to
assist in the discharge of its responsibilities.
The Audit Committee reviews and, as it shall deem appropriate, recommends to
the Board internal accounting and financial controls for the Company and
accounting principles and auditing practices and procedures to be employed in
the preparation and review of financial statements of the Company. The Audit
Committee makes recommendations to the board concerning the engagement of
independent public accountants to audit the annual financial statements of the
Company and the scope of the audit to be undertaken by such accountants.
Deloitte & Touche LLP presently serves as the independent auditors of the
Company. Messrs. Weber, Edwards and Hollander have been appointed to the Audit
Committee.
54
The Compensation Committee reviews and, as it deems appropriate, recommends
to the Board policies, practices and procedures relating to the compensation of
managerial employees and the establishment and administration of employee
benefit plans. The Compensation Committee has and exercises all authority under
any employee stock option plans of the Company as the committee therein
specified (unless the Board resolution appoints any other committee to exercise
such authority), and otherwise advises and consults with the officers of the
Company as may be requested regarding managerial personnel policies. Messrs.
Thomas, Bruckmann and Geller have been appointed to the Compensation Committee.
OPTIONS EXERCISED IN LAST FISCAL YEAR/FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning options exercised
during the Company's last fiscal year and outstanding options for the Old Common
Stock as of the end of fiscal 1996 held by the Named Executive Officers. There
were no stock options granted by Holdings in fiscal 1996. All of the outstanding
options became fully vested pursuant to the Recapitalization Agreement. (See
"Old Stock Option Plan").
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE- MONEY OPTIONS AT
OPTIONS AT FISCAL FISCAL YEAR-END
YEAR-END --------------------------
SHARES ACQUIRED ----------------------- UNEXERCISABLE/EXERCISABLE
NAME ON EXERCISE VALUE REALIZED (1) UNEXERCISABLE/EXERCISABLE (2)
- ------------------------ --------------- ----------------------- ----------------------- --------------------------
Bernard Geller.......... 37,500 0 225,000/37,500 $ 2,218,500/369,750
Jacob Hollander......... 12,500 0 75,000/12,500 739,500/123,250
Anthony Corsano......... 12,500 0 75,000/12,500 739,500/123,250
William H. Turner....... 12,500 0 75,000/12,500 739,500/123,250
- ------------------------
(1) Share of Old Common Stock acquired upon the exercise of such options were
not disposed of by such Named Executive Officers.
(2) Assumes a fair market value of the Old Common Stock at February 1, 1997
equal to $10.50 per share.
EMPLOYMENT AGREEMENTS
As of January 31, 1995, the Company entered into employment agreements with
Messrs. Geller, Hollander, Corsano and Turner (collectively, the "Employment
Agreements"). The Employment Agreements are for an initial term of four years
with automatic one year extensions unless terminated as set forth in the
Employment Agreements. The Employment Agreements provide for Messrs. Geller,
Hollander, Corsano and Turner (collectively, the "Executives") to serve in the
same or similar capacity with the Company as they did with the Predecessor. The
Employment Agreements provide for an initial annual base salary of $330,000,
$250,000, $235,000 and $150,000 for Messrs. Geller, Hollander, Corsano and
Turner, respectively. The Employment Agreements also provide each Executive with
customary fringe benefits and vacation periods as well as entitle the Executive
to participate in all of the Company's employee pension plans, welfare benefit
plans, tax deferred savings plans, or other welfare or retirement benefits, the
Bonus Plan and the Stock Option Plan. Each Executive's employment may be
terminated by the Company at any time with or without Cause (as defined below).
If such Executive is terminated by the Company without Cause or such Executive
resigns for Good Reason (as defined below), other than in connection with a
Strategic Sale (as defined below), the Executive will be entitled to receive his
base salary through the end of the term then in effect (the "Severance Period"),
plus any bonus that would have been payable to the Executive for the bonus year
in which the termination takes place. In addition, the Executive is entitled to
continue to participate in the Company's benefit plans through the end of the
fiscal year in which such termination occurs. Moreover, subject to certain
restrictions and at the discretion of the Company's Chief Executive Officer, if
the Executive is not engaged in regular employment at the end of the Severance
Period, the Company may make additional monthly payments to the Executive for up
to two
55
years. If the Executive's employment terminates for any other reason, such
Executive will be entitled to only his base salary and benefits through the end
of the calendar month in which termination occurs, excluding bonuses.
Each of the Executives is subject to confidentiality, non-competition and
non-solicitation provisions. The non-competition provision provides that the
Executive is not to own, manage, control, participate in, consult with, render
services for, or in any manner engage in, any business that competes anywhere in
the world with the businesses of the Company and is enforceable for the term of
the Employment Agreement or during any period of time the Executive is receiving
payments thereunder unless the Company terminates the Executive without Cause or
the Executive resigns for Good Reason, in which case the provision expires upon
such termination.
"Cause" is defined in the Employment Agreements to mean: (i) a material
breach of the Employment Agreement by the Executive which is not cured within
thirty days of receipt of written notice from the Board; (ii) the Executive's
willful and repeated failure to comply with the lawful directives of the Board
or his superior officers(s) consistent with the terms of the Employment
Agreement; (iii) gross negligence or willful misconduct in the performance of
the Executive's duties under the Employment Agreement which results in material
injury to Holdings, Anvil or their subsidiaries; (iv) fraud committed by the
Executive with respect to Holdings, Anvil or their subsidiaries or (v)
indictment for a felony or a crime involving moral turpitude conviction of which
would materially injure relationships with customers, suppliers or employees or
otherwise cause material injury to the Company or its subsidiaries. "Good
Reason" is defined in the Employment Agreements to mean: (i) a material breach
of the Employment Agreement which is not cured within thirty days after the
Board's receipt of written notice from the Executive of non-compliance; (ii) the
assignment to the Executive of duties inconsistent with the Executive's
position, duties or responsibilities as in effect after the date of execution of
the Employment Agreements; (iii) the relocation by the Company of its executive
officers to a location outside a thirty mile radius around its current location
or (iv) upon a sale of the Company to a corporation or other legal entity that
is, or is part of a group of such entities, engaged in operating a material
business in competition with, or similar or related to the business of the
Company at the time of such a sale (a "Strategic Sale"). The Executive must give
a written notice of termination of his election to terminate employment for Good
Reason.
BONUS PLAN
The Company maintains an Executive Bonus Plan (the "Bonus Plan") which
provides annual incentive bonuses to certain management employees of the
Company. The Bonus Plan provides for an aggregate annual bonus pool equal to
4.0% of the Company's income before provision for income taxes (subject to
adjustment by the Board to exclude certain non-recurring items). The Chief
Executive Officer of the Company determines the allocation of the bonus pool
among the participants of the Bonus Plan.
In addition, the Management Investors received the Management Bonus
aggregating $500,000 pursuant to the Recapitalization Agreement.
OLD STOCK OPTION PLAN
At the time of the Acquisition, the Company adopted its 1995 Stock Option
Plan (the "Old Stock Option Plan"), which authorized the granting of options
relating to up to 600,000 shares of Old Common Stock. Pursuant to the Old Stock
Option Plan, the Management Investors were granted options in the following
aggregate amounts: Mr. Geller - 300,000; and Messrs. Hollander, Corsano and
Turner - 100,000 each. The exercise price of the options granted under the Old
Stock Option Plan was $0.64 per share. The Old Stock Option Plan provided that,
so long as a Management Investor is an employee of the Company, certain of such
options shall be subject to time and performance vesting. In general, the
options granted under the Old Stock Option Plan would vest and become
exercisable upon the sale of the Company or
56
other event where Vestar received a 35% internal rate of return on its
investment in Holdings. All of the outstanding options became fully vested
pursuant to the Recapitalization Agreement.
NEW STOCK OPTION PLAN
Holdings has a stock option plan which authorizes the granting of options
for approximately 5.0% of the Common Stock on a fully diluted basis (the "New
Stock Option Plan"). The options under the New Stock Option Plan are granted to
certain members of management, which include the Named Executive Officers, and
are subject to time and performance vesting provisions. The exercise price of
such options is the fair market price for the Common Stock as of March 14, 1997.
PHANTOM EQUITY PLAN
At the time of the Acquisition, Holdings and certain members of the
Company's management entered into the Phantom Equity Plan (the "Phantom Equity
Plan"). Pursuant to the Phantom Equity Plan, such management members were
entitled to receive a cash payment equal to 5.0% of any excess of the aggregate
sale price over $100.0 million in the event of a sale of the Company. Pursuant
to the Recapitalization Agreement such management members received $5.3 million
as final payment under the Phantom Equity Plan and the Phantom Equity Plan was
terminated.
SAVINGS PLAN
At the time of the Acquisition, the Company adopted its Predecessor's
savings plan (the "Savings Plan"), which is qualified under Sections 401(a) and
401(k) of the Internal Revenue Code. Under the Savings Plan, eligible employees
may contribute up to 16% of their annual compensation, subject to certain
limitations. The Company matches 100% of the first 3.0% contributed by an
eligible employee and 50% of the next 3.0% contributed.
57
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of Anvil's issued and outstanding capital stock is owned by Holdings.
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of June 15, 1997 by (i) any person
or group who beneficially owns more than five percent of any class of Holdings'
voting securities, (ii) each Named Executive Officer and Director and (iii) all
Directors and executive officers of Holdings as a group.
SHARES BENEFICIALLY OWNED (1)
---------------------------------- PERCENTAGE
CLASS A COMMON CLASS B COMMON OF VOTING POWER (1)
---------------- ---------------- ---------------------
Bruckmann, Rosser, Sherrill & Co., L.P. (2)............... %
126 East 56th Street 117,645 1,298,152 36.2
New York, New York 10022
399 Venture Partners, Inc. (3)............................ 97,751 1,078,634 30.0
399 Park Avenue, 14th Floor
New York, New York 10043
CCT Partners II, L.P. (4)................................. 17,250 190,347 5.3
399 Park Avenue, 14th Floor
New York, New York 10043
EXECUTIVE OFFICERS AND DIRECTORS:
Bernard Geller............................................ 22,516 248,447 6.9
Jacob Hollander........................................... 7,505 82,816 2.3
Anthony Corsano........................................... 7,505 82,816 2.3
William H. Turner......................................... 7,505 82,816 2.3
Bruce C. Bruckmann (5).................................... 120,065 1,324,852 36.9
Stephen F. Edwards (5).................................... 117,645 1,298,152 36.2
David F. Thomas (6)....................................... 100,946 1,113,884 31.0
John D. Weber (6)......................................... 98,171 1,083,271 30.2
Directors and executive officers
as a group (8 persons) (7).............................. 266,462 2,940,267 81.9
- ------------------------
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. The Class B
Common is the only voting security of Holdings and entitles the holder
thereof to one vote per share. The Class A Common is nonvoting and is
entitled to the Class A Preference upon any distribution by Holdings.
(2) Excludes shares held individually by Mr. Bruckmann and another individual,
each of whom are principals of Bruckmann, Rosser, Sherrill & Co., L.P. ("BRS
& Co.").
(3) Excludes shares held individually by Messrs. Thomas and Weber and by certain
individuals (and affiliates thereof), each of whom are employed by 399
Venture Partners, Inc. ("399 Venture Partners").
(4) CCT Partners II, L.P. is a Delaware limited partnership, the limited
partners of which are certain employees of 399 Venture Partners.
(5) Includes shares held by BRS & Co. Messrs. Bruckmann and Edwards each
disclaim beneficial ownership of such shares. The address for such persons
is c/o BRS & Co., 126 East 56th Street, New York, New York 10022.
(6) Includes shares held by 399 Venture Partners. Messrs. Thomas and Weber each
disclaim beneficial ownership of such shares. The address for such persons
is c/o 399 Venture Partners, 399 Park Avenue, 14th floor, New York, New York
10043.
(7) Includes: (i) shares held by BRS & Co., which may be deemed to be owned
beneficially by Messrs. Bruckmann and Edwards, and (ii) shares held by 399
Venture Partners, which may be deemed to be owned beneficially by Messrs.
Thomas and Weber. Excluding the shares beneficially owned by BRS & Co. and
399 Venture Partners, the Directors and executive officers as a group
beneficially own
58
51,065 shares of Class A Common and 563,481 shares of Class B Common, which
represents approximately 15.7% of the voting power of the Common Stock.
STOCKHOLDERS AGREEMENT
Pursuant to the Recapitalization, Holdings, 399 Venture, BRS and the
Management Investors entered into a Stockholders Agreement (the "Stockholders
Agreement"). The Stockholders Agreement provides: (i) that all parties thereto
will vote their shares of Common Stock so as to cause the Boards of Directors of
Anvil and Holdings each to consist of eight members, three of whom shall be
selected by 399 Venture, three of whom shall be selected by BRS and two of whom
shall be selected by the Management Investors; (ii) for certain restrictions on
transfer of the Common Stock including, but not limited to, provisions providing
that Holdings and certain holders of Common Stock will have limited rights of
first offer and certain limited participation rights in any proposed third party
sale of Common Stock by 399 Venture or BRS; (iii) that if Holdings authorizes
the issuance or sale of any Common Stock (other than as a dividend on the
outstanding Common Stock) to 399 Venture or BRS, Holdings will first offer to
sell to each of the other parties thereto a percentage of the shares of such
issuance, equal to the percentage of Common Stock held, respectively, by each of
them at the time of such issuance and (iv) that upon approval by the Board of
Directors of Holdings of a sale of all or substantially all of the consolidated
assets of Holdings or substantially all the outstanding capital stock of
Holdings (whether by merger, consolidation or otherwise), each party thereto
will consent to and raise no objections against such sale and sell its Common
Stock in such sale. In reference to paragraph (iv) above, (A) at any time, both
the holders of a majority of 399 Venture Stockholder Shares (as defined) and the
holders of a majority of BRS Stockholder Shares (as defined), acting together as
group may, and (B) after March 14, 2001, either a majority of 399 Venture
Stockholder Shares or the holders of a majority of BRS Stockholder Shares may,
require that Holdings enter into, and the Board of Directors approve, such a
sale. None of the parties received compensation for entering into the
Stockholders Agreement. The Stockholders Agreement is governed by Delaware law
which explicitly authorizes transfer limitations and voting arrangements of the
type and nature contemplated by the Stockholders Agreement.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Recapitalization, 399 Venture, BRS, the Management Investors
and the Initial Purchaser entered into a Registration Rights Agreement (the
"Equity Registration Rights Agreement") which inures to the benefit of the
transferees of the Class B Common initially issued in connection with the
Initial Units Offering, subject to the limitations set forth therein. The Equity
Registration Rights Agreement provides that, subject to certain conditions, 399
Venture and BRS each have the right to exercise a limited number of long-form
and shelf demand registrations, and an unlimited number of short-form demand
registrations under the Securities Act of their respective shares of Common
Stock. The Equity Registration Rights Agreement also provides for piggyback
registration rights, allowing the parties thereto to include their Common Stock
in any registration filed by Holdings other than pursuant to a registration
statement on Form S-8 or S-4 or any similar form or in connection with a
registration the primary purpose of which is to register debt securities (i.e.,
in connection with a so-called "equity kicker"). However, if the piggyback
registration is an underwritten primary registration on behalf of Holdings, and
the managing underwriters advise Holdings that in their opinion the aggregate
number of shares of Common Stock which the participants elect to include in such
offering exceeds the number which can be sold in such offering without adversely
affecting the marketability of such offering, the number of such shares sold in
such offering shall be allocated according to the following priority: (i) first,
the securities Holdings proposes to sell; (ii) second, the Common Stock
requested to be included in such registration, pro rata among the holders of
such Common Stock on the basis of the number of shares of Common Stock owned by
each such holder; and (iii) third, other securities requested to be included in
such registration.
In addition, the parties thereto (other than certain individual investors
and the Unit holders and successors) are, subject to certain conditions,
prohibited from selling their shares of Common Stock within 180 days after the
effectiveness of any demand registration or piggyback registration (except as
part of such underwritten registration) unless the underwriters managing the
registered offering otherwise agree.
59
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OLD MANAGEMENT AGREEMENT
In connection with the Acquisition, Anvil, Holdings, Anvil (Czech), Inc., a
wholly owned subsidiary of Anvil ("ACI"), affiliates of Vestar and 399 Venture
and Culligan entered into a Management Agreement (the "Old Management
Agreement"), whereby the affiliates of Vestar and 399 Venture and Culligan
agreed to provide certain advisory and consulting services in relation to the
affairs of Holdings, Anvil and ACI in connection with strategic financial
planning, the selection, supervision and retention of independent auditors, the
selection, retention and supervision of outside legal counsel, and the
selection, retention and supervision of investment bankers or other financial
advisors or consultants. In exchange for these services, affiliates of Vestar
and 399 Venture and Culligan were to receive an annual fee of $200,000, $120,000
and $180,000, respectively. In fiscal 1996, the Company made payments in the
aggregate amount of $292,000, and $180,000 under the Old Management Agreement to
the affiliate of Vestar and Culligan, respectively. The Old Management Agreement
was terminated pursuant to the Recapitalization Agreement.
MANAGEMENT AGREEMENT
Anvil, Holdings and BRS & Co. anticipate entering into a Management
Agreement (the "Management Agreement"), whereby BRS & Co. will agree to provide
certain advisory and consulting services in relation to the affairs of Anvil and
Holdings in connection with strategic financial planning, selection, supervision
and retention of independent auditors, the selection, retention and supervision
of outside legal counsel, and the selection, retention and supervision of
investment bankers or other financial advisors or consultants. In exchange for
these services BRS & Co. will receive, in addition to reasonable "out-of-pocket
expenses" (as defined in the Management Agreement), an annual fee of $250,000.
The Management Agreement is expected to be executed during the second half of
fiscal 1997. BRS & Co. is a significant stockholder of the Company who has two
representatives on the Company's Board of Directors. It is anticipated that the
terms of the Management Agreement will be no less favorable as those that could
be obtained from an independent third party.
PROMISSORY NOTES
In connection with their purchase of Holdings' securities under the Stock
Purchase Agreement, Messrs. Geller and Corsano each borrowed $125,000 from
Holdings under promissory notes, each dated as of January 30, 1995 (the
"Promissory Notes"). The Promissory Notes accrued interest at a rate of 7.19%
per annum and would have matured on January 30, 2002. The largest aggregate
amount of indebtedness outstanding to any individual during the last fiscal year
was $133,988. The Promissory Notes were repaid pursuant to the Recapitalization
Agreement.
SUBORDINATED PROMISSORY NOTE
In connection with the Acquisition, Holdings issued the Subordinated Note in
the principal amount of $7.5 million to Culligan. Interest on the Subordinated
Note was paid by Holdings semi-annually at a rate of 10% per year if paid in
cash, or 12% if deferred by Holdings. Holdings has deferred the payment of
interest on the Subordinated Note since the date of its issuance. The principal
amount would have been due January 30, 2005 unless, (i) Holdings or any holders
of Common Stock sells or issues the Common Stock and such sale or issuance
results in (x) a person owning more than 50% of Holdings' Common Stock
outstanding or (y) a person possessing the power to elect a majority of the
board of directors of Holdings or (ii) there is sale of at least substantially
all of Holdings' or its subsidiaries' assets. The Subordinated Note and all
unaccrued and unpaid interest thereon was repaid by Holdings using a portion of
the net proceeds from the Initial Offerings.
60
TRANSACTION FEES
In connection with the Acquisition, affiliates of Vestar and 399 Venture
received transaction fees of $1.6 million and $.9 million, respectively, for
investment banking services rendered to the Company. In connection with the
Recapitalization, affiliates of BRS, 399 Venture and the Management Investors
received transaction fees of approximately $1.27 million, $1.27 million and
$0.47 million, respectively, in the form of cash and dividends.
BENEFITS OF RECAPITALIZATION TO CERTAIN EXISTING STOCKHOLDERS AND NAMED
EXECUTIVE OFFICERS
In connection with the Recapitalization, Holdings redeemed all of its Old
Preferred Stock and repurchased all of its Old Common Stock (other than the
Retained Shares). Set forth below for those stockholders who, immediately prior
to the Recapitalization, owned more than five percent of Holdings' capital stock
and the Named Executive Officers of the Company is the aggregate amount paid to
such stockholder or Named Executive Officer in connection with such redemption
and repurchase:
AGGREGATE AMOUNT
NAME RECEIVED
- ---------------------------------------------------- -----------------
(IN MILLIONS)
Vestar.............................................. $ 47.9
Culligan............................................ 41.1
399 Venture......................................... 7.2
Bernard Geller...................................... 8.8
Jacob Hollander..................................... 2.9
Anthony Corsano..................................... 2.9
William H. Turner................................... 2.9
The Named Executive Officers received an aggregate of approximately $5.8
million pursuant to the Phantom Equity Plan and the Management Bonus. In
addition, Mr. Geller's options to purchase 262,500 shares of Old Common Stock
and each of Messrs. Hollander's, Corsano's and Turner's options to purchase
87,500 shares of Old Common Stock issued pursuant to the Old Stock Option Plan
vested and became exercisable at $0.64 per share pursuant to the terms of the
Recapitalization Agreement.
61
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Senior Notes were originally sold by Anvil on March 14, 1997 to the
Initial Purchasers pursuant to the Purchase Agreement and in a private placement
pursuant to the exemption from registration contained in Section 4(2) of the
Securities Act. The Initial Purchasers subsequently resold the Old Senior Notes
to qualified institutional buyers in reliance on Rule 144A under the Securities
Act and to a limited number of institutional accredited investors in reliance on
Rule 501(a) under the Securities Act. As a condition to the Purchase Agreement,
Anvil, Holdings and Cottontops entered into the Registration Rights Agreement
with the Initial Purchasers pursuant to which each has agreed, for the benefits
of the holders of the Old Senior Notes, at Anvil's, Holdings' and Cottontops'
cost, to use their best efforts to (i) file the Exchange Offer Registration
Statement within 60 days after the date of the original issue of the Old Senior
Notes with the Commission with respect to the Exchange Offer for the New Senior
Notes; (ii) use their best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 120 days
after the date of the original issuance of the Old Senior Notes and (iii) unless
the Exchange Offer would not be permitted by applicable law or Commission
policy, commence the Exchange Offer and use their best efforts to issue the New
Senior Notes in exchange for the Old Senior Notes on or prior to 150 days after
the date of the original issuance of the Old Senior Notes. Upon the Exchange
Offer Registration Statement being declared effective, Anvil will offer the New
Senior Notes in exchange for surrender of the Old Senior Notes. Anvil will keep
the Exchange Offer open for not less than 20 business days (or longer if
required by applicable law) after the date on which notice of the Exchange Offer
is mailed to the holders of the Old Senior Notes. For each Old Senior Note
surrendered to Anvil pursuant to the Exchange Offer, the holder of such Old
Senior Note will receive a New Senior Note having a principal amount equal to
that of the surrendered Old Senior Note. Interest on each Old Senior Note will
accrue from the last interest payment date on which interest was paid on the Old
Senior Note surrendered in exchange therefor or, if no interest has been paid on
such Old Senior Note, from the date of its original issue. Interest on each New
Senior Note will accrue from the date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Senior Notes will, in
general, be freely tradeable after the Exchange Offer without further
registration under the Securities Act. However, any purchaser of Old Senior
Notes who is an "affiliate" of Anvil or who intends to participate in the
Exchange Offer for the purpose of distributing the New Senior Notes (i) will not
be able to rely on the interpretation of the staff of the Commission, (ii) will
not be able to tender its Old Senior Notes in the Exchange Offer and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Old Senior Notes,
unless such sale or transfer is made pursuant to an exemption from such
requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
Anvil in the Letter of Transmittal that (i) the New Senior Notes are to be
acquired by the holder or the person receiving such New Senior 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 distribution of
the New Senior 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 Senior Notes (iv) neither the holder nor any such other person is an
"affiliate" of Anvil 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
any other person participates in the Exchange Offer for the purpose of
distributing the New Senior Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the New Senior Notes and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives a New Senior
Note for its own account in exchange for Old Senior Notes must acknowledge that
it (i) acquired the Old Senior Notes for its own
62
account as a result of market-making activities or other trading activities,
(ii) has not entered into any arrangement or understanding with Anvil or any
"affiliate" of Anvil (within the meaning of Rule 405 under the Securities Act)
to distribute the New Senior Notes to be received in the Exchange Offer and
(iii) will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Senior Notes. For a description of the
procedures for resales by Participating Broker-Dealers, see "Plan of
Distribution."
In the event that (i) changes in the law or the applicable interpretations
of the staff of the Commission do not permit or require Anvil to effect such an
Exchange Offer, or (ii) if any holder of Transfer Restricted Securities (as
defined therein) notifies Anvil within 10 business days following the
consummation of the Exchange Offer that such holder (a) is prohibit from law or
Commission policy from participating in the Exchange Offer, (b) may not resell
the New Senior Notes to the public without delivering a prospectus and the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (c) is a broker-dealer and holds
Old Senior Notes acquired directly from Anvil or one of its affiliates, then
Anvil will (x) file the Shelf Registration Statement covering resales of the Old
Senior Notes, (1) if pursuant to clause (i) above, within the earlier of 45 days
after Anvil determines it is not required to file the Exchange Offer
Registration Statement or 75 days after the original issue of the Old Senior
Notes or, (2) if pursuant to clause (ii) above, within 45 days after Anvil
receives notice, (y) use its reasonable best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act, (1) if
pursuant to clause (i) above, within 120 days after Anvil becomes obligated to
file the Shelf Registration Statement or, (2) if pursuant to clause (ii) above,
within 120 days after Anvil receives notice and (z) use its reasonable best
efforts to keep effective the Shelf Registration Statement until the earlier of
three years after its effective date. Anvil will, in the event of the filing of
the Shelf Registration Statement, provide to each applicable holder of the Old
Senior Notes copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resale of the Old Senior Notes. A holder of the Old Senior Notes
that sells such Old Senior Notes pursuant to the Shelf Registration Statement
generally 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 which are applicable to such a holder (including certain
indemnification obligations). In addition, each holder of the Old Senior Notes
will be required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have their Old Senior Notes included in the Shelf Registration
Statement and to benefit from the provisions set forth in the following
paragraph.
If (a) Anvil fails to file any of the Registration Statements required by
the Registration Rights Agreement on or before the date specified for such
filing, (b) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness, or (c)
Anvil fails to consummate the Exchange Offer within 30 days of the date
specified for such effectiveness with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the period specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
the sole remedy available to holders of the Old Senior Notes will be the
immediate assessment of liquidated damages as follows: during the first 90-day
period immediately following the occurrence of such Registration Default, in a
amount equal to $.05 per week per $1,000 principal amount of the Transfer
Restricted Securities (as defined therein) held by any holder of Transfer
Restricted Securities (a "Holder") for so long as the Registration Default
continues. The amount of liquidated damages payable to each Holder shall
increase by an additional $.05 per week per $1,000 principal amount of Transfer
Restricted Securities held by such Holder for each subsequent 90-day period, up
to a maximum amount of liquidated
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damages of $.30 per week per $1,000 principal amount of Transfer Restricted
Securities held by such Holder. All accrued liquidated damages shall be paid by
Anvil and Holdings on each Interest Payment Date (as defined) (i) to the Global
Note Holder by wire transfer or immediately available funds and (ii) to Holders
of Certificated Securities by wire transfer to the accounts specified, by them
or by mailing checks to their registered addresses if no such accounts have been
specified as provided in the Senior Indenture. Following the cure of all
Registration Defaults relating to any particular Transfer Restricted Securities,
the accrual of liquidated damages with respect to such Transfer Restricted
Securities will cease.
Holders of Old Senior Notes will be required to make certain representations
to Anvil (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Senior Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Additional Investors set forth above.
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 is filed as an exhibit to the Exchange Offer Registration Statement of
which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Senior
Notes who were eligible to participate in the Exchange Offer but who did not
tender their Old Senior Notes will not have any further registration rights and
such Old Senior Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Old Senior 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, Anvil will accept any and all Old Senior Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. Anvil will issue $1,000 principal amount of New Senior
Notes in exchange for each $1,000 principal amount of outstanding Old Senior
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Senior Notes pursuant to the Exchange Offer. However, Old Senior Notes may
be tendered only in integral multiples of $1,000.
The form and terms of the New Senior Notes are the same as the form and
terms of the Old Senior Notes except that (i) the New Senior Notes bear a Series
B designation and a different CUSIP Number from the Old Senior Notes, (ii) the
New Senior 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 Senior Notes will not be entitled to certain rights under the Registration
Rights Agreement, including the provisions providing for liquidated damages in
certain circumstances relating to the timing of the Exchange Offer, all of which
rights will terminate when the Exchange Offer is terminated. The New Senior
Notes will evidence the same debt as the Old Senior Notes and will be entitled
to the benefits of the Senior Indenture.
As of the date of this Prospectus, $130,000,000 aggregate principal amount
of Old Senior Notes were outstanding. Anvil has fixed the close of business on
July 24, 1997 as the record date for the Exchange Offer for purposes of
determining the person to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Senior Notes do not have any appraisal or dissenters' rights
under the General Corporation Law of Delaware or the Senior Indenture in
connection with the Exchange Offer. Anvil 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.
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Anvil shall be deemed to have accepted validly tendered Old Senior Notes
when, as and if Anvil 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 Senior Notes from Anvil.
If any tendered Old Senior 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 Senior Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Senior 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
Senior Notes pursuant to the Exchange Offer. Anvil will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection with
the exchange fees and expenses.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
August 22, 1997, unless Anvil, in its reasonable 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, Anvil 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.
Anvil reserves the right, in its reasonable discretion, (i) to delay
accepting any Old Senior 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.
INTEREST ON THE NEW SENIOR NOTES
The New Senior Notes will bear interest from their date of issuance. Holders
of Old Senior Notes that are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the date of issuance of the New
Senior Notes. Such interest will be paid with the first interest payment on the
new Senior Notes on September 15, 1997. Interest on the Old Senior Notes
accepted for exchange will cease to accrue upon issuance of the New Senior
Notes.
Interest on the New Senior Notes is payable semi-annually on each March 15
and September 15, commencing on September 15, 1997.
PROCEDURES FOR TENDERING
Only a holder of Old Senior Notes may tender such Old Senior 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 transmit an
Agent's Message 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 Senior 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 Senior Notes, Letter of Transmittal or an
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
Senior Notes may be made by book-entry transfer in accordance with the
65
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 Senior 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 Anvil may enforce such agreement against such
participant.
By executing the Letter of Transmittal or Agent's Message each holder will
make to Anvil 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 Anvil will constitute
agreement between such holder and Anvil 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 SENIOR 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 SENIOR NOTES SHOULD
BE SENT TO ANVIL. 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 Senior 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.
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) unless the
Old Senior 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 Senior Notes listed therein, such Old Senior 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 Senior
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Senior 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 Anvil of their authority to so act must be submitted with the
Letter of Transmittal.
Anvil understands that the Exchange Agent will make a request promptly after
the date of this Prospectus to establish accounts with respect to the Old Senior
Notes at the Book-Entry Transfer Facility (as defined in the Letter of
Transmittal) for the purpose of facilitating the Exchange Offer, and subject to
66
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
Senior Notes by causing such Book-Entry Transfer Facility to transfer such Old
Senior Notes into the Exchange Agent's account with respect to the old Senior
Notes in accordance with the Book-Entry Transfer Facility's procedures for such
transfer. Although delivery of the Old Senior Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility, unless an Agent's Message is received by the Exchange Agent, in
compliance with ATOP, an appropriate Letter of Transmittal properly completed
and duly executed with any required signature guarantee 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 Senior Notes and withdrawal of tendered Old
Senior Notes will be determined by Anvil in its sole discretion, which
determination will be final and binding. Anvil reserves the absolute right to
reject any and all Old Senior Notes not properly tendered or any Old Senior
Notes Anvil's acceptance of which would, in the opinion of counsel for Anvil, be
unlawful. Anvil also reserves the right in its sole discretion to waive any
defects, irregularities or conditions of tender as to particular Old Senior
Notes. Anvil'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 Senior Notes must be cured within such time as
Anvil shall determine. Although Anvil intends to notify holders of defects or
irregularities with respect to tenders of Old Senior Notes, neither Anvil, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Old Senior Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Old Senior 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 Senior Notes and (i) whose Old Senior
Notes are not immediately available, (ii) who cannot deliver their Old Senior
Notes, the Letter of Transmittal 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 Senior Notes and the principal amount of Old Senior
Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five 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 Senior 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 (of facsimile
thereof), as well as the certificate(s) representing all tendered Old
Senior Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Senior Notes into the Exchange Agent's account
67
at the Book-Entry Transfer Facility), and all other documents required by
the Letter of Transmittal are received by the Exchange Agent upon five
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 Senior Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Senior 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 Senior 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 Senior Notes to be
withdrawn (the "Depositor"); (ii) identify the Old Senior Notes to be withdrawn
(including the certificate number(s) and principal amount of such Old Senior
Notes, or, in the case of Old Senior 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 Senior 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
Senior Notes register the transfer of such Old Senior Notes into the name of the
person withdrawing the tender and (iv) specify the name in which any such Old
Senior 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 Anvil, whose determination shall be final
and binding on all parties. Any Old Senior Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no New
Senior Notes will be issued with respect thereto unless the Old Senior Notes so
withdrawn are validly retendered. Any Old Senior 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 Senior
Notes may be retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Anvil shall not be
required to accept for exchange, or exchange New Senior Notes for, any Old
Senior Notes, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Old Senior 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 Anvil, might materially impair the
ability of Anvil to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding
with respect to Anvil, Holdings or any of their 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 Anvil, might materially impair the ability of Anvil to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to Anvil; or
(c) any governmental approval has not been obtained, which approval Anvil
shall, in its reasonable discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
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If Anvil determines in its reasonable discretion that any of the conditions
are not satisfied, Anvil may (i) refuse to accept any Old Senior Notes and
return all tendered Old Senior Notes to the tendering holder, (iii) extend the
Exchange Offer and retain all Old Senior Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Senior Notes (see "-- Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Old Senior Notes which have not been withdrawn to the extent
that such conditions are legally waivable by Anvil.
EXCHANGE AGENT
United States Trust Company of New York 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:
BY MAIL: BY OVERNIGHT COURIER AND BY HAND AFTER 4:30 P.M.:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 843 Cooper Station 770 Broadway - 13th Floor
New York, New York 10276 New York, New York 10003
Attention: Corporate Trust Operations Attention: Corporate Trust Operations
(registered or certified mail recommended)
BY HAND BEFORE 4:30 P.M.: FACSIMILE TRANSMISSION: (212) 420-6152
United States Trust Company of New York CONFIRM BY TELEPHONE: (800) 548-6565
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust Window
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by Anvil. 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 Anvil and its affiliates.
Anvil 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. Anvil, 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 Anvil. 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 Senior Notes will be recorded at the same carrying value as the Old
Senior Notes, which is face value, as reflected in Anvil's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by Anvil. The expenses of the Exchange Offer will be expensed over
the term of the New Senior Notes.
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CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Senior Notes that are not exchanged for New Senior Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Old
Senior Notes may be resold only (i) to Anvil (upon redemption thereof or
otherwise), (ii) so long as the Old Senior 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 Anvil), (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 SENIOR NOTES
With respect to resales of New Senior Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
Anvil believes that a holder or other person who receives New Senior Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of Anvil within the meaning of Rule 405 under the Securities Act)
who receives New Senior Notes in exchange for Old Senior 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 Senior Notes, will be allowed to resell the New Senior
Notes to the public without further registration under the Securities Act and
without delivering to the purchasers of the New Senior Notes a prospectus that
satisfies the requirements of Section 10 of the Securities Act. However, if any
holder acquires New Senior Notes in the Exchange Offer for the purpose of
distributing or participating in a distribution of the New Senior 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
Senior Notes for its own account in exchange for Old Senior Notes, where such
Old Senior 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 Senior
Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
Anvil in the Letter of Transmittal that (i) the New Senior Notes are to be
acquired by the holder or the person receiving such New Senior 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 Senior 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 Senior Notes, (iv) neither the holder nor any such other
person is an "affiliate" of Anvil 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 Senior Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale of the New Senior Notes and cannot rely on those no-action letters. As
indicated above, each Participating Broker-Dealer that receives a New Senior
Note for its own account in exchange for Old Senior Notes must acknowledge that
it will deliver a Prospectus in connection with any resale of such New Senior
Notes. For a description of the procedures for such resales by Participating
Broker-Dealers, see "Plan of Distribution."
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DESCRIPTION OF SECURITIES
SENIOR NOTES
GENERAL
The New Senior Notes will be issued under the Senior Indenture. The terms of
the New Senior Notes include those stated in the Senior Indenture and those made
part of the Senior Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act") as in effect on the date of the Senior
Indenture. The form and terms of the New Senior Notes are the same as the form
and terms of the Old Senior Notes (which they replace) except that (i) the New
Senior Notes bear a Series B designation, (ii) the New Senior Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (iii) the holders of New Senior Notes will
not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for liquidated damages in certain
circumstances relating to the timing of the Exchange Offer, which rights will
terminate when the Exchange offer is consummated. The New Senior Notes are
subject to all such terms, and holders of the New Senior Notes are referred to
the Senior Indenture and the Trust Indenture Act for a statement of them. The
following is a summary of the material terms and provisions of the New Senior
Notes. This summary does not purport to be a complete description of the New
Senior Notes and is subject to the detailed provisions of, and qualified in its
entirety by reference to, the New Senior Notes and the Senior Indenture
(including the definitions contained therein). A copy of the form of Senior
Indenture may be obtained from Anvil by any holder or prospective investor upon
request. Definitions relating to certain capitalized terms are set forth under
"--Certain Definitions" and throughout this description. Capitalized terms that
are used but not otherwise defined herein have the meanings assigned to them in
the Senior Indenture and such definitions are incorporated herein by reference.
The Old Senior Notes and the New Senior Notes are sometimes referred to herein
collectively as the "Senior Notes." Any descriptions of the Senior Notes
presented in the future tense shall refer to the New Senior Notes, where
appropriate.
The Senior Notes will be senior unsecured obligations of Anvil and will rank
senior in right of payment to all subordinated Indebtedness of Anvil and PARI
PASSU in right of payment with all existing and future senior Indebtedness
(including borrowings under the New Credit Agreement). The Senior Notes will be
effectively subordinated to all existing and future secured Indebtedness of
Anvil, including Indebtedness pursuant to the New Credit Agreement, to the
extent of the value of the assets securing such Indebtedness and the Senior
Notes will be structurally subordinated to Indebtedness of Anvil's Subsidiaries.
As of May 3, 1997, Anvil had approximately $156.5 million (including the
discount on the Senior Notes) of senior Indebtedness (including the Senior
Notes), approximately $26.5 million of which was secured indebtedness. In
addition, as of May 3, 1997, Anvil had approximately $28.5 million of
availability, subject to an asset based formula, under the New Credit Agreement
and all borrowings thereunder are secured. The Company has not issued, and does
not have any current firm arrangements to issue, any significant indebtedness to
which the Senior Notes would be senior. The Company's borrowings under the New
Credit Agreement are secured by a first priority perfected security interest in
all assets and properties of Anvil and its domestic subsidiaries. As a result,
any amounts borrowed under the New Credit Agreement are senior in right of
payment to the Senior Notes. As of July 14, 1997, the Company had borrowings
under the New Credit Agreement of approximately $24.5 million.
Restrictions in the Senior Indenture on the ability of Anvil and its
Restricted Subsidiaries to incur additional Indebtedness, to make Asset Sales,
to enter into transactions with Affiliates and to enter into mergers,
consolidations or sales of all or substantially all of its assets, may make more
difficult or discourage a takeover of Anvil or Holdings, whether favored or
opposed by the management of Anvil and Holdings. While such restrictions cover a
variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the Senior Indenture may not afford holders of Senior
Notes protection in all circumstances from the adverse aspects of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction.
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As of the date hereof, Anvil has four Subsidiaries, all of which constitute
Restricted Subsidiaries for the purposes of the Senior Indenture. Under certain
circumstances, Anvil will be able to designate future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many
of the restrictive covenants set forth in the Senior Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes will be limited in aggregate principal amount to $130.0
million and will mature on March 15, 2007. Interest on the Senior Notes will
accrue at the rate of 10 7/8% per annum and will be payable semi-annually in
arrears on March 15 and September 15, commencing on September 15, 1997, to
Holders of record on the immediately preceding March 1 and September 1. Interest
on the Senior Notes will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. Principal, premium, if any, interest and Liquidated Damages on
the Senior Notes will be payable at the office or agency of Anvil maintained for
such purpose within the City and State of New York or, at the option of Anvil,
payment of interest and Liquidated Damages may be made by check mailed to the
Holders of the Senior Notes at their respective addresses set forth in the
register of Holders of Senior Notes; PROVIDED that all payments with respect to
Global Senior Notes and Certificated Securities the Holders of whom have given
wire transfer instructions to Anvil 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 Anvil, Anvil's office or agency will be the office
of the Trustee maintained for such purpose. Anvil may change such office or
agency without prior notice to Holders of the Senior Notes, and Holdings or any
of its Subsidiaries may act as Paying Agent or Registrar. The Senior Notes will
be issued in denominations of $1,000 and integral multiples thereof.
HOLDINGS' GUARANTEE
Holdings has irrevocably and unconditionally guarantee on a senior unsecured
basis the performance and punctual payment when due, whether at stated maturity,
by acceleration or otherwise, of all obligations of Anvil under the Senior
Indenture and the Senior Notes, whether for principal of or interest on or
Liquidated Damages, if any, on the Senior Notes, expenses, indemnification or
otherwise (all such obligations guaranteed by Holdings being herein called the
"Guaranteed Obligations") with respect to Holdings. Holdings has no material
assets other than the common stock of Anvil, and, accordingly, its ability to
perform under its Guarantee will be dependent on the financial condition and net
worth of Anvil. Holdings covenants in the Senior Indenture to engage in no
businesses other than holding the capital stock of Anvil and other Persons
engaged in the same, similar, ancillary, complementary or related business to
the business in which Anvil is engaged and other activities incidental thereto,
including financing activities for the benefit of Anvil and such Persons.
The Guarantee is a continuing guarantee and shall (a) remain in full force
and effect until payment in full of all the Guaranteed Obligations, (b) be
binding upon Holdings and its successors, transferees and assigns and (c) inure
to the benefit of and be enforceable by the Trustee, the Holders and their
successors, transferees and assigns.
SUBSIDIARY GUARANTEES
Anvil's payment obligations under the Senior Notes will be guaranteed
pursuant to future guarantees (collectively, the "Subsidiary Guarantees") on a
senior basis by any Subsidiaries that become guarantors (collectively, the
"Subsidiary Guarantors") under the covenant entitled "--Additional Subsidiary
Guarantees." The obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee will be limited so as not to constitute a fraudulent conveyance under
applicable law. Cottontops is the sole Subsidiary Guarantor.
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The Senior Indenture provides that no Subsidiary Guarantor may consolidate
with or merge with or into (whether or not such Subsidiary Guarantor is the
surviving Person), another Person or entity whether or not affiliated with such
Subsidiary Guarantor unless (i) subject to the provisions of the following
paragraph, the Person formed by or surviving any such consolidation or merger
(if other than such Subsidiary Guarantor) assumes all the obligations of such
Subsidiary Guarantor pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee under the Senior Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists; (iii) such Subsidiary Guarantor, or any Person formed by or
surviving any such consolidation or merger, (A) would have Consolidated Net
Worth (immediately after giving effect to such transaction) equal to or greater
than the Consolidated Net Worth of such Subsidiary Guarantor immediately
preceding the transaction and (B) would be permitted by virtue of Anvil's pro
forma Fixed Charge Coverage Ratio to incur, immediately after giving effect to
such transaction, at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the covenant described in
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; and (iv) such
Subsidiary Guarantor delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel addressed to the Trustee with respect to the foregoing
matters; PROVIDED, HOWEVER, that the foregoing will not apply to the merger of
two or more Subsidiary Guarantors with and into each other or the merger of any
Subsidiary Guarantor into Anvil.
The Senior Indenture provides that in the event of a sale or other
disposition of all of the assets of any Subsidiary Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the capital
stock of any Subsidiary Guarantor, by way of merger, consolidation or otherwise,
then such Subsidiary Guarantor (in the event of a sale or other disposition of
all of the capital stock of such Subsidiary Guarantor) or the corporation
acquiring the property (in the event of a sale or other disposition of all of
the assets of such Subsidiary Guarantor) will be released and relieved of any
obligations under its Subsidiary Guarantee; provided that the Net Proceeds of
such sale or other disposition are applied in accordance with the applicable
provisions of the Senior Indenture. See "--Repurchase at the Option of
Holders--Asset Sales."
OPTIONAL REDEMPTION
Except as set forth below, the Senior Notes will not be redeemable at
Anvil's option prior to March 15, 2002. Thereafter, the Senior Notes will be
subject to redemption for cash at the option of Anvil, in whole or in part, upon
not less than 30 nor more than 60 days' notice to each holder of Senior Notes to
be redeemed, at the following redemption prices (expressed as percentages of
principal amount thereof) if redeemed during the 12-month period beginning on
March 15 of each of the years indicated below, in each case together with any
accrued and unpaid interest and Liquidated Damages thereon to the applicable
redemption date:
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
2002.............................................................................. 105.438%
2003.............................................................................. 103.625%
2004.............................................................................. 101.813%
2005 and thereafter............................................................... 100.000%
Notwithstanding the foregoing, at any time on or before March 15, 2000,
Anvil may (but will not have the obligation to) redeem for cash up to 40% of the
original aggregate principal amount of the Senior Notes at a redemption price of
110% of the principal amount thereof, in each case plus any accrued and unpaid
interest and Liquidated Damages thereon to the redemption date, with the net
proceeds of a Public Equity Offering; PROVIDED that at least 60% of the original
aggregate principal amount of the Senior Notes remains outstanding immediately
after the occurrence of such redemption; and PROVIDED, FURTHER, that such
redemption will occur within 60 days of the date of the closing of such Public
Equity Offering.
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If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Notes are listed, or, if the Senior Notes are not so
listed, on a pro rata basis, by lot or by such method as the Trustee will deem
fair and appropriate; PROVIDED that no Senior Notes of $1,000 or less will be
redeemed in part. Notices of redemption will be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
Senior Notes to be redeemed at its registered address. If any Senior Note is to
be redeemed in part only, the notice of redemption that relates to such Senior
Note will state the portion of the principal amount thereof to be redeemed. A
new Senior 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. On and after the redemption date, interest will cease to accrue on Senior
Notes or portions of them called for redemption unless Anvil defaults in the
payment thereof.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders,"
Anvil is not required to make any mandatory redemption, purchase or sinking fund
payments with respect to the Senior Notes prior to the maturity date.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
The Senior Indenture provides that upon the occurrence of a Change of
Control, each Holder of Senior Notes will have the right to require Anvil to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such Holder's Senior 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 plus accrued and unpaid interest and Liquidated Damages
thereon to the date of purchase (the "Change of Control Payment"). Within 30
days following any Change of Control, Anvil will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Senior Notes pursuant to the procedures required by
the Senior Indenture and described in such notice. Anvil will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Notes as a result of
a Change of Control.
The Change of Control Offer will remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Change of Control Offer
Period"). No later than five Business Days after the termination of the Offer
Period (the "Change of Control Purchase Date"), Anvil will repurchase all Senior
Notes validly tendered and not properly withdrawn pursuant to the Change of
Control Offer. Payment for any Senior Notes so purchased will be made in the
same manner as interest payments are made on the Senior Notes.
If the Change of Control Purchase Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest and Liquidated Damages will be paid to the Person in whose name a
Senior Note is registered at the close of business on such record date, and no
additional interest will be payable to Holders who tender Senior Notes pursuant
to the Change of Control Offer.
On the Change of Control Purchase Date, Anvil will, to the extent lawful,
(1) accept for payment all Senior Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Senior Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Senior Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of Senior Notes or portions thereof being
purchased by Anvil. The Paying Agent will promptly mail to each Holder of Senior
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Notes so tendered the Change of Control Payment for such Senior Notes and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new Senior Note equal in principal amount to any
unpurchased portion of the Senior Notes surrendered, if any; provided that each
such new Senior Note will be in a principal amount of $1,000 or an integral
multiple thereof. Anvil will publicly announce the results of the Change of
Control Offer on the Change of Control Purchase Date.
Except as described above, the Senior Indenture does not contain provisions
that permit the Holders of Senior Notes to require Anvil to redeem the Senior
Notes in the event of a takeover, recapitalization or similar restructuring,
including an issuer recapitalization or similar transaction with management.
Consequently, the Change of Control provisions will not afford any protection in
a highly leveraged transaction, including such a transaction initiated by Anvil,
management of Anvil or an Affiliate of Anvil, if such transaction does not
result in a Change of Control. In addition, the existence of the Holder's right
to require Anvil to repurchase such Holder's Senior Notes upon the occurrence of
a Change of Control may or may not deter a third party from seeking to acquire
Anvil or Holdings in a transaction that would constitute a Change of Control.
Anvil's ability to repurchase Senior Notes pursuant to a Change of Control
Offer may be limited by a number of factors. The New Credit Agreement provides
that certain change of control events with respect to Holdings and/or Anvil
would constitute a default thereunder permitting the lending parties thereto to
accelerate the Indebtedness thereunder. In addition, certain events that may
obligate Anvil to offer to repay all outstanding obligations under the New
Credit Agreement may not constitute a Change of Control under the Senior
Indenture. However, Anvil may not have sufficient resources to repay
Indebtedness under the New Credit Agreement and Anvil may not have sufficient
resources to repurchase tendered Senior Notes. Furthermore, any future credit
agreements or other agreements relating to senior Indebtedness to which Anvil
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control occurs at a time when Anvil is directly or indirectly
prohibited from repurchasing Senior Notes, Anvil could seek the consent of its
lenders to the purchase of Senior Notes or could attempt to refinance the
borrowings that contain such prohibition. If Anvil does not obtain such a
consent or repay such borrowings, the repurchase of Senior Notes will remain
prohibited. The failure by Anvil to purchase tendered Senior Notes would
constitute a breach of the Senior Indenture which would, in turn, constitute a
default under the New Credit Agreement and could lead to the acceleration of the
indebtedness thereunder. In any such event, the security granted in respect of
the New Credit Agreement could result in the Holders of the Senior Notes
receiving less ratably than other creditors of Anvil.
In addition, the terms of the Senior Preferred Stock and Exchange Debentures
of Holdings include provisions similar to those contained in the Senior Notes
enabling holders thereof to require Holdings to repurchase all or any part of
such securities under circumstances constituting a Change of Control. However,
Holdings and Anvil may not have sufficient resources to repurchase tendered
shares of Senior Preferred Stock and/or Exchange Debentures and any such failure
may constitute a default under the terms of the New Credit Agreement, the Senior
Notes, the Senior Indenture and the Certificate of Designation or the Exchange
Debenture Indenture. Again, in any such event, the security granted in respect
of the New Credit Agreement could result in the Holders of the Senior Notes
receiving less ratably than other creditors of Anvil.
The definition of Change of Control includes a phrase relating to the sale,
lease or transfer of "all or substantially all" of the assets of Anvil and its
Restricted Subsidiaries, taken as a whole. Although there is a developing body
of case law interpreting the phrase "substantially all," there is no precise
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Senior Notes to require Anvil to repurchase such Senior Notes as a
result of a sale, lease or transfer of less than all of the assets of Anvil and
its Restricted Subsidiaries taken as a whole to another Person or group may be
uncertain.
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ASSET SALES
The Senior Indenture provides that Anvil will not, and will not permit any
of its Restricted Subsidiaries to, engage in an Asset Sale in excess of $1.0
million unless (i) Anvil (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, and in the case of a lease of assets, a lease providing for rent
and other conditions which are no less favorable to Anvil (or the Restricted
Subsidiary, as the case may be) in any material respect than the then prevailing
market conditions (evidenced in each case by a resolution of the Board of
Directors of such entity set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests sold or otherwise disposed of, and
(ii) at least 75% (100% in the case of lease payments) of the consideration
therefor received by Anvil or such Restricted Subsidiary is in the form of cash
or Cash Equivalents; provided that the amount of (x) any liabilities (as shown
on Anvil's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto, excluding contingent liabilities and trade payables), of Anvil or
any Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Senior Notes, or any guarantee thereof) that are assumed by
the transferee of any such assets and (y) any notes or other obligations
received by Anvil or any such Restricted Subsidiary from such transferee that
are promptly, but in no event more than 30 days after receipt, converted by
Anvil or such Subsidiary into cash (to the extent of the cash received), will be
deemed to be cash for purposes of this provision.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Anvil may apply such Net Proceeds (a) to reduce permanently long-term
Indebtedness of a Restricted Subsidiary, (b) to reduce permanently Indebtedness
(and, in the case of revolving Indebtedness, to reduce permanently the
commitments) under the New Credit Agreement, or (c) to an investment in another
business, the making of a capital expenditure or the acquisition of other
tangible assets, in each case, in the same or a similar line of business as
Anvil was engaged in on the date of the Senior Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the preceding
sentence of this paragraph will be deemed to constitute "Excess Proceeds." On
the earlier of (i) the 366th day after an Asset Sale or (ii) such date as the
Board of Anvil or the Restricted Subsidiary determines not to apply the Net
Proceeds relating to such Asset Sale in the manner set forth in (a), (b) or (c),
if the aggregate amount of Excess Proceeds exceeds $5.0 million, Anvil will be
required to make an offer to all Holders of Senior Notes (an "Asset Sale Offer")
to purchase the maximum principal amount of Senior Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages thereon to the date of purchase, in accordance with the procedures set
forth in the Senior Indenture. To the extent that the aggregate amount of Senior
Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds,
Anvil may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Senior Notes surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Senior Notes
to be purchased on a pro rata basis. Upon completion of such Asset Sale Offer,
the amount of Excess Proceeds shall be reset at zero.
The Asset Sale Offer will remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Asset Sale Offer Period"). No later
than five Business Days after the termination of the Asset Sale Offer Period
(the "Asset Sale Purchase Date"), Anvil will purchase the principal amount of
Senior Notes required to be purchased pursuant to this covenant (the "Asset Sale
Offer Amount") or, if less than the Asset Sale Offer Amount has been tendered,
all Senior Notes tendered in response to the Asset Sale Offer. Payment for any
Senior Notes so purchased will be made in the same manner as interest payments
are made on the Senior Notes.
If the Asset Sale Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
and Liquidated Damages will be paid to the Person in whose name a Note is
registered at the close of business on such record date, and no additional
interest will be payable to Holders who tender Senior Notes pursuant to the
Asset Sale Offer.
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On or before the Asset Sale Purchase Date, Anvil will, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, the Asset Sale
Offer Amount of Senior Notes or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Asset Sale Offer Amount has been tendered, all
Senior Notes tendered, and will deliver to the Trustee an Officers' Certificate
stating that such Senior Notes or portions thereof were accepted for payment by
Anvil in accordance with the terms of this covenant. Anvil, the Depositary or
the Paying Agent, as the case may be, will promptly (but in any case not later
than five days after the Asset Sale Purchase Date) mail or deliver to each
tendering Holder an amount equal to the purchase price of the Senior Notes
tendered by such Holder and accepted by Anvil for purchase, and Anvil will
promptly issue a new Senior Note, and the Trustee, upon delivery of an Officers'
Certificate from Anvil will authenticate and mail or deliver such new Senior
Note to such Holder, in a principal amount equal to any unpurchased portion of
the Senior Note surrendered. Any Senior Note not so accepted will be promptly
mailed or delivered by Anvil to the Holder thereof. Anvil will publicly announce
the results of the Asset Sale Offer on the Asset Sale Purchase Date.
Anvil will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Senior
Notes pursuant to any Asset Sale Offer.
If Anvil is required to make an Asset Sale Offer and Holdings has exchanged
its Senior Preferred Stock for Exchange Debentures, the Exchange Debenture
Indenture under which the Exchange Debentures are issued may require Holdings to
make a similar offer to purchase Exchange Debentures. If either Anvil or
Holdings was unable to purchase all of the Senior Notes or Exchange Debentures
it would then be required to repurchase, an Event of Default may result under
the Senior Indenture and/or the Exchange Debenture Indenture and any such Event
of Default may also constitute an event of default under the New Credit
Agreement. In any such event, the security granted in respect of the New Credit
Agreement could result in the Holders of the Senior Notes receiving less ratably
than other creditors of Anvil.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Senior Indenture provides that Anvil will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any distribution on account of Anvil's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving Anvil) (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of Anvil or dividends or distributions payable to Anvil or
any Wholly Owned Subsidiary of Anvil); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of Anvil or any direct or
indirect parent of Anvil or other Affiliate or Restricted Subsidiary of Anvil;
(iii) make any principal payment on, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness that is subordinated to the Senior
Notes, except in accordance with the scheduled mandatory redemption or repayment
provisions set forth in the original documentation governing such Indebtedness
(but not pursuant to any mandatory offer to repurchase upon the occurrence of
any event); or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default will have occurred and be continuing
or would occur as a consequence thereof;
(b) Anvil 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 Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described under "--Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
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(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by Anvil and its Restricted Subsidiaries after the
date of the Senior Indenture, is less than the sum of, without duplication,
(i) 50% of the Consolidated Net Income of Anvil for the period (taken as one
accounting period) from the beginning of the first fiscal quarter commencing
after the date of the Senior Indenture to the end of Anvil's most recently
ended fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (ii) to the
extent not included in the amount described in clause (i) above, 100% of the
aggregate net cash proceeds received after the date of the Senior Indenture
by Anvil from the issue or sale of, or from additional capital contributions
in respect of, Equity Interests of Anvil or of debt securities of Anvil or
any Subsidiary Guarantor that have been converted into, or cancelled in
exchange for, Equity Interests of Anvil (other than Equity Interests (or
convertible debt securities) sold to a Restricted Subsidiary or an
Unrestricted Subsidiary of Anvil and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock and less the
amount of any loans made pursuant to clause (vi) of the next succeeding
paragraph), plus (iii) 100% of any cash dividends received by Anvil or a
Wholly Owned Subsidiary that is a Subsidiary Guarantor after the date of the
Senior Indenture from an Unrestricted Subsidiary of Anvil, plus (iv) 100% of
the cash proceeds realized upon the sale of any Unrestricted Subsidiary
(less the amount of any reserve established for purchase price adjustments
and less the maximum amount of any indemnification or similar contingent
obligation for the benefit of the purchaser, any of its Affiliates or any
other third party in such sale, in each case as adjusted for any permanent
reduction in any such amount on or after the date of such sale, other than
by virtue of a payment made to such Person) following the date of the Senior
Indenture, plus (v) to the extent that any Restricted Investment that was
made after the date of the Senior Indenture is sold to an unaffiliated
purchaser for cash or otherwise liquidated or repaid for cash, the cash
proceeds realized with respect to such Restricted Investment (less the cost
of disposition, if any).
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the Senior
Indenture; (ii) the making of any Restricted Investment in exchange for, or out
of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of Anvil) of, or from substantially concurrent additional capital
contributions in respect of, Equity Interests of Anvil (other than Disqualified
Stock); (iii) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of Anvil or any direct or indirect parent of Anvil in exchange
for, or out of the proceeds of, the substantially concurrent sale (other than to
a Subsidiary of Anvil) of, or from substantially concurrent additional capital
contributions in respect of, other Equity Interests of Anvil (other than any
Disqualified Stock); (iv) the defeasance, redemption or repurchase of
subordinated Indebtedness with the net cash proceeds from (X) an incurrence of
Permitted Refinancing Indebtedness or (Y) the substantially concurrent sale
(other than to a Subsidiary of Anvil) of, or from substantially concurrent
additional capital contributions in respect of, Equity Interests of Anvil (other
than Disqualified Stock); (v) the declaration or payment of any dividend to
Holdings for, or the direct repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of Anvil or any Restricted
Subsidiary of Anvil or Holdings held by any member of Anvil's (or any of its
Restricted Subsidiaries' or Holdings') management pursuant to any management
agreement, stock option agreement or plan or stockholders agreement; PROVIDED
that (X) the aggregate price paid for all such repurchased, redeemed, acquired
or retired Equity Interests will not exceed $1.0 million in any fiscal year
(plus any amount available for such payments hereunder since the date of the
Senior Indenture which have not been used for such purpose) or (Y) $5.0 million
in the aggregate (in each case, net of the cash proceeds received by Anvil from
subsequent reissuances of such Equity Interests to new members of management);
(vi) loans to members of management of Anvil or any Restricted Subsidiary the
proceeds of which are used for a concurrent purchase of Equity Interests of
Holdings and a capital contribution in an amount equal to such proceeds to
Anvil; (vii) payments in connection with the application of the net proceeds of
the Recapitalization as set forth under "Use of
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Proceeds"; (viii) payments to Holdings in respect of accounting, legal or other
administrative expenses incurred by Holdings relating to the operations of Anvil
in the ordinary course of business and in respect of fees and related expenses
associated with registration statements filed with the Commission and subsequent
ongoing public reporting requirements arising from the issuance of the
Guarantee, the Senior Preferred Stock and the Exchange Debentures; PROVIDED that
the aggregate amount of such payments does not exceed $500,000 in any fiscal
year; (ix) so long as Holdings files consolidated income tax returns which
include Anvil, payments to Holdings in an amount equal to the amount of income
tax that Anvil would have paid if it had filed consolidated tax returns on a
separate-company basis; (x) payments to Holdings in an amount sufficient to pay
director's fees and the reasonable expenses of its directors in an aggregate
amount not to exceed $125,000 per year (including indemnification obligations
and professional fees and expenses) and to pay salaries and other compensation
of employees who perform services for both Anvil and Holdings; (xi) payments to
Holdings in an amount not to exceed $200,000 in aggregate to enable Holdings to
make payments to holders of its Capital Stock in lieu of issuing fractional
shares thereof; (xii) in the event Holdings elects to issue the Exchange
Debentures in exchange for the Senior Preferred Stock, cash payments to Holdings
in an amount necessary to enable Holdings to make payments to the holders of the
Senior Preferred Stock (A) in lieu of issuing an Exchange Debenture in a
principal amount less than $1,000 and (B) any accrued and unpaid dividends in
respect of the period from the dividend payment date immediately preceding the
exchange date to the exchange date; (xiii) the making of any principal payment
on, or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Senior Notes out of Excess Proceeds
available for general corporate purposes after consummation of purchases of
Senior Notes pursuant to an Asset Sale Offer; and (xiv) the repurchase of the
Senior Preferred Stock or the Exchange Debentures in connection with an offer
required to be made therefor in connection with a Change of Control provided
that Anvil has previously paid all amounts required to be paid in connection
with any Change of Control Offer for the Senior Notes; PROVIDED HOWEVER that in
the case of any transaction described in clauses (i), (ii), (iii), (iv) and (v)
no Default or Event of Default will have occurred and be continuing immediately
after such transaction. In determining the aggregate amount of Restricted
Payments made after the date of the Senior Indenture, 100% of the amounts
expended pursuant to the foregoing clauses (ii), (iii), (iv)(Y), (v) and (vi)
shall be included in such calculation and none of the amounts expended pursuant
to the foregoing clauses (i), (iv)(X), (vii), (viii), (ix), (x), (xi), (xii),
(xiii) and (xiv) shall be included in such calculation.
As of the date hereof and as of the issue date of the Senior Notes, all of
Anvil's Subsidiaries were Restricted Subsidiaries. The Board of Directors may
designate any Subsidiary to be an Unrestricted Subsidiary if such designation
would not cause a Default. For purposes of making such determination, all
outstanding Investments by Anvil 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.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) will be the greater
of (i) book value or (ii) fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) on the date of the Restricted Payment of the asset(s) proposed to be
transferred by Anvil or such Restricted Subsidiary, as the case may be, pursuant
to the Restricted Payment. Not later than the date of making any Restricted
Payment, Anvil will deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculation required by this covenant were computed, which calculations may be
based upon Anvil's latest available financial statements.
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INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Senior Indenture provides that Anvil will not, and will not permit any
of its Restricted Subsidiaries and Unrestricted 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 Indebtedness (including Acquired Indebtedness) and that Anvil 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
Anvil and its Restricted Subsidiaries may incur Indebtedness (including Acquired
Indebtedness) or issue shares of Disqualified Stock if: (i) the Fixed Charge
Coverage Ratio for Anvil's most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date
on which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been (A) any time prior to March 15, 1999, at least 2.00 to 1
and (B) thereafter, at least 2.25 to 1, in each case determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock had
been issued, as the case may be, at the beginning of such four-quarter period;
and (ii) no Default or Event of Default will have occurred and be continuing or
would occur as a consequence thereof; PROVIDED, that no guarantee may be
incurred pursuant to this paragraph unless the guaranteed Indebtedness is
incurred by Anvil or a Restricted Subsidiary pursuant to this paragraph.
The foregoing provisions will not apply to:
(i) the incurrence by Anvil and its Restricted Subsidiaries of
Indebtedness and letters of credit pursuant to the New Credit Agreement
(with letters of credit being deemed to have a principal amount equal to the
maximum potential liability of Anvil or the relevant Restricted Subsidiary
thereunder) in a maximum principal amount outstanding at any one time not to
exceed $55.0 million (or in the event of any refinancing of the Indebtedness
under the New Credit Agreement, the greater of $55.0 million or the
Borrowing Base) (1) less the amount of all mandatory principal payments
actually made by Anvil in respect of term loans thereunder (excluding any
such payments to the extent refinanced at the time of payment under a
replaced credit agreement) and (2) in the case of the revolving credit
facility, reduced by any required permanent repayments (which are
accompanied by a corresponding permanent commitment reduction) thereunder;
(ii) the incurrence by Anvil and its Restricted Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by Anvil of Indebtedness represented by the Senior
Notes and by the Restricted Subsidiaries of Indebtedness represented by the
Subsidiary Guarantees;
(iv) the incurrence by Anvil or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or Purchase Money Obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of Anvil or such Restricted
Subsidiary, in an aggregate principal amount not to exceed $5.0 million at
any time outstanding;
(v) the incurrence by Anvil or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Senior Indenture to be incurred;
(vi) the incurrence by Anvil or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Anvil and any of its Wholly Owned
Subsidiaries or between or among any Wholly Owned Subsidiaries; PROVIDED,
HOWEVER, that (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than a
Wholly Owned Subsidiary and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either Anvil or a Wholly Owned
Subsidiary will be deemed, in each case, to constitute an incurrence of such
Indebtedness by Anvil or such Subsidiary, as the case may be;
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(vii) the incurrence by Anvil or any of its Restricted Subsidiaries that
are Subsidiary Guarantors of Hedging Obligations that are incurred for the
purpose of fixing or hedging interest rate risk with respect to any floating
rate Indebtedness that is permitted by the Senior Indenture to be incurred;
(viii) the incurrence by Anvil and its Restricted Subsidiaries that are
Subsidiary Guarantors and its foreign subsidiaries that are Restricted
Subsidiaries of Indebtedness (in addition to Indebtedness permitted by any
other clause of this paragraph) in an aggregate principal amount at any time
outstanding not to exceed $15.0 million; provided that such Indebtedness
incurred by foreign subsidiaries that are Restricted Subsidiaries shall not
exceed an aggregate principal amount at any time outstanding of $5.0
million;
(ix) the incurrence by Anvil's Unrestricted Subsidiaries of Non-Recourse
Debt, PROVIDED, HOWEVER, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event will be deemed
to constitute an incurrence of Indebtedness by a Restricted Subsidiary of
Anvil;
(x) Indebtedness incurred by Anvil or any of its Restricted Subsidiaries
that are Subsidiary Guarantors arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from guarantees or letters of credit, surety bonds or performance bonds
securing the performance of Anvil or any of its Restricted Subsidiaries
pursuant to such agreements, in connection with the disposition of any
business, assets or Restricted Subsidiary of Anvil (other than guarantees or
similar credit support by Anvil or any of its Restricted Subsidiaries of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition), in a principal amount not to exceed 25% of the gross proceeds
(with proceeds other than cash or Cash Equivalents being valued at the fair
market value thereof as determined by the Board of Directors of Anvil in
good faith) actually received by Anvil or any of its Restricted Subsidiaries
in connection with such disposition; and
(xi) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is non-recourse to Anvil or any
Subsidiary of Anvil (except Standard Securitization Undertakings); PROVIDED,
HOWEVER, that the amount of Indebtedness outstanding under clause (i) above
and this clause (xi) shall not in the aggregate exceed $55.0 million at any
time outstanding (or in the event of a refinancing of the Indebtedness under
the New Credit Agreement, the greater of $55.0 million or the Borrowing
Base).
Notwithstanding any other provision of this covenant, a guarantee of
Indebtedness permitted by the terms of the Senior Indenture at the time such
Indebtedness was incurred will not constitute a separate incurrence of
Indebtedness.
SALE AND LEASEBACK TRANSACTIONS
The Senior Indenture provides that Anvil will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; PROVIDED that Anvil or any Subsidiary Guarantor may enter into a
sale and leaseback transaction if (i) Anvil or such Subsidiary Guarantor could
have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
"--Incurrence of Additional Indebtedness and Issuance of Preferred Stock" and
(b) incurred a Lien to secure such Indebtedness pursuant to the covenant
"Liens," (ii) the net cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the proceeds of such transaction are applied in
compliance with, the covenant under "Repurchase at the Option of Holders--Asset
Sales."
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LIENS
The Senior Indenture provides that Anvil will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Senior Indenture provides that Anvil 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 Anvil 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 Anvil or any of
its Restricted Subsidiaries, (ii) make loans or advances to Anvil or any of its
Restricted Subsidiaries or (iii) transfer any of its properties or assets to
Anvil or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of the Senior Indenture, (b) the New Credit Agreement as in
effect as of the date of the Senior Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof; PROVIDED, that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the New Credit
Agreement as in effect on the date of the Senior Indenture, (c) the Senior
Indenture and the Senior Notes, (d) the Senior Preferred Stock, the Certificate
of Designation, the Exchange Debentures and the Exchange Debenture Indenture,
(e) applicable law, (f) any instrument governing Acquired Indebtedness or
Capital Stock of a Person acquired by Anvil or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Acquired Indebtedness was incurred 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 the Consolidated
EBITDA of such Person is not taken into account in determining whether such
acquisition was permitted by the terms of the Senior Indenture, (g) by reason of
customary non-assignment provisions in leases and licenses entered into in the
ordinary course of business and consistent with past practices, (h) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (i) agreements relating to the financing of the
acquisition of real or tangible personal property acquired after the date of the
Senior Indenture; PROVIDED, that such encumbrance or restriction relates only to
the property which is acquired and in the case of any encumbrance or restriction
that constitutes a Lien, such Lien constitutes a Purchase Money Lien, (j) any
restriction or encumbrance contained in contracts for sale of assets permitted
by the Senior Indenture in respect of the assets being sold pursuant to such
contract, or (k) Indebtedness 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.
TRANSACTIONS WITH AFFILIATES
The Senior Indenture provides that Anvil will not, and will not permit any
of its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into or make any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that
are no less favorable to Anvil or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by Anvil or such
Restricted Subsidiary with an unrelated Person and (ii) Anvil delivers to the
Trustee (a) with respect
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to any Affiliate Transaction entered into after the date of the Senior Indenture
involving aggregate consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors and (b) with respect to any Affiliate Transaction involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to Anvil or such Restricted Subsidiary of such Affiliate Transaction from a
financial point of view issued by an investment banking firm of national
standing; PROVIDED that the following will not be deemed to be Affiliate
Transactions: (p) reasonable fees and compensation paid to, and indemnity
provided on behalf of, officers and directors of Holdings, Anvil or any
Restricted Subsidiary as determined in good faith by the appropriate Board of
Directors or senior management; (q) the provision of administrative or
management services by Anvil or any of its officers to Holdings or any of its
Restricted Subsidiaries in the ordinary course of business consistent with past
practice; (r) transactions between Anvil or one or more of its Restricted
Subsidiaries and the relevant Securitization Entity effected as part of a
Qualified Securitization Transaction; (s) any agreement as in effect as of the
date of the Senior Indenture (including, without limitation, the New Credit
Agreement) or any amendment thereto or any transactions contemplated thereby
(including pursuant to any amendment thereto) and any replacement agreement
thereto so long as any such amendment or replacement agreement is not more
disadvantageous to the Holders of Senior Notes in any material respect than the
original agreement as in effect on the date of the Senior Indenture; (t)
payments or loans to employees or consultants which are approved by the Board of
Directors of Anvil in good faith; (u) the existence of, or the performance by
Anvil or any of its Restricted Subsidiaries of its obligations under the terms
of, any stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the date of the
Senior Indenture and any similar agreement which it may enter into thereafter;
PROVIDED, HOWEVER, that the existence of, or the performance by Anvil or any of
its Restricted Subsidiaries of obligations under any similar agreement entered
into after the date of the Senior Indenture shall only be permitted by this
clause (u) to the extent that the terms of any such new agreement are not
otherwise disadvantageous to the Holders of the Senior Notes in any material
respect; (v) transactions with customers, clients, suppliers, joint venture
partners or purchasers or sellers of goods or 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 Senior
Indenture which are at least as favorable as might reasonably have been obtained
at such time from an unaffiliated party; (w) any employment agreement entered
into by Anvil or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of Anvil or such Restricted
Subsidiary (including, without limitation, any such employment agreements
entered into prior to the date of the Senior Indenture), (x) transactions
between or among Anvil and/or its Wholly Owned Subsidiaries, (y) (i) the payment
of customary management, consulting and advisory fees and related expenses to
399 Venture and BRS and their Affiliates not to exceed an aggregate of $750,000
per year and (ii) payments by Anvil or any of its Restricted Subsidiaries to 399
Venture and BRS and their Affiliates made pursuant to any financial advisory,
financing, underwriting or placement agreement or in respect of other investment
banking activities, including, without limitation, in connection with
acquisitions or divestitures which are approved by the Board of Directors of
Anvil, Holdings or such Restricted Subsidiary in good faith not to exceed an
aggregate of $750,000 per year; and (z) transactions permitted by the covenant
described in "-- Restricted Payments."
LINE OF BUSINESS
Anvil will not, and will not permit any Restricted Subsidiary to, engage in
any line of business which is not the same, similar, ancillary, complementary or
related to the businesses in which Anvil is engaged on the date of the Senior
Indenture.
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ADDITIONAL SUBSIDIARY GUARANTEES
The Senior Indenture provides that all Restricted Subsidiaries of Anvil
substantially all of whose assets are located in the United States or that
conduct substantially all of their business in the United States will be
Subsidiary Guarantors. In addition, the Senior Indenture provides that Anvil
will not, and will not permit any of the Subsidiary Guarantors to, make any
Investment in any Subsidiary that is not a Subsidiary Guarantor unless either
(i) such Investment is permitted by the covenant described under "-- Restricted
Payments," or (ii) such Restricted Subsidiary executes a Subsidiary Guarantee
and delivers an opinion of counsel in accordance with the provisions of the
Senior Indenture.
REPORTS
The Senior Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Senior Notes are outstanding,
Holdings will furnish to the Holders of Senior Notes, within 15 days after it is
or would have been required to file such 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 Holdings was required to
file such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual information
only, reports thereon by the certified independent accountants of Holdings and
(ii) all current reports that would be required to be filed with the Commission
on Form 8-K if Holdings was required to file such reports. In addition, whether
or not required by the rules and regulations of the Commission, Holdings will
file copies of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, Holdings and Anvil have agreed, and the Subsidiary
Guarantors, if any, will agree, that, for so long as any Senior Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Senior Indenture provides that Anvil shall not, in a single transaction
or series of related transactions, consolidate or merge with or into (whether or
not Anvil is the surviving corporation), or directly and/or indirectly through
its Restricted Subsidiaries sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its properties or assets determined on a
consolidated basis for Anvil and its Restricted Subsidiaries taken as a whole in
one or more related transactions, to another corporation, Person or entity
unless (i) Anvil is the surviving corporation or the entity or the Person formed
by or surviving any such consolidation or merger (if other than Anvil) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
Anvil) or the entity or Person to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made assumes all the obligations
of Anvil, under the Senior Notes and the Senior 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)
Anvil or the entity or Person formed by or surviving any such consolidation or
merger (if other than Anvil), or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made (A) will have
Consolidated Net Worth immediately after the transaction equal to or greater
than the Consolidated Net Worth of Anvil 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
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock"; and (v) Anvil delivers to the
Trustee an Officers' Certificate and an Opinion
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of Counsel addressed to the Trustee with respect to the foregoing matters;
PROVIDED, HOWEVER, that the requirement set forth in clause (iv) above shall not
apply to a merger between Anvil and any Wholly Owned Subsidiary or to any merger
between Wholly Owned Subsidiaries.
EVENTS OF DEFAULT AND REMEDIES
The Senior 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, or Liquidated Damages with respect to, the Senior Notes; (ii) default in
payment when due of the principal of or premium, if any, on the Senior Notes;
(iii) failure by Anvil to comply with the provisions described under the
captions "--Change of Control," "-- Asset Sales," "--Restricted Payments,"
"--Incurrence of Indebtedness and Issuance of Preferred Stock," "--Sale and
Leaseback Transactions" or "--Merger, Consolidation or Sale of Assets"; (iv)
failure by Anvil for 60 days after notice to comply with any of its other
agreements in the Senior Indenture or the Senior Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by Anvil
or any of its Restricted Subsidiaries or Holdings (or the payment of which is
guaranteed by Anvil or any of its Restricted Subsidiaries or Holdings) whether
such Indebtedness or guarantee now exists, or is created after the date of the
Senior Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vi) failure by Anvil or any of
its Restricted Subsidiaries or Holdings to pay final judgments aggregating in
excess of $3.0 million, which judgments are not paid, discharged or stayed for a
period of 60 days; (vii) except as permitted by the Senior Indenture, any
Subsidiary Guarantee will be held in any judicial proceeding to be unenforceable
or invalid or will cease for any reason to be in full force and effect or any
Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary
Guarantor, will deny or disaffirm its obligations under its Subsidiary
Guarantee; (viii) the Guarantee will be held in any judicial proceeding to be
unenforceable or invalid or will cease for any reason to be in full force and
effect or Holdings, or any Person acting on behalf of Holdings, will deny or
disaffirm its obligations under the Guarantee; and (ix) certain events of
bankruptcy or insolvency with respect to Holdings, Anvil or any of its
Significant Subsidiaries or group of Restricted Subsidiaries that, together,
would constitute a Significant Subsidiary.
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 Senior Notes may
declare all the Senior Notes to be due and payable immediately. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to Holdings, Anvil, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Senior Notes will become due and payable
without further action or notice. Holders of the Senior Notes may not enforce
the Senior Indenture or the Senior Notes except as provided in the Senior
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Senior Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Senior Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Senior Notes waive any existing Default or Event of Default and its
consequences under the Senior Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, premium and
Liquidated Damages, if any, on the Senior Notes.
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Anvil is required to deliver to the Trustee annually a statement regarding
compliance with the Senior Indenture, and Anvil 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.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Anvil, as
such, will have any liability for any obligations of Anvil under the Senior
Notes, the Senior Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Senior Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Senior 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
Anvil may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Senior Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Senior Notes when such payments are due from the
trust referred to below, (ii) Anvil's obligations with respect to the Senior
Notes concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost or stolen Senior 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
Anvil's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Senior Indenture. In addition, Anvil may, at its option and at
any time, elect to have the obligations of Anvil released with respect to
certain covenants that are described in the Senior Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations will
not constitute a Default or Event of Default with respect to the Senior Notes.
In the event Covenant Defeasance occurs, certain events (not including
nonpayment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
Anvil must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Senior 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 of, premium, if any, and interest and Liquidated Damages on
the outstanding Senior Notes on the stated maturity or on the applicable
redemption date, as the case may be, and Anvil must specify whether the Senior
Notes are being defeased to maturity or to a particular redemption date; (ii) in
the case of Legal Defeasance, Anvil will have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) Anvil has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Senior 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 will confirm that,
the Holders of the outstanding Senior 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, Anvil will 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 Senior
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 will have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the
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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 Senior Indenture) to which Anvil or any of its Subsidiaries is a party or by
which Anvil or any of its Subsidiaries is bound (including, without limitation,
the New Credit Agreement); (vi) Anvil must have delivered to the Trustee an
opinion of counsel to the effect that on 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) Anvil must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by Anvil with the intent of preferring the
Holders of Senior Notes over the other creditors of Anvil with the intent of
defeating, hindering, delaying or defrauding creditors of Anvil or others; and
(viii) Anvil 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 Senior Notes in accordance with the Senior
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and Anvil may
require a Holder to pay any taxes and fees required by law or permitted by the
Senior Indenture. Anvil is not required to transfer or exchange any Note
selected for redemption. Also, Anvil is not required to transfer or exchange any
Note for a period of 15 days before a selection of Senior Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Senior
Indenture or the Senior Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the Senior Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Senior Notes), and any existing default or compliance with
any provision of the Senior Indenture or the Senior Notes may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
Senior Notes (including consents obtained in connection with a tender offer or
exchange offer for Senior Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior 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 Senior
Notes (other than provisions relating to the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (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 of or premium, if any, or interest
on the Senior Notes (except a rescission of acceleration of the Senior Notes by
the Holders of at least a majority in aggregate principal amount of the Senior
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 Senior Notes,
(vi) make any change in the provisions of the Senior Indenture relating to
waivers of past Defaults or the rights of Holders of Senior Notes to receive
payments of principal of or premium, if any, or interest on the Senior Notes,
(vii) waive a redemption payment with respect to any Note or (viii) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, Anvil and the Trustee may amend or supplement the Senior Indenture or the
Senior Notes to cure any ambiguity, defect
87
or inconsistency, to provide for uncertificated Senior Notes in addition to or
in place of certificated Senior Notes, to provide for the assumption of Anvil's
obligations to Holders of Senior 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 Senior Notes or that does not adversely affect the legal rights under
the Senior Indenture of any such Holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Senior
Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Senior Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of Anvil, 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 Senior
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 Senior Indenture provides that in case an Event of
Default will occur (which will 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 Senior
Indenture at the request of any Holder of Senior Notes, unless such Holder will
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
GLOBAL NOTES
Except as set forth in the next paragraph, the New Senior Notes will
initially be issued in the form of one or more Global Notes (collectively, the
"Global Note"). The Global Note will be deposited upon issuance (the "Closing
Date") with, or on behalf of the Depositary and registered in the name of Cede &
Co., as nominee of the Depositary (such nominee being referred to herein as the
"Global Note Holder").
Senior Notes that were issued as described below under "--Certificated
Securities" will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Such Certificated Securities may, unless the
Global Note has previously been exchanged for Certificated Securities, be
exchanged by a QIB for an interest in the Global Note representing the principal
amount of Senior Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary'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 Depositary's
Participants include securities brokers and dealers, banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants" or the
"Depositary'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
Depositary only through the Depositary's Participants or the Depositary's
Indirect Participants.
Anvil expects that pursuant to procedures established by the Depositary (i)
upon deposit of the Global Note, the Depositary will credit the accounts of
Participants designated by the Exchange Agent with portions of the principal
amount of the Global Note and (ii) ownership of the Senior Notes evidenced by
the Global Note will be shown on, and the transfer of ownership thereof will be
effected only through,
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records maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective investors 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 Senior 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 Senior
Notes, the Global Note Holder will be considered the sole Holder under the
Senior Indenture of any Senior Notes evidenced by the Global Note. Beneficial
owners of Senior Notes evidenced by the Global Note will not be considered the
owners or Holders thereof under the Senior Indenture for any purpose, including
with respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. Neither Anvil nor the Trustee will have any responsibility
or liability for any aspect of the records of the Depositary or for maintaining,
supervising or reviewing any records of the Depositary relating to the Senior
Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Senior 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 Senior Indenture. Under the terms of the Senior
Indenture, Anvil and the Trustee may treat the persons in whose names Senior
Notes, including the Global Note, are registered as the owners thereof for the
purpose of receiving such payments. Consequently, neither Anvil nor the Trustee
has or will have any responsibility or liability for the payment of such amounts
to beneficial owners of Senior Notes. Anvil believes, however, that it is
currently the policy of the Depositary 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 Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Senior Notes will
be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, investors may receive Certificated
Securities. In addition, if (i) Anvil notifies the Trustee in writing that the
Depositary is no longer willing or able to act as a depositary and Anvil is
unable to locate a qualified successor within 90 days or (ii) Anvil, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
Certificated Securities, then, upon surrender by the Global Note Holder of its
Global Note, Certificated Securities will be issued to each person that the
Global Note Holder and the Depositary identify as being the beneficial owner of
the related Senior Notes.
Neither Anvil nor the Trustee will be liable for any delay by the Global
Note Holder or the Depositary in identifying the beneficial owners of Senior
Notes and Anvil and the Trustee may conclusively rely on, and will be protected
in relying on, instructions from the Global Note Holder or the Depositary for
all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Senior Indenture requires that payments in respect of the Senior Notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. With
respect to Certificated Securities, Anvil will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available 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. Secondary trading in long-term notes and debentures of
corporate issuers is generally settled in clearing-house or next-day funds. In
contrast, the New Senior Notes represented by the Global Note are expected to
trade in the Depositary's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such Senior Notes will, therefore, be
required by the Depositary to be settled in immediately available funds. Anvil
expects that secondary trading in the Certificated Securities will also be
settled in immediately available funds.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Senior Indenture and
the foregoing summary of the terms of the Senior Notes. Reference is made to the
Senior Indenture for a full disclosure of all such terms, as well as any other
capitalized terms used herein for which no definition is provided.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary or is designated a Restricted
Subsidiary of such specified Person, including, without limitation, Indebtedness
incurred in connection with, or in contemplation of, such other Person merging
with or into or becoming a Subsidiary or Restricted Subsidiary of such specified
Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired
by such specified Person.
"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, which 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; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback,
including any disposition by means of a merger, consolidation or similar
transaction and including the issuance, sale or other transfer of any of the
capital stock of any Restricted Subsidiary of such person) other than to Anvil
or to any of its Wholly Owned Subsidiaries (including the receipt of proceeds of
insurance paid on account of the loss of or damage to any asset and awards of
compensation for any asset taken by condemnation, eminent domain or similar
proceeding, and including the receipt of proceeds of business interruption
insurance); and (ii) the issuance of Equity Interests in any Restricted
Subsidiaries or the sale of any Equity Interests in any Restricted Subsidiaries,
in each case, in one or a series of related transactions, PROVIDED, that
notwithstanding the foregoing, the term "Asset Sale" shall not include: (a) the
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of Anvil, as permitted pursuant to the covenant described
under "Merger, Consolidation or Sale of Assets," (b) the sale or lease of
equipment, inventory, accounts receivable or other assets in the ordinary course
of business consistent with past practice, (c) a transfer of assets by Anvil to
a Wholly Owned Subsidiary that is a Subsidiary Guarantor or by a Wholly Owned
Subsidiary that is a Subsidiary Guarantor to Anvil or to another Wholly Owned
Subsidiary that is a Subsidiary Guarantor, or by a Wholly Owned Subsidiary that
is not a Subsidiary Guarantor to another Wholly Owned Subsidiary that is not a
Subsidiary Guarantor, (d) an issuance of Equity Interests by a Wholly Owned
Subsidiary to Anvil or to another Wholly Owned Subsidiary that is a Subsidiary
Guarantor, or by a Wholly Owned Subsidiary that is not a Subsidiary Guarantor to
another Wholly Owned Subsidiary that is not a Subsidiary Guarantor, (e) the
surrender or waiver of contract rights or the settlement, release or surrender
of contract, tort or other claims of any kind, (f) the grant in the ordinary
course of business of any non-exclusive license of patents, trademarks,
registrations therefor and other similar intellectual property, (g) Permitted
Investments or (h) any cash dividend, distribution, Investment or payment made
pursuant to the first or second paragraph of the "Restricted Payments" covenant.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback 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 leaseback transaction (including any period
for which such lease has been extended or may, at the option of the lessor, be
extended).
90
"BOARD OF DIRECTORS" means the Board of Directors of Anvil, or any
authorized committee of the Board of Directors.
"BORROWING BASE" means, as of any date, an amount equal to the sum of (i)
85% of all Eligible Receivables, (ii) 60% of all Eligible Raw Materials
Inventory, (iii) 50% of Eligible Finished Goods Inventory and (iv) 50% of the
fair market value or, if acquired after the date of the Senior Indenture, the
acquisition cost, of appraised equipment and real property owned by Anvil and
its Restricted Subsidiaries, or such lesser amount as may then constitute the
"Borrowing Base" under the New Credit Agreement.
"BRS" means Bruckmann, Rosser, Sherrill & Co., L.P.
"BUSINESS DAY" means any day other than a Legal Holiday.
"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, partnership 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 (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities no more than twelve
months from the date of acquisition, (b) U.S. dollar denominated (or foreign
currency fully hedged) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit of (i) any domestic commercial
bank of recognized standing having capital and surplus in excess of $100.0
million or (ii) any bank whose short-term commercial paper rating from S&P is at
least A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "Approved Lender"), in each case with
maturities of not more than twelve months from the date of acquisition, (c)
commercial paper and variable or fixed rate notes issued by any Approved Lender
(or by the parent company thereof) or any variable rate notes issued by, or
guaranteed by, any domestic corporation rated A-2 (or the equivalent thereof) or
better by S&P or P-2 (or the equivalent thereof) or better by Moody's and
maturing within twelve months of the date of acquisition, (d) repurchase
agreements with a bank or trust company or recognized securities dealer having
capital and surplus in excess of $100.0 million for direct obligations issued by
or fully guaranteed by the United States of America in which Anvil shall have a
perfected first priority security interest (subject to no other Liens) and
having, on the date of purchase thereof, a fair market value of at least 100% of
the amount of repurchase obligations, and (e) interests in money market mutual
funds which invest solely in assets or securities of the type described in
subparagraphs (a), (b), (c) or (d) hereof.
"CHANGE OF CONTROL" means such time as (i) prior to the initial public
offering by Anvil or any direct or indirect parent of Anvil of its common stock
(other than a public offering pursuant to a registration statement on Form S-8),
Permitted Holders cease to have, directly or indirectly, in the aggregate at
least 51% of the voting power of the voting stock of Anvil or Holdings or any
other direct or indirect parent of Holdings ceases to own, directly or
indirectly, 100% of the voting power of the voting stock of Anvil (other than by
reason of a merger of Holdings and Anvil) or (ii) after the initial public
offering by Anvil or any direct or indirect parent of Anvil of its common stock
(other than a public offering pursuant to a registration statement on Form S-8),
(A) any Schedule 13D, Form 13F or Schedule 13G under the Exchange Act, or any
amendment to such Schedule or Form, is received by Anvil or Holdings which
indicates that, or Anvil or Holdings otherwise becomes aware that, a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
has become, directly or indirectly, the
91
"beneficial owner," by way of merger, consolidation or otherwise, of 40% or more
of the voting power of the voting stock of Anvil or Holdings on a fully-diluted
basis after giving effect to the conversion and exercise of all outstanding
warrants, options and other securities of Anvil or Holdings, as the case may be
(whether or not such securities are then currently convertible or exercisable)
and (B) such person or group has become, directly or indirectly, the beneficial
owner of a greater percentage of the voting capital stock of Anvil, calculated
on such fully-diluted basis, than beneficially owned by the Permitted Holders,
or (iii) the sale, lease or transfer of all or substantially all of the assets
of Anvil to any person or group (other than the Permitted Holders or a
Subsidiary Guarantor), or (iv) during any period of two consecutive calendar
years, individuals who at the beginning of such period constituted the Board of
Directors of Anvil or Holdings (together with any new directors whose election
by the Board of Directors of Anvil or Holdings or whose nomination for election
by the shareholders of Anvil or Holdings, as the case may be, was approved by a
vote of a majority of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved or was approved by the Permitted Holders)
cease for any reason to constitute a majority of the directors of Anvil or
Holdings, as the case may be, then in office.
"COMMISSION" means the Securities and Exchange Commission.
"CONSOLIDATED EBITDA" means, with respect to Anvil and its Restricted
Subsidiaries for any period, the sum of, without duplication, (i) the
Consolidated Net Income for such period, plus (ii) to the extent deducted from
Consolidated Net Income for such period, (x) the Fixed Charges for such period,
plus (y) non-cash dividends on Anvil's preferred stock, plus (iii) provision for
taxes based on income or profits for such period (to the extent such income or
profits were included in computing Consolidated Net Income for such period),
plus (iv) consolidated depreciation, amortization and other non-cash charges of
Anvil and its Restricted Subsidiaries required to be reflected as expenses on
the books and records of Anvil, minus (v) cash payments with respect to any
nonrecurring, non-cash charges previously added back pursuant to clause (iv),
and (vi) excluding the impact of foreign currency translations. Notwithstanding
the foregoing, the provision for taxes based on the income or profits of, and
the depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated EBITDA only to the extent that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to Anvil by such Restricted Subsidiary without
prior approval (that has not been obtained), pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to that Restricted Subsidiary or
its stockholders.
"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 Subsidiary
thereof that is a Subsidiary Guarantor, (ii) the Net Income of, or any dividends
or other distributions from, any Unrestricted Subsidiary, to the extent
otherwise included, shall be excluded, whether or not distributed to Anvil or
one of its Restricted Subsidiaries, (iii) 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 (which 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, (iv) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, (v) the cumulative effect of a change in
accounting principles shall be excluded, (vi) income or loss attributable to
discontinued operations shall be excluded; (vii) any
92
increase in cost of sales or other write-offs resulting from the purchase
accounting treatment of any acquisitions shall be excluded; and (viii) all other
extraordinary, unusual or nonrecurring gains or losses shall be excluded.
"CONSOLIDATED NET WORTH" of a Person at any date means the amount by which
the assets of such Person and its consolidated Restricted Subsidiaries (less any
revaluation or other write-up subsequent to the date of the Senior Indenture in
any such assets (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
within twelve months after the acquisition of such business)) exceed the sum of
(a) the total liabilities of such Person and its consolidated Restricted
Subsidiaries, plus (b) any Disqualified Stock of such Person or any consolidated
Restricted Subsidiaries of such Person issued to any Person other than such
Person or a Wholly Owned Subsidiary of such Person, in each case determined in
accordance with GAAP.
"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.
"DEPOSITARY" means, with respect to the Senior Notes issuable or issued in
whole or in part in global form, the Person specified in the Senior Indenture as
the Depositary with respect to the Senior Notes, until a successor shall have
been appointed and become such Depositary pursuant to the applicable provision
of the Senior Indenture, and, thereafter, "Depositary" shall mean or include
such successor.
"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 date
on which is 91 days after the date that the Senior Notes mature.
"ELIGIBLE FINISHED GOODS INVENTORY" means, as of any date of determination,
the gross dollar value (valued at the lower of cost or fair market value (on a
first-in, first-out basis)) of all finished goods inventory (including for
purposes hereof, finished goods inventory which is in transit back to Anvil or
any Subsidiary Guarantor) of Anvil or any Subsidiary Guarantor less appropriate
reserves determined in accordance with GAAP applied on a consistent basis but
excluding in any event and without duplication, to the extent not treated
accordingly by GAAP, (i) inventory subject to any Lien (other than a Permitted
Lien), (ii) inventory which fails to meet standards for sale or use imposed by
governmental agencies, departments or divisions having regulatory authority over
such goods, (iii) inventory which is not useable or saleable at prices
approximating their cost (after taking into account, without duplication, the
amount of any reserves for obsolescence, unsaleability or decline in value),
(iv) inventory located outside of the United States (unless in transit back to
Anvil or any Subsidiary Guarantor), (v) inventory in the possession of domestic
contractors (other than Anvil or any Subsidiary Guarantor) or other third
parties, and (vi) all work in process.
"ELIGIBLE RAW MATERIALS INVENTORY" means, as of any date of determination,
the gross dollar value (valued at the lower of cost or fair market value (on a
first-in, first-out basis)) of all raw materials (including for purposes hereof,
uncut dyed or greige cloth) of Anvil or any Subsidiary Guarantor less
appropriate reserves determined in accordance with GAAP applied on a consistent
basis but excluding in any event, to the extent not treated accordingly by GAAP
and without duplication, (i) inventory subject to any Lien (other than a
Permitted Lien), (ii) inventory which fails to meet standards for sale or use
imposed by governmental agencies, departments or divisions having regulatory
authority over such goods, (iii) inventory which is not useable or saleable at
prices approximating their cost (after taking into account, without duplication,
the amount of any reserves for obsolescence, unsaleability or decline in value),
(iv) inventory located outside of the United States (unless in transit back to
Anvil or any Subsidiary Guarantor), (v) inventory in the possession of domestic
contractors (other than Anvil or any Subsidiary Guarantor) or other third
parties, and (vi) all work in process (except uncut dyed or greige cloth).
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"ELIGIBLE RECEIVABLES" means, as of any date of determination, the aggregate
gross amount of all accounts receivable, receivables and obligations for payment
created or arising from the sale of inventory or the rendering of services in
the ordinary course of business, owned by or owing to Anvil or any Subsidiary
Guarantor, net of allowances and reserves for doubtful or uncollectible accounts
and sales adjustments consistent with Anvil's internal policies and in any event
in accordance with GAAP applied on a consistent basis, (hereinafter sometimes
referred to collectively as "Receivables"), but excluding, without duplications
in any event (i) Receivables subject to a Lien (other than a Permitted Lien),
(ii) Receivables which are outstanding more than 90 days from the due date of
the original invoice or more than 180 days from the date of shipment, (iii)
Receivables evidenced by notes, chattel paper or other instruments, unless such
notes, chattel paper or instruments have been delivered to and are in the
possession of such parties as may be specified in the New Credit Agreement, (iv)
Receivables with respect to which the account debtor is not solvent or is the
subject of a bankruptcy or insolvency proceedings of any kind, (v) Receivables
owing by an account debtor located outside of the United States (unless payment
for the goods shipped is secured by an irrevocable letter of credit in a form
and from an institution acceptable to such parties as may be specified in the
New Credit Agreement), (vi) Receivables which are contingent or subject to
offset, deduction, counterclaim, dispute or other defense to payment, in each
case to the extent of such offset, deduction, counterclaim dispute or other
defense, and (vii) Receivables arising out of transactions with Subsidiaries or
Affiliates of Anvil.
"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).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE OFFER" means the offer that may be made by Anvil pursuant to the
Registration Rights Agreement to exchange New Senior Notes for Senior Notes.
"EXISTING INDEBTEDNESS" means the Indebtedness of Anvil and its Restricted
Subsidiaries (other than Indebtedness under the New Credit Agreement) in
existence on the date of the Senior Indenture, until such amounts are repaid.
"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 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,
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 Indebtedness 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 Restricted Subsidiaries (whether or
not such guarantee or Lien is called upon), and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Restricted Subsidiary) on any series of preferred stock of such Person
payable to a party other than Anvil or a Wholly Owned Subsidiary, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, on a consolidated basis and in accordance
with GAAP, but excluding from the calculation of fixed charges amortization of
financing costs (except to the extent referred to in the parenthetical in clause
(i) of this definition).
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Restricted
Subsidiaries for such period to the Fixed Charges of such Person and its
Restricted Subsidiaries for such period. In the event that Anvil or any of its
Restricted Subsidiaries incurs, assumes, guarantees or repays any Indebtedness
(other than the incurrence
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or repayment of revolving credit borrowings used for working capital, except to
the extent that a repayment is accompanied by a permanent reduction in revolving
credit commitments) or issues preferred stock subsequent to the commencement of
the four-quarter reference period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. For purposes of
making the computation referred to above, (i) acquisitions that have been made
by Anvil 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 shall give pro forma effect to the
Consolidated EBITDA and Indebtedness of the Person which is the subject of any
such acquisition, and (ii) the Consolidated EBITDA 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
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 Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"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 date of the Senior Indenture.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"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
Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"HOLDER" means a Person in whose name a Senior Note is registered on the
Registrar's books.
"INDEBTEDNESS" 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 indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person), the maximum fixed repurchase price of Disqualified
Stock issued by such Person in each case, if held by any Person other than Anvil
or a Wholly Owned Subsidiary of Anvil, and, to the extent not otherwise
included, the guarantee by such Person of any indebtedness of any other Person.
95
"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 Indebtedness or other obligations),
advances (other than advances to customers in the ordinary course of business
that are recorded as accounts receivable on the books of such Person) or capital
contributions (excluding commission, travel, relocation and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities and all other items that are or would be classified as investments on
a balance sheet prepared in accordance with GAAP; provided that an acquisition
of assets, Equity Interests or other securities by Anvil for consideration
consisting of common equity securities of Anvil or of any direct or indirect
parent of Anvil shall not be deemed to be an Investment.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which federal offices
or banking institutions in the City of New York, in the city of the Corporate
Trust Office of the Trustee, or at a place of payment are authorized by law,
regulation or executive order to remain closed. If a payment date is a Legal
Holiday, payment may be made on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
"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).
"LIQUIDATED DAMAGES" means all liquidated damages owing pursuant to the
Registration Rights Agreement.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, and before reduction for
non-cash 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 leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries, (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 Anvil or any of
its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of 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, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP and net of any Purchase
Money Obligations relating to the assets comprising such Asset Sale.
"NEW CREDIT AGREEMENT" means, collectively, (i) that certain Amended and
Restated Credit Agreement, as in effect on the date of the Senior Indenture, by
and among Anvil, Holdings, the lenders that may be from time to time parties
thereto and NationsBank, N.A., as administrative agent, as the foregoing may
from time to time be amended, renewed, supplemented or otherwise modified at the
option of the parties thereto, including increases in the principal amount
thereof (subject to such increases otherwise being in conformity with the terms
of the Senior Indenture) and (ii) after NationsBank, N.A., as administrative
agent, has acknowledged in writing that the Credit Agreement described in clause
(i) above has been
96
terminated and all then outstanding Indebtedness thereunder or with respect
thereto have been repaid in full in cash and discharged, any successors to or
replacements of (as designated by the Board of Directors of Anvil in its sole
judgment, and evidenced by a resolution) such Credit Agreement, as such
successors or replacements may from time to time be amended, renewed,
supplemented, modified or replaced, including increases in the principal amount
thereof (subject to such increases otherwise being in conformity with the terms
of the Senior Indenture).
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither Anvil nor any
of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a 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 Indebtedness of Anvil or
any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of Anvil or
any of its Restricted Subsidiaries.
"NOTE CUSTODIAN" means the Trustee, as custodian with respect to the Global
Notes, or any successor entity thereto.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICER" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice President of such Person.
"PERMITTED HOLDERS" means, collectively, (i) BRS and its Affiliates, and
their respective employees and directors, (ii) 399 Venture and its Affiliates,
and their respective employees and directors, (iii) all full-time executive
officers of Holdings and its Subsidiaries who acquire Capital Stock of Holdings,
and (iv) with respect to any natural persons described in the foregoing clauses
(i) through (iii), (A) any spouse, lineal descendant (including by adoption and
stepchildren), or sibling of such natural persons and (B) any trust,
corporation, limited liability company or partnership, the beneficiaries,
members, stockholders or partners of which consist entirely of such natural
persons or the individuals described in clause (A) above.
"PERMITTED INVESTMENTS" means (a) any Investments in Anvil or in a Wholly
Owned Subsidiary of Anvil that is a Subsidiary Guarantor and that is engaged in
the same or a similar line of business as Anvil and its Restricted Subsidiaries
were engaged in on the date of the Senior Indenture and reasonable extensions or
expansions thereof; (b) any Investments in Cash Equivalents; (c) Investments by
Anvil or any Restricted Subsidiary of Anvil in a Person if as a result of such
Investment (i) such Person becomes a Wholly Owned Subsidiary of Anvil that is a
Subsidiary Guarantor that is engaged in the same or a similar line of business
as Anvil and its Restricted Subsidiaries were engaged in on the date of the
Senior Indenture and reasonable extensions or expansions thereof or (ii) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, Anvil or a
Wholly Owned Subsidiary of Anvil that is a Subsidiary Guarantor and that is
engaged in the same or a similar line of business as Anvil and its Restricted
Subsidiaries were engaged in on the date of the Senior Indenture and reasonable
extensions or expansions thereof; (d) Investments 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 under "--Asset Sales"; (e)
Investments by Anvil or any Restricted Subsidiary in cash in an aggregate amount
not to exceed $5.0 million outstanding at any one time; (f) stock, obligations
or securities received in settlement of debts created in the ordinary course of
business and owing to Anvil or any Subsidiary or in satisfaction of judgments or
pursuant to any plan of reorganization or similar
97
arrangement upon the bankruptcy or insolvency of Anvil's trade creditors or
customers; (g) the contribution of shares of stock or other equity securities of
an Unrestricted Subsidiary to another Subsidiary; (h) loans and advances to
employees and officers of Anvil and its Restricted Subsidiaries in the ordinary
course of business not to exceed an aggregate of $1.0 million at any one time
outstanding; (i) accounts receivable created or acquired in the ordinary course
of business; (j) currency agreements and interest swap obligations entered into
in the ordinary course of Anvil's or its Restricted Subsidiaries' businesses and
otherwise in compliance with the Senior Indenture; and (k) any Investment by
Anvil or a Wholly Owned Subsidiary of Anvil 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.
"PERMITTED LIENS" means (i) Liens securing (a) Indebtedness permitted by
clauses (i), (ii), (iv) or (viii) under the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock" and (b) related Hedging
Obligations; (ii) Liens in favor of Anvil or any Wholly Owned Subsidiary that is
a Subsidiary Guarantor; (iii) Liens on property of a Person existing at the time
such Person is merged into or consolidated with Anvil or any Restricted
Subsidiary of Anvil; 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 Anvil; (iv)
Liens on property of a Person existing at the time such Person becomes a
Restricted Subsidiary of Anvil; (v) Liens on property existing at the time of
acquisition thereof by Anvil or any Restricted Subsidiary of Anvil, PROVIDED
that such Liens were in existence prior to the contemplation of such
acquisition; (vi) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vii) Liens existing on the date of
the Senior Indenture; (viii) 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
concluded, PROVIDED that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (ix) carriers',
warehousemen's, mechanics', materialmen's, repairmen's, or other similar Liens
arising in the ordinary course of business which are not overdue for a period of
more than 60 days or which are being contested in good faith by appropriate
proceedings diligently conducted; (x) statutory Liens of landlords or of
mortgagees of landlords arising by operation of law, provided that the rental
payments secured thereby are not yet due and payable; (xi) Liens incurred in the
ordinary course of business of Anvil or any Restricted Subsidiary of Anvil with
respect to obligations that do not exceed $1.5 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 in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by Anvil or such Restricted Subsidiary; (xii)
nonconsensual Liens incurred in the ordinary course of business of any foreign
subsidiary that is a Restricted Subsidiary that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances of credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by such Restricted
Subsidiary; (xiii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security; (xiv) easements, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the business of Anvil
or any of its Restricted Subsidiaries; (xv) Purchase Money Liens (including
extensions and renewals thereof); (xvi) judgment and attachment Liens not giving
rise to an Event of Default; (xvii) Liens arising out of consignment or similar
arrangements for the sale of goods; (xviii) any interest or title of a lessor in
property subject to any capital lease obligation or operating lease; (xix) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (xx) Liens encumbering deposits made to secure obligations arising from
statutory or regulatory requirements of Anvil or any of its Restricted
Subsidiaries, including rights of offset and set-off, arising in the ordinary
course of business; (xxi) Liens on assets transferred to a Securitization
98
Entity or on assets of a Securitization Entity, in either case incurred in
connection with a Qualified Securitization Transaction; and (xxii) Liens in
favor of customs and revenue authorities arising as a matter of law to secure
payment of custom duties in connection with the importation of goods.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Anvil or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Anvil or any of its Restricted Subsidiaries; provided that: (i)
the principal amount of such Permitted Refinancing Indebtedness does not exceed
the principal amount of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date at least as late as 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 Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Senior Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Senior Notes on terms at least as favorable to the
Holders of Senior Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by Anvil or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, or other business entity or government or agency or political
subdivision thereof (including any subdivision or ongoing business of any such
entity or substantially all of the assets of any such entity, subdivision or
business).
"PUBLIC EQUITY OFFERING" means an underwritten public offering pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act of (i) Equity Interests other than Disqualified Stock of Anvil or
any successor by merger to Anvil or (ii) of Equity Interests other than
Disqualified Stock of Anvil's parent or indirect parent corporation to the
extent that the cash proceeds therefrom are contributed to the equity capital of
Anvil or are used to purchase Equity Interests (other than Disqualified Stock)
of Anvil.
"PURCHASE MONEY LIEN" means a Lien granted on an asset or property to secure
a Purchase Money Obligation permitted to be incurred under the Senior Indenture
and incurred solely to finance the purchase, or the cost of construction or
improvement, of such asset or property; provided however, that such Lien
encumbers only such asset or property and is granted within 180 days of such
acquisition.
"PURCHASE MONEY NOTE" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from Anvil or any
Subsidiary of Anvil 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 owing to such
investors and amounts paid in connection with the purchase of newly generated
receivables.
"PURCHASE MONEY OBLIGATIONS" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
purchase, or the cost of construction or improvement, of real or personal
property to be used in the business of such person or any of its Restricted
Subsidiaries in an amount that is not more than 100% of the cost, or fair market
value, as appropriate, of such property, and incurred within 180 days after the
date of such acquisition (excluding accounts payable to trade creditors incurred
in the ordinary course of business).
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"QUALIFIED SECURITIZATION TRANSACTION" means any transaction or series of
transactions that may be entered into by Anvil or any of its Subsidiaries
pursuant to which Anvil or any or its Subsidiaries may sell, convey or otherwise
transfer to (a) a Securitization Entity (in the case of a transfer by Anvil or
any of its Subsidiaries) and (b) any other Person (in the case of a transfer by
a Securitization Entity), or may grant a security interest in, any accounts
receivable or equipment (whether now existing or arising or acquired in the
future) of Anvil or any of its Subsidiaries, and any assets related thereto
including, without limitation, all collateral securing such accounts receivable
and equipment, all contracts and contract rights and all guarantees or other
obligations in respect of such accounts receivable and equipment, proceeds of
such accounts receivable and equipment 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
transactions involving accounts receivable and equipment; PROVIDED that such
transaction or transactions are otherwise permitted by the terms of the Senior
Indenture including the provisions set forth under "Repurchase at the Option of
Holders--Asset Sales".
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the date of the Senior Indenture, by and among Anvil and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
"REPRESENTATIVE" means the indenture trustee or other trustee, client or
representative for any senior Indebtedness.
"RESPONSIBLE OFFICER," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIZATION ENTITY" means a Wholly Owned Subsidiary of Anvil (or another
Person in which Anvil or any Subsidiary of Anvil makes an Investment and to
which Anvil or any Subsidiary of Anvil transfers accounts receivable or
equipment and related assets) which engages in no activities other than in
connection with the financing of accounts receivable or equipment and which is
designated by the Board of Directors of Anvil (as provided below) as a
Securitization Entity (a) no portion of the Indebtedness or any other
obligations (contingent or otherwise) of which (i) is guaranteed by Anvil or any
Subsidiary of Anvil (excluding guarantees of obligations (other than the
principal of, and interest on, Indebtedness) pursuant to Standard Securitization
Undertakings), (ii) is recourse to or obligates Anvil or any Subsidiary of Anvil
in any way other than pursuant to Standard Securitization Undertakings, or (iii)
subjects any property or asset of Anvil or any Subsidiary of Anvil, directly or
indirectly, contingently or otherwise, to the satisfaction thereof other than
pursuant to Standard Securitization Undertakings, (b) with which neither Anvil
nor any Subsidiary of Anvil has any material contract, agreement, arrangement or
understanding other than on terms no less favorable to Anvil or such Subsidiary
than those that might be obtained at the time from Persons that are not
Affiliates of Anvil, other than fees payable in the ordinary course of business
in connection with servicing receivables of such entity, and (c) to which
neither Anvil nor any Subsidiary of Anvil 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 Anvil shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the resolution of the Board of Directors of Anvil giving
effect to such designation and an officers' certificate certifying that such
designation complied with the foregoing conditions.
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"SENIOR NOTE OFFERING" means the offering of the Senior Notes by Anvil.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Exchange Act, as such Regulation is in effect on the date
hereof.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by Anvil or any Subsidiary of Anvil which
are reasonably customary in an accounts receivable or equipment transaction.
"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).
"SUBSIDIARY GUARANTORS" means any Restricted Subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the Senior Indenture,
and their respective successors and assigns.
"399 VENTURE" means 399 Venture Partners, Inc.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 (15 U.S.C.
SectionSection 77aaa-77bbbb) as in effect on the date on which the Senior
Indenture is qualified under the Trust Indenture Act.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution;
but only to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with Anvil or any Restricted Subsidiary of Anvil unless the terms
of any such agreement, contract, arrangement or understanding are no less
favorable to Anvil or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of Anvil; (c) is a
Person with respect to which neither Anvil nor any of its Restricted
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of Anvil or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described under the caption "--Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Senior Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of Anvil as of such date (and, if such Indebtedness is not permitted
to be incurred as of such date under the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock," Anvil shall be
in default of such covenant). The Board of Directors of Anvil may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of Anvil of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock," and (ii) no
Default or Event of Default would be in existence following such designation.
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"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
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 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 Indebtedness.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Restricted 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 or by one or more Wholly Owned Subsidiaries of such Person.
Unrestricted Subsidiaries shall not be included in the definition of Wholly
Owned Subsidiary for any purposes of the Senior Indenture.
UNITS
Concurrent with the Initial Offering, Holdings offered Units in the Initial
Units Offering. Each Unit consisted of $1,000 aggregate liquidation preference
of Old Senior Preferred Stock and 13 shares of Class B Common. The Old Senior
Preferred Stock and the Class B Common comprising each Unit were not separately
tradable until the earliest to occur of (i) such date which was 90 days from the
date of issuance of the Old Senior Preferred Stock, (ii) such earlier date as
may be determined by the Initial Purchaser, (iii) in the event of a Change of
Control (as defined in the Certificate of Designation), the date on which
Holdings mails notice thereof to holders of the Senior Preferred Stock, (iv) in
the event that Holdings elects to exchange the Senior Preferred Stock for the
Exchange Debentures, the date on which Holdings mails notice thereof to holders
of the Senior Preferred Stock, (v) in the event that Holdings elects to redeem
the Senior Preferred Stock with the proceeds of a public equity offering of
Holdings' capital stock, the date on which Holdings mails notice thereof to
holders of the Senior Preferred Stock, and (vi) the date upon which a
registration statement under the Securities Act, with respect to a registered
exchange offer for the Senior Preferred Stock is declared effective under the
Securities Act (such earliest date being the "Separation Date"). The Separation
Date occurred on June 12, 1997 (i.e., 90 days from the date of issuance of
Senior Preferred Stock). Prior to such time, the certificates for the shares of
Old Senior Preferred Stock and Class B Common comprising the Units bore legends
restricting the separate transfer thereof. After such time, the shares of Old
Senior Preferred Stock and Class B Common comprising the Units were transferable
separately, subject to such restrictions on transfer as apply. See "--Senior
Preferred Stock," and "--Description of Capital Stock--Common Stock" for further
information regarding the Senior Preferred Stock and the Class B Common.
SENIOR PREFERRED STOCK
The Senior Preferred Stock were issued by Holdings pursuant to a Certificate
of Designation. The terms of the New Senior Preferred Stock include those stated
in the Certificate of Designation. The forms and terms of the New Senior
Preferred Stock are the same as the form and terms of the Old Senior Preferred
Stock (which they replace) except that (i) the New Senior Preferred Stock bear a
Series B designation, (ii) the New Senior Preferred Stock have been registered
under the Securities Act, and therefore, will not bear legends restricting the
transfer thereof, and (iii) the holders of New Senior Preferred Stock will not
be entitled to certain rights under the Preferred Stock Registration Rights
Agreement, including the provisions providing for liquidated damages in certain
circumstances relating to the timing of the Preferred Exchange Offer, which
rights will terminate when the Preferred Exchange Offer is consummated. The New
Senior Preferred Stock are subject to all such terms, and holders of the New
Senior Preferred Stock are referred to the Certificate of Designation for a
statement of them. The following is a summary of the material terms and
provisions of the New Senior Preferred Stock. This summary does not purport to
be a complete description of the New Senior Preferred Stock and is subject to
the detailed provisions of, and qualified in its entirety by reference to, the
New Senior Preferred Stock
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and the Certificate of Designation (including the definitions contained
therein). A copy of the Certificate of Designation may be obtained from Holdings
by any holder or prospective investor upon request. Definitions relating to
certain capitalized terms are set forth under "--Exchange Debentures--Certain
Definitions" and throughout this description. Capitalized terms that are used
but not otherwise defined herein have the meanings assigned to them in the
Certificate of Designation and such definitions are incorporated herein by
reference. The Old Senior Preferred Stock and the New Senior Preferred Stock are
sometimes referred to herein collectively as the "Senior Preferred Stock." Any
descriptions of the Senior Preferred Stock presented in the future tense shall
refer to the New Senior Preferred Stock, where appropriate.
GENERAL
The Board of Directors of Holdings adopted resolutions creating a maximum of
2,300,000 shares of Senior Preferred Stock outstanding at any one time, which
consist of the 1,200,000 shares of Old Senior Preferred Stock issued in the
Initial Units Offering plus 1,100,000 additional shares of Senior Preferred
Stock which, among other things, may be used to pay certain dividends on the Old
Senior Preferred Stock issued in the Initial Units Offering at the election of
Holdings, and filed a Certificate of Designation with respect thereto with the
Secretary of State of the State of Delaware as required by Delaware law. Subject
to certain conditions, the Senior Preferred Stock will be exchangeable for
Exchange Debentures at the option of Holdings on any dividend payment date. The
New Senior Preferred Stock will be fully paid and non-assessable, and the
holders thereof will not have any subscription or preemptive rights related
thereto. United States Trust Company of New York will be the transfer agent and
registrar for the Senior Preferred Stock.
RANK
The Senior Preferred Stock will, with respect to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of Holdings, rank
(i) senior to all classes of Common Stock of Holdings and each other class of
capital stock or series of Preferred Stock established after the date of the
Prospectus by the Board of Directors of Holdings the terms of which do not
expressly provide that it ranks on a parity with the Senior Preferred Stock as
to dividend distributions and distributions upon the liquidation, winding-up and
dissolution of Holdings (collectively referred to with the Common Stock of
Holdings as "Junior Securities"); and (ii) subject to certain conditions, on a
parity with each series of Preferred Stock existing on the date of the
Prospectus the terms of which do not expressly provide that it ranks junior to
any Senior Preferred Stock as to dividend distributions and distributions upon
the liquidation, winding-up and dissolution of Holdings and any class of capital
stock or series of Preferred Stock established after the date of this Prospectus
by the Board of Directors of Holdings, the terms of which expressly provide that
such class or series will rank on a parity with the Senior Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding-up and
dissolution of Holdings (collectively referred to as "Parity Securities").
Creditors of Holdings will have priority over the Senior Preferred Stock with
respect to claims on the assets of Holdings. In addition, creditors and
stockholders of Holdings' Subsidiaries will have priority over the Senior
Preferred Stock with respect to claims on the assets of such Subsidiaries. The
Senior Preferred Stock will be subject to the issuance of series of Junior
Securities and Parity Securities, PROVIDED that Holdings may not issue any new
class of Parity Securities without the approval of the holders of at least 50%
of the shares of Senior Preferred Stock then outstanding, voting or consenting,
as the case may be, together as one class, except that without the approval of
the holders of Senior Preferred Stock, Holdings may issue and have outstanding
shares of Parity Securities issued from time to time in exchange for, or the
proceeds of which are used to redeem or repurchase, any or all of the shares of
Senior Preferred Stock or other Parity Securities.
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DIVIDENDS
Holders of Senior Preferred Stock will be entitled to receive, when, as and
if declared by the Board of Directors of Holdings, out of funds legally
available therefor, dividends on the Senior Preferred Stock at a rate per annum
equal to 13% of the liquidation preference per share of Senior Preferred Stock.
All dividends will be cumulative whether or not earned or declared on a daily
basis from the date of issuance of the Senior Preferred Stock and will be
payable quarterly in arrears on March 15, June 15, September 15 and December 15
of each year, commencing on June 15, 1997. On or before March 15, 2002 Holdings
may, at its option, pay dividends in cash or in additional fully paid and
non-assessable shares of Senior Preferred Stock having an aggregate liquidation
preference equal to the amount of such dividends. After March 15, 2002,
dividends may be paid only in cash. It is not expected that Holdings will pay
any dividends in cash for any period ending on or prior to March 15, 2002. The
terms of certain debt instruments of Holdings and Anvil, including the Senior
Indenture and the New Credit Agreement, will restrict the payment of cash
dividends by Holdings and the payment to Holdings of cash dividends by Anvil,
and future agreements may provide the same. See "Risk Factors--Restrictions
Imposed by Certain Covenants," "Risk Factors--Risks Associated with Holding
Company Structure," "Description of Securities--Senior Notes--Certain Covenants"
and "Description of Certain Indebtedness." If any dividend (or portion thereof)
payable on any dividend payment date after March 15, 2002 is not declared or
paid in full in cash on such dividend payment date, the amount of such dividend
that is payable and that is not paid in cash on such date will increase at the
rate of 13% per annum from such dividend payment date until declared and paid in
full.
No full dividends may be declared or paid or funds set apart for the payment
of dividends on any Parity Securities for any period unless full cumulative
dividends shall have been or contemporaneously are declared and paid in full or
declared and, if payable in cash, a sum in cash set apart for such payment on
the Senior Preferred Stock. If full dividends are not so paid, the Senior
Preferred Stock will share dividends pro rata with the Parity Securities. No
dividends may be paid or set apart for such payment on Junior Securities (except
dividends on Junior Securities in additional shares of Junior Securities) and no
Junior Securities or Parity Securities may be repurchased, redeemed or otherwise
retired nor may funds be set apart for payment with respect thereto, if full
cumulative dividends have not been paid on the Senior Preferred Stock.
OPTIONAL REDEMPTION
The Senior Preferred Stock may be redeemed for cash (subject to contractual
and other restrictions with respect thereto and to the legal availability of
funds therefor) at any time on or after March 15, 2002, in whole or in part, at
the option of Holdings, at the following redemption prices (expressed as
percentages of the liquidation preference thereof) if redeemed during the
12-month period beginning March 15, of each of the years set forth below, in
each case together with an amount in cash equal to all accumulated and unpaid
dividends (including an amount in cash equal to a prorated dividend for the
period from the dividend payment date immediately prior to the redemption date
to the redemption date):
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
2002.............................................................................. 106.500%
2003.............................................................................. 104.333%
2004.............................................................................. 102.167%
2005 and thereafter............................................................... 100.000%
In addition, Holdings may redeem the Senior Preferred Stock, in whole or in
part, at the option of Holdings, at a redemption price equal to 113% of the
liquidation preference thereof, plus an amount in cash equal to all accumulated
and unpaid dividends (including an amount in cash equal to a prorated dividend
for the period from the dividend payment date immediately prior to the
redemption date to the
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redemption date), with the proceeds of a Public Equity Offering, PROVIDED that
such redemption shall occur within 60 days of the date of the closing of such
Public Equity Offering.
No optional redemption may be authorized or made (i) unless prior thereto
full unpaid cumulative dividends shall have been paid or a sum set apart for
such payment on the Senior Preferred Stock or (ii) at less than 101% of the
liquidation preference of the Senior Preferred Stock at any time when Holdings
is making or purchasing shares of Senior Preferred Stock under a Change of
Control Offer (as defined) in accordance with the provisions of "--Repurchase at
the Option of Holders--Change of Control."
In the event of partial redemptions of Senior Preferred Stock, the shares to
be redeemed will be determined PRO RATA or by lot, as determined by Holdings,
except that Holdings may redeem such shares held by any holders of fewer than
100 shares (or shares held by holders who would hold less than 100 shares as a
result of such redemption), without regard to any PRO RATA redemption
requirement. The terms of certain debt instruments of Holdings, including the
Senior Indenture and the New Credit Agreement, will restrict, directly or
indirectly, the ability of Holdings to redeem the Senior Preferred Stock, and
future agreements to which Holdings or its subsidiaries are parties may contain
similar restrictions. See "Description of Securities-Senior Notes--Certain
Covenants" and "Description of Certain Indebtedness."
MANDATORY REDEMPTION
On March 15, 2009, Holdings will be required to redeem (subject to the legal
availability of funds therefor) all outstanding shares of Senior Preferred Stock
at a price equal to the then effective liquidation preference thereof, plus an
amount in cash equal to all accumulated and unpaid dividends (including an
amount in cash equal to a prorated dividend for the period from the dividend
payment date immediately prior to the redemption date to the redemption date).
PROCEDURES FOR REDEMPTIONS
On and after a redemption date, unless Holdings defaults in the payment of
the applicable redemption price, dividends will cease to accrue on shares of
Senior Preferred Stock called for redemption and all rights of holders of such
shares will terminate except for the right to receive the redemption price,
without interest. Holdings will send a written notice of redemption by first
class mail to each holder of record of shares of Senior Preferred Stock, not
fewer than 30 days nor more than 60 days prior to the date fixed for such
redemption. Shares of Senior Preferred Stock issued and reacquired will, upon
compliance with the applicable requirements of Delaware law, have the status of
authorized but unissued shares of preferred stock of Holdings undesignated as to
series and may with any and all other authorized but unissued shares of
preferred stock of Holdings be designated or redesignated and issued or
reissued, as the case may be, as part of any series of preferred stock of
Holdings, except that any issuance or reissuance of shares of Senior Preferred
Stock must be in compliance with the Certificate of Designation.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
The Certificate of Designation provides that upon the occurrence of a Change
of Control, each Holder of Senior Preferred Stock will have the right to require
Holdings to repurchase all or any part of such Holder's Senior Preferred Stock
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate liquidation preference
thereof, plus an amount in cash equal to all accumulated and unpaid dividends
per share (including an amount in cash equal to a prorated dividend for the
period from the dividend payment date immediately prior to the repurchase date
to the repurchase date) to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, Holdings will mail a
notice to each Holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase Senior
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Preferred Stock pursuant to the procedures required by the Certificate of
Designation and described in such notice. Holdings will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Preferred Stock as a
result of a Change of Control.
The Change of Control Offer will remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Change of Control Offer
Period"). No later than five Business Days after the termination of the Offer
Period (the "Change of Control Purchase Date"), Holdings will purchase all
shares of Senior Preferred Stock validly tendered and not properly withdrawn
pursuant to the Change of Control Offer. Payment for any shares of Senior
Preferred Stock so purchased will be made in the same manner as dividend
payments on the Senior Preferred Stock.
If the Change of Control Purchase Date is on or after a dividend record date
and on or before the related dividend payment date, any accumulated and unpaid
dividends will be paid to the Person in whose name a share of Senior Preferred
Stock is registered at the close of business on such record date, and no
additional dividend will be payable to Holders who tender shares of Senior
Preferred Stock pursuant to the Change of Control Offer.
On the Change of Control Purchase Date, Holdings will, to the extent lawful,
(1) accept for payment all shares of Senior Preferred Stock properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Transfer Agent an
amount equal to the Change of Control Payment in respect of all shares of Senior
Preferred Stock so tendered and (3) deliver or cause to be delivered to the
Transfer Agent the Senior Preferred Stock so accepted together with an Officers'
Certificate stating the total number of shares of Senior Preferred Stock being
purchased by Holdings. The Transfer Agent will promptly mail to each Holder of
shares of Senior Preferred Stock so tendered the Change of Control Payment for
such shares, and the Transfer Agent will promptly authenticate and mail (or
cause to be transferred by book entry) to each Holder a new share certificate
representing any unpurchased shares of the Senior Preferred Stock represented by
the certificate tendered pursuant to the Change of Control Offer, if any.
Holdings will publicly announce the results of the Change of Control Offer on
the Change of Control Purchase Date.
Except as described above, the Certificate of Designation does not contain
provisions that permit the Holders of Senior Preferred Stock to require Holdings
to redeem the Senior Preferred Stock in the event of a takeover,
recapitalization or similar restructuring, including an issuer recapitalization
or similar transaction with management. Consequently, the Change of Control
provisions will not afford any protection in a highly leveraged transaction,
including such a transaction initiated by Holdings, management of Holdings or an
Affiliate of Holdings, if such transaction does not result in a Change of
Control. In addition, the existence of the Holder's right to require Holdings to
repurchase such Holder's Senior Preferred Stock upon the occurrence of a Change
of Control may or may not deter a third party from seeking to acquire Holdings
in a transaction that would constitute a Change of Control.
Holdings' ability to repurchase shares of Senior Preferred Stock pursuant to
a Change of Control Offer may be limited by a number of factors. The New Credit
Agreement will provide that certain change of control events with respect to
Holdings and/or Anvil would constitute a default thereunder permitting the
lending parties thereto to accelerate the Indebtedness thereunder. In addition,
certain events that may obligate Holdings or Anvil to offer to repay all
outstanding obligations under the New Credit Agreement may not constitute a
Change of Control under the Certificate of Designation. However, neither
Holdings nor Anvil may have sufficient resources to repay Indebtedness under the
New Credit Agreement and Holdings may not have sufficient resources to
repurchase tendered shares of Senior Preferred Stock. Furthermore, any future
credit agreements or other agreements relating to senior Indebtedness to which
Holdings or Anvil become a party may contain similar restrictions and
provisions. In the event a Change of Control occurs at a time when Holdings
and/or Anvil is directly or indirectly prohibited from purchasing
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Senior Preferred Stock, Holdings and/or Anvil could seek the consent of its
lenders to the purchase of Senior Preferred Stock or could attempt to refinance
the borrowings that contain such prohibition. If Holdings and/or Anvil do not
obtain such a consent or repay such borrowings, the purchase of Senior Preferred
Stock will remain prohibited. Holdings' failure to purchase tendered Senior
Preferred Stock would constitute a breach of the Certificate of Designation
which would, in turn, constitute a default under the New Credit Agreement and
could lead to the acceleration of the indebtedness thereunder. In any such
event, the structural and legal subordination of the Senior Preferred Stock and
the security granted in respect of the New Credit Agreement would likely result
in the Holders of the Senior Preferred Stock receiving less ratably than
creditors of Holdings.
In addition, the terms of the Senior Notes of Anvil include provisions
similar to those contained in the Senior Preferred Stock enabling holders
thereof to require Anvil to repurchase all or any part of such securities under
circumstances constituting a Change of Control. However, Holdings and Anvil may
not have sufficient resources to repurchase tendered shares of Senior Preferred
Stock and/or Senior Notes and any such failure may constitute a default under
the terms of the New Credit Agreement, the Senior Notes, the Senior Indenture
and the Certificate of Designation. Again, in any such event, the structural and
legal subordination of the Senior Preferred Stock and the security granted in
respect of the New Credit Agreement would likely result in the Holders of the
Senior Preferred Stock receiving less ratably than creditors of Holdings.
The definition of Change of Control includes a phrase relating to the sale,
lease or transfer of "all or substantially all" of the assets of Holdings and
its Restricted Subsidiaries, taken as a whole. Although there is a developing
body of case law interpreting the phrase "substantially all," there is no
precise definition of the phrase under applicable law. Accordingly, the ability
of a Holder of Senior Preferred Stock to require Holdings to repurchase such
shares as a result of a sale, lease or transfer of less than all of the assets
of Holdings and its Restricted Subsidiaries taken as a whole to another Person
or group may be uncertain.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
Holdings, holders of Senior Preferred Stock will be entitled to be paid, out of
the assets of Holdings available for distribution, the liquidation preference
per share, plus an amount in cash equal to all accumulated and unpaid dividends
thereon to the date fixed for liquidation, dissolution or winding-up (including
an amount equal to a prorated dividend for the period from the last dividend
payment date to the date fixed for liquidation, dissolution or winding-up),
before any distribution is made on any Junior Securities, including, without
limitation, Common Stock of Holdings. If, upon any voluntary or involuntary
liquidation, dissolution or winding-up of Holdings, the amounts payable with
respect to the Senior Preferred Stock and all other Parity Securities are not
paid in full, the holders of the Senior Preferred Stock and the Parity
Securities will share equally and ratably in any distribution of assets of
Holdings in proportion to the full liquidation preference and accumulated and
unpaid dividends to which each is entitled. After payment of the full amount of
the liquidation preferences and accumulated and unpaid dividends to which they
are entitled, the holders of shares of Senior Preferred Stock will not be
entitled to any further participation in any distribution of assets of Holdings.
However, neither the sale, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
property or assets of Holdings nor the consolidation or merger of Holdings with
or into one or more corporations will be deemed to be a liquidation, dissolution
or winding-up of Holdings.
The Certificate of Designation for the Senior Preferred Stock does not
contain any provision requiring funds to be set aside to protect the liquidation
preference of the Senior Preferred Stock, although such liquidation preference
will be substantially in excess of the par value of such shares of Senior
Preferred Stock. In addition, Holdings is not aware of any provision of Delaware
law or any controlling decision of the courts of the State of Delaware (the
state of incorporation of Holdings) that requires a
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restriction upon any surplus of Holdings solely because the liquidation
preference of the Senior Preferred Stock will exceed its par value.
Consequently, there will be no restriction upon any surplus of Holdings solely
because the liquidation preference of the Senior Preferred Stock will exceed the
par value and there will be no remedies available to holders of the Senior
Preferred Stock before or after the payment of any dividend, other than in
connection with the liquidation of Holdings, solely by reason of the fact that
such dividend would reduce the surplus of Holdings to an amount less than the
difference between the liquidation preference of the Senior Preferred Stock and
its par value.
VOTING RIGHTS
Holders of the Senior Preferred Stock have no voting rights with respect to
general corporate matters except as provided by law or as set forth in the
Certificate of Designation. The Certificate of Designation provides that (a) if
(i) dividends on the Senior Preferred Stock are in arrears and unpaid (and, in
the case of dividends payable after March 15, 2002, are not paid in cash) for
four consecutive quarterly periods, (ii) Holdings fails to discharge any
redemption obligation with respect to the Senior Preferred Stock (whether or not
Holdings is permitted to do so by the terms of the Senior Indenture, the New
Credit Agreement or any other obligation of Holdings), (iii) Holdings fails to
make an offer to purchase all of the outstanding shares of Senior Preferred
Stock following a Change of Control (whether or not Holdings is permitted to do
so by the terms of the Senior Indenture, the New Credit Agreement or any other
obligation of Holdings) or fails to purchase shares of Senior Preferred Stock
from holders who elect to have such shares purchased pursuant to the Change of
Control Offer, (iv) a breach or violation of the provisions described under the
caption "--Certain Covenants" occurs and the breach or violation continues for a
period of 30 days or more, or (v) a default occurs on the obligation to pay
principal of, interest on or any other payment obligation when due (a "Payment
Default") at final maturity on one or more classes of Indebtedness of Holdings
or any Subsidiary of Holdings, whether such Indebtedness exists on the Senior
Preferred Stock Issue Date or is incurred thereafter, having individually or in
the aggregate an outstanding principal amount of $25,000,000 or more, or any
other Payment Default occurs on one or more such classes of Indebtedness and
such class or classes of Indebtedness are declared due and payable prior to
their respective maturities, then the number of directors constituting the Board
of Directors of Holdings will be adjusted to permit the holders of the majority
of the then outstanding Senior Preferred Stock, voting separately as a class, to
elect two directors, and (b) the approval of holders of a majority of the
outstanding shares of Senior Preferred Stock, voting as a separate class, will
be required for (i) any merger, consolidation or sale of assets of Holdings
except as permitted pursuant to the covenant below entitled "Merger or
Consolidation" and (ii) for any modification of the Exchange Debenture
Indenture. Each such event described in clause (a) above is referred to herein
as a "Voting Rights Triggering Event." Voting rights arising as a result of a
Voting Rights Triggering Event will continue until such time as all dividends in
arrears on the Senior Preferred Stock are paid in full (and after March 15,
2002, paid in cash) and any failure, breach or default referred to in clause (a)
is remedied.
In addition, the Certificate of Designation provides that, except as stated
above under "--Ranking," Holdings will not authorize any class of Parity
Securities without the affirmative vote or consent of holders of at least 50% of
the shares of Senior Preferred Stock then outstanding, voting or consenting, as
the case may be, as one class. The Certificate of Designation also provides that
Holdings may not amend the Certificate of Designation so as to affect adversely
the specified rights, preferences, privileges or voting rights of holders of
shares of the Senior Preferred Stock, or authorize the issuance of any
additional shares of Senior Preferred Stock, without the affirmative vote or
consent of the holders of at least 50% of the then outstanding shares of Senior
Preferred Stock, voting or consenting, as the case may be, as one class. The
Certificate of Designation also provides that, except as set forth above, (a)
the creation, authorization or issuance of any shares of Junior Securities or
Parity Securities, (b) the decrease in the amount of authorized capital stock of
any class, including any Preferred Stock or (c) the increase in the amount of
authorized capital stock of any class of Junior Securities shall not require the
consent of the holders of
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Senior Preferred Stock and shall not be deemed to affect adversely the rights,
preferences, privileges or voting rights of holders of shares of Senior
Preferred Stock.
Under Delaware law, holders of Senior Preferred Stock will be entitled to
vote as a class upon a proposed amendment to the Certificate of Incorporation,
whether or not entitled to vote thereon by the Certificate of Incorporation, if
the amendment would increase or decrease the par value of the shares of such
class, or alter or change the powers, preferences or special rights of the
shares or such class so as to affect them adversely.
CERTAIN COVENANTS
MERGER OR CONSOLIDATION. The Certificate of Designation provides that,
without the consent of holders of a majority of the outstanding shares of Senior
Preferred Stock, voting as a separate class, Holdings shall not, in a single
transaction or series of related transactions, consolidate or merge with or into
(whether or not Holdings is the surviving corporation), or directly and/or
indirectly through its Restricted Subsidiaries sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets determined on a consolidated basis for Holdings and its Restricted
Subsidiaries taken as a whole in one or more related transactions, to another
corporation, Person or entity unless (i) Holdings is the surviving corporation
or the entity or the Person formed by or surviving any such consolidation or
merger (if other than Holdings) or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Senior Preferred Stock shall be converted
into or exchanged for and shall become shares of the entity or Person formed by
or surviving any such consolidation or merger (if other than Holdings) or the
entity or Person to which such sale, assignment, transfer, lease, conveyance or
other disposition such successor, transferee or resulting corporation, having in
respect of such successor, transferee or resulting corporation substantially the
same powers, preferences and relative participating, optional or other special
rights, and the qualifications, limitations or restrictions thereon, that the
Senior Preferred Stock had immediately prior to such consolidation, merger,
sale, assignment, transfer, lease, conveyance or other disposition; (iii)
immediately after such transaction, no Voting Rights Triggering Event, and no
event that after the giving of notice or lapse of time or both would become a
Voting Rights Triggering Event, shall have occurred and be continuing; (iv) the
entity or Person formed by or surviving any such consolidation or merger or to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of Holdings
immediately preceding the transaction; and (v) prior to the consummation of any
such proposed transaction, Holdings shall have delivered to the Transfer Agent
an Officers' Certificate and an opinion of counsel to the effect that such
transaction complies with the terms of the Certificate of Designation and that
all conditions precedent to such transaction have been satisfied.
JUNIOR PAYMENTS. The Certificate of Designation provides that Holdings will
not, directly or indirectly, (i) declare or pay any dividend or make any
distribution on account of any Junior Securities (other than dividends or
distributions payable in Junior Securities (other than Disqualified Stock)),
(ii) purchase, redeem or otherwise acquire or retire for value any Junior
Securities or (iii) make any Restricted Investment (all such dividends,
distributions, purchases, redemptions, acquisitions, retirements and Restricted
Investments being collectively referred to as "Junior Payments"), if, at the
time of such Junior Payment:
(i) a Voting Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof; or
(ii) all dividends on the Senior Preferred Stock payable on dividend
payment dates after March 15, 2002, have not been declared and paid in cash.
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Notwithstanding the foregoing, the Certificate of Designation shall not
prohibit as Junior Payments:
(a) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all of the provisions of the Certificate of Designation
(including, but not limited to, the "Junior Payments" covenant);
(b) the making of any Restricted Investment in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of Holdings) of, or from substantially concurrent additional
capital contributions in respect of, Equity Interests of Holdings (other
than Disqualified Stock);
(c) (X) the redemption, repurchase, retirement or other acquisition of
any Parity Securities of Holdings in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary of
Holdings) of, or from substantially concurrent additional capital
contributions in respect of, other Parity or Junior Securities of Holdings
(other than any Disqualified Stock) and (Y) the redemption, repurchase,
retirement or other acquisition of any Junior Securities of Holdings in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of Holdings) of, or from substantially
concurrent additional capital contributions in respect of, other Junior
Securities of Holdings (other than any Disqualified Stock);
(d) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Holdings or any of its Restricted
Subsidiaries held by any member of Holdings' (or any of its Restricted
Subsidiaries') management pursuant to any management agreement, stock option
agreement or plan or stockholders agreement; PROVIDED that (X) the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests will not exceed $2.0 million in any fiscal year (plus any amount
available for such payments hereunder since the date of the Certificate of
Designation which have not been used for such purpose) or (Y) $8.0 million
in the aggregate (in each case, net of the cash proceeds received by
Holdings from subsequent reissuances of such Equity Interests to new members
of management);
(e) loans to members of management of Holdings or any Restricted
Subsidiary the proceeds of which are used for a concurrent purchase of
Equity Interests of Holdings;
(f) the payment of director's fees and reasonable expenses of its
directors in an aggregate amount not to exceed $125,000 per year (including
indemnification obligations and professional fees and expenses) and to pay
salaries and other compensation of employees who perform services for both
Anvil and Holdings;
(g) an amount not to exceed $200,000 in aggregate to enable Holdings to
make payments to holders of Capital Stock in lieu of issuing fractional
shares thereof;
(h) repurchases of Capital Stock deemed to occur upon exercise of stock
options or warrants if such Capital Stock represents a portion of the
exercise price thereof; and
(i) payments in connection with the application of the net proceeds of
the Recapitalization as set forth under "Use of Proceeds".
TRANSACTIONS WITH AFFILIATES. The Certificate of Designation provides that
Holdings will not, and will not permit any of its Restricted Subsidiaries to,
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to
Holdings or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by Holdings or such Restricted Subsidiary
with an unrelated Person and (ii) Holdings delivers to the Transfer Agent (a)
with respect to any Affiliate Transaction entered into after the
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date of the Certificate of Designation involving aggregate consideration in
excess of $2.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction involving aggregate consideration in excess
of $7.5 million, an opinion as to the fairness to Holdings or such Restricted
Subsidiary of such Affiliate Transaction from a financial point of view issued
by an investment banking firm of national standing; PROVIDED that the following
will not be deemed to be Affiliate Transactions: (o) reasonable fees and
compensation paid to, and indemnity provided on behalf of, officers and
directors of Holdings, Anvil or any Restricted Subsidiary as determined in good
faith by the appropriate Board of Directors or senior management; (p) the
provision of administrative or management services by Holdings or any of its
officers to Holdings or any of its Restricted Subsidiaries in the ordinary
course of business consistent with past practice, (q) transactions between
Holdings or one or more of its Restricted Subsidiaries and the relevant
Securitization Entity effected as part of a Qualified Securitization
Transaction; (r) any agreement as in effect as of the Senior Preferred Stock
Issue Date (including, without limitation, the New Credit Agreement) or any
amendment thereto or any transactions contemplated thereby (including pursuant
to any amendment thereto) and any replacement agreement so long as any such
amendment or replacement agreement is not more disadvantageous to the Holders of
Senior Preferred Stock or Exchange Debentures in any material respect than the
original agreement as in effect on the Senior Preferred Stock Issue Date; (s)
payments or loans to employees or consultants which are approved by the Board of
Directors of Holdings in good faith; (t) the existence of, or the performance by
Holdings or any of its Restricted Subsidiaries of its obligations under the
terms of, any stockholders agreement (including any registration rights
agreement or purchase agreement related thereto) to which it is a party as of
the Senior Preferred Stock Issue Date and any similar agreement which it may
enter into thereafter; provided however, that the existence of, or the
performance by Holdings or any of its Restricted Subsidiaries of obligations
under any similar agreement entered into after the Senior Preferred Stock Issue
Date shall only be permitted by this clause (t) to the extent that the terms of
any such new agreement are not otherwise disadvantageous to the Holders of the
Senior Preferred Stock or Exchange Debentures in any material respect; (u)
transactions with customers, clients, suppliers, joint venture partners or
purchasers or sellers of goods or 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 Exchange Debenture
Indenture which are at least as favorable as might reasonably have been obtained
at such time from an unaffiliated party; (v) any employment agreement entered
into by Holdings or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of Holdings or such Restricted
Subsidiary (including, without limitation, any such employment agreements
existing prior to the Senior Preferred Issue Date); (w) the granting of stock
options to employees and directors of Holdings and its Restricted Subsidiaries
in accordance with the New Stock Option Plan at exercise prices equal to the
fair market value of the Common Stock and the issuance of Common Stock upon the
exercise of such options; (x) transactions between or among Holdings and/or its
Wholly Owned Subsidiaries, (y) (i) the payment of customary management,
consulting and advisory fees and related expenses to BRS and 399 Venture and
their Affiliates not to exceed $750,000 per year in aggregate and (ii) payments
by Anvil or any of its Restricted Subsidiaries to BRS and 399 Venture and their
Affiliates made pursuant to any financial advisory, financing, underwriting or
placement agreement or in respect of other investment banking activities,
including, without limitation, in connection with acquisitions or divestitures
which are approved by the Board of Directors of Anvil, Holdings or such
Restricted Subsidiary in good faith not to exceed $750,000 per year in
aggregate; and (z) transactions permitted by the covenant described in "--Junior
Payments."
REPORTS. The Certificate of Designation provides that, whether or not
required by the rules and regulations of the Commission, so long as any shares
of Senior Preferred Stock are outstanding, Holdings will furnish to the Holders
of Senior Preferred Stock, within 15 days after it is or would have been
required to file such with the Commission, (i) all quarterly and annual
financial information that would be required
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to be contained in a filing with the Commission on Forms 10-Q and 10-K if
Holdings were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by Holdings' certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if Holdings was required to file such
reports. In addition, whether or not required by the rules and regulations of
the Commission, Holdings will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition, Holdings has agreed that,
for so long as any shares of Senior Preferred Stock remain outstanding, it will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
EXCHANGE
Holdings may at its option exchange all, but not less than all, of the then
outstanding shares of Senior Preferred Stock into Exchange Debentures on any
dividend payment date, PROVIDED that on the date of such exchange: (a) there are
no contractual impediments to such exchange; (b) there are legally available
funds sufficient therefor; (c) a registration statement relating to the Exchange
Debentures shall have been declared effective under the Securities Act prior to
such exchange and shall continue to be in effect on the date of such exchange or
Holdings shall have obtained a written opinion of counsel that an exemption from
the registration requirements of the Securities Act is available for such
exchange, and that upon receipt of such Exchange Debentures pursuant to such
exchange made in accordance with such exemption, the holders (assuming such
holder is not an Affiliate of Holdings) thereof will not be subject to any
restrictions imposed by the Securities Act upon the resale thereof and such
exemption is relied upon by Holdings for such exchange; (d) the Exchange
Debenture Indenture and the trustee thereunder shall have been qualified under
the Trust Indenture Act; (e) immediately after giving effect to such exchange,
no Default or Event of Default (each as defined in the Exchange Debenture
Indenture) would exist under the Exchange Debenture Indenture; and (f) Holdings
shall have delivered a written opinion of counsel, dated the date of exchange,
regarding the satisfaction of the conditions set forth in clauses (a), (b), (c),
(d) and (e) and certain other matters. Holdings shall send a written notice of
exchange by mail to each holder of record of shares of Senior Preferred Stock,
which notice shall state, among other things, (i) that Holdings is exercising
its option to exchange the Senior Preferred Stock for Exchange Debentures
pursuant to the Certificate of Designation and (ii) the date of exchange (the
"Exchange Date"), which date shall not be less than 30 days nor more than 60
days following the date on which such notice is mailed. On the Exchange Date,
holders of outstanding shares of Senior Preferred Stock will be entitled to
receive a principal amount of Exchange Debentures equal to the liquidation
preference per share, plus an amount in cash equal to all accrued and unpaid
dividends (including an amount in cash equal to a prorated dividend for the
period from the dividend payment date immediately prior to the Exchange Date to
the Exchange Date), as provided below.
The Exchange Debentures will be issued in registered form, without coupons.
Exchange Debentures issued in exchange for Senior Preferred Stock will be issued
in principal amounts of $1,000 and integral multiples thereof to the extent
possible, and will also be issued in principal amounts less than $1,000 so that
each holder of Senior Preferred Stock will receive certificates representing the
entire amount of Exchange Debentures to which his shares of Senior Preferred
Stock entitle him, PROVIDED that Holdings may, at its option, pay cash in lieu
of issuing an Exchange Debenture in a principal amount less than $1,000. On and
after the Exchange Date, dividends will cease to accrue on the outstanding
shares of Senior Preferred Stock, and all rights of the holders of Senior
Preferred Stock (except the right to receive the Exchange Debentures, an amount
in cash equal to the accrued and unpaid dividends to the Exchange Date and if
Holdings so elects, cash in lieu of any Exchange Debenture which is in an amount
that is not an integral multiple of $1,000) will terminate. The person entitled
to receive the Exchange Debentures
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issuable upon such exchange will be treated for an purposes as the registered
holder of such Exchange Debentures.
The New Credit Agreement contains limitations with respect to Holdings'
ability to issue the Exchange Debentures, and any future credit agreements or
other agreements relating to indebtedness to which Holdings or any of its
Subsidiaries become a party may contain similar limitations. See "Description of
Securities-Senior Notes--Certain Covenants" and "Description of Certain
Indebtedness."
Holdings intends to comply with the provisions of Rule 13e-4 promulgated
pursuant to the Exchange Act in connection with any exchange, to the extent
applicable.
TRANSFER AGENT AND REGISTRAR. United States Trust Company of New York is
the transfer agent and registrar for the Senior Preferred Stock.
BOOK-ENTRY, DELIVERY AND FORM
GLOBAL SENIOR PREFERRED STOCK CERTIFICATE
Except as set forth in the next paragraph, the New Senior Preferred Stock
will initially be issued in the form of one global certificate (the "Global
Certificate"). The Global Certificate will be deposited upon issuance of the New
Senior Preferred Stock offered hereby (the "Closing Date") with, or on behalf
of, the Depositary and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Certificate
Holder").
Senior Preferred Stock that were issued as described below under
"--Certificated Securities" will be issued in the form of registered definitive
certificates (the "Certificated Securities"). Such Certificated Securities may,
unless the Global Certificate has previously been exchanged for Certificated
Securities, be exchanged by a QIB for an interest in the Global Certificate.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary'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 Depositary's
Participants include securities brokers and dealers, banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants" or the
"Depositary'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
Depositary only through the Depositary's Participants or the Depositary's
Indirect Participants.
Holdings expects that pursuant to procedures established by the Depositary
(i) upon deposit of the Global Certificate, the Depositary will credit the
accounts of Participants designated by the Exchange Agent with the respective
liquidation preference of the individual beneficial interests represented by
such Global Certificate and (ii) ownership of the Senior Preferred Stock
evidenced by the Global Certificate will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by the
Depositary (with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective investors 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 Senior Preferred Stock evidenced
by the Global Certificate will be limited to such extent.
So long as the Global Certificate Holder is the registered owner of any
Senior Preferred Stock, the Global Certificate Holder will be considered the
sole Holder under the Certificate of Designation of any Senior Preferred Stock
evidenced by the Global Certificate. Beneficial owners of Senior Preferred Stock
evidenced by the Global Certificate will not be considered the owners or Holders
thereof under the
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Certificate of Designation for any purpose. Neither Holdings nor the transfer
agent and registrar will have any responsibility or liability for any aspect of
the records of the Depositary or for maintaining, supervising or reviewing any
records of the Depositary relating to the Senior Preferred Stock.
Payments in respect of the liquidation preference, redemption price,
dividends and Liquidated Damages, if any, on any Senior Preferred Stock
registered in the name of the Global Certificate Holder on the applicable record
date will be payable to or at the direction of the Global Certificate Holder in
its capacity as the registered Holder under the Certificate of Designation.
Under the terms of the Certificate of Designation, Holdings and the transfer
agent and registrar may treat the persons in whose names Senior Preferred Stock,
including the Global Certificate, are registered as the owners thereof for the
purpose of receiving such payments. Consequently, neither Holdings nor the
transfer agent and registrar has or will have any responsibility or liability
for the payment of such amounts to beneficial owners of Senior Preferred Stock.
Holdings believes, however, that it is currently the policy of the Depositary 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 Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Senior Preferred Stock will be governed by standing
instructions and customary practice and will be the responsibility of the
Depositary's Participants or the Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, investors may receive Certificated
Securities. In addition, if (i) Holdings notifies the transfer agent and
registrar in writing that the Depositary is no longer willing or able to act as
a depositary and Holdings is unable to locate a qualified successor within 90
days or (ii) Holdings, at its option, notifies the transfer agent and registrar
in writing that it elects to cause the issuance of Certificated Securities,
then, upon surrender by the Global Certificate Holder of its Global Certificate,
Certificated Securities will be issued to each person that the Global
Certificate Holder and the Depositary identify as being the beneficial owner of
the related Senior Preferred Stock.
Neither Holdings nor the transfer agent and registrar will be liable for any
delay by the Global Certificate Holder or the Depositary in identifying the
beneficial owners of Senior Preferred Stock and Holdings and the transfer agent
and registrar may conclusively rely on, and will be protected in relying on,
instructions from the Global Certificate Holder or the Depositary for all
purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Certificate of Designation requires that payments in respect of the
Senior Preferred Stock represented by the Global Certificate (including
liquidation preference, redemption price, dividends and Liquidated Damages, if
any) be made by wire transfer of immediately available funds to the accounts
specified by the Global Certificate Holder. With respect to Certificated
Securities, Holdings will make all payments of liquidation preference,
redemption price, dividends and Liquidated Damages, if any, by wire transfer of
immediately available 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. Secondary trading in preferred stock of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the New
Senior Preferred Stock represented by the Global Certificate are expected to
trade in the Depositary's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such Senior Preferred Stock will,
therefore, be required by the Depositary to be settled in immediately available
funds. Holdings expects that secondary trading in the Certificated Securities
will also be settled in immediately available funds.
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EXCHANGE DEBENTURES
GENERAL
The Exchange Debentures, if issued, will be issued under an Indenture (the
"Exchange Debenture Indenture") between Holdings and United States Trust Company
of New York, as trustee (the "Trustee"). The terms of the Exchange Debentures
include those stated in the Exchange Debenture Indenture and those made part of
the Exchange Debenture Indenture by reference to the Trust Indenture Act of
1939. The Exchange Debentures will be subject to all such terms, and prospective
holders of the Exchange Debentures are referred to the Exchange Debenture
Indenture and the Trust Indenture Act for a statement of such terms. The
following summary of certain provisions of the Exchange Debenture Indenture does
not purport to be complete and is qualified in its entirety by reference to the
Exchange Debenture Indenture, including the definitions therein of certain
terms. Definitions of certain capitalized terms used in the Exchange Debenture
Indenture and in the following summary are set forth below under "--Certain
Definitions."
The Exchange Debentures, if issued, will be general unsecured obligations of
Holdings, subordinated to all existing and future Senior Indebtedness, including
Holdings' Guarantee of the Senior Notes and the guarantee by Holdings of
borrowings under the New Credit Agreement. The Exchange Debentures will be
issued in fully registered form only in denominations of $1,000 and integral
multiples thereof (other than as described in "--Senior Preferred
Stock--Exchange" or with respect to additional Exchange Debentures issued in
lieu of cash interest as described herein).
Restrictions in the Exchange Debenture Indenture on the ability of Holdings
and its Restricted Subsidiaries to incur additional Indebtedness, to make Asset
Sales, to enter into transactions with Affiliates and to enter into mergers,
consolidations or sales of all or substantially all of its assets, may make more
difficult or discourage a takeover of Anvil or Holdings, whether favored or
opposed by the management of Anvil and Holdings. While such restrictions cover a
variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the Exchange Debenture Indenture may not afford holders
of Exchange Debentures protection in all circumstances from the adverse aspects
of a highly leveraged transaction, reorganization, restructuring, merger or
similar transaction.
As of the date hereof, Holdings has five Subsidiaries, all of which
constitute Restricted Subsidiaries for the purposes of the Exchange Debenture
Indenture. Under certain circumstances, Holdings will be able to designate
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will
not be subject to many of the restrictive covenants set forth in the Exchange
Debenture Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Debentures will be limited in aggregate principal amount to
$57,500,000 and will mature on March 15, 2009. Interest on the Exchange
Debentures will accrue at a rate of 13% per annum from the Exchange Date or from
the most recent interest payment date to which interest has been paid or
provided for. Interest will be payable semi-annually in cash (or, on or prior to
March 15, 2002, in additional Exchange Debentures, at the option of Holdings) in
arrears on March 15 and September 15 of each year, commencing with the first
such date after the Exchange Date, to Holders of record on the immediately
preceding March 1 and September 1. Interest on the Exchange Debentures will be
computed on the basis of a 360-day year of twelve 30-day months and the actual
number of days elapsed. Principal, premium, if any, and interest on the Exchange
Debentures will be payable at the office or agency of Holdings maintained for
such purpose within the City and State of New York or, at the option of
Holdings, payment of interest may be made by check mailed to the Holders of the
Exchange Debentures at their respective addresses set forth in the register of
Holders of Exchange Debentures; PROVIDED that all payments with respect to
Global Exchange Debentures and Certificated Securities the Holders of whom have
given wire transfer instructions to Holdings 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 Holdings, Holdings'
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office or agency will be the office of the Trustee maintained for such purpose.
Holdings may change such office without prior notice to holders of the Exchange
Debentures, and Holdings or any of its Subsidiaries may act as Paying Agent or
Registrar.
SUBORDINATION AND RANKING
All obligations in respect of the Exchange Debentures will be subordinated
to the prior payment of all existing and future Senior Indebtedness of Holdings
(including Holdings' Guarantee of the Senior Notes), and will rank PARI PASSU or
senior in right of payment to all other Subordinated Indebtedness of Holdings.
The Exchange Debentures will also effectively rank junior to all indebtedness of
Holdings' Subsidiaries, including the indebtedness evidenced by the Senior
Notes. As of February 1, 1997, on a pro forma basis after giving effect to the
Recapitalization, the aggregate principal amount of Senior Indebtedness of
Holdings (including indebtedness of Holdings' Subsidiaries) would have been
approximately $162.0 million. The Exchange Debenture Indenture permits Holdings
and its Subsidiaries to incur additional Indebtedness, including additional
Senior Indebtedness, subject to certain limitations. In addition, under the
terms of the Exchange Debenture Indenture, Holdings' Subsidiaries may incur
certain Indebtedness pursuant to agreements that may restrict the ability of
such Subsidiaries to make dividends or other intercompany transfers to Holdings
necessary to service Holdings' obligations, including its obligations under the
Exchange Debentures. Any failure by Holdings to satisfy its obligations with
respect to the Exchange Debentures at maturity (with respect to payments of
principal) or prior thereto (with respect to payments of interest or required
repurchases) would constitute a default under the Exchange Debenture Indenture
and the New Credit Agreement and could cause a default under agreements
governing other indebtedness of Holdings and its Subsidiaries. See "Risk
Factors--Risks Associated with Holding Company Structure," "--Restrictions
Imposed by Certain Covenants" and "Description of Certain Indebtedness."
Upon (a) any distribution to creditors of Holdings in a liquidation or
dissolution of Holdings or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Holdings or its property or (b)
an assignment for the benefit of creditors or any marshalling of Holdings'
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full of all Obligations due in respect of such Senior
Indebtedness (including interest after the commencement of any such proceeding
at the rate specified in the applicable Senior Indebtedness) before holders of
the Exchange Debentures will be entitled to receive any payment with respect to
the Exchange Debentures. Until all Obligations with respect to Senior
Indebtedness are paid in full, any distribution to which holders of the Exchange
Debentures would be entitled shall be made to holders of Senior Indebtedness.
However, holders of the Exchange Debentures may receive securities that are
subordinated at least to the same extent as the Exchange Debentures to Senior
Indebtedness and any securities issued in exchange for Senior Indebtedness.
In addition, Holdings may not make any payment upon or in respect of the
Exchange Debentures (except in such subordinated securities) if (a) a default in
the payment of any principal, premium, if any, interest or other Obligations
with respect to any Designated Senior Debt occurs and is continuing beyond any
applicable grace period (whether upon maturity, as a result of acceleration or
otherwise) or (b) any other default occurs and is continuing with respect to any
Designated Senior Debt that permits holders of such Designated Senior Debt to
accelerate its maturity, and Holdings and the Trustee receive a notice of such
default (a "Payment Blockage Notice") from the holders, or from the trustee,
agent or other representative of the holders, of any such Designated Senior
Debt. Payments on the Exchange Debentures may and shall be resumed upon the
earlier of (i) the date upon which the default is cured or waived (or the date
on which the Designated Senior Debt as to which the default relates shall have
ceased to exist by having been discharged or paid in full in cash) or (ii) in
the case of a default referred to in clause (b) above, 179 days after the date
on which the applicable Payment Blockage Notice is received, unless the maturity
of any Designated Senior Debt has been accelerated. No new period of payment
blockage may be
116
commenced within 360 days after the receipt by the Trustee of any prior Payment
Blockage Notice. No nonpayment 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 180 days.
If Holdings fails to make any payment on the Exchange Debentures when due or
within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure would constitute an Event of
Default under the Exchange Debenture Indenture and would enable the holders of
the Exchange Debentures to accelerate the maturity thereof.
The Exchange Debenture Indenture further requires that Holdings promptly
notify holders of Senior Indebtedness if payment on the Exchange Debentures is
accelerated because of an Event of Default. In addition, the subordination
provisions of the Exchange Debenture Indenture may not be amended without the
consent of all holders of Designated Senior Debt.
As a result of the subordination provisions described above, the structural
subordination of the Exchange Debentures and the security pledged to the
creditors under the New Credit Agreement, in the event of a liquidation or
insolvency, holders of the Exchange Debentures may recover less ratably that
other creditors of Holdings.
"DESIGNATED SENIOR DEBT" means (a) Holdings' Guarantee of the Senior Notes
and the Senior Indenture, (b) Holdings' guarantee of Indebtedness under the New
Credit Agreement and (c) any other Senior Indebtedness permitted to be incurred
pursuant to the Exchange Debenture Indenture in a principal amount of not less
than $20.0 million designated by Holdings as Designated Senior Debt.
OPTIONAL REDEMPTION
Except as set forth below, the Exchange Debentures may not be redeemed at
the option of Holdings prior to March 15, 2002. Thereafter, the Exchange
Debentures will be subject to redemption for cash at the option of Holdings, in
whole or in part, upon not less than 30 nor more than 60 days' notice to each
holder of Exchange Debentures to be redeemed, at the following redemption prices
(expressed as percentages of principal amount) if redeemed during the
twelve-month period beginning on March 15 of each of the years indicated below,
in each case together with any accrued and unpaid interest thereon to the
applicable redemption date:
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
2002.............................................................................. 106.500%
2003.............................................................................. 104.333%
2004.............................................................................. 102.167%
2005 and thereafter............................................................... 100.000%
In addition, Holdings may redeem the Exchange Debentures in whole or in
part, at a redemption price equal to 113% of the principal amount thereof, plus
an amount in cash equal to all accrued and unpaid interest thereon to the
redemption date, with the proceeds of a Public Equity Offering, PROVIDED that
such redemption shall occur within 60 days of the date of the closing of such
Public Equity Offering.
No optional redemption of Exchange Debentures may be authorized or made at
less than 101% of the principal amount thereof at any time when Holdings is
making or purchasing Exchange Debentures under a Change of Control Offer in
accordance with the provisions of "--Repurchase at the Option of Holders--
Change of Control."
If less than all of the Exchange Debentures are to be redeemed at any time,
selection of Exchange Debentures for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Exchange Debentures are listed, or, if the
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Exchange Debentures are not so listed, on a PRO RATA basis, by lot or by such
method as the Trustee will deem fair and appropriate; provided that no Exchange
Debentures of $1,000 or less will be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Exchange Debentures to be redeemed at its
registered address. If any Exchange Debenture is to be redeemed in part only,
the notice of redemption that relates to such Exchange Debenture will state the
portion of the principal amount thereof to be redeemed. A new Exchange Debenture
in principal amount equal to the unredeemed portion thereof will be issued in
the name of the Holder thereof upon cancellation of the original Exchange
Debenture. On and after the redemption date, interest will cease to accrue on
Exchange Debentures or portions of them called for redemption unless Holdings
defaults in the payment thereof.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders",
Holdings is not required to make any mandatory redemption, purchase or sinking
fund payments with respect to the Exchange Debentures prior to the maturity
date.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
The Exchange Debenture Indenture provides that upon the occurrence of a
Change of Control, each Holder of Exchange Debentures will have the right to
require Holdings to repurchase all or any part of such Holder's Exchange
Debentures 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, plus an amount in cash equal to all accrued and unpaid interest thereon
to the date of purchase (the "Change of Control Payment"). Within 30 days
following any Change of Control, Holdings will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase Exchange Debentures pursuant to the procedures
required by the Exchange Debenture Indenture and described in such notice.
Holdings will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Exchange
Debentures as a result of a Change of Control.
The Change of Control Offer will remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Change of Control Offer
Period"). No later than five Business Days after the termination of the Offer
Period (the "Change of Control Purchase Date"), Holdings will purchase all
Exchange Debentures validly tendered and not properly withdrawn pursuant to the
Change of Control Offer. Payment for any Exchange Debentures so purchased will
be made in the same manner as interest payments are made on the Exchange
Debentures.
If the Change of Control Purchase Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest will be paid to the Person in whose name an Exchange Debenture is
registered at the close of business on such record date, and no additional
interest will be payable to Holders who tender Exchange Debentures pursuant to
the Change of Control Offer.
On the Change of Control Purchase Date, Holdings will, to the extent lawful,
(1) accept for payment all Exchange Debentures or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
Exchange Debentures or portions thereof so tendered and (3) deliver or cause to
be delivered to the Trustee the Exchange Debentures so accepted together with an
Officers' Certificate stating the aggregate principal amount of Exchange
Debentures or portions thereof being purchased by Holdings. The Paying Agent
will promptly mail to each Holder of Exchange Debentures so tendered the Change
of Control
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Payment for such Exchange Debentures, and the Trustee will promptly authenticate
and mail (or cause to be transferred by book entry) to each Holder a new
Exchange Debenture equal in principal amount to any unpurchased portion of the
Exchange Debentures surrendered, if any; provided that each such new Exchange
Debenture will be in a principal amount of $1,000 or an integral multiple
thereof. Holdings will publicly announce the results of the Change of Control
Offer on the Change of Control Purchase Date.
Except as described above, the Exchange Debenture Indenture does not contain
provisions that permit the Holders of Exchange Debentures to require Holdings to
redeem the Exchange Debentures in the event of a takeover, recapitalization or
similar restructuring, including an issuer recapitalization or similar
transaction with management. Consequently, the Change of Control provisions will
not afford any protection in a highly leveraged transaction, including such a
transaction initiated by Holdings, management of Holdings or an Affiliate of
Holdings, if such transaction does not result in a Change of Control. In
addition, the existence of the Holder's right to require Holdings to repurchase
such Holder's Exchange Debentures upon the occurrence of a Change of Control may
or may not deter a third party from seeking to acquire Holdings in a transaction
that would constitute a Change of Control.
Holdings' ability to repurchase Exchange Debentures pursuant to a Change of
Control Offer may be limited by a number of factors. The New Credit Agreement
provides that certain change of control events with respect to Holdings and/or
Anvil would constitute a default thereunder permitting the lending parties
thereto to accelerate the Indebtedness thereunder. In addition, certain events
that may obligate Holdings or Anvil to offer to repay all outstanding
obligations under the New Credit Agreement may not constitute a Change of
Control under the Exchange Debenture Indenture. However, neither Holdings nor
Anvil may have sufficient resources to repay Indebtedness under the New Credit
Agreement and Holdings may not have sufficient resources to repurchase tendered
Exchange Debentures. Furthermore, any future credit agreements or other
agreements relating to senior Indebtedness to which Holdings or Anvil become a
party may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when Holdings and/or Anvil is directly or indirectly
prohibited from purchasing Exchange Debentures, Holdings and/or Anvil could seek
the consent of its lenders to the purchase of Exchange Debentures or could
attempt to refinance the borrowings that contain such prohibition. If Holdings
and/or Anvil do not obtain such a consent or repay such borrowings, the purchase
of Exchange Debentures will remain prohibited. Holdings' failure to purchase
tendered Exchange Debentures would constitute a breach of the Exchange Debenture
Indenture which would, in turn, constitute a default under the New Credit
Agreement and could lead to the acceleration of the indebtedness thereunder. In
any such event, the structural and contractual subordination of the Exchange
Debentures and the security granted in respect of the New Credit Agreement would
likely result in the Holders of the Exchange Debentures receiving less ratably
than other creditors of Holdings.
In addition, the terms of the Senior Notes of Anvil include provisions
similar to those contained in the Exchange Debentures enabling holders thereof
to require Anvil to repurchase all or any part of such securities under
circumstances constituting a Change of Control. However, Holdings and Anvil may
not have sufficient resources to repurchase tendered Exchange Debentures and/or
Senior Notes and any such failure may constitute a default under the terms of
the New Credit Agreement, the Senior Notes, the Senior Indenture, the Exchange
Debentures and the Exchange Debenture Indenture. Again, in any such event, the
structural and contractual subordination of the Exchange Debentures and the
security granted in respect of the New Credit Agreement would likely result in
the Holders of the Exchange Debentures receiving less ratably than other
creditors of Holdings.
The definition of Change of Control includes a phrase relating to the sale,
lease or transfer of "all or substantially all" of the assets of Holdings and
its Restricted Subsidiaries, taken as a whole. Although there is a developing
body of case law interpreting the phrase "substantially all," there is no
precise definition of the phrase under applicable law. Accordingly, the ability
of a Holder of Exchange Debentures to require Holdings to repurchase such shares
as a result of a sale, lease or transfer of less than all of the assets of
Holdings and its Restricted Subsidiaries taken as a whole to another Person or
group may be uncertain.
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ASSET SALES
The Exchange Debenture Indenture provides that Holdings will not, and will
not permit any of its Restricted Subsidiaries to, engage in an Asset Sale in
excess of $2.0 million unless (i) Holdings (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, and in the case of a lease of assets, a lease
providing for rent and other conditions which are no less favorable to Holdings
(or the Restricted Subsidiary, as the case may be) in any material respect than
the then prevailing market conditions (evidenced in each case by a resolution of
the Board of Directors of such entity set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests sold or otherwise
disposed of, and (ii) at least 75% (100% in the case of lease payments) of the
consideration therefor received by Holdings or such Restricted Subsidiary is in
the form of cash or Cash Equivalents; PROVIDED that the amount of (x) any
liabilities (as shown on Holdings' or such Restricted Subsidiary's most recent
balance sheet or in the notes thereto, excluding contingent liabilities and
trade payables), of Holdings or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Exchange Debentures, or
any guarantee thereof) that are assumed by the transferee of any such assets and
(y) any notes or other obligations received by Holdings or any such Restricted
Subsidiary from such transferee that are promptly, but in no event more than 30
days after receipt, converted by Holdings or such Subsidiary into cash (to the
extent of the cash received), will be deemed to be cash for purposes of this
provision.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Holdings may apply such Net Proceeds (a) to reduce permanently long-term
Indebtedness of a Restricted Subsidiary, (b) to reduce permanently Indebtedness
(and, in the case of revolving Indebtedness, to reduce permanently the
commitments) under the New Credit Agreement, or (c) to an investment in another
business, the making of a capital expenditure or the acquisition of other
tangible assets, in each case, in the same or a similar line of business as
Holdings was engaged in on the date of the Exchange Debenture Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
preceding sentence of this paragraph will be deemed to constitute "Excess
Proceeds." On the earlier of (i) the 366th day after an Asset Sale or (ii) such
date as the Board of Anvil or the Restricted Subsidiary determines not to apply
the Net Proceeds relating to such Asset Sale in the manner set forth in (a), (b)
or (c), if the aggregate amount of Excess Proceeds exceeds $7.5 million,
Holdings will be required to make an offer to all Holders of Exchange Debentures
(an "Asset Sale Offer") to purchase the maximum principal amount of Exchange
Debentures that may be purchased out of the Excess Proceeds, at an offer price
in cash in an amount equal to 100% of the principal amount thereof plus accrued
and unpaid interest thereon to the date of purchase, in accordance with the
procedures set forth in the Exchange Debenture Indenture. To the extent that the
aggregate amount of Exchange Debentures tendered pursuant to an Asset Sale Offer
is less than the Excess Proceeds, Holdings may use any remaining Excess Proceeds
for general corporate purposes. If the aggregate principal amount of Exchange
Debentures surrendered by Holders thereof exceeds the amount of Excess Proceeds,
the Trustee shall select the Exchange Debentures to be purchased on a PRO RATA
basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
The Asset Sale Offer will remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Asset Sale Offer Period"). No later
than five Business Days after the termination of the Asset Sale Offer Period
(the "Asset Sale Purchase Date"), Holdings will purchase the principal amount of
Exchange Debentures required to be purchased pursuant to this covenant (the
"Asset Sale Offer Amount") or, if less than the Asset Sale Offer Amount has been
tendered, all Exchange Debentures tendered in response to the Asset Sale Offer.
Payment for any Exchange Debentures so purchased will be made in the same manner
as interest payments are made on the Exchange Debentures.
If the Asset Sale Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
will be paid to the Person in whose name an
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Exchange Debenture is registered at the close of business on such record date,
and no additional interest will be payable to Holders who tender Exchange
Debentures pursuant to the Asset Sale Offer.
On or before the Asset Sale Purchase Date, Holdings will, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Asset Sale Offer Amount of Exchange Debentures or portions thereof tendered
pursuant to the Asset Sale Offer, or if less than the Asset Sale Offer Amount
has been tendered, all Exchange Debentures tendered, and will deliver to the
Trustee an Officers' Certificate stating that such Exchange Debentures or
portions thereof were accepted for payment by Holdings in accordance with the
terms of this covenant. Holdings, the Depositary or the Paying Agent, as the
case may be, will promptly (but in any case not later than five days after the
Asset Sale Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Exchange Debentures tendered by such Holder
and accepted by Holdings for purchase, and Holdings will promptly issue a new
Exchange Debenture, and the Trustee, upon delivery of an Officers' Certificate
from Holdings will authenticate and mail or deliver such new Exchange Debenture
to such Holder, in a principal amount equal to any unpurchased portion of the
Exchange Debenture surrendered. Any Exchange Debenture not so accepted will be
promptly mailed or delivered by Holdings to the Holder thereof. Holdings will
publicly announce the results of the Asset Sale Offer on the Asset Sale Purchase
Date.
Holdings will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Exchange Debentures pursuant to any Asset Sale Offer.
If Holdings is required to make an Asset Sale Offer, the Senior Indenture
under which the Senior Notes will be issued may require Anvil to make a similar
offer to purchase Senior Notes. If either Anvil or Holdings was unable to
purchase all of the Senior Notes or Exchange Debentures it would then be
required to repurchase, an Event of Default may result under the Senior
Indenture and/or the Exchange Debenture Indenture and any such Event of Default
may also constitute an Event of Default under the New Credit Agreement. In any
such event, the subordination provisions of the Exchange Debenture Indenture
would likely result in the Holders of the Exchange Debentures receiving less
ratably than other creditors of Holdings.
The New Credit Agreement permits certain dividends from Holdings'
Subsidiaries to Holdings which may be used to pay interest on the Exchange
Debentures, dividends for purposes such as repurchases of Exchange Debentures by
Holdings upon an Asset Sale may be restricted under the terms of the New Credit
Agreement. In such event, Holdings would need to seek the consent of its lenders
under the New Credit Agreement in order to repurchase Exchange Debentures with
the Net Proceeds of an Asset Sale. See "Risk Factors--Risks Associated with
Holding Company Structure."
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Exchange Debenture Indenture provides that Holdings will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any distribution on account of Holdings' or
any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
Holdings) (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of Holdings or dividends or distributions
payable to Holdings or any Wholly Owned Subsidiary of Holdings); (ii) purchase,
redeem or otherwise acquire or retire for value any Equity Interests of Holdings
or any direct or indirect parent of Holdings or other Affiliate or Restricted
Subsidiary of Holdings; (iii) make any principal payment on, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness of
Holdings that is subordinated to the Exchange Debentures, except in accordance
with the scheduled mandatory redemption or repayment provisions set forth in the
original documentation governing such Indebtedness (but not pursuant to any
mandatory offer to repurchase upon the occurrence of any event); or (iv) make
any
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Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default will have occurred and be continuing
or would occur as a consequence thereof;
(b) Holdings 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 Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described under
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by Holdings and its Restricted Subsidiaries after
the date of the Exchange Debenture Indenture, is less than the sum of,
without duplication, (i) 50% of the Consolidated Net Income of Holdings for
the period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Exchange Debenture Indenture
to the end of Holdings' most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit), plus (ii) to the extent not included in the
amount described in clause (i) above, 100% of the aggregate net cash
proceeds received after the date of the Exchange Debenture Indenture by
Holdings from the issue or sale of, or from additional capital contributions
in respect of, Equity Interests of Holdings or of debt securities of
Holdings that have been converted into, or cancelled in exchange for, Equity
Interests of Holdings (other than Equity Interests (or convertible debt
securities) sold to a Restricted Subsidiary or an Unrestricted Subsidiary of
Holdings and other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock and less the amount of any loans made
pursuant to clause (vi) of the next succeeding paragraph), plus (iii) 100%
of the cash proceeds realized upon the sale of any Unrestricted Subsidiary
(less the amount of any reserve established for purchase price adjustments
and less the maximum amount of any indemnification or similar contingent
obligation for the benefit of the purchaser, any of its Affiliates or any
other third party in such sale, in each case as adjusted for any permanent
reduction in any such amount on or after the date of such sale, other than
by virtue of a payment made to such Person) following the date of the
Exchange Debenture Indenture, plus (iv) to the extent that any Restricted
Investment that was made after the date of the Exchange Debenture Indenture
is sold to an unaffiliated purchaser for cash or otherwise liquidated or
repaid for cash, the cash proceeds realized with respect to such Restricted
Investment (less the cost of disposition, if any).
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the Exchange
Debenture Indenture; (ii) the making of any Restricted Investment in exchange
for, or out of the proceeds of, the substantially concurrent sale (other than to
a Subsidiary of Holdings) of, or from substantially concurrent additional
capital contributions in respect of, Equity Interests of Holdings (other than
Disqualified Stock); (iii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of Holdings in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a Subsidiary of
Holdings) of, or from substantially concurrent additional capital contributions
in respect of, other Equity Interests of Holdings (other than any Disqualified
Stock); (iv) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net cash proceeds from (X) an incurrence of Permitted
Refinancing Indebtedness or (Y) the substantially concurrent sale (other than to
a Subsidiary of Holdings) of, or from substantially concurrent additional
capital contributions in respect of, Equity Interests of Holdings (other than
Disqualified Stock); (v) the declaration or payment of any dividend to Holdings
for, or the direct repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Holdings or any Restricted Subsidiary of
Holdings or Holdings held by any
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member of Holdings' (or any of its Restricted Subsidiaries') management pursuant
to any management agreement, stock option agreement or plan or stockholders
agreement; PROVIDED that (X) the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests will not exceed $2.0 million in
any fiscal year (plus any amount available for such payments hereunder since the
date of the Exchange Debenture Indenture which have not been used for such
purpose) or (Y) $8.0 million in the aggregate (in each case, net of the cash
proceeds received by Holdings from subsequent reissuances of such Equity
Interests to new members of management); (vi) loans to members of management of
Holdings or any Restricted Subsidiary the proceeds of which are used for a
concurrent purchase of Equity Interests of Holdings and a capital contribution
in an amount equal to such proceeds to Holdings; (vii) payments in connection
with the application of the net proceeds of the Recapitalization as set forth
under "Use of Proceeds"; (viii) payments to Holdings in respect of accounting,
legal or other administrative expenses incurred by Holdings relating to the
operations of Holdings in the ordinary course of business and in respect of fees
and related expenses associated with registration statements filed with the
Commission and subsequent ongoing public reporting requirements arising from the
issuance of Holdings' Guarantee, the Senior Preferred Stock and the Exchange
Debentures; PROVIDED that the aggregate amount of such payments does not exceed
$500,000 in any fiscal year; (ix) so long as Holdings files consolidated income
tax returns which include Anvil, payments to Holdings in an amount equal to the
amount of income tax that Anvil would have paid if it had filed consolidated tax
returns on a separate-company basis; (x) payments of director's fees and the
reasonable expenses of its directors in an aggregate amount not to exceed
$125,000 per year in aggregate (including indemnification obligations and
professional fees and expenses) by Holdings and payments to Holdings in respect
thereof; (xi) payments to holders of its Capital Stock in lieu of issuing
fractional shares thereof in an amount not to exceed $200,000; (xii) any
payments on the Senior Preferred Stock in connection with the exchange thereof
into Exchange Debentures; (xiii) the acquisition and issuance of Senior
Preferred Stock by Holdings in connection with the exchange offer contemplated
by the Preferred Stock Registration Rights Agreement; (xiv) the making of any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Exchange
Debentures out of Excess Proceeds available for general corporate purposes after
consummation of purchases of Exchange Debentures pursuant to an Asset Sale
Offer; (xv) the declaration and payment of any dividend or the making of any
other distribution for the purpose of funding any payment in respect of or
repurchase or redemption of Senior Preferred Stock or Exchange Debentures; and
(xvi) the repurchase of the Senior Preferred Stock or the Exchange Debentures in
connection with an offer required to be made therefor in connection with a
Change of Control provided that Anvil has previously paid all amounts required
to be paid in connection with any Change of Control Offer for the Senior Notes;
PROVIDED, HOWEVER, that in the case of any transaction described in clauses (i),
(ii), (iii), (iv) and (v) no Default or Event of Default will have occurred and
be continuing immediately after such transaction. In determining the aggregate
amount of Restricted Payments made after the date of the Exchange Debenture
Indenture, 100% of the amounts expended pursuant to the foregoing clauses (ii),
(iii), (iv)(Y), (v) and (vi) shall be included in such calculation and none of
the amounts expended pursuant to the foregoing clauses (i), (iv)(X), (vii),
(viii), (ix), (x), (xi), (xii), (xiii), (xiv), (xv) and (xvi) shall be included
in such calculation.
As of the date hereof and as of the issue date of the Exchange Debentures,
all of Holdings' Subsidiaries were Restricted Subsidiaries. The Board of
Directors may designate any Subsidiary to be an Unrestricted Subsidiary if such
designation would not cause a Default. For purposes of making such
determination, all outstanding Investments by Holdings 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. Such designation will only be permitted if
such Restricted Payment would be permitted at such time and if such Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) will be the greater
of (i) book value or (ii) fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) on the date of the Restricted Payment of the asset(s) proposed to be
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transferred by Holdings or such Restricted Subsidiary, as the case may be,
pursuant to the Restricted Payment. Not later than the date of making any
Restricted Payment, Holdings will deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculation required by this covenant were computed,
which calculations may be based upon Holdings's latest available financial
statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Exchange Debenture Indenture provides that Holdings will not, and will
not permit any of its Restricted Subsidiaries and Unrestricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Indebtedness) and
that Holdings 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 Holdings and its Restricted Subsidiaries may incur Indebtedness
(including Acquired Indebtedness) or issue shares of Disqualified Stock if: (i)
the Fixed Charge Coverage Ratio for Holdings' most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least (A) at any time
prior to March 15, 1999, 2.00 to 1, and (B) thereafter at least 2.25 to 1, in
each case determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period; and (ii) no Default or Event of Default
will have occurred and be continuing or would occur as a consequence thereof;
PROVIDED, that no Guarantee may be incurred pursuant to this paragraph unless
the guaranteed Indebtedness is incurred by Holdings or a Restricted Subsidiary
pursuant to this paragraph.
The foregoing provisions will not apply to:
(i) the incurrence by Holdings and its Restricted Subsidiaries of
Indebtedness and letters of credit pursuant to the New Credit Agreement
(with letters of credit being deemed to have a principal amount equal to the
maximum potential liability of Holdings or the relevant Restricted
Subsidiary thereunder) in a maximum principal amount outstanding at any one
time not to exceed $55.0 million (or in the event of a refinancing of the
Indebtedness under the New Credit Agreement, the greater of $55.0 million or
the Borrowing Base) (1) less the amount of all mandatory principal payments
actually made by Anvil in respect of term loans thereunder (excluding any
such payments to the extent refinanced at the time of payment under a
replaced credit agreement) and (2) in the case of the revolving credit
facility, reduced by any required permanent repayments (which are
accompanied by a corresponding permanent commitment reduction) thereunder;
(ii) the incurrence by Holdings and its Restricted Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by Anvil and Holdings of Indebtedness represented by
the Senior Notes and Holdings' Guarantee thereof and the incurrence by
Holdings of the Indebtedness represented by the Exchange Debentures;
(iv) the incurrence by Holdings or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or Purchase Money Obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of Holdings or such Restricted
Subsidiary, in an aggregate principal amount not to exceed $7.5 million at
any time outstanding;
(v) the incurrence by Holdings or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Exchange Debenture Indenture to be
incurred;
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(vi) the incurrence by Holdings or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Holdings and any of its Wholly
Owned Subsidiaries or between or among any Wholly Owned Subsidiaries;
PROVIDED, HOWEVER, that (i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person other
than a Wholly Owned Subsidiary and (ii) any sale or other transfer of any
such Indebtedness to a Person that is not either Holdings or a Wholly Owned
Subsidiary will be deemed, in each case, to constitute an incurrence of such
Indebtedness by Holdings or such Subsidiary, as the case may be;
(vii) the incurrence by Holdings 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 Indebtedness that is
permitted by the Exchange Debenture Indenture to be incurred;
(viii) the incurrence by Holdings and its Restricted Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount at any time outstanding not
to exceed $20.0 million; PROVIDED that such Indebtedness incurred by foreign
subsidiaries that are Restricted Subsidiaries shall not exceed an aggregate
principal amount at any time outstanding of $7.5 million;
(ix) the incurrence by Holdings' Unrestricted Subsidiaries of
Non-Recourse Debt, PROVIDED, HOWEVER, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event will be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of Holdings;
(x) Indebtedness incurred by Holdings or any of its Restricted
Subsidiaries arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees or
letters of credit, surety bonds or performance bonds securing the
performance of Holdings or any of its Restricted Subsidiaries pursuant to
such agreements, in connection with the disposition of any business, assets
or Restricted Subsidiary of Holdings (other than guarantees or similar
credit support by Holdings or any of its Restricted Subsidiaries of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition), in a principal amount not to exceed 25.0% of the gross
proceeds (with proceeds other than cash or Cash Equivalents being valued at
the fair market value thereof as determined by the Board of Directors of
Holdings in good faith) actually received by Holdings or any of its
Restricted Subsidiaries in connection with such disposition; and
(xi) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is non-recourse to Holdings or any
Subsidiary of Holdings (except Standard Securitization Undertakings);
PROVIDED, HOWEVER, that the amount of Indebtedness outstanding under clause
(i) above and this clause (xi) shall not in the aggregate exceed $55.0
million at any time outstanding (or in the event of a refinancing of the
Indebtedness under the New Credit Agreement, the greater of $55.0 million or
the Borrowing Base).
Notwithstanding any other provision of this covenant, a guarantee of
Indebtedness permitted by the terms of the Exchange Debenture Indenture at the
time such Indebtedness was incurred will not constitute a separate incurrence of
Indebtedness.
SALE AND LEASEBACK TRANSACTIONS
The Exchange Debenture Indenture provides that Holdings will not, and will
not permit any of its Restricted Subsidiaries to, enter into any sale and
leaseback transaction; PROVIDED that Holdings or any Restricted Subsidiary may
enter into a sale and leaseback transaction if (i) Holdings or such Restricted
Subsidiary could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant "--Incurrence of Additional Indebtedness and Issuance of Preferred
Stock"
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and (b) incurred a Lien to secure such Indebtedness pursuant to the covenant
"Liens," (ii) the net cash proceeds of such sale and leaseback transaction are
at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the proceeds of such transaction are applied in
compliance with, the covenant "--Repurchase at Option of Holders--Asset Sales."
LIENS
The Exchange Debenture Indenture provides that Holdings will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom, except Permitted Liens. The Exchange
Debenture Indenture further provides that Holdings will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien that secures obligations under any
Subordinated Indebtedness, unless the Exchange Debentures are equally and
ratably secured with the obligations so secured until such time as such
obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Exchange Debenture Indenture provides that Holdings 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 Holdings 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 Holdings or any of its Restricted Subsidiaries, (ii) make loans or
advances to Holdings or any of its Restricted Subsidiaries or (iii) transfer any
of its properties or assets to Holdings or any of its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the date of the Exchange Debenture
Indenture, (b) the New Credit Agreement as in effect as of the date of the
Exchange Debenture Indenture, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, PROVIDED THAT such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the New Credit Agreement as in effect on the date of the
Exchange Debenture Indenture, (c) the Senior Indenture, the Senior Notes, the
Certificate of Designation, the Senior Preferred Stock, the Exchange Debenture
Indenture and the Exchange Debentures, (d) applicable law, (e) any instrument
governing Acquired Indebtedness or Capital Stock of a Person acquired by
Holdings or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Acquired Indebtedness was incurred 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 the Consolidated EBITDA of such Person is not taken into
account in determining whether such acquisition was permitted by the terms of
the Exchange Debenture Indenture, (f) by reason of customary non-assignment
provisions in leases and licenses entered into in the ordinary course of
business and consistent with past practices, (g) purchase money obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iii) above on the property so acquired, (h)
agreements relating to the financing of the acquisition of real or tangible
personal property acquired after the date of the Exchange Debenture Indenture,
provided, that such encumbrance or restriction relates only to the property
which is acquired and in the case of any encumbrance or restriction that
constitutes a Lien, such Lien constitutes a Purchase Money Lien, (i) any
restriction or encumbrance contained in contracts for sale of assets permitted
by the Exchange Debenture Indenture in respect of the assets being sold pursuant
to such contractor or (j) Indebtedness or other contractual requirements of a
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Securitization Entity in connection with a Qualified Securitization Transaction;
PROVIDED that such restrictions apply only to such Securitization Entity.
TRANSACTIONS WITH AFFILIATES
The Exchange Debenture Indenture provides that Holdings will not, and will
not permit any of its Restricted Subsidiaries to, sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to Holdings or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by Holdings or such Restricted Subsidiary with an
unrelated Person and (ii) Holdings delivers to the Trustee (a) with respect to
any Affiliate Transaction entered into after the date of the Exchange Debenture
Indenture involving aggregate consideration in excess of $2.0 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $7.5
million, an opinion as to the fairness to Holdings or such Restricted Subsidiary
of such Affiliate Transaction from a financial point of view issued by an
investment banking firm of national standing; PROVIDED that the following will
not be deemed to be Affiliate Transactions: (o) reasonable fees and compensation
paid to, and indemnity provided on behalf of, officers and directors of
Holdings, Anvil or any Restricted Subsidiary as determined in good faith by the
appropriate Board of Directors or senior management; (p) the provision of
administrative or management services by Holdings or any of its officers to
Holdings or any of its Restricted Subsidiaries in the ordinary course of
business consistent with past practice, (q) transactions between Holdings or one
or more of its Restricted Subsidiaries and the relevant Securitization Entity
effected as part of a Qualified Securitization Transaction; (r) any agreement as
in effect as of the date of the Exchange Debenture Indenture (including, without
limitation, the New Credit Agreement) or any amendment thereto or any
transactions contemplated thereby (including pursuant to any amendment thereto)
and any replacement agreement thereto so long as any such amendment or
replacement agreement is not more disadvantageous to the Holders of Exchange
Debentures in any material respect than the original agreement as in effect on
the date of the Exchange Debenture Indenture; (s) payments or loans to employees
or consultants which are approved by the Board of Directors of Holdings in good
faith; (t) the existence of, or the performance by Holdings or any of its
Restricted Subsidiaries of its obligations under the terms of, any stockholders
agreement (including any registration rights agreement or purchase agreement
related thereto) to which it is a party as of the date of the Exchange Debenture
Indenture and any similar agreement which it may enter into thereafter;
PROVIDED, HOWEVER, that the existence of, or the performance by Holdings or any
of its Restricted Subsidiaries of obligations under any similar agreement
entered into after the date of the Exchange Debenture Indenture shall only be
permitted by this clause (t) to the extent that the terms of any such new
agreement are not otherwise disadvantageous to the Holders of the Exchange
Debentures in any material respect; (u) transactions with customers, clients,
suppliers, joint venture partners or purchasers or sellers of goods or 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 Exchange Debenture Indenture which are at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party; (v) any
employment agreement entered into by Holdings or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of Holdings or such Restricted Subsidiary (including, without
limitation, any such employment agreements existing prior to the date of the
Exchange Debenture Indenture); (w) the granting of stock options to employees
and directors of Holdings and its Restricted Subsidiaries in accordance with the
New Stock Option Plan at exercise prices equal to the fair market value of the
Common Stock and the issuance of Common Stock upon the exercise of such options;
(x) transactions between or among Holdings and/or its Wholly Owned Subsidiaries,
(y) (i) the payment of
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customary management, consulting and advisory fees and related expenses to BRS
and 399 Venture and their Affiliates not to exceed $750,000 per year in
aggregate and (ii) payments by Anvil or any of its Restricted Subsidiaries to
BRS and 399 Venture and their Affiliates made pursuant to any financial
advisory, financing, underwriting or placement agreement or in respect of other
investment banking activities, including, without limitation, in connection with
acquisitions or divestitures which are approved by the Board of Directors of
Anvil, Holdings or such Restricted Subsidiary in good faith not to exceed
$750,000 per year in aggregate; and (z) transactions permitted by the covenant
described in "-- Restricted Payments."
LINE OF BUSINESS
Holdings will not, and will not permit any Restricted Subsidiary to, engage
in any line of business which is not the same, similar, ancillary, complementary
or related to the businesses in which Holdings is engaged on the date of the
Exchange Debenture Indenture.
REPORTS
The Exchange Debenture Indenture provides that, whether or not required by
the rules and regulations of the Commission, so long as any Exchange Debentures
are outstanding, Holdings will furnish to the Holders of Exchange Debentures,
within 15 days after it is or would have been required to file such 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 Holdings was required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, reports thereon by the certified
independent accountants of Holdings and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if Holdings was required to
file such reports. In addition, whether or not required by the rules and
regulations of the Commission, Holdings will file copies of all such information
and reports with the Commission for public availability (unless the Commission
will not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, Holdings has
agreed that, for so long as any Exchange Debentures remain outstanding, they
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Exchange Debenture Indenture provides that Holdings shall not, in a
single transaction or series of related transactions, consolidate or merge with
or into (whether or not Holdings is the surviving corporation), or directly
and/or indirectly through its Restricted Subsidiaries sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets determined on a consolidated basis for Holdings and its Restricted
Subsidiaries taken as a whole in one or more related transactions, to another
corporation, Person or entity unless (i) Holdings is the surviving corporation
or the entity or the Person formed by or surviving any such consolidation or
merger (if other than Holdings) or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the entity or Person formed by or surviving any
such consolidation or merger (if other than Holdings) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made assumes all the obligations of Holdings, under the Exchange
Debentures and the Exchange Debenture 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) Holdings or
the entity or Person formed by or surviving any such consolidation or merger (if
other than Holdings), or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made (A) will have Consolidated
Net Worth immediately after the transaction equal to or greater
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than the Consolidated Net Worth of Holdings 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 Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; and (v) Holdings
delivers to the Trustee an Officers' Certificate and an Opinion of Counsel
addressed to the Trustee with respect to the foregoing matters; PROVIDED,
HOWEVER, that the requirement set forth in clause (iv) above shall not apply to
a merger between Holdings and any Wholly Owned Subsidiary or to any merger
between Wholly Owned Subsidiaries.
EVENTS OF DEFAULT AND REMEDIES
The Exchange Debenture 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 Exchange Debentures; (ii) default in payment when due of the
principal of or premium, if any, on the Exchange Debentures; (iii) failure by
Holdings to comply with the provisions described under the captions "--Change of
Control," "--Asset Sales," "--Restricted Payments," "--Incurrence of
Indebtedness and Issuance of Preferred Stock," "--Sale and Leaseback
Transactions" or "--Merger, Consolidation or Sale of Assets"; (iv) failure by
Holdings for 60 days after notice to comply with any of its other agreements in
the Exchange Debenture Indenture or the Exchange Debentures; (v) default under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed by
Holdings or any of its Restricted Subsidiaries or Holdings (or the payment of
which is guaranteed by Holdings or any of its Restricted Subsidiaries or
Holdings) whether such Indebtedness or Guarantee now exists, or is created after
the date of the Exchange Debenture Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $7.5 million or more; (vi) failure
by Holdings or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $4.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; and (vii) certain events of bankruptcy or
insolvency with respect to Holdings, Anvil or any of Holdings' other Significant
Subsidiaries or group of Restricted Subsidiaries that, together, would
constitute a Significant Subsidiary.
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 Exchange Debentures
may declare all the Exchange Debentures to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to Holdings, Anvil, any
other Significant Subsidiary or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary, all outstanding Exchange Debentures
will become due and payable without further action or notice. Holders of
Exchange Debentures may not enforce the Exchange Debenture Indenture or the
Exchange Debentures except as provided in the Exchange Debenture Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Exchange Debentures may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from Holders of the Exchange
Debentures notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Exchange
Debentures then outstanding by notice to the Trustee may on behalf of the
Holders of all of the Exchange Debentures waive any existing Default or Event of
Default and its consequences under the Exchange Debenture Indenture except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, premium, if any, on the Exchange Debentures.
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Holdings is required to deliver to the Trustee annually a statement
regarding compliance with the Exchange Debenture Indenture, and Holdings 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.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Holdings, as
such, will have any liability for any obligations of Holdings under the Exchange
Debentures, the Exchange Debenture Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Exchange Debentures by accepting an Exchange Debenture waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Exchange Debentures. 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
Holdings may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Exchange Debentures
("Legal Defeasance") except for (i) the rights of Holders of outstanding
Exchange Debentures to receive payments in respect of the principal of, premium,
if any, and interest on such Exchange Debentures when such payments are due from
the trust referred to below, (ii) Holdings' obligations with respect to the
Exchange Debentures concerning issuing temporary Exchange Debentures,
registration of Exchange Debentures, mutilated, destroyed, lost or stolen
Exchange Debentures 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 Holdings' obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Exchange Debenture
Indenture. In addition, Holdings may, at its option and at any time, elect to
have the obligations of Holdings released with respect to certain covenants that
are described in the Exchange Debenture Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations will not constitute a
Default or Event of Default with respect to the Exchange Debentures. In the
event Covenant Defeasance occurs, certain events (not including nonpayment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Exchange Debentures.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
Holdings must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Exchange Debentures, 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 of, premium, if any, and interest on the
outstanding Exchange Debentures on the stated maturity or on the applicable
redemption date, as the case may be, and Holdings must specify whether the
Exchange Debentures are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, Holdings will have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (A) Holdings has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
Exchange Debenture 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 will confirm that, the Holders of the outstanding Exchange
Debentures 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, Holdings will 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 Exchange Debentures 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;
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(iv) no Default or Event of Default will 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 Exchange Debenture Indenture) to which Holdings or any of its Subsidiaries
is a party or by which Holdings or any of its Subsidiaries is bound (including,
without limitation, the New Credit Agreement); (vi) Holdings must have delivered
to the Trustee an opinion of counsel to the effect that on 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) Holdings must deliver to the Trustee an
Officers' Certificate stating that the deposit was not made by Holdings with the
intent of preferring the Holders of Exchange Debentures over the other creditors
of Holdings with the intent of defeating, hindering, delaying or defrauding
creditors of Holdings or others; and (viii) Holdings 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 Exchange Debentures in accordance with the
Exchange Debenture Indenture. The Registrar and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and Holdings may require a Holder to pay any taxes and fees required
by law or permitted by the Exchange Debenture Indenture. Holdings is not
required to transfer or exchange any Exchange Debenture selected for redemption.
Also, Holdings is not required to transfer or exchange any Exchange Debenture
for a period of 15 days before a selection of Exchange Debentures to be
redeemed.
The registered Holder of an Exchange Debenture will be treated as the owner
of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Exchange
Debenture Indenture or the Exchange Debentures may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Exchange Debentures then outstanding (including consents obtained in
connection with a tender offer or exchange offer for Exchange Debentures), and
any existing default or compliance with any provision of the Exchange Debenture
Indenture or the Exchange Debentures may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Exchange
Debentures (including consents obtained in connection with a tender offer or
exchange offer for Exchange Debentures).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Exchange Debentures held by a non-consenting Holder): (i)
reduce the principal amount of Exchange Debentures whose Holders must consent to
an amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Exchange Debenture or alter the provisions with respect to
the redemption of the Exchange Debentures (other than provisions relating to the
covenants described above under the caption "--Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of interest
on any Exchange Debenture, (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest on the Exchange
Debentures (except a rescission of acceleration of the Exchange Debentures by
the Holders of at least a majority in aggregate principal amount of the Exchange
Debentures and a waiver of the payment default that resulted from such
acceleration), (v) make any Exchange Debenture payable in money other than that
stated in the Exchange Debentures, (vi) make any change in the provisions of the
Exchange Debenture Indenture relating to waivers of past Defaults or the rights
of Holders of Exchange Debentures to receive payments of principal
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of or premium, if any, or interest on the Exchange Debentures, (vii) waive a
redemption payment with respect to any Exchange Debenture or (viii) make any
change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any Holder of Exchange
Debentures, Holdings and the Trustee may amend or supplement the Exchange
Debenture Indenture or the Exchange Debentures to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Exchange Debentures in addition to
or in place of certificated Exchange Debentures, to provide for the assumption
of Holdings' obligations to Holders of Exchange Debentures in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Exchange Debentures or that does not
adversely affect the legal rights under the Exchange Debenture Indenture of any
such Holder, or to comply with requirements of the Commission in order to effect
or maintain the qualification of the Exchange Debenture Indenture under the
Trust Indenture Act.
Notwithstanding anything to the contrary, the subordination provisions of
the Exchange Debentures may not be amended or modified without the prior
consent, authorization or approval by all holders of Designated Senior Debt.
CONCERNING THE TRUSTEE
The Exchange Debenture Indenture contains certain limitations on the rights
of the Trustee, should it become a creditor of Holdings, 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
Exchange Debentures 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 Exchange Debenture Indenture provides that in
case an Event of Default will occur (which will 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 Exchange Debenture Indenture at the request of any Holder of Exchange
Debentures, unless such Holder will have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Debentures will initially be issued in global form except that
institutional "accredited investors" (within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the Securities Act) will receive securities in the form of
registered definitive certificates. It is expected that the Exchange Debentures
will be subject to arrangements regarding book-entry, delivery and form which
are substantially the same as those with respect to the Senior Preferred Stock
set forth under "--Senior Preferred Stock--Book-Entry, Delivery and Form".
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Exchange Debenture
Indenture and the foregoing summary of the terms of the Exchange Debentures.
Reference is made to the Exchange Debenture Indenture for a full disclosure of
all such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary or is designated a Restricted
Subsidiary of such specified Person, including, without limitation, Indebtedness
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incurred in connection with, or in contemplation of, such other Person merging
with or into or becoming a Subsidiary or Restricted Subsidiary of such specified
Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired
by such specified Person.
"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, which 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; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback,
including any disposition by means of a merger, consolidation or similar
transaction and including the issuance, sale or other transfer of any of the
capital stock of any Restricted Subsidiary of such person) other than to
Holdings or to any of its Wholly Owned Subsidiaries (including the receipt of
proceeds of insurance paid on account of the loss of or damage to any asset and
awards of compensation for any asset taken by condemnation, eminent domain or
similar proceeding, and including the receipt of proceeds of business
interruption insurance); and (ii) the issuance of Equity Interests in any
Restricted Subsidiaries or the sale of any Equity Interests in any Restricted
Subsidiaries, in each case, in one or a series of related transactions,
PROVIDED, that notwithstanding the foregoing, the term "Asset Sale" shall not
include: (a) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of Holdings, as permitted pursuant to the
covenant described under "Merger, Consolidation or Sale of Assets," (b) the sale
or lease of equipment, inventory, accounts receivable or other assets in the
ordinary course of business consistent with past practice, (c) a transfer of
assets by Holdings to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary
to Holdings or to another Wholly Owned Subsidiary, (d) an issuance of Equity
Interests by a Wholly Owned Subsidiary to Holdings or to another Wholly Owned
Subsidiary, (e) the surrender or waiver of contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind, (f) the
grant in the ordinary course of business of any non-exclusive license of
patents, trademarks, registrations therefor and other similar intellectual
property, (g) Permitted Investments or (h) any cash dividend, distribution,
Investment or payment made pursuant to the first or second paragraph of the
"Restricted Payments" covenant.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback 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 leaseback transaction (including any period
for which such lease has been extended or may, at the option of the lessor, be
extended).
"BOARD OF DIRECTORS" means the Board of Directors of Holdings, or any
authorized committee of the Board of Directors.
"BORROWING BASE" means, as of any date, an amount equal to the sum of (i)
85% of all Eligible Receivables, (ii) 60% of all Eligible Raw Materials
Inventory, (iii) 50% of Eligible Finished Goods Inventory and (iv) 50% of the
fair market value or, if acquired after the date of the Senior Indenture, the
acquisition cost, of appraised equipment and real property owned by Holdings and
its Restricted Subsidiaries, or such lesser amount as may then constitute the
"Borrowing Base" under the New Credit Agreement.
"BRS" means Bruckmann, Rosser, Sherrill & Co., L.P.
"BUSINESS DAY" means any day other than a Legal Holiday.
"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.
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"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, partnership 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 (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities no more than twelve
months from the date of acquisition, (b) U.S. dollar denominated (or foreign
currency fully hedged) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit of (i) any domestic commercial
bank of recognized standing having capital and surplus in excess of $100.0
million or (ii) any bank whose short-term commercial paper rating from S&P is at
least A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "Approved Lender"), in each case with
maturities of not more than twelve months from the date of acquisition, (c)
commercial paper and variable or fixed rate notes issued by any Approved Lender
(or by the parent company thereof) or any variable rate notes issued by, or
guaranteed by, any domestic corporation rated A-2 (or the equivalent thereof) or
better by S&P or P-2 (or the equivalent thereof) or better by Moody's and
maturing within twelve months of the date of acquisition, (d) repurchase
agreements with a bank or trust company or recognized securities dealer having
capital and surplus in excess of $100.0 million for direct obligations issued by
or fully guaranteed by the United States of America in which Holdings shall have
a perfected first priority security interest (subject to no other Liens) and
having, on the date of purchase thereof, a fair market value of at least 100% of
the amount of repurchase obligations, and (e) interests in money market mutual
funds which invest solely in assets or securities of the type described in
subparagraphs (a), (b), (c) or (d) hereof.
"CHANGE OF CONTROL" means such time as (i) prior to the initial public
offering by Holdings or any direct or indirect parent of Holdings of its common
stock (other than a public offering pursuant to a registration statement on Form
S-8), Permitted Holders cease to have, directly or indirectly, in the aggregate
at least 51% of the voting power of the voting stock of Anvil or Holdings or any
other direct or indirect parent of Holdings ceases to own, directly or
indirectly, 100% of the voting power of the voting stock of Anvil (other than by
reason of a merger of Holdings and Anvil) or (ii) after the initial public
offering by Holdings or any direct or indirect parent of Anvil of its common
stock (other than a public offering pursuant to a registration statement on Form
S-8), (A) any Schedule 13D, Form 13F or Schedule 13G under the Exchange Act, or
any amendment to such Schedule or Form, is received by Anvil or Holdings which
indicates that, or Anvil or Holdings otherwise becomes aware that, a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
has become, directly or indirectly, the "beneficial owner," by way of merger,
consolidation or otherwise, of 40% or more of the voting power of the voting
stock of Anvil or Holdings on a fully-diluted basis after giving effect to the
conversion and exercise of all outstanding warrants, options and other
securities of Anvil or Holdings, as the case may be (whether or not such
securities are then currently convertible or exercisable) and (B) such person or
group has become, directly or indirectly, the beneficial owner of a greater
percentage of the voting capital stock of Anvil, calculated on such
fully-diluted basis, than beneficially owned by the Permitted Holders, or (iii)
the sale, lease or transfer of all or substantially all of the assets of
Holdings to any person or group (other than the Permitted Holders), or (iv)
during any period of two consecutive calendar years individuals who at the
beginning of such period constituted the Board of Directors of Anvil or Holdings
(together with any new directors whose election by the Board of Directors of
Anvil or Holdings or whose nomination for election by the shareholders of Anvil
or Holdings, as the case may be, was approved by a vote of a majority of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved or was approved by the Permitted Holders) cease for any reason to
constitute a majority of the directors of Anvil or Holdings, as the case may be,
then in office.
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"COMMISSION" means the Securities and Exchange Commission.
"CONSOLIDATED EBITDA" means, with respect to Holdings and its Restricted
Subsidiaries for any period, the sum of, without duplication, (i) the
Consolidated Net Income for such period, plus (ii) to the extent deducted from
Consolidated Net Income for such period, (x) the Fixed Charges for such period,
plus (y) non-cash dividends on Holdings' preferred stock, plus (iii) provision
for taxes based on income or profits for such period (to the extent such income
or profits were included in computing Consolidated Net Income for such period),
plus (iv) consolidated depreciation, amortization and other non-cash charges of
Holdings and its Restricted Subsidiaries required to be reflected as expenses on
the books and records of Holdings, minus (v) cash payments with respect to any
nonrecurring, non-cash charges previously added back pursuant to clause (iv),
and (vi) excluding the impact of foreign currency translations. Notwithstanding
the foregoing, the provision for taxes based on the income or profits of, and
the depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated EBITDA only to the extent that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to Holdings by such Restricted Subsidiary without
prior approval (that has not been obtained), pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to that Restricted Subsidiary or
its stockholders.
"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 Subsidiary
thereof, (ii) the Net Income of, or any dividends or other distributions from,
any Unrestricted Subsidiary, to the extent otherwise included, shall be
excluded, whether or not distributed to Holdings or one of its Restricted
Subsidiaries, (iii) 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 (which
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, (iv) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (v) the cumulative effect of a change in accounting principles
shall be excluded, (vi) income or loss attributable to discontinued operations
shall be excluded; (vii) any increase in cost of sales or other write-offs
resulting from the purchase accounting treatment of any acquisitions shall be
excluded; and (viii) all other extraordinary, unusual or nonrecurring gains or
losses shall be excluded.
"CONSOLIDATED NET WORTH" of a Person at any date means the amount by which
the assets of such Person and its consolidated Restricted Subsidiaries (less any
revaluation or other write-up subsequent to the date of the Exchange Debenture
Indenture in any such assets (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within twelve months after the acquisition of such business))
exceed the sum of (a) the total liabilities of such Person and its consolidated
Restricted Subsidiaries, plus (b) any Disqualified Stock of such Person or any
consolidated Restricted Subsidiaries of such Person issued to any Person other
than such Person or a Wholly Owned Subsidiary of such Person, in each case
determined in accordance with GAAP.
"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.
"DEPOSITARY" means, with respect to the Exchange Debentures issuable or
issued in whole or in part in global form, the Person specified in the Exchange
Debenture Indenture as the Depositary with respect to the Exchange Debentures,
until a successor shall have been appointed and become such Depositary
135
pursuant to the applicable provision of the Exchange Debenture Indenture, and,
thereafter, "Depositary" shall mean or include such successor.
"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 date
on which is 91 days after the date that the Exchange Debentures mature.
"ELIGIBLE FINISHED GOODS INVENTORY" means, as of any date of determination,
the gross dollar value (valued at the lower of cost or fair market value (on a
first-in, first-out basis)) of all finished goods inventory (including for
purposes hereof, finished goods inventory which is in transit back to Holdings
or any Restricted Subsidiary) of Holdings or any Restricted Subsidiary less
appropriate reserves determined in accordance with GAAP applied on a consistent
basis but excluding in any event and without duplication, to the extent not
treated accordingly by GAAP, (i) inventory subject to any Lien (other than a
Permitted Lien), (ii) inventory which fails to meet standards for sale or use
imposed by governmental agencies, departments or divisions having regulatory
authority over such goods, (iii) inventory which is not useable or saleable at
prices approximating their cost (after taking into account, without duplication,
the amount of any reserves for obsolescence, unsaleability or decline in value),
(iv) inventory located outside of the United States (unless in transit back to
Holdings or any Restricted Subsidiary), (v) inventory in the possession of
domestic contractors (other than Holdings or any Restricted Subsidiary) or other
third parties, and (vi) all work in process.
"ELIGIBLE RAW MATERIALS INVENTORY" means, as of any date of determination,
the gross dollar value (valued at the lower of cost or fair market value (on a
first-in, first-out basis)) of all raw materials (including for purposes hereof,
uncut dyed or greige cloth) of Holdings or any Restricted Subsidiary less
appropriate reserves determined in accordance with GAAP applied on a consistent
basis but excluding in any event, to the extent not treated accordingly by GAAP
and without duplication, (i) inventory subject to any Lien (other than a
Permitted Lien), (ii) inventory which fails to meet standards for sale or use
imposed by governmental agencies, departments or divisions having regulatory
authority over such goods, (iii) inventory which is not useable or saleable at
prices approximating their cost (after taking into account, without duplication,
the amount of any reserves for obsolescence, unsaleability or decline in value),
(iv) inventory located outside of the United States (unless in transit back to
Holdings or any Restricted Subsidiary), (v) inventory in the possession of
domestic contractors (other than Holdings or any Restricted Subsidiary) or other
third parties, and (vi) all work in process (except uncut dyed or greige cloth).
"ELIGIBLE RECEIVABLES" means, as of any date of determination, the aggregate
gross amount of all accounts receivable, receivables and obligations for payment
created or arising from the sale of inventory or the rendering of services in
the ordinary course of business, owned by or owing to Holdings or any Restricted
Subsidiary, net of allowances and reserves for doubtful or uncollectible
accounts and sales adjustments consistent with Holdings' internal policies and
in any event in accordance with GAAP applied on a consistent basis, (hereinafter
sometimes referred to collectively as "Receivables"), but excluding, without
duplications in any event (i) Receivables subject to a Lien (other than a
Permitted Lien), (ii) Receivables which are outstanding more than 90 days from
the due date of the original invoice or more than 180 days from the date of
shipment, (iii) Receivables evidenced by notes, chattel paper or other
instruments, unless such notes, chattel paper or instruments have been delivered
to and are in the possession of such parties as may be specified in the New
Credit Agreement, (iv) Receivables with respect to which the account debtor is
not solvent or is the subject of any bankruptcy or insolvency proceedings of any
kind, (v) Receivables owing by an account debtor located outside of the United
States (unless payment for the goods shipped is secured by an irrevocable letter
of credit in a form and from an institution acceptable to such parties as may be
specified in the New Credit Agreement), (vi) Receivables which are contingent or
subject to offset, deduction, counterclaim, dispute or other defense to payment,
in each case
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to the extent of such offset, deduction, counterclaim dispute or other defense,
and (vii) Receivables arising out of transactions with Subsidiaries or
Affiliates of Holdings.
"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).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING INDEBTEDNESS" means the Indebtedness of Holdings and its
Restricted Subsidiaries (other than Indebtedness under the New Credit Agreement)
in existence on the date of the Exchange Debenture Indenture, until such amounts
are repaid.
"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 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,
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 Indebtedness 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 Restricted Subsidiaries (whether or
not such guarantee or Lien is called upon), and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Restricted Subsidiary) on any series of preferred stock of such Person
payable to a party other than Holdings or a Wholly Owned Subsidiary, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, on a consolidated basis and in accordance
with GAAP, but excluding from the calculation of fixed charges amortization of
financing costs (except to the extent referred to in the parenthetical in clause
(i) of this definition).
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Restricted
Subsidiaries for such period to the Fixed Charges of such Person and its
Restricted Subsidiaries for such period. In the event that Holdings or any of
its Restricted Subsidiaries incurs, assumes, guarantees or repays any
Indebtedness (other than the incurrence or repayment of revolving credit
borrowings used for working capital, except to the extent that a repayment is
accompanied by a permanent reduction in revolving credit commitments) or issues
preferred stock subsequent to the commencement of the four-quarter reference
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. For purposes of making the
computation referred to above, (i) acquisitions that have been made by Holdings
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 shall give pro forma effect to the
Consolidated EBITDA and Indebtedness of the Person which is the subject of any
such acquisition, and (ii) the Consolidated EBITDA 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
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 Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
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"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 date of the Exchange Debenture Indenture.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"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
Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"HOLDER" means a Person in whose name a share of Senior Preferred Stock or
Exchange Debenture is registered on the Registrar's books.
"INDEBTEDNESS" 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 indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person), the maximum fixed repurchase price of Disqualified
Stock issued by such Person in each case, if held by any Person other than
Holdings or a Wholly Owned Subsidiary of Holdings, and, to the extent not
otherwise included, the guarantee by such Person of any indebtedness of 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 Indebtedness or other obligations),
advances (other than advances to customers in the ordinary course of business
that are recorded as accounts receivable on the books of such Person) or capital
contributions (excluding commission, travel, relocation and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities and all other items that are or would be classified as investments on
a balance sheet prepared in accordance with GAAP; PROVIDED that an acquisition
of assets, Equity Interests or other securities by Holdings for consideration
consisting of common equity securities of Holdings or of any direct or indirect
parent of Holdings shall not be deemed to be an Investment.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which federal offices
or banking institutions in the City of New York, in the city of the Corporate
Trust Office of the Trustee, or at a place of payment are authorized by law,
regulation or executive order to remain closed. If a payment date is a Legal
Holiday, payment may be made on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
"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
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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).
"LIQUIDATED DAMAGES" means all liquidated damages owing pursuant to the
Registration Rights Agreement.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, and before reduction for
non-cash 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 leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries, (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 Holdings or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of 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, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP and net of any Purchase
Money Obligations relating to the assets comprising such Asset Sale.
"NEW CREDIT AGREEMENT" means, collectively, (i) that certain Amended and
Restated Credit Agreement, as in effect on the date of the Exchange Debenture
Indenture, by and among Anvil, Holdings, the lenders that may be from time to
time parties thereto and NationsBank, N.A., as administrative agent, as the
foregoing may from time to time be amended, renewed, supplemented or otherwise
modified at the option of the parties thereto, including increases in the
principal amount thereof (subject to such increases otherwise being in
conformity with the terms of the Exchange Debenture Indenture); and (ii) after
NationsBank, N.A., as administrative agent, has acknowledged in writing that the
Credit Agreement described in clause (i) above has been terminated and all then
outstanding Indebtedness thereunder or with respect thereto have been repaid in
full in cash and discharged, any successors to or replacements of (as designated
by the Board of Directors of Holdings in its sole judgment, and evidenced by a
resolution) such Credit Agreement, as such successors or replacements may from
time to time be amended, renewed, supplemented, modified or replaced, including
increases in the principal amount thereof (subject to such increases otherwise
being in conformity with the terms of the Exchange Debenture Indenture).
"NEW STOCK OPTION PLAN" means Holdings' 1997 Stock Option Plan to be
approved by the Board of Directors of Holdings providing for the issuance of
options to purchase Common Stock to directors and employees of Holdings, Anvil
or its Restricted Subsidiaries or any successor plan thereto.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither Holdings nor
any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a 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 Indebtedness of Holdings
or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of Holdings
or any of its Restricted Subsidiaries.
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"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFERINGS" means the Unit Offering and the Senior Note Offering.
"OFFICER" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice President of such Person.
"PERMITTED HOLDERS" means, collectively, (i) BRS and its Affiliates, and
their respective employees and directors, (ii) 399 Venture and its Affiliates,
and their respective employees and directors, (iii) all full-time executive
officers of Holdings and its Subsidiaries who acquire Capital Stock of Holdings
and (iv) (A) any spouse, lineal descendant (including by adoption and
stepchildren), or sibling of such natural persons and (B) any trust,
corporation, limited liability company or partnership, the beneficiaries,
members, stockholders or partners of which consist entirely of such natural
persons or the individuals described in clause (A) above.
"PERMITTED INVESTMENTS" means (a) any Investments in Holdings or in a Wholly
Owned Subsidiary of Holdings that is engaged in the same or a similar line of
business as Holdings and its Restricted Subsidiaries were engaged in on the date
of the Exchange Debenture Indenture and reasonable extensions or expansions
thereof; (b) any Investments in Cash Equivalents; (c) Investments by Holdings or
any Restricted Subsidiary of Holdings in a Person if as a result of such
Investment (i) such Person becomes a Wholly Owned Subsidiary of Holdings that is
engaged in the same or a similar line of business as Holdings and its Restricted
Subsidiaries were engaged in on the date of the Exchange Debenture Indenture and
reasonable extensions or expansions thereof or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, Holdings or a Wholly Owned
Subsidiary of Holdings that is engaged in the same or a similar line of business
as Holdings and its Restricted Subsidiaries were engaged in on the date of the
Exchange Debenture Indenture and reasonable extensions or expansions thereof;
(d) Investments 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 under "--Asset Sales"; (e) Investments by Holdings or any Restricted
Subsidiary in cash in an amount not to exceed $10.0 million in the aggregate at
any one time; (f) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to Anvil or any
Subsidiary or in satisfaction of judgments or pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of
Anvil's trade creditors or customers; (g) the contribution of shares of stock or
other equity securities of an Unrestricted Subsidiary to another Subsidiary; (h)
loans and advances to employees and officers of Anvil and its Restricted
Subsidiaries in the ordinary course of business not to exceed an aggregate of
$750,000; (i) accounts receivable created or acquired in the ordinary course of
business; (j) currency agreements and interest swap obligations entered into in
the ordinary course of Anvil's or its Restricted Subsidiaries' businesses and
otherwise in compliance with the Exchange Debenture Indenture; and (k) any
Investment by Anvil or a Wholly Owned Subsidiary of Anvil 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.
"PERMITTED LIENS" means (i) Liens securing (a) Indebtedness permitted by the
first paragraph of the covenant entitled "--Incurrence of Indebtedness and
Issuance of Preferred Stock," and Indebtedness permitted by clauses (i) , (ii),
(iv) or (viii) under the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock" and (b) related Hedging Obligations; (ii) Liens in
favor of Holdings or any Wholly Owned Subsidiary; (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with
Holdings or any Restricted Subsidiary of Holdings; 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 Holdings; (iv) Liens on property of a
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Person existing at the time such Person becomes a Restricted Subsidiary of
Holdings; (v) Liens on property existing at the time of acquisition thereof by
Holdings or any Restricted Subsidiary of Holdings, PROVIDED that such Liens were
in existence prior to the contemplation of such acquisition; (vi) Liens to
secure the performance of statutory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business; (vii) Liens existing on the date of the Exchange Debenture
Indenture; (viii) 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 concluded, PROVIDED
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (ix) carriers',
warehousemen's, mechanics', materialmen's, repairmen's, or other similar Liens
arising in the ordinary course of business which are not overdue for a period of
more than 60 days or which are being contested in good faith by appropriate
proceedings diligently conducted; (x) statutory Liens of landlords or of
mortgagees of landlords arising by operation of law, provided that the rental
payments secured thereby are not yet due and payable; (xi) Liens incurred in the
ordinary course of business of Holdings or any Restricted Subsidiary of Holdings
with respect to obligations that do not exceed $2.5 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 in the
ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by Holdings or such Restricted Subsidiary; (xii)
nonconsensual Liens incurred in the ordinary course of business of any foreign
subsidiary that is a Restricted Subsidiary that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances of credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by such Restricted
Subsidiary; (xiii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security; (xiv) easements, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the business of
Holdings or any of its Restricted Subsidiaries; (xv) Purchase Money Liens
(including extensions and renewals thereof); (xvi) judgment and attachment Liens
not giving rise to an Event of Default; (xvii) Liens arising out of consignment
or similar arrangements for the sale of goods; (xviii) any interest or title of
a lessor in property subject to any capital lease obligation or operating lease;
(xix) Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xx) Liens encumbering deposits made to secure obligations
arising from statutory or regulatory requirements of Anvil or any of its
Restricted Subsidiaries, including rights of offset and set-off, arising in the
ordinary course of business; (xxi) 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; and (xxii)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of custom duties in connection with the importation of goods.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Holdings or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Holdings or any of its Restricted Subsidiaries; PROVIDED that:
(i) the principal amount of such Permitted Refinancing Indebtedness does not
exceed the principal amount of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date at least as late as 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 Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; (iii) if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated in
right of payment to the Exchange Debentures, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Exchange Debentures on terms at
least as favorable to the Holders of Exchange Debentures as those contained in
the
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documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
Holdings or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, or other business entity or government or agency or political
subdivision thereof (including any subdivision or ongoing business of any such
entity or substantially all of the assets of any such entity, subdivision or
business).
"PUBLIC EQUITY OFFERING" means an underwritten public offering pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act of (i) Equity Interests other than Disqualified Stock of Holdings
or (ii) of Equity Interests other than Disqualified Stock of Holdings' parent or
indirect parent corporation to the extent that the cash proceeds therefrom are
contributed to the equity capital of Holdings or are used to purchase Equity
Interests (other than Disqualified Stock) of Holdings.
"PURCHASE MONEY LIEN" means a Lien granted on an asset or property to secure
a Purchase Money Obligation permitted to be incurred under the Exchange
Debenture Indenture and incurred solely to finance the purchase, or the cost of
construction or improvement, of such asset or property; PROVIDED HOWEVER, that
such Lien encumbers only such asset or property and is granted within 180 days
of such acquisition.
"PURCHASE MONEY NOTE" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from Holdings or any
Subsidiary of Holdings 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 owing
to such investors and amounts paid in connection with the purchase of newly
generated receivables.
"PURCHASE MONEY OBLIGATIONS" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
purchase, or the cost of construction or improvement, of real or personal
property to be used in the business of such person or any of its Restricted
Subsidiaries in an amount that is not more than 100% of the cost, or fair market
value, as appropriate, of such property, and incurred within 180 days after the
date of such acquisition (excluding accounts payable to trade creditors incurred
in the ordinary course of business).
"QUALIFIED SECURITIZATION TRANSACTION" means any transaction or series of
transactions that may be entered into by Holdings or any of its Subsidiaries
pursuant to which Holdings or any or its Subsidiaries may sell, convey or
otherwise transfer to (a) a Securitization Entity (in the case of a transfer by
Holdings or any of its Subsidiaries) and (b) any other Person (in the case of a
transfer by a Securitization Entity), or may grant a security interest in, any
accounts receivable or equipment (whether now existing or arising or acquired in
the future) of Holdings or any of its Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such accounts
receivable and equipment, all contracts and contract rights and all guarantees
or other obligations in respect of such accounts receivable and equipment,
proceeds of such accounts receivable and equipment 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 transactions involving accounts receivable and equipment;
PROVIDED that such transaction or transactions are otherwise permitted by the
terms of the Exchange Debenture Indenture including the provisions set forth
under "Repurchase at the Option of Holders--Asset Sales".
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the date of the Exchange Debenture Indenture, by and among Holdings
and the other parties named on the signature pages thereof, as such agreement
may be amended, modified or supplemented from time to time.
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"REPRESENTATIVE" means the indenture trustee or other trustee, client or
representative for any senior Indebtedness.
"RESPONSIBLE OFFICER," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIZATION ENTITY" means a Wholly Owned Subsidiary of Holdings (or
another Person in which Holdings or any Subsidiary of Holdings makes an
Investment and to which Holdings or any Subsidiary of Holdings transfers
accounts receivable or equipment and related assets) which engages in no
activities other than in connection with the financing of accounts receivable or
equipment and which is designated by the Board of Directors of Holdings (as
provided below) as a Securitization Entity (a) no portion of the Indebtedness or
any other obligations (contingent or otherwise) of which (i) is guaranteed by
Holdings or any Subsidiary of Holdings (excluding guarantees of obligations
(other than the principal of, and interest on, Indebtedness)) pursuant to
Standard Securitization Undertakings, (ii) is recourse to or obligates Holdings
or any Subsidiary of Holdings in any way other than pursuant to Standard
Securitization Undertakings, or (iii) subjects any property or asset of or any
Subsidiary of Holdings, directly or indirectly, contingently or otherwise, to
the satisfaction thereof other than pursuant to Standard Securitization
Undertakings, (b) with which neither Holdings nor any Subsidiary of Holdings has
any material contract, agreement, arrangement or understanding other than on
terms no less favorable to Holdings or such Subsidiary than those that might be
obtained at the time from Persons that are not Affiliates of Holdings, other
than fees payable in the ordinary course of business in connection with
servicing receivables of such entity, and (c) to which neither Holdings nor any
Subsidiary of Holdings 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 Holdings shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
resolution of the Board of Directors of Holdings giving effect to such
designation and an officers' certificate certifying that such designation
complied with the foregoing conditions.
"SENIOR INDEBTEDNESS" means: (i) all Obligations (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of
Holdings, whether outstanding on the date of issuance of the Exchange Debentures
or thereafter created, incurred or assumed, of the following types: (A) all
Indebtedness of Holdings (including without limitation the Senior Notes and
borrowings under the New Credit Agreement) for money borrowed, and (B) all
Indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which Holdings is responsible or liable; (ii) all capitalized
lease obligations of Holdings; (iii) all Obligations of Holdings: (A) for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, including, without limitation, any such transaction
made pursuant to the New Credit Agreement, (B) constituting Hedging Obligations,
or (C) issued as the deferred purchase price of property and all conditional
sale Obligations of Holdings and all Obligations of Holdings under any title
retention agreement; (iv) all guarantees of Holdings with respect to Obligations
of other persons of the type referred to in clauses (ii) and (iii) and with
respect to the payment of dividends of other persons; and (v) all Obligations of
Holdings consisting of modifications, renewals, extensions, replacements and
refundings of any Obligations described in clauses (i), (ii), (iii) or (iv)
unless, in the instrument creating or evidencing the
143
same or pursuant to which the same is outstanding, it is expressly provided that
such Obligations are subordinated or junior in right of payment to the Exchange
Debentures; PROVIDED, HOWEVER, that Senior Indebtedness shall not be deemed to
include: (1) any Obligation of Holdings to any Subsidiary, (2) any liability for
federal, state, local or other taxes owed or owing by Holdings, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness, guarantee or Obligation of Holdings that is
contractually subordinated or junior in any respect to any other Indebtedness,
guarantee or Obligation of Holdings, or (5) any Indebtedness to the extent the
same is incurred in violation of the Indenture. Senior Indebtedness shall
include all Obligations in respect of Holdings Guarantee of the Senior Notes and
the Senior Indenture of Anvil.
"SENIOR NOTE OFFERING" means the offering by Anvil of the Senior Notes of
Anvil.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Exchange Act, as such Regulation is in effect on the date
hereof.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by Anvil or any Subsidiary of Anvil which
are reasonably customary in an accounts receivable or equipment transaction.
"SUBORDINATED INDEBTEDNESS" means all Obligations of the type referred to in
clauses (i) through (v) of the definition of Senior Indebtedness, if the
instrument creating or evidencing the same, or pursuant to which the same is
outstanding, designates such Obligations as subordinated or junior in right of
payment to Senior Indebtedness.
"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).
"399 VENTURE" means 399 Venture Partners, Inc.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 (15 U.S.C.
SectionSection 77aaa-77bbbb) as in effect on the date on which the Exchange
Debenture Indenture is qualified under the Trust Indenture Act.
"UNITS OFFERING" means the offering by Holdings of units consisting of $30.0
million aggregate liquidation preference of Senior Preferred Stock and 390,000
shares of Class B Common.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution;
but only to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement or
understanding with Holdings or any Restricted Subsidiary of Holdings unless the
terms of any such agreement, contract, arrangement or understanding are no less
favorable to Holdings or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of Holdings; (c) is a
Person with respect to which neither Holdings nor any of its Restricted
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of Holdings or any of
its Restricted Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board
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Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described under the caption "-- Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Exchange Debenture Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of Holdings as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock," Holdings
shall be in default of such covenant). The Board of Directors of Holdings may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
PROVIDED that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of Holdings of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock," and (ii) no Default or Event of Default would be in existence following
such designation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
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 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 Indebtedness.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Restricted 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 or by one or more Wholly Owned Subsidiaries of such Person.
Unrestricted Subsidiaries shall not be included in the definition of Wholly
Owned Subsidiary for any purposes of the Exchange Debenture Indenture.
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DESCRIPTION OF CAPITAL STOCK
The following summarizes certain provisions of Holdings' Second Amended and
Restated Certificate of Incorporation (the "Restated Certificate") and Bylaws,
which became effective pursuant to the Recapitalization. Such summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Restated Certificate and the
Bylaws, including the definitions therein of certain terms, copies of which may
be obtained from Holdings upon request.
GENERAL
The Restated Certificate provides for, among other things, the authorization
of 500,000 shares of Class A Common, 7,500,000 shares of Class B Common,
1,300,000 shares of Class C Common Stock, $.01 per share par value (the "Class C
Common"), 5,100,000 shares of Senior Preferred Stock and 500,000 shares of
undesignated, serial preferred stock (the "Serial Preferred Stock"). Class A
Common, Class B Common and Class C Common sometimes are referred to in this
section collectively as the "Common Stock."
Holdings has outstanding 290,000 shares of Class A Common, 3,590,000 shares
of Class B Common, no shares of Class C Common, 1,200,000 shares of Senior
Preferred Stock and no shares of Serial Preferred Stock.
COMMON STOCK
All of the issued and outstanding shares of Common Stock are fully paid and
non-assessable. The Class B Common and Class C Common are substantially
identical except with respect to voting and conversion rights. Holders of Class
B Common are entitled to one vote per share on all matters to be voted on by
stockholders while holders of Class A Common and Class C Common have no right to
vote on any matters except in special circumstances including a merger or
consolidation of Holdings or a recapitalization or reorganization as specified
in the Restated Certificate. Subject to the rights of the holders of preferred
stock and the restrictions, if any, imposed by indebtedness outstanding from
time to time, the holders of Common Stock are entitled to dividends and other
distributions, as and when declared or paid, whether in cash, property or
securities of Holdings by the Board of Directors of Holdings out of assets
legally available therefore. Holders of Common Stock are entitled to share in
such dividends or distributions on a pro rata basis, except that the holders of
Class A Common are entitled to a priority on all such dividends in an amount
equal to the then outstanding Class A Preference. The holders of Common Stock
have no preemptive, subscription, redemption or sinking fund rights under the
terms of the Restated Certificate.
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Holdings, holders of Class A Common are entitled to be paid out of the assets of
Holdings then available for distribution, the Class A Preference of $100 per
share before any distribution is paid on any other shares of Common Stock. The
Class A Preference accretes at a rate of 12.5% per annum. After satisfaction of
all its liabilities, the payment of the liquidation preference of any
outstanding shares of preferred stock and the payment of the Class A Preference,
the holders of shares of Common Stock are entitled to share ratably in the
distribution of all of Holdings' assets remaining available for distribution. If
Holdings in any manner subdivides or combines the outstanding shares of any
class of Common Stock, the outstanding shares of all other classes of Common
Stock will be proportionately subdivided.
Shares of Class A Common and Class B Common are not convertible. Shares of
Class C Common are convertible at the option of the holders representing a
majority of the outstanding Class C Common, into an equal number of shares of
Class B Common.
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PREFERRED STOCK
For a description of the Senior Preferred Stock, see "Description of
Securities--Senior Preferred Stock."
The Restated Certificate authorizes the Board of Directors to create and
issue one or more series of Serial Preferred Stock and determine the rights and
preferences of each series, to the extent permitted by the Restated Certificate
and applicable law. Among other rights, the Board of Directors may determine,
without the further vote or action by the Company's stockholders, subject to
certain limitations set forth in the Certificate of Designation: (i) the number
of shares constituting the series and the distinctive designation of the series;
(ii) the dividend rate on the shares of the series, whether dividends will be
cumulative and, if so, from which date or dates, and the relative rights of
priority, if any, of payment of dividends on shares of the series; (iii) whether
the series shall have voting rights, in addition to the voting rights provided
by law and, if so, the terms of such voting rights; (iv) whether the series
shall have conversion privileges, and, if so, the terms and conditions of such
conversion, including provision for adjustment of the conversion rate in such
events as the Board of Directors shall determine; (v) whether or not the shares
of that series shall be redeemable or exchangeable and, if so, the terms and
conditions of such redemption or exchange, as the case may be, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates; (vi) whether the series shall have
a sinking fund for the redemption or purchase of shares of that series and, if
so, the terms and amount of such sinking fund; and (vii) the rights of the
shares of the series in the event of voluntary or involuntary liquidation,
dissolution or winding up of Holdings and the relative rights or priority, if
any, of payment of shares of the series. Except for any difference so provided
by the Board of Directors, the shares of all series of Serial Preferred Stock
rank on a parity with respect to the payment of dividends and the distribution
of assets upon liquidation.
ANTI-TAKEOVER PROVISIONS OF RESTATED CERTIFICATE AND BYLAWS
The rights of Holdings' stockholders are governed by the Delaware General
Corporation Law, the Restated Certificate and the Bylaws. Certain provisions of
the Restated Certificate and Bylaws, which are summarized below, may discourage
or make more difficult a takeover attempt that a stockholder might consider in
its best interest. Such provisions may also adversely affect the prevailing
market price for the Common Stock.
SERIAL PREFERRED STOCK. Subject to certain limitations set forth in the
Certificate of Designation, the Board of Directors has the authority, without
action by Holdings' stockholders, to fix the rights, privileges and preferences
of, and to issue up to 500,000 shares of Serial Preferred Stock. The issuance of
such Serial Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of Holdings without further action by the
stockholders and may adversely affect the voting and other rights of the holders
of the Common Stock, including the loss of voting control to others. Holdings
currently has no plans to issue any additional shares of Serial Preferred Stock.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS. The Bylaws establish
advance notice procedures with regard to stockholder proposals. These procedures
provide that the notice of stockholder proposals must be received by Holdings no
later than (i) with respect to an annual meeting of stockholders, 60 days prior
to the anniversary date of the immediately preceding annual meeting of
stockholders and (ii) with respect to a special meeting of stockholders, no
later than the close of business on the tenth day following the date on which
notice of such meeting is first sent or given to stockholders. Each stockholder
proposal must set forth certain information as specified in the Bylaws.
SECURITYHOLDERS AGREEMENT
In connection with the Initial Units Offering, Holdings, 399 Venture, BRS
and the Initial Purchaser entered into a Registration Rights and Securityholders
Agreement (the "Securityholders Agreement")
147
relating to the Class B Common. Each holder of shares of Holdings' Class B
Common included in the Initial Units Offering (including all transferees of such
holders) (collectively, the "Class B Holders") are entitled to the benefits and
subject to the obligations arising under such Securityholders Agreement.
Pursuant to the Securityholders Agreement, each Class B Holder has certain
piggyback registration rights, as well as certain participation rights with
respect to certain third-party sales of Class B Common by 399 Venture or BRS.
With respect to the piggyback registration rights, each Class B Holder has the
right to include its Class B Common in any registration of Class B Common (other
than pursuant to a registration statement on Form S-8 or S-4 or any similar form
or in connection with a registration the primary purpose of which is to register
debt securities (i.e., in connection with a so-called "equity kicker"));
PROVIDED, HOWEVER, that the amount of shares of Class B Common which may be
registered pursuant to an exercise of piggyback rights may be reduced (including
a reduction to zero) if the managing underwriters advise Holdings that in their
opinion the aggregate number of shares of Class B Common which may be included
in such offering exceeds the number which can be sold in such offering without
adversely affecting the marketability of such offering. See "Security Ownership
of Certain Beneficial Owner and Management-- Registration Rights Agreement."
The Securityholders Agreement grants each Class B Holder participation
rights, which provide that prior to any sale, transfer, assignment, pledge or
other disposal (a "Transfer") by Bruckmann, Rosser, Sherrill & Co., L.P., 399
Venture Partners, Inc. or CCT II Partners, L.P. (collectively, the "Fund
Investors") of Class B Common by a Fund Investor, the Fund Investor making such
a Transfer shall deliver a written notice to Holdings and registered Class B
Holders specifying in reasonable detail the identity of the prospective
transferee(s) and the terms and conditions of the Transfer. Each Class B Holder
may elect to participate in the contemplated Transfer by delivering written
notice to the transferring securityholder within 10 days after delivery of the
sale notice. If any Class B Holder has elected to participate in such Transfer,
each such Class B Holder shall be entitled to sell in the contemplated Transfer,
at the same price and on the same terms, a number of shares equal to the product
of (i) the quotient determined by dividing the number of shares owned by such
Class B Holder by the aggregate number of shares of Common Stock (other than
Class A Common) outstanding on a fully diluted basis prior to giving effect to
such Transfer and (ii) the aggregate number of shares to be sold in the
contemplated Transfer. Each Class B Holder transferring shares in a Transfer
shall pay its pro rata share (based on the number of shares to be sold) of the
expenses incurred by the securityholders in connection with such transfer.
Notwithstanding the foregoing, the following Transfers shall not be subject
to participation rights: any Transfer of shares by any Fund Investor (i) among
its Affiliates, employees and consultants, (ii) to any employee, prospective
employee, director or prospective director of Holdings or any Affiliate of
Holdings, (iii) to any former or prospective employee, director or prospective
director of an Investor or any Affiliate of such Affiliate or (iv) to any person
in order to resolve a certain regulatory issues. In addition, these restrictions
and obligations shall not apply to a Transfer or Transfers by Fund Investors of
shares representing an aggregate of up to 5% of Holdings' outstanding shares of
Common Stock (other than Class A Common) or in connection with registered public
sales or Rule 144 sales by the Fund Investors.
In addition, the Securityholders Agreement confers upon each Class B Holder
drag-along rights, which provide that in the event of a sale of Holdings to an
Independent Third Party or group of Independent Third Parties (as defined in the
Securityholders Agreement) pursuant to which such party or parties acquire (i)
capital stock of Holdings possessing the voting power under normal circumstances
to elect a majority of Holdings' Board of Directors (whether by merger,
consolidation, sale, transfer or exchange of Holdings' capital stock) or (ii)
all or substantially all of Holdings' assets determined on a consolidated basis
approved by the Board of Directors of Holdings and with respect to which all
holders of Common Stock (other than the Class A Common) receive or are generally
offered the same form and amount of per share consideration each Class B Holder
shall sell all of the shares of Class B Common held by it. In the event of a
sale subject to these drag-along rights, each Class B Holder will be obligated
to (i) consent to and raise no objections against the sale and (ii) waive any
dissenter's rights and other similar
148
rights, and (iii) take all reasonably necessary and desirable actions as
directed by the Board in connection with the consummation of such sale,
provided, that each Class B Holder shall only be required to make customary and
reasonable representations, warranties and indemnities regarding its title to
and ownership of its shares. The obligations of the Class B Holders with respect
to sale are subject to the receipt by Holdings from a nationally recognized
investment bank of a written fairness opinion that the consideration received by
the securityholders is fair and adequate. Class B Holders are liable for their
pro rata share of expenses incurred in connection with a drag-along sale.
The drag-along and participation rights set forth in the Securityholders
Agreement terminate upon the completion of (i) a sale subject to the drag-along
rights or (ii) an underwritten registered public offering of shares of Common
Stock resulting in gross proceeds of at least $30.0 million.
149
DESCRIPTION OF CERTAIN INDEBTEDNESS
OLD CREDIT AGREEMENT
On January 30, 1995, Anvil, Holdings and their subsidiaries, as guarantors,
entered into the Old Credit Agreement with NationsBank, N.A. (Carolinas), as
Agent, and The Chase Manhattan Bank, N.A., as Documentation Agent, for various
lending institutions thereto. The Old Credit Agreement provided for Term Loans
of $52.5 million in the form of a dual-tranche facility and a revolving credit
facility, as amended, of up to $47.5 million, which included a $5.0 million
sublimit for issuance of letters of credit. The Company used the proceeds of the
Old Credit Agreement to finance a portion of the Acquisition, to pay fees
incurred in connection with the Acquisition and to provide for working capital
and general corporate purposes.
The maturity and interest rates of the Term Loans varied by tranche. The
Tranche A Term Loan was a six-year term loan in the principal amount of $37.5
million due quarterly in variable amounts from April 29, 1995 through February
3, 2001. The Tranche B Term Loan was a seven-year term loan in the principal
amount of $15.0 million due quarterly in variable amounts from April 29, 1995
through February 2, 2002. The Company's borrowing availability under the
revolving credit facility was based on a formula incorporating 85% of eligible
receivables, 60% of eligible raw materials inventory and 50% of eligible
finished goods inventory (each as defined in the Old Credit Agreement).
NEW CREDIT AGREEMENT
Anvil, along with Holdings and its subsidiaries (excluding Anvil), as
guarantors, entered into the New Credit Agreement with NationsBank, N.A., as
Agent for various lending institutions thereto (the "Agent") and Bank of America
Illinois, Banque Nationale de Paris and Heller Financial, Inc., as co-agents.
The New Credit Agreement provides for a revolving credit facility of up to $55.0
million, which includes a $5.0 million sublimit for issuance of standby and
commercial letters of credit. The Company used $33.3 million of the borrowings
under the New Credit Agreement to finance a portion of the Recapitalization. The
New Credit Agreement is available for working capital and general corporate
purposes, including acquisitions in an aggregate amount not to exceed $20.0
million. Indebtedness under the New Credit Agreement is guaranteed by Holdings
and all existing and after-acquired domestic subsidiaries of the Company. The
Agent has a first priority perfected security interest in all assets and
properties of Anvil and its domestic subsidiaries. In addition, the Agent
received a pledge of all of the capital stock of Anvil and its domestic
subsidiaries. The revolving credit facility terminates and all amounts
outstanding will be due and payable in five years from the closing.
As of May 3, 1997, Anvil had borrowings of $26.5 million under the New
Credit Agreement and had $28.5 million of additional borrowing availability.
Anvil's borrowing availability under the revolving credit facility is based on a
formula incorporating: (i) 85% of eligible receivables; (ii) 60% of eligible raw
materials inventory; (iii) 50% of eligible finished goods inventory; and (iv)
50% of appraised equipment and real property (each as defined in the New Credit
Agreement). Interest on borrowings under the revolving credit facility is
payable at a rate equal to LIBOR or the Alternate Base Rate (defined as the
higher of (i) the lender's prime rate and (ii) the Federal Funds rate plus
0.50%), each plus an applicable margin. Anvil may select various interest
periods for LIBOR loans, subject to availability. The applicable margins for
borrowing under the revolving credit facility range from 1.25% to 2.50% for
LIBOR loans, range from 0.25% to 1.50% for Alternate Base Rate loans and is
determined based upon the results of a financial ratio calculation. There is a
per annum commitment fee calculated on the unused portion of the revolving
credit facility and payable quarterly. The commitment fee varies based upon the
results of a financial ratio calculation and ranges from 0.31% to 0.50%. Letter
of credit fees are due quarterly and are equal to the interest rate spread on
LIBOR loans on a per annum basis plus a fronting fee of 0.25% per annum.
150
The New Credit Agreement requires prepayment of the revolving credit
facility by an amount equal to 100% of the cash proceeds from all assets sales
by Holdings or any subsidiary, subject to certain exceptions.
The New Credit Agreement requires the Company to meet certain financial
tests (as defined therein), including minimum net worth, minimum fixed charge
coverage ratio, interest coverage and maximum leverage ratio. The New Credit
Agreement also contains covenants which, among other things, limit: (i) the
incurrence of additional indebtedness; (ii) payment of dividends; (iii)
transactions with affiliates; (iv) asset sales, acquisitions and mergers; (v)
prepayments of other indebtedness; (vi) creation of liens and encumbrances; and
(vii) other matters customarily restricted in such agreements. The New Credit
Agreement will contain customary events of default, including: (i) payment
defaults; (ii) breach of representations and warranties; (iii) covenant
defaults; (iv) cross-defaults to certain other indebtedness; (v) certain events
of bankruptcy and insolvency; (vi) ERISA; (vii) judgment defaults; (viii)
failure of any guaranty or security agreement supporting the New Credit
Agreement to be in full force; and (ix) Change in Control (as defined therein).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "Service") will not take a contrary view,
and no ruling from the Service has been or will be sought. Legislative, judicial
or administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies, tax
exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. Anvil recommends that each
holder consult such holder's own tax advisor as to the particular tax
consequences of exchanging such holder's Old Senior Notes for New Senior Notes,
including the applicability and effect of any state, local or foreign tax laws.
In the opinion of Kirkland & Ellis, counsel to Anvil, the exchange of Old
Senior Notes for New Senior Notes pursuant to the Exchange Offer will not be
treated as an "exchange" for federal income tax purposes because the New Senior
Notes will not be considered to differ materially in kind or extent from the Old
Senior Notes. Rather, the New Senior Notes received by a holder will be treated
as a continuation of the Old Senior Notes in the hands of such holder. As a
result, there will be no federal income tax consequences to holders exchanging
Old Senior Notes for New Senior Notes pursuant to the Exchange Offer.
151
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Senior 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 Senior 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 Senior Notes
received in exchange for Old Senior Notes where such Old Senior Notes were
acquired as a result of market-making activities or other trading activities.
Anvil 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 October 22, 1997 (90 days after the commencement of the Exchange
Offer), all dealers effecting transactions in the New Senior Notes, whether or
not participating in this distribution, may be required to deliver a Prospectus.
Anvil will not receive any proceeds from any sales of the New Senior Notes
by Participating Broker-Dealers. New Senior Notes received by Participating
Broker-Dealers for their own accounts 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 Senior 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 Senior Notes. Any Participating Broker-Dealer that resells the New
Senior 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 Senior Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Senior 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, Anvil will promptly,
upon request and in no event more than five business days after such request,
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.
The Initial Purchasers or their affiliates may have provided and may in the
future provide investment banking or other financial services to 399 Venture,
BRS, Vestar, Holdings, Anvil and their affiliates in the ordinary course of
business. Peter H. Rothschild, a former Director of Anvil and Holdings, is a
Managing Director of Wasserstein Perella & Co., Inc., an Initial Purchaser in
the Initial Offering. In June 1996, the Board authorized the sale of 5,000
shares of Old Common Stock to Peter H. Rothschild for a purchase price of $0.64
per share. The sale was completed thereafter. Pursuant to the Recapitalization,
Mr. Rothschild resigned as a Director of Anvil and Holdings and his Old Common
Stock was repurchased.
NationsBank, an affiliate of NationsBanc Capital Markets, Inc., is a lender
and agent under the Old Credit Agreement and served in a similar capacity under
the New Credit Agreement, for which it received customary fees. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Certain Indebtedness."
LEGAL MATTERS
The validity of the issuance of the New Senior Notes will be passed upon for
Anvil by Kirkland & Ellis, Chicago, Illinois (a partnership which includes
professional corporations).
152
EXPERTS
The combined statements of operations and cash flows of the Predecessor, for
the year ended January 28, 1995, included in this prospectus and the related
financial statement schedule included elsewhere in the registration statement
have been audited by KPMG Peat Marwick LLP, independent auditors, as stated in
their report appearing herein and elsewhere in the registration statement, and
are included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The consolidated financial statements of the Company as of January 27, 1996
and February 1, 1997 and for the years then ended, included in this prospectus
and the related financial statement schedule included elsewhere in the
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
registration statement, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
153
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The financial statements presented herein reflect the consolidated financial
statements of the Company. Holdings has no independent operations apart from its
wholly owned subsidiary, Anvil, and its sole asset is the capital stock of
Anvil. The following unaudited pro forma statements of operations (the "Pro
Forma Financial Statements") have been derived by the application of pro forma
adjustments to the Company's historical consolidated statements of operations
included elsewhere in this Prospectus. The unaudited pro forma statements of
operations for the year ended February 1, 1997 and the three months ended May 3,
1997 give effect to the Recapitalization, including the Initial Offerings and
the application of the net proceeds therefrom as described in Note a. of the
Notes to the Unaudited Pro Forma Financial Statements as if such transactions
had been consummated on January 28, 1996. The Pro Forma Financial Statements
should not be considered indicative of actual results that would have been
achieved had the Recapitalization been consummated on the date or for the
periods indicated and do not purport to indicate results of operations as of any
future date or for any future period. The Pro Forma Financial Statements should
be read in conjunction with the Company's historical financial statements and
the notes thereto included elsewhere in the Prospectus.
The Old Senior Notes surrendered in exchange for the New Senior Notes will
be retired and canceled and cannot be reissued. Likewise, the Old Senior
Preferred Stock surrendered in exchange for the New Senior Preferred Stock will
be retired and canceled and cannot be reissued. Accordingly, neither the
issuance of the New Senior Notes nor the New Senior Preferred Stock will result
in any increase or decrease in the indebtedness of the Company. As such, no
effect has been given to the Exchange Offers in the Unaudited Pro Forma
Financial Data.
P-1
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 1, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- --------------- --------------
Net sales............................................... $ 204,154 $ -- $ 204,154
Cost of good sold....................................... 156,813 -- 156,813
---------- ------- --------------
Gross profit............................................ 47,341 -- 47,341
Selling, general and administrative expenses............ 21,678 -- 21,678
Amortization of intangible assets....................... 958 -- 958
---------- ------- --------------
Operating income........................................ 24,705 -- 24,705
Other income (expense):
Interest expense...................................... (7,912) (9,847)(b) (17,759)
Interest income and other--net........................ 415 -- 415
---------- ------- --------------
Income before provision for income taxes................ 17,208 9,847 7,361
Provision for income taxes.............................. 6,883 (3,938)(c) 2,945
---------- ------- --------------
Net income.............................................. $ 10,325 $ (5,909) $ 4,416(d)
---------- ------- --------------
---------- ------- --------------
Pro forma net income (loss) per share (f):
Class A Common Stock.................................. $ 12.20
--------------
--------------
Class B Common Stock.................................. $ (.90)
--------------
--------------
Weighted average shares outstanding:
Class A Common Stock.................................. 290
--------------
--------------
Class B Common Stock.................................. 3,590
--------------
--------------
OTHER DATA:
Cash interest expense................................. $ 6,036 $ 16,752(g)
EBITDA (h)............................................ $ 33,550 $ 33,550
Capital expenditures.................................. $ 4,815 $ 4,815
Depreciation and amortization......................... $ 8,245 $ 8,245
See notes to unaudited pro forma financial statements.
P-2
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MAY 3, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- --------------- ------------
Net sales................................................... $ 60,288 $ -- $ 60,288
Cost of good sold........................................... 45,859 -- 45,859
---------- --------------- ------------
Gross profit................................................ 14,429 -- 14,429
Selling, general and administrative expenses................ 6,128 -- 6,128
Special compensation........................................ 10,915 (10,915)(e) --
Amortization of intangible assets........................... 250 -- 250
---------- --------------- ------------
Operating (loss) income..................................... (2,864 ) (10,915) 8,051
Other income (expense):
Interest expense.......................................... (3,142 ) (1,171)(b) (4,313)
Interest income and other--net............................ (178 ) -- 178
---------- --------------- ------------
Income before provision for income taxes and extraordinary
item...................................................... (6,184 ) (9,744) 3,560
(Benefit) provision for income taxes........................ (2,474 ) 3,898(c) 1,424
---------- --------------- ------------
(Loss) income before extraordinary item..................... (3,710 ) 2,136(e)
---------- --------------- ------------
---------- --------------- ------------
Pro forma income (loss) per share before extraordinary items
(f):
Class A Common Stock...................................... $ 3.53
------------
------------
Class B Common Stock...................................... $ .00
------------
------------
Weighted average shares outstanding:
Class A Common Stock...................................... 290
------------
------------
Class B Common Stock...................................... 3,590
------------
------------
OTHER DATA:
Cash interest expense..................................... $ 2,996 $ 4,071(g)
EBITDA (h)................................................ $ 9,979 $ 9,979
Capital expenditures...................................... $ 1,231 $ 1,231
Depreciation and amortization............................. $ 1,928 $ 1,928
See notes to unaudited pro forma financial statements.
P-3
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
a. Presentation and Transactions:
The unaudited pro forma statements of operations assume the following
transactions occurred on January 28, 1996.
The Company used approximately $203.7 million to complete the
Recapitalization, including the payment of related fees and expenses. In order
to finance the Recapitalization: (i) Anvil issued $130.0 million in aggregate
principal amount of Senior Notes in the Offering; (ii) Holdings issued 30,000
Units, consisting of an aggregate of 1,200,000 shares of Senior Preferred Stock
and 390,000 shares of Class B Common, in the Units Offering for gross proceeds
of $26.7 million; (iii) Anvil borrowed approximately $32.0 million under the New
Credit Agreement; and (iv) BRS, 399 Venture and the Management Investors made a
cash Equity Contribution of $13.1 million to Holdings.
The following summarizes the sources and uses of funds relating to the
Recapitalization (in millions):
SOURCES:
Borrowings under the New Credit Agreement................................. $ 33.3
Senior Notes due 2007..................................................... 130.0
Units..................................................................... 26.7
Equity Contribution....................................................... 13.1
Other..................................................................... .6
---------
Total sources....................................................... $ 203.7
---------
---------
USES:
Repay borrowings under the Old Credit Agreement........................... $ 61.1
Repay the Subordinated Note............................................... 9.5
Redeem or exchange the Old Preferred Stock................................ 22.7
Repurchase shares of Old Common Stock..................................... 92.3
Payment under the Phantom Equity Plan..................................... 5.3
Payment of Management Bonus............................................... 0.5
Fees and expenses......................................................... 12.3
---------
Total uses.......................................................... $ 203.7
---------
---------
P-4
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
b. The pro forma adjustments to interest expense (in thousands):
THREE
YEAR ENDED MONTHS
FEBRUARY 1, ENDED
1997 MAY 3, 1997
--------------- -----------
Elimination of interest expense relating to Holdings' existing
debt agreements:
Old Credit Agreement......................................... $ (5,693) $ (1,224)
Subordinated Note............................................ (1,187) (121)
Amortization of deferred financing costs..................... (728) (91)
Accretion of discount on Subordinated Note................... (200) (25)
Additional interest expense related to:
Senior Notes (assuming 10.875% interest rate)................ 14,138 1,767
Amortization of deferred issuance costs related to the Senior
Notes...................................................... 678 98
Borrowings under New Credit Agreement (assuming 8.0% interest
rate)...................................................... 2,614 598
Amortization of deferred issuance cost related to New Credit
Agreement.................................................. 225 169
--------------- -----------
Pro forma adjustment......................................... $ 9,847 $ 1,171
--------------- -----------
--------------- -----------
c. The pro forma adjustment to provide income taxes at an effective rate of
approximately 40%.
d. Pro forma net income for the year ended February 1, 1997 does not include
total charges of $10.0 million, net of a tax benefit of $6.6 million
consisting of the following items: (i) $1.1 million, net of a tax benefit of
$0.7 million of a loss on extinguishment of the Subordinated Note; (ii) $2.3
million, net of a tax benefit of $1.5 million for the write-off of deferred
financing costs; (iii) $3.5 million, net of a tax benefit of $2.3 million of
compensation to management (of the $5.8 million pretax amount, $5.3 million
is payable pursuant to the Phantom Equity Plan and the balance of $0.5
million represents transaction bonuses); and (iv) $3.1 million, net of a tax
benefit of $2.1 million for compensation expense recorded in connection with
the exercise of stock options by management. If the above charges were
included in net income, the net loss on a pro forma basis would be $5.6
million.
e. Pro forma income before extraordinary item for the three months ended May 3,
1997 does not include total charges of $9.3 million, net of a tax benefit of
$6.3 million consisting of the following items: (i) $0.9 million, net of a
tax benefit of $0.7 million of a loss on extinguishment of the Subordinated
Note; (ii) $1.8 million, net of a tax benefit of $1.2 million for the
write-off of deferred financing costs; (iii) $3.5 million, net of a tax
benefit of $2.3 million of compensation to management (of the $5.8 million
pretax amount, $5.3 million is payable pursuant to the Phantom Equity Plan
and the balance of $0.5 million represents transaction bonuses); and (iv)
$3.1 million, net of a tax benefit of $2.1 million for compensation expense
recorded in connection with the exercise of stock options by management.
P-5
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
f. Pro forma net income (loss) per share is computed by dividing net income
(loss) applicable to each class of Common Stock by the average number of
shares of such stock outstanding, as follows (in thousands):
THREE
YEAR ENDED MONTHS
FEBRUARY 1, ENDED
1997 MAY 3, 1997
--------------- -----------
Pro forma net income........................................... $ 4,416 $ 2,136
Less: Preferred dividends...................................... (4,094) (1,108)
Class A common preference.................................. (3,798) (1,025)
------- -----------
Net (loss) income applicable to common stockholders............ $ (3,476) $ 3
------- -----------
------- -----------
Preference per Class A common share............................ $ 13.10 $ 3.53
Net loss per common share...................................... (.90) .00
------- -----------
Net income per Class A common share............................ $ 12.20 $ 3.53
------- -----------
------- -----------
Net loss per Class B common share.............................. $ (0.90) $ .00
------- -----------
------- -----------
g. Pro forma cash interest expense calculated as follows (in thousands)
THREE
YEAR ENDED MONTHS
FEBRUARY 1, ENDED
1997 MAY 3, 1997
--------------- -----------
Senior Notes (assuming 10.875% interest rate).................. $ 14,138 $ 3,473
New Credit Agreement (assuming 8% interest rate)............... 2,614 598
------- -----------
Pro forma adjustments.......................................... $ 16,752 $ 4,071
------- -----------
------- -----------
h. EBITDA is defined as operating income plus depreciation and amortization.
For the year ended February 1, 1997 EBITDA excludes a non-cash charge of
$0.6 million for the disposal of certain fixed assets and in the three month
period ended May 3, 1997 excludes non-recurring items of $10.9 million of
charges for special compensation. EBITDA is not a measure of performance
under GAAP. EBITDA should not be considered in isolation or as a substitute
for net income, cash flows from operating activities and other income or
cash flow statement data prepared in accordance with GAAP, or as a measure
of profitability or liquidity. Management believes, however, that EBITDA
represents a useful measure of assessing the performance of the Company's
ongoing operating activities as it reflects earnings trends of the Company
without the impact of purchase accounting applied in connection with the
Acquisition. In addition, management believes EBITDA is a widely accepted
financial indicator of company's ability to service and/or incur
indebtedness. EBITDA should not be construed as an indication of the
Company's operating performance or as a measure of liquidity. EBITDA does
not take into account the Company's debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary uses. The EBITDA measure presented in
this Prospectus may not be comparable to other similarly titled measures of
other companies.
P-6
INDEX TO FINANCIAL STATEMENTS
PAGE
----
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Accountants--Holdings............................................................ F-2
Report of Independent Accountants--Predecessor......................................................... F-3
Consolidated Balance Sheets of the Company at January 27, 1996, February 1, 1997 and May 3, 1997
(unaudited)........................................................................................... F-4
Combined Statements of Operations of the Predecessor for the year ended January 28, 1995 and
Consolidated Statements of Operations of the Company for the years ended January 27, 1996 and February
1, 1997 and the quarters ended April 27, 1996 (unaudited) and May 3, 1997 (unaudited)................. F-5
Consolidated Statements of Changes in Stockholders' Equity of the Company for the years ended January
27, 1996, February 1, 1997 and the quarter ended May 3, 1997 (unaudited).............................. F-6
Combined Statements of Cash Flows of the Predecessor for the year ended January 28, 1995 and
Consolidated Statements of Cash Flows of the Company for the years ended January 27, 1996 and February
1, 1997 and the quarters ended April 27, 1996 (unaudited) and May 3, 1997 (unaudited)................. F-7
Notes to Combined and Consolidated Financial Statements................................................ F-8
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Anvil Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Anvil
Holdings, Inc. and subsidiaries as of January 27, 1996 and February 1, 1997 and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. 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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Anvil Holdings,
Inc. and subsidiaries as of January 27, 1996 and February 1, 1997 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
March 28, 1997
F-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Anvil Knitwear
We have audited the accompanying combined statement of operations and cash
flows of Anvil Knitwear (a division of McGregor Corporation, which is a
subsidiary of Astrum International Corp.) for the year ended January 28, 1995.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Anvil Knitwear for the year ended January 28, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, Anvil Knitwear was sold
by McGregor Corporation upon the close of business on January 28, 1995.
KPMG PEAT MARWICK LLP
New York, New York
March 24, 1995
F-3
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JANUARY 27, FEBRUARY 1,
1996 1997 MAY 3, 1997
----------- ----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 1,568 $ 1,863 $ 1,405
Accounts receivable, less allowances for doubtful accounts of $451,
$874 and $616....................................................... 21,920 28,517 32,862
Inventories........................................................... 33,927 32,471 30,325
Prepaid and refundable income taxes................................... 4,782 3,305 5,792
Deferred income taxes................................................. 1,062 1,629 1,629
Prepaid expenses and other current assets............................. 644 423 1,262
----------- ----------- -----------
Total current assets.............................................. 63,903 68,208 73,275
PROPERTY, PLANT AND EQUIPMENT--Net...................................... 40,539 38,830 38,370
INTANGIBLE ASSETS--Net.................................................. 27,403 26,568 26,195
OTHER ASSETS............................................................ 4,682 3,226 4,748
----------- ----------- -----------
$ 136,527 $ 136,832 $ 142,588
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Revolving credit facility borrowings.................................. $ 27,600 $ 14,400 $ 26,500
Accounts payable...................................................... 7,522 9,360 10,097
Accrued expenses and other current liabilities........................ 8,771 10,130 12,656
Current portion of long-term bank borrowings.......................... 3,850 4,850 --
----------- ----------- -----------
Total current liabilities......................................... 47,743 38,740 49,253
LONG-TERM BANK BORROWINGS............................................... 46,325 41,475 --
SUBORDINATED PROMISSORY NOTE............................................ 6,682 7,869 --
10 7/8% SENIOR NOTES.................................................... -- -- 126,153
DEFERRED INCOME TAXES................................................... 1,046 3,535 1,697
OTHER LONG-TERM OBLIGATIONS............................................. 1,723 1,827 1,934
REDEEMABLE PREFERRED STOCK (Liquidation value $30,488).................. -- -- 28,164
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock - old............................................... 2 2 --
Common stock - old.................................................. 101 101 --
Common stock - new:.................................................
Class A, $.01 par value, 12.5% cumulative; authorized 500,000
shares, issued and outstanding at May 3, 1997: 290,000
(aggregate liquidation value, $29,450).......................... 3
Class B, $.01 par value, authorized 7,500,000 shares; issued and
outstanding at May 3, 1997: 3,590,000 shares.................... 36
Class C, $.01 par value; authorized 1,400,000 shares; none
issued.......................................................... --
Additional paid-in capital.......................................... 23,001 23,054 12,801
Retained earnings (deficit)......................................... 10,154 20,479 (77,453)
Loans receivable-stockholders....................................... (250) (250) --
----------- ----------- -----------
Total stockholders' equity (deficiency)........................... 33,008 43,386 (64,613)
----------- ----------- -----------
$ 136,527 $ 136,832 $ 142,588
----------- ----------- -----------
----------- ----------- -----------
See notes to combined and consolidated financial statements.
F-4
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PREDECESSOR
(COMBINED) THE COMPANY (CONSOLIDATED)
----------- -----------------------------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
JANUARY 28, JANUARY 27, FEBRUARY 1, THREE THREE
1995 1996 1997 MONTHS MONTHS
----------- ----------- ----------- ENDED APRIL ENDED MAY
27, 1996 3, 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
NET SALES.................................... $169,923 $193,389 $204,154 $58,552 $60,288
COST OF GOODS SOLD........................... 131,906 149,723 156,813 46,836 45,859
----------- ----------- ----------- ----------- -----------
Gross profit........................... 38,017 43,666 47,341 11,716 14,429
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................... 14,704 17,778 21,678 5,276 6,128
SPECIAL COMPENSATION......................... -- -- -- -- 10,915
AMORTIZATION OF INTANGIBLE ASSETS............ 13,435 736 958 203 250
----------- ----------- ----------- ----------- -----------
Operating income....................... 9,878 25,152 24,705 6,237 (2,864)
OTHER INCOME (EXPENSE):
Interest expense........................... (227) (8,844) (7,912) (1,710) (3,142)
Interest income and other expense--net..... 2,451 616 415 (447) (178)
----------- ----------- ----------- ----------- -----------
Income (loss) before provision
(benefit) for income taxes........... 12,102 16,924 17,208 4,080 (6,184)
PROVISION (BENEFIT) FOR INCOME TAXES......... 11,045 6,770 6,883 1,632 (2,474)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)............................ $ 1,057 $ 10,154 $ 10,325 $ 2,448 $(6,467)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Less Preferred Stock dividends............. (4,094) (1,108)
Less Common A Preference................... (3,798) (1,025)
----------- -----------
Net income (loss) attributable to common
shareholders............................. $ 2,433 $(8,600)
----------- -----------
----------- -----------
PRO FORMA INCOME (LOSS) PER COMMON SHARE:
Class A Common Stock:
Income before extraordinary item........... $ 13.72 $ 2.03
Extraordinary item......................... -- (.71)
----------- -----------
Net income................................. $ 13.72 $ 1.32
----------- -----------
----------- -----------
Class B Common Stock:
Income (loss) before extraordinary item.... $ .63 $ (1.51)
Extraordinary loss......................... -- (.71)
----------- -----------
Net loss................................... $ .63 (2.22)
----------- -----------
----------- -----------
Weighted average shares used in computation
of pro forma income (loss) per share:
Class A Common............................. 290 290
Class B Common............................. 3,590 3,590
----------- -----------
----------- -----------
See notes to combined and consolidated financial statements.
F-5
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
THE COMPANY
(CONSOLIDATED)
-----------------------------------------------------------------------------------------
COMMON STOCK (OLD) COMMON
PREFERRED STOCK STOCK (NEW)
------------------ ------------------ -----------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A B C A B C A
----- ----- ----- ----- ----- ----- -----
Balance at January 29, 1995........... $ 1 $ 1 $ -- $ 58 $ 26 $ 17 $ --
Net income............................
----- ----- ----- --- --- --- -----
Balance at January 27, 1996........... 1 1 -- 58 26 17 --
Exercise of stock options............. --
Net income............................
----- ----- ----- --- --- --- -----
Balance at February 1, 1997........... 1 1 -- 58 26 17 --
Exercise of stock options
(unaudited)......................... 5
Repurchase and exchange of Old Common
Stock (unaudited)................... (58) (31) (17) 2
Redemption and exchange of Old
Preferred Stock (unaudited)......... (1) (1)
Common shares issued in Units Offering
(unaudited).........................
Repayment of stockholder loans
(unaudited).........................
Issuance of new common stock
(unaudited)......................... 1
Offering expenses attributable to the
sale of common stock (unaudited)....
Net loss (unaudited)..................
----- ----- ----- --- --- --- -----
Balance at May 3, 1997 (unaudited).... $ -- $ -- $ -- $ -- $ -- $ -- $ 3
----- ----- ----- --- --- --- -----
----- ----- ----- --- --- --- -----
ADDITIONAL LOANS
CLASS CLASS PAID-IN RETAINED RECEIVABLE--
B C CAPITAL EARNINGS STOCKHOLDERS TOTAL
----- ----- ----------- ----------- ------------- ---------
Balance at January 29, 1995........... $ -- $ -- $ 23,001 $ -- $ (250) $ 22,854
Net income............................ 10,154 10,154
----- ----- ----------- ----------- ------------- ---------
Balance at January 27, 1996........... -- -- 23,001 10,154 (250) 33,008
Exercise of stock options............. 53 53
Net income............................ 10,325 10,325
----- ----- ----------- ----------- ------------- ---------
Balance at February 1, 1997........... -- -- 23,054 20,479 (250) 43,386
Exercise of stock options
(unaudited)......................... 5,507 5,512
Repurchase and exchange of Old Common
Stock (unaudited)................... 19 (8,563) (85,440) (94,088)
Redemption and exchange of Old
Preferred Stock (unaudited)......... (19,998) (6,025) (26,025)
Common shares issued in Units Offering
(unaudited)......................... 4 386 390
Repayment of stockholder loans
(unaudited)......................... 250 250
Issuance of new common stock
(unaudited)......................... 13 13,049 13,063
Offering expenses attributable to the
sale of common stock (unaudited).... (634) (634)
Net loss (unaudited).................. (6,467) (6,467)
----- ----- ----------- ----------- ------------- ---------
Balance at May 3, 1997 (unaudited).... $ 36 $ -- $ 12,801 $ (77,453) $ -- $ (64,613)
----- ----- ----------- ----------- ------------- ---------
----- ----- ----------- ----------- ------------- ---------
See notes to combined and consolidated financial statements.
F-6
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PREDECESSOR THE COMPANY
(COMBINED) (CONSOLIDATED)
----------- --------------------------------------------------
YEAR YEAR YEAR THREE THREE
ENDED ENDED ENDED MONTHS MONTHS
JANUARY 28, JANUARY 27, FEBRUARY 1, ENDED APRIL ENDED MAY
1995 1996 1997 27, 1996 3, 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................... $ 1,057 $ 10,154 $ 10,325 $ 2,448 $ (6,467)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization................................. 18,761 6,463 7,287 1,577 1,678
Amortization of other assets.................................. -- 728 728 385 461
Write-off of inventory step-up................................ -- 1,746 -- -- --
Provision for accounts receivable allowances.................. 993 451 440 -- --
Write down of property and equipment.......................... -- -- 600 -- --
Noncash interest expense...................................... -- 1,182 1,187 310 1,827
Write-off of deferred financing fees.......................... -- -- -- -- 3,010
Noncash compensation.......................................... -- -- -- -- 5,176
Deferred income taxes......................................... 831 1,656 1,922 -- --
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable........................................... (3,181) 683 (5,878) (14,866) (4,411)
Inventories................................................... (6,589) (8,267) 2,917 6,480 2,146
Prepaid and refundable income taxes........................... -- (4,782) 1,477 3,062 (2,487)
Accounts payable.............................................. 3,208 913 707 664 737
Accrued expenses.............................................. (54) (893) 1,169 2,116 2,526
Other--net.................................................... (1,372) (2,871) 930 (209) (2,464)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities................... 13,654 7,163 23,811 1,967 1,732
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired............................... -- -- (1,728) -- --
Purchases of property and equipment, net........................ (7,888) (7,703) (4,791) (564) (1,231)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities....................... (7,888) (7,703) (6,519) (564) (1,231)
----------- ----------- ----------- ----------- -----------
F-7
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
YEAR YEAR YEAR THREE THREE
ENDED ENDED ENDED MONTHS MONTHS
JANUARY 28, JANUARY 27, FEBRUARY 1, ENDED APRIL ENDED MAY
1995 1996 1997 27, 1996 3, 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under new credit agreement........................... -- -- -- -- 33,250
Repayments to new credit agreement.............................. -- -- -- -- (6,750)
Borrowings under old revolving credit facility.................. -- 9,400 15,100 4,200 3,200
Repayment to old revolving credit facility...................... -- (6,300) (28,300) (3,700) (17,600)
Repayments of long-term debt.................................... -- (2,325) (3,850) (775) (46,325)
Proceeds from exercise of stock options......................... -- -- 53 48 336
Repayment of Subordinated Promissory Note....................... -- -- -- -- (9,575)
Proceeds of Senior Notes........................................ -- -- -- -- 130,000
Redemption of Old Preferred Stock............................... -- -- -- -- (22,736)
Repurchase of Old Common Stock.................................. -- -- -- -- (94,088)
Proceeds from sale of Units..................................... -- -- -- -- 26,667
Issuance of New Common Stock.................................... -- -- -- -- 13,063
Repayment of stockholder loans.................................. -- -- -- -- 250
Expenses related to the Recapitalization........................ -- -- -- -- (10,651)
Advances to McGregor Corporation................................ (5,313) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by financing activities......... (5,313) 775 (16,997) (227) (959)
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 453 235 295 1,176 (458)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...................... 546 1,333 1,568 1,568 1,863
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR............................ $ 999 $ 1,568 $ 1,863 $ 2,744 $ 1,405
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest.......................................... $ 227 $ 5,946 $ 6,036 $ 1,610 $ 1,776
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Cash paid for income taxes...................................... -- $ 9,834 $ 3,484 $ (1,430) $ 13
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Fair value of assets acquired, excluding cash................... $ 3,049
Liabilities assumed............................................. (1,194)
Expenses incurred............................................... (127)
-----------
Cash paid....................................................... $ 1,728
-----------
-----------
Promissory note issued $ 250
-----------
-----------
Exchange of Old Preferred Stock into Units...................... $ 3,333
-----------
-----------
See notes to combined and consolidated financial statements.
F-8
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. ACQUISITIONS
On January 28, 1995, Anvil Holdings, Inc. (the "Company") and its
wholly-owned subsidiary, Anvil Knitwear, Inc. ("Anvil"), acquired the assets and
assumed certain liabilities of the Anvil Knitwear division from McGregor
Corporation ("McGregor") (the "Acquisition") for an aggregate purchase price of
approximately $105,000, plus acquisition costs. The Acquisition was funded with
the proceeds of $20,000 of preferred stock, $6,400 of common stock, $52,500 of
long-term bank debt, $7,500 in subordinated notes and the balance with a
revolving line of credit.
The Acquisition was a leveraged buyout transaction in which Culligan
International Company ("Culligan"), an affiliate of McGregor, retained an
ownership interest of approximately 30.6% in the common stock of the Company.
Accordingly, in allocating the purchase price to the net assets acquired, the
net assets were valued at the sum of (i) their carryover cost basis to the
extent of 30.6% plus (ii) their estimated fair market values, to the extent of
the new ownership interest 69.4%. The excess of the purchase price over the
estimated fair value of the net assets acquired, related to the new ownership
interest, which amounted to approximately $23,000, was recognized as goodwill
and is being amortized over a period of 35 years. The fair market value
attributable to the interest in the net assets retained by the predecessor owner
has been recorded as a reduction to stockholders' equity.
In connection with the Acquisition, the Company also acquired the entire
ownership interest in Anvil s.r.o., an entity located in the Czech Republic.
Concurrent with the Acquisition, the Company determined to close down the
operations of Anvil s.r.o. and accordingly, provided for the estimated closedown
costs in recording the assets acquired and liabilities assumed from the
Acquisition.
On January 31, 1997, Anvil completed the acquisition of certain assets and
assumption of certain liabilities of Cottontops, a marketer and distributor of
activewear products which, prior to the acquisition, sold finished activewear
products to the Company as well as directly into the retail market. The
aggregate amount of consideration payable in connection with this acquisition
(including the Company's assumption of certain liabilities) totaled $3.5
million, subject to adjustments in certain circumstances. The acquisition has
been accounted for using the purchase method of accounting. The Company will
consolidate the results of operations of Cottontops commencing February 2, 1997.
The fair value of assets acquired and liabilities assumed, as included in the
consolidated balance sheet at February 1, 1997, is based upon management's
estimates using currently available information. Management's final estimates as
to such fair value may differ from these preliminary estimates after completion
of asset appraisals and adjustments to the closing balance sheet, if any.
Consequently, the allocation of purchase price as reflected in the accompanying
balance sheet is preliminary and subject to adjustment based upon a final
determination of net assets acquired and liabilities assumed. Adjustments, if
any to either the allocation of the purchase price to assets acquired and
liabilities assumed, or to the purchase price itself, will be recorded in the
consolidated financial statements when finalized.
2. RECAPITALIZATION AND NOTES AND UNITS OFFERINGS (UNAUDITED)
Effective March 14, 1997, the Company Anvil VT, Inc., Vestar Equity
Partners, L.P. ("Vestar"), 399 Venture Partners, Inc. and certain of its
employees and affiliates (collectively, "399 Venture"), the Management Investors
(as defined) and other existing shareholders of the Company (collectively, the
"Existing Shareholders") and Bruckmann, Rosser, Sherill & Co., L.P. and certain
of its employees and affiliates (collectively, "BRS") completed a reorganization
(the "Reorganization") pursuant to which: (i) the Company redeemed or
repurchased all of its outstanding shares of capital stock; (ii) BRS
F-9
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2. RECAPITALIZATION AND NOTES AND UNITS OFFERINGS (UNAUDITED) (CONTINUED)
contributed $13,063 for the purchase of 1,415,797 shares new common stock; (iii)
399 Venture and the Management Investors reinvested 1,770,673 of their existing
shares of common stock of the Company, which were converted into 167,515 shares
of newly issued common stock; and (iv) 399 Venture exchanged 33,330 shares of
its existing preferred stock for 3,333 Units consisting of Senior Exchangeable
Preferred Stock and new common stock.
Concurrently with the Recapitalization, the Company sold 30,000 Units
consisting of $30,000, 13% Senior Exchangeable Preferred Stock due 2009, and
390,000 shares of Class B common stock (the "Units Offering"). The Senior
Exchangeable Preferred Stock was recorded at $27,656 representing the proceeds
of $30,000, less $390 allocated to the Class B common stock and $1,954 of
expenses attributable to the Units offering. Additionally, on March 14, 1997,
Anvil sold $130,000 of 10 7/8% Senior Notes due 2007 ("Senior Notes") in
connection with the Recapitalization.
The net proceeds from the Units and Notes offerings and borrowings under the
New Credit Agreement (see Note 8) were used by the Company to: (i) redeem the
outstanding common stock and preferred stock; (ii) repay the balance outstanding
under the Credit Agreement; (iii) repay the subordinated debt; (iv) pay fees and
expenses; (v) pay a management bonus; and (vi) pay amounts due in accordance
with the Phantom Equity Plan (see Note 17). During the three months ended May 3,
1997, the Company recorded a special compensation charge of $10,915, which
consists of the compensation recorded upon exercise of options by members of
management, payment of a special transaction bonus to management and payments
under a then existing equity buy-out plan to members of management.
The following summarizes the sources and uses of funds relating to the
Recapitalization (in millions):
SOURCES:
Borrowings under the New Credit Agreement................................. $ 33.3
Senior Notes due 2007..................................................... 130.0
Units..................................................................... 26.7
Equity Contribution....................................................... 13.1
Other..................................................................... .6
---------
Total sources....................................................... $ 203.7
---------
---------
USES:
Repay borrowings under the Old Credit Agreement........................... $ 61.1
Repay the Subordinated Note............................................... 9.5
Redeem or exchange the Old Preferred Stock................................ 22.7
Repurchase shares of Old Common Stock..................................... 92.3
Payment under the Phantom Equity Plan..................................... 5.3
Payment of Management Bonus............................................... 0.5
Fees and expenses......................................................... 12.3
---------
Total uses.......................................................... $ 203.7
---------
---------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--The Company is engaged in the business of designing, manufacturing
and marketing quality casual knitwear and athletic wear for men, women and
children. The Company markets and distributes its
F-10
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
products, under private label and brand names, primarily to wholesalers and
screen printers, principally in the United States. Anvil's operations are on a
"52/53-week" fiscal year ending on the Saturday closest to January 31.
BASIS OF PRESENTATION--THE COMPANY--The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries, after elimination of significant intercompany accounts and
transactions.
The accompanying unaudited consolidated financial statements as of May 3,
1997 and for the three months ended May 3, 1997 and April 27, 1996 have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended May 3, 1997 are not
necessarily indicative of the results that may be expected for the year ending
January 31, 1998 or any other period.
BASIS OF PRESENTATION--PREDECESSOR--The combined statement of operations and
cash flows of Anvil Knitwear, a division of McGregor Corporation ("McGregor"), a
wholly-owned subsidiary of Astrum International Corp. ("Astrum") include the
divisional accounts of McGregor that relate to Anvil Knitwear, the accounts of
Winston Mills, Inc., a subsidiary of McGregor ("Winston Mills"), whose operation
solely serviced Anvil Knitwear, and the accounts of Anvil Knitwear's
wholly-owned foreign subsidiary, Anvil s.r.o. All intercompany accounts and
transactions between Anvil Knitwear, Winston Mills and Anvil s.r.o. have been
eliminated.
ASTRUM REORGANIZATION--On May 25, 1993, the United States Bankruptcy Court
confirmed Astrum's amended plan of reorganization (the "Plan"). Pursuant to the
terms of the Plan, which became effective June 8, 1993, Astrum completed a
comprehensive financial reorganization which reduced its debt and interest
expense (the "reorganization").
The reorganization has been accounted for pursuant to the American Institute
of Certified Public Accountants Statement of Position 90-7, entitled FINANCIAL
REPORTING BY ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE" ("SOP 90-7").
SOP 90-7 requires that Astrum's assets be adjusted to their fair market value
("fresh-start" values), and that a new reporting entity be created. In adopting
"fresh-start" reporting, Astrum determined its reorganization value, which
approximated the fair value of Astrum before considering liabilities. In
allocating the reorganization value, Anvil's assets were recorded at their fair
value with the excess value reported as the intangible asset "reorganization
value in excess of amounts allocable to identifiable assets." The Plan and SOP
90-7 were adopted for accounting purposes on June 30, 1993.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include all highly
liquid investments with an original maturity of 90 days or less.
F-11
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are depreciated
for financial reporting purposes principally using the straight-line method over
the estimated useful lives of the assets, ranging from 4 to 25 years. Leasehold
improvements are amortized over the lesser of the estimated useful life or the
term of the lease.
INVENTORIES--Inventories, are stated at the lower of cost or market, with
cost being determined by the first-in, first-out (FIFO) method. Cost of goods
sold for the year ended January 27, 1996 includes approximately $1,746 of
charges related to the initial allocation of purchase price to inventory in
connection with the Acquisition.
INTANGIBLE ASSETS--Intangible assets of the Company consist of trademarks
and goodwill. Trademarks are being amortized over their estimated useful life of
17 years. Goodwill is being amortized over the period of expected benefit of 35
years. Intangible assets of the Predecessor consisted of the reorganization
value of the Predecessor in excess of amounts allocable to identifiable assets
and was being amortized on the straight-line method over three years.
EVALUATION OF LONG-LIVED ASSETS--Long-lived assets are assessed for
recoverability whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In evaluating an asset for
recoverability, the Company estimates the future cash flows expected to result
from the use of the asset and eventual disposition. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset an impairment loss, equal to the excess of the
carrying amount over the fair value of the asset, is recognized. There were no
adjustments to the carrying amount of long-lived assets for the years ended
January 27, 1996 or February 1, 1997 resulting from the Company's evaluation.
DEFERRED FINANCING FEES--Included in other assets are deferred financing
fees (approximately $3,800 and $3,100 at January 27, 1996 and February 1, 1997,
respectively), which are being amortized over approximately six years to
coincide with the term of the underlying credit agreement.
INTEREST RATE SWAPS--Gains and losses related to interest rate swaps that
qualify as hedges of existing liabilities are included in the carrying amount of
those liabilities and are ultimately recognized in income as adjustments to the
recorded interest expense. The Company does not hold or issue financial
instruments for trading or speculative purposes.
REVENUE RECOGNITION--Revenue is recognized at the time merchandise is
shipped. Allowances for sales returns and discounts are provided when sales are
recorded.
INCOME TAXES--Income taxes have been accounted for in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, ACCOUNTING FOR
INCOME TAXES, which requires the use of an asset and liability approach for
financial accounting and reporting of income taxes.
EARNINGS PER SHARE--Proforma income (loss) per share is computed based upon
the average outstanding shares attributable to the Class A and Class B Common
shares after the Recapitalization, and assuming the Recapitalization took place
at the beginning of the earliest period presented.
RECLASSIFICATIONS--Certain reclassifications have been made to prior years
financial statements to conform to current presentation.
F-12
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING FOR STOCK-BASED COMPENSATION--Effective January 28, 1996, the
Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. The
statement requires expanded disclosures of stock-based compensation arrangements
and encourages, but does not require, compensation cost to be measured based on
the fair value of the equity instrument awarded. The Company adopted only the
disclosure provision of SFAS No. 123 and continues to account for stock-based
compensation under APB No. 25 which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded.
NEW ACCOUNTING STANDARDS--Statement of Financial Accounting Standards
("SFAS") No. 128, EARNINGS PER SHARE, effective for interim and annual periods
ending after December 15, 1997, establishes standards for computing and
presenting earnings per share ("EPS") and simplifies the standards for computing
EPS currently found in Accounting Principles Board Opinion No. 15, EARNINGS PER
SHARE. Common stock equivalents under APB No. 15, with the exception of
contingently issuable shares (shares issuable for little or no cash
consideration), are no longer included in the calculation of primary, or basic
EPS. Under SFAS No. 128, contingently issuable shares are included in the
calculation of basic EPS. The Company will report EPS calculated in accordance
with SFAS No. 128 commencing with the fourth quarter of fiscal year ending
January 31, 1998. This change in reporting EPS is not expected to have a
material effect on reported EPS.
SFAS No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE, effective
for periods ending after December 15, 1997, establishes standards for disclosing
information about an entity's capital structure. This statement requires
disclosure of the pertinent rights and privileges of various securities
outstanding (stock, options, warrants, preferred stock, debt and participation
rights) including dividend and liquidation preferences, participant rights, call
prices and dates, conversion or exercise prices and redemption requirements.
Adoption of this statement will have no effect on the Company as it currently
discloses the information required.
4. INVENTORIES
JANUARY 27, FEBRUARY 1, MAY 3,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
Finished goods..................................................... $ 25,414 $ 21,545 $ 14,961
Work-in-process.................................................... 2,890 4,326 6,592
Raw materials and supplies......................................... 5,623 6,600 8,772
----------- ----------- -----------
$ 33,927 $ 32,471 $ 30,325
----------- ----------- -----------
----------- ----------- -----------
F-13
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
5. PROPERTY, PLANT AND EQUIPMENT
JANUARY 27, FEBRUARY 1,
1996 1997
----------- -----------
Land............................................................................ $ 882 $ 882
Buildings and improvements...................................................... 14,538 15,034
Machinery, equipment, furniture and fixtures.................................... 30,846 34,895
----------- -----------
46,266 50,811
Less accumulated depreciation and amortization.................................. (5,727) (11,981)
----------- -----------
$ 40,539 $ 38,830
----------- -----------
----------- -----------
The Company recorded a charge of $600 in the year ended February 1, 1997,
(equal to the amount by which the carrying value exceeded the fair value) for
the disposal of certain fixed assets.
6. INTANGIBLE ASSETS
JANUARY 27, FEBRUARY 1,
1996 1997
----------- -----------
Trademarks--net of accumulated amortization of $286 and $572.................... $ 4,572 $ 4,286
Goodwill--net of accumulated amortization of $450 and $1,122.................... 22,831 22,282
----------- -----------
$ $27,403 $ 26,568
----------- -----------
----------- -----------
7. ACCRUED EXPENSES
JANUARY 27, FEBRUARY 1,
1996 1997
----------- -----------
Accrued wages and bonuses....................................................... $ 2,766 $ 3,044
Other........................................................................... 6,005 7,086
----------- -----------
$ 8,771 $ 10,130
----------- -----------
----------- -----------
F-14
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
8. CREDIT AGREEMENT
Long-term debt is comprised of the following:
JANUARY 27, FEBRUARY 1,
1996 1997
----------- -----------
Bank Debt:
Tranche A......................................................... $ 35,250 $ 31,500
Tranche B......................................................... 14,925 14,825
----------- -----------
50,175 46,325
Less current portion................................................ 3,850 4,850
----------- -----------
$ 46,325 $ 41,475
----------- -----------
----------- -----------
On January 30, 1995, Anvil entered into a Credit Agreement, amended on
various dates through March 30, 1996 (the "Credit Agreement"), providing a
$47,500 credit facility for revolving loans (with a sublimit for letters of
credit of $5,000) and $52,500 of term loans, expiring January 30, 2001, subject
to certain maximum levels of borrowing based upon asset levels. The amount of
financing available under the revolving credit facility is based upon a formula
incorporating 85% of eligible receivables (80% prior to March 1996), 60% of
eligible raw materials inventory and 50% of eligible finished goods inventory,
all as defined in the Credit Agreement. As of January 27, 1996 and February 1,
1997 approximately $4,810 and $22,375, respectively, was available for borrowing
under the revolving credit facility.
Interest on direct borrowings is payable, at least quarterly, at either the
Base Rate (8.5% and 8.25% at January 27, 1996 and February 1, 1997) or at the
Eurodollar Rate (5.5% and 5.6% at January 27, 1996 and February 1, 1997,
respectively), each plus an applicable margin, at the election of Anvil. The
applicable margins for borrowings under the revolving credit facility range from
.75% to 1.25% for Base Rate loans and 2% to 2.5% for Eurodollar loans and are
determined quarterly based upon the results of a financial ratio calculation.
There is a commitment fee of .5% per annum on the unused portion of the
revolving credit facility, payable quarterly. Letter of credit fees are equal to
.5% of the amount drawn under letters of credit and 2.25% to 2.75% per annum,
determined quarterly based upon the results of a financial ratio calculation, on
the amount available for borrowings. At least once during each calendar year,
for a period of 30 consecutive days, the loans under the revolving credit
facility must be repaid so that the aggregate outstanding amount does not exceed
$25,000 during such 30-day period. Borrowings outstanding at January 27, 1996
and February 1, 1997 amounted to $27,600 and $14,600, respectively, and the
weighted average interest rate thereon was 7.73% and 8.0% at January 27, 1996
and February 1, 1997, respectively. The Company manages its exposure to interest
rate risk through interest rate swaps (see Note 13).
The term loans are comprised of two tranches. Tranche A is a six-year term
loan in the principal amount of $37,500 due quarterly in varying amounts from
April 29, 1995 through February 3, 2001. Amounts outstanding under the Tranche A
loan bear interest, payable at least quarterly, at either the Base Rate, plus an
applicable margin, or at the Eurodollar Rate, plus an applicable margin, at the
election of Anvil. The applicable margins for borrowings outstanding under
Tranche A range from 1% to 1.5% for Base Rate loans and 2.25% to 2.75% for
Eurodollar loans and are determined quarterly based upon the results of a
financial ratio calculation.
F-15
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
8. CREDIT AGREEMENT (CONTINUED)
Tranche B is a seven-year term loan in the principal amount of $15,000 due
quarterly in variable amounts commencing April 29, 1995 through February 2,
2002. Amounts outstanding under the Tranche B loans bear interest, payable at
least quarterly, at either the Base Rate, plus 2%, or at the Adjusted Eurodollar
Rate, plus 3.25%, at the election of Anvil. Borrowings outstanding at January
27, 1996 and February 1, 1997 under Tranche A and Tranche B were $50,175 and
$46,325, respectively and the prevailing interest rate was 8.24% and 8.25% at
January 27, 1996 and February 1, 1997, respectively.
Anvil is required to comply with various covenants, including maintaining
certain financial ratios and interest rate protection agreements (see Note 13),
restrictions on additional indebtedness, capital expenditures, declaration of
dividends, and acquisition of the Company's common stock. Additionally, the net
proceeds from certain asset sales must, in certain circumstances, be used to
prepay the term loans and Anvil may be obligated to make mandatory prepayments
of the term loans in the event of excess cash flow, as defined. All borrowings
under the credit facility are secured by substantially all of the assets of
Anvil, including accounts receivable, inventory and property and equipment.
Further, the Company has guaranteed repayment of these loans. All amounts under
the Credit Agreement were repaid on March 14, 1997 in connection with the
Recapitalization. In connection with the repayment of the Credit Agreement, the
Company will record a charge of $3,010 before a tax benefit of $1,204, to write
off the balance of the deferred financing fees.
NEW CREDIT AGREEMENT--In March 1997, Anvil entered into an Amended and
Restated Credit Agreement (the "New Credit Agreement") providing a $55,000
revolving credit facility, with a sublimit of $5,000 for letters of credit
expiring March 14, 2002, subject to certain maximum levels of borrowings based
upon asset levels. Anvil used $33,250 of the borrowings under the New Credit
Agreement to finance a portion of the Recapitalization.
Anvil's borrowing availability under the revolving credit facility is based
on a formula incorporating: (i) 85% of eligible receivables; (ii) 60% of
eligible raw materials inventory; (iii) 50% of eligible finished goods
inventory; and (iv) 50% of appraised equipment and real property (each as
defined in the New Credit Agreement). Interest on borrowings under the revolving
credit facility is payable at a rate equal to LIBOR or the Alternate Base Rate
(defined as the higher of (i) the lender's prime rate and (ii) the Federal
Funds rate plus 0.5%), each plus an applicable margin ranging from 1.25% to
2.50% for LIBOR loans and 0.25% to 1.50% for Alternate Base Rate loans,
determined based upon attainment of certain financial ratios. An annual
commitment fee ranging from 0.31% to 0.50% is payable on the unused portion of
the revolving credit facility.
The New Credit Agreement requires Anvil to comply with various covenants,
including maintaining certain financial ratios, additional indebtedness, the
payment of dividends, asset sales, acquisitions and mergers. Additionally, the
net proceeds from certain asset sales must, in circumstances, be used to prepay
borrowings under the credit facility. All borrowings under the credit facility
are secured by substantially all the assets of Anvil including accounts
receivable, inventories and property and equipment.
9. SENIOR NOTES
On March 14, 1997, Anvil issued $130,000 of 10 7/8% Senior Notes (the
"Senior Notes") due March 15, 2007, at a discount of $3,900. Interest on the
notes is payable semiannually on March 15 and September 15. Prior to March 15,
2000, the Company may redeem up to 40% of the aggregate principal amount of the
F-16
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
9. SENIOR NOTES (CONTINUED)
Senior Notes outstanding at a redemption price of 110%. The Company may redeem
the Senior Notes at a redemption price of 105.438%, 103.625%, and 101.813% at
any time during the 12-month period beginning on March 15, 2002, 2003 and 2004,
respectively and at 100% thereafter.
The Senior Notes are senior unsecured obligations of the Company and will
rank senior in right of payment to all subordinated indebtedness of the Company
and PARI PASSU in right of payment with all existing and future senior
indebtedness, including borrowings under the New Credit agreement. The indenture
contains certain covenants, including restrictions on additional indebtedness,
certain asset sales, and the payment of dividends.
The Senior Notes are guaranteed by the Company and Cottontops, Inc.
10. SUBORDINATED PROMISSORY NOTE
In connection with the Acquisition (see Note 1), the Company issued a
subordinated promissory note (the "Note") to Culligan in the principal amount of
$7,500, due January 30, 2005, or earlier upon a change in ownership, as defined.
The Note was recorded at the fair value of the property received and the
discount ($1,800 and $1,600 at January 27, 1996 and February 1, 1997,
respectively) was being amortized on a straight-line basis over the term of the
Note. The recorded balance of the Note includes interest accrued at 12%,
compounded semi-annually. The Note was prepaid on March 14, 1997 at an amount
equal to the principal value and accrued interest thereon. In connection with
such payment, the Company will record a charge of approximately $1,580, before a
tax benefit of $630 representing the balance of the unamortized debt discount.
11. RELATED PARTY TRANSACTIONS
THE COMPANY--The Company entered into a management agreement with Vestar
Equity Partners L.P. ("Vestar"), Citicorp Venture Capital, Ltd. ("CVC") and
Culligan through January 2005, whereby Vestar provided advisory and consulting
services to the Company and its subsidiaries, and CVC and Culligan, in turn,
provided consulting services to Vestar, when requested in connection with the
fulfillment by Vestar, of Vestar's obligation to the Company. In exchange for
these services, the Company paid, semi-annually in advance, a management fee
aggregating $200, $120 and $180, per annum to Vestar, CVC and Culligan,
respectively. Pursuant to the terms and conditions of the Recapitalization and
the Units and Notes Offerings, the management agreement was terminated.
In connection with the Acquisition, the Company paid transaction costs of
approximately $1,563 to Vestar and $938 to CVC.
PREDECESSOR--Prior to the acquisition, McGregor and certain affiliates
provided various administrative services to the Predecessor, including
purchasing and administration related to taxes, insurance, employee benefit
plans, management and other matters. The Predecessor was charged for these
costs. There were no such charges for administrative services provided by
McGregor for the year ended January 28, 1995, the value of which were not
material.
F-17
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. INCOME TAXES
The provision for income taxes consists of the following:
PREDECESSOR THE COMPANY
(COMBINED) (CONSOLIDATED)
----------- --------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
JANUARY 28, JANUARY 27, FEBRUARY 1,
1995 1996 1997
----------- --------------- ---------------
Current:
Federal........................................ $ 8,445 $ 4,475 $ 4,337
State and local................................ 1,769 639 624
Deferred......................................... 831 1,656 1,922
----------- ------ ------
$ 11,045 $ 6,770 $ 6,883
----------- ------ ------
----------- ------ ------
Prior to the Acquisition, the operations of the Predecessor were included in
the consolidated U.S. Federal and certain unitary state and local income tax
returns of Astrum and McGregor. The provisions shown in the accompanying
combined statements of earnings represent an amount equivalent to income taxes
which would have been payable if the Predecessor was filing its own returns.
Deferred income taxes (benefit), resulting from differences between
accounting for financial statement purposes and accounting for tax purposes were
as follows:
YEAR YEAR
ENDED ENDED
JANUARY 27, FEBRUARY 1,
1996 1997
----------- -----------
Depreciation.................................................................... $ 331 $ 2,268
Expenses capitalized to inventory............................................... (326) 57
Amortization of goodwill........................................................ 2,087 300
Accretion of Subordinated Promissory Note....................................... (80) (80)
Insurance reserves.............................................................. -- (240)
Accrued expenses not deductible until paid...................................... (356) (383)
----------- -----------
$ 1,656 $ 1,922
----------- -----------
----------- -----------
F-18
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
12. INCOME TAXES (CONTINUED)
A reconciliation of the statutory Federal tax rate and the effective rate
follows:
PREDECESSOR THE COMPANY
(COMBINED) (CONSOLIDATED)
------------- ----------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
JANUARY 28, JANUARY 27, FEBRUARY 1,
1995 1996 1997
------------- ------------- -------------
Federal statutory tax rate.................................. 35% 35% 35%
State and local taxes--net of Federal income tax benefit.... 9 5 5
Losses of Anvil s.r.o., not currently deductible............ 6 -- --
Amortization................................................ 39 -- --
Other....................................................... 2 -- --
--- --- ---
91% 40% 40%
--- --- ---
--- --- ---
The tax effects of temporary differences that give rise to a significant
portion of the deferred tax assets and liabilities are presented below:
JANUARY 27, FEBRUARY 1,
1996 1997
----------- -----------
Deferred tax assets:
Inventories....................................................... 640 583
Property, plant and equipment..................................... 1,000 --
Trademarks........................................................ 785 712
Reserves not currently deductible................................. -- 240
Accounts receivable reserves and other............................ 423 806
----------- -----------
Total deferred tax assets..................................... 2,848 2,341
----------- -----------
Deferred tax liabilities:
Property, plant and equipment..................................... -- (1,268)
Goodwill.......................................................... (2,112) (2,339)
Subordinated Promissory Note...................................... (720) (640)
----------- -----------
Total deferred tax liabilities................................ (2,832) (4,247)
----------- -----------
Net deferred tax asset (liability).................................. $ 16 $ (1,906)
----------- -----------
----------- -----------
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
In March 1995, Anvil entered into interest rate swap agreements for an
aggregate notional amount of $25,000 to manage its interest rate risk. Under
these interest rate swaps, Anvil receives interest at LIBOR, reset quarterly,
and pays interest at the weighted average fixed rate of 7.3%. Interest payments
and receipts commenced September 1995 and occur quarterly. The swap agreements
have terms of three and five years. The Company does not hold or issue financial
instruments for trading purposes.
F-19
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The Company is exposed to credit-related losses in the event of
nonperformance by counterparties to swap agreements, but it does not expect any
counterparties to fail to meet their obligations given their high credit
ratings. The fair value of interest rate swaps at January 27, 1996, and February
1, 1997 is approximately $1,527 and $705, respectively and reflects the
estimated amount that the Company would pay to terminate the contracts at the
reporting date. The fair value information has been obtained from dealer
quotations.
The carrying amounts of all other financial instruments reported on the
balance sheet at January 27, 1996 and February 1, 1997 approximate their fair
value. Considerable judgment is required in interpreting certain market data to
develop estimated fair values for certain financial instruments. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
14. PROFIT-SHARING RETIREMENT PLAN
The Company has a savings plan (the "Plan") under which eligible employees
may contribute up to 16%, subject to certain limitations, of their compensation.
The Company will match 100% of the contributions up to the first 3% and 50% on
the next 3%. During the year ended January 27, 1996 and February 1, 1997, the
Company made contributions to the Plan aggregating approximately $918 and
$1,059, respectively.
Prior to the Acquisition, employees of the Predecessor were eligible to
participate in a savings and investment plan sponsored by McGregor. Expense
attributable to the Predecessor's portion of the plan for the year ended January
28, 1995, was approximately $800.
F-20
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. OLD CAPITAL STRUCTURE
The components of preferred and common stock are as follows:
JANUARY 27, FEBRUARY 1,
1996 1997
------------- -------------
Preferred Stock:
12.5% Class A, $.01 par value, authorized 205,010 shares;
cumulative, 129,854 shares issued and outstanding at January 27,
1996 and February 1, 1997, respectively; aggregate liquidation
value of $14,656 and $16,575, respectively...................... $ 1 $ 1
12.5% Class B, $.01 par value, authorized 70,420 shares;
cumulative, convertible; 70,416 shares issued and outstanding at
January 27, 1996 and February 1, 1997, respectively; aggregate
liquidation value of $7,964 and $9,007, respectively............ 1 1
12.5% Class C, $.01 par value, authorized 5,000 shares;
cumulative, convertible; none issued............................ -- --
----- -----
$ 2 $ 2
----- -----
----- -----
Common Stock:
Class A, par value $.01 per share, authorized 10,600,000 shares,
5,750,000 and 5,755,000 shares issued and outstanding at January
27, 1996 and February 1, 1997, respectively..................... $ 58 $ 58
Class B, par value $.01 per share, authorized 3,200,000 shares;
convertible; 2,600,000 and 2,675,000 shares issued and
outstanding at January 27, 1996 and February 1, 1997,
respectively.................................................... 26 26
Class C, par value $.01 per share, authorized 1,650,000 shares;
convertible; 1,650,000 shares issued and outstanding at January
27, 1996 and February 1, 1997, respectively..................... 17 17
----- -----
$ 101 $ 101
----- -----
----- -----
PREFERRED STOCK--The Company has three classes of preferred stock: Class A,
Class B and Class C (collectively the "Preferred Stock"). Dividends accrue at
12.5% on the sum of the liquidation value ($100 per share) plus accumulated and
unpaid dividends thereon, compounded quarterly. The Preferred Stock is
redeemable, in whole or in part, at the option of the Company at the liquidation
value, plus the accumulated unpaid dividends thereon. The Preferred Stock ranks
senior to the Company's common stock as to dividends and liquidation rights.
Holders of Class A preferred stock are entitled to one vote per share on all
matters to be voted on by the Company's stockholders. Holders of Class B and
Class C preferred stock have no voting rights with respect to matters to be
voted on by the Company's stockholders; however, under certain circumstances,
such holders may be entitled to vote as a separate class on any proposed merger,
consolidation, recapitalization or reorganization. At January 27, 1996 and
February 1, 1997
F-21
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
15. OLD CAPITAL STRUCTURE (CONTINUED)
dividends in arrears on the Preferred Stock amounted to approximately $2,620 and
$5,582, respectively. The Preferred Stock was redeemed in connection with the
Recapitalization.
COMMON STOCK--The Company has three classes of common stock: Class A, Class
B and Class C. Holders of Class A common stock are entitled to one vote per
share on all matters to be voted on by the Company's stockholders. Holders of
Class B and Class C common stock have no voting rights with respect to matters
to be voted on by the Company's stockholders; however, under certain
circumstances, such holders were entitled to vote as a separate class on any
proposed merger, consolidation, recapitalization or reorganization.
Certain members of management obtained loans from the Company to partially
finance the purchase of common and preferred stock. Such loans bore interest at
7.19%, were due January 30, 2002 and are classified as a reduction to
stockholders' equity. Management repaid the above loans including accrued
interest, as part of the Recapitalization.
16. NEW CAPITAL STRUCTURE
REDEEMABLE PREFERRED STOCK--In connection with the Units Offering, in March
1997, the Company issued 1,200,000 shares of 13% Senior Exchangeable Preferred
Stock ("Redeemable Preferred Stock") due 2009. Total shares authorized are
2,300,000. Dividends accrue quarterly at 13% on the sum of the liquidation value
($25 per share) plus accumulated and unpaid dividends thereon. On or before
March 15, 2002 the Company may, at its option, pay dividends in cash or in
additional fully paid and non-assessable shares of Redeemable Preferred Stock
having an aggregate liquidation preference equal to the amount of such
dividends. On any scheduled dividend payment date, the Company may, at its
option, but subject to certain conditions, exchange all but not less than all of
the shares of Redeemable Preferred Stock then outstanding for the Company's 13%
Subordinated Exchange Debentures due 2009. The Redeemable Preferred Stock or the
Exchange Debentures, if issued will be redeemable at the option of the Company,
in whole or in part, at any time on or after March 15, 2002, at the redemption
price of 101% of the liquidation preference or aggregate principal amount (as
the case may be) thereof, plus, in the case of the Redeemable Preferred Stock,
an amount equal to all accumulated and unpaid dividends per share to the date of
purchase, or in the case of the Exchange Debentures, an amount equal to all
accumulated and unpaid interest thereon to the date of purchase. On March 15,
2009, the Company is required to redeem all outstanding shares of the Redeemable
Preferred Stock at an amount equal to the liquidation preference and all
accumulated and unpaid dividends. The Redeemable Preferred Stock was recorded at
an amount equal to the proceeds (net of discounts) less an amount attributable
to the Class B Common Stock issued in Connection with the Units Offering.
COMMON STOCK--Following the Recapitalization in which the old common shares
were redeemed or exchanged, the Company has the following issues of common
stock:
12.5% Class A, $.01 par value, authorized 500,000 shares; cumulative;
290,000 shares; issued and outstanding at March 14, 1997; aggregate
liquidation value of $29,000 at March 14, 1997.
Class B, $.01 par value, authorized 7,500,000 shares; 3,590,000 shares
issued and outstanding at March 14, 1997.
Class C, $.01 par value, authorized 1,400,000 shares, convertible; none
issued at March 14, 1997.
F-22
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
16. NEW CAPITAL STRUCTURE (CONTINUED)
The Class A common stock will accrete at a rate of 12.5% per annum,
compounded quarterly, payable in shares of Class A Common Stock.
Holders of Class B Stock will be entitled to one vote per share on all
matters to be voted on by stockholders while holders of Class A Common Stock and
Class C Common Stock will have no right to vote on any matters except in special
circumstances including a merger or consolidation of the Company or a
recapitalization or reorganization.
17. STOCK OPTION PLAN AND AGREEMENTS
STOCK OPTION PLAN--The Company had a stock option plan (the "Stock Option
Plan") pursuant to which options to purchase 600,000 shares of common stock were
granted to certain senior executives ("Management Investors") as of February 1,
1995 at an exercise price of $.64 per share, the fair market value at date of
grant. Such options became exercisable upon the attainment of certain milestones
or other events, as defined. At January 27, 1996, options to purchase 75,000
shares at $.64 per share were exercisable, all of which were exercised during
the year ended February 1, 1997. At February 1, 1997, an additional 75,000
options were exercisable at $.64 per share. In March 1997, in connection with
the Recapitalization, the remaining 450,000 management options vested and were
immediately exercised along with the other 75,000 exercisable options, at which
time all Class A and B stockholders including optionees, received $10.50 per
share of common stock. The 525,000 options had a value of $5,200 at the date of
exercise, which will be charged to compensation expense with a corresponding
credit to stockholders' equity in the year ending January 31, 1998.
PHANTOM EQUITY PLAN--Upon sale of the Company, or under certain
circumstances as provided for in the agreement, the Management Investors will be
paid 5% of the excess of the aggregate sale price over $100,000. In connection
with the Recapitalization, the Management Investors were paid $5,300 in
accordance with the Phantom Equity Plan at which time the Phantom Equity Plan
was terminated. The $5,300 will be charged to expense in the year ending January
31, 1998.
18. COMMITMENTS AND CONTINGENCIES
LEASES--The Company is obligated under various leases for equipment, office
space and distribution facilities which expire at various dates through 2002.
Future minimum rental commitments under noncancelable operating leases, with
terms in excess of one year are as follows:
FISCAL YEAR
ENDING AMOUNT
----------- ---------
1998................................................................................. 648
1999................................................................................. 611
2000................................................................................. 408
2001................................................................................. 364
2002................................................................................. 364
Thereafter........................................................................... 152
---------
Total............................................................................ $ 2,547
---------
---------
F-23
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rental expense for the years ended January 28, 1995, January 27, 1996 and
February 1, 1997, was approximately $755, and $620, respectively.
LITIGATION--The Company is a party to various litigation matters incidental
to the conduct of its business. The Company does not believe that the outcome of
any of the matters in which it is currently involved will have a material
adverse effect on the financial condition or results of operations of the
Company.
Prior to the Acquisition, groundwater contamination was discovered at the
Asheville, North Carolina facility. In 1990, Winston Mills, Inc., a subsidiary
of McGregor, entered into an Administrative Order on Consent ("AOC") with the
North Carolina Department of Environment, Health and Natural Resources ("DEHNR")
concerning such contamination. Since that time, McGregor has been conducting
investigation and corrective action under DEHNR oversight and has remained
responsible to the DEHNR with respect to the contamination that is subject to
the AOC. While the total cost of the cleanup at the facility will depend upon
the extent of contamination and the corrective action approved by the DEHNR,
preliminary cleanup cost estimates range from $1.0 to $4.0 million. McGregor
continues to be a party to the Asheville, North Carolina facility's hazardous
waste permit and Culligan, an affiliate of McGregor, has guaranteed McGregor's
obligations under the AOC. McGregor also contractually agreed to fully indemnify
the Company with respect to the contamination as part of the terms of the
Acquisition. This indemnity is guaranteed by Culligan and by Astrum (now known
as Samsonite Corporation) in the event Culligan is unable to perform its
guarantor obligations. The Company could be held responsible for the cleanup of
this contamination if McGregor and Culligan were to become unable to fulfill
their obligations to DEHNR and the Company was not successful in obtaining
indemnification for the clean-up from either McGregor, Culligan or Astrum.
McGregor also agreed to fully indemnify the Company for any costs associated
with certain other environmental matters identified at the time of the
Acquisition. The Company believes that, even if McGregor were unable to fulfill
its indemnification obligations, these other matters would not have a material
adverse effect on the Company. McGregor also agreed to indemnify the Company,
subject to certain limitation, with respect to environmental liabilities that
arise from events that occurred or conditions in existence prior to the
Acquisition. Culligan and Astrum have also guaranteed McGregor's obligations
under these indemnities.
EMPLOYMENT AGREEMENTS--The Company has entered into employment agreements
expiring January 31, 1999, with annual renewals thereafter, with certain senior
executives providing for minimal annual compensation, plus bonuses equal to 4%
of the Company's annual profits, as defined. At February 1, 1997, the aggregate
minimum obligation under the remaining terms of these employment agreements is
approximately $1,930. If an executive is terminated without cause, or if the
executive terminates his employment under certain circumstances, as provided,
the Company is liable for termination payments through the end of the agreement.
Additionally, under certain circumstances, the Company may be liable for
additional termination benefits up to a period not exceeding two years.
F-24
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
19. FOREIGN OPERATIONS
In addition to the United States, the Predecessor, through its wholly-owned
subsidiary, Anvil s.r.o., had operations in the Czech Republic. Income (loss)
before income taxes consisted of the following:
YEAR
ENDED
JANUARY 28,
1995
-----------
United States.................................................................... $ 14,169
Foreign.......................................................................... (2,067)
-----------
$ 12,102
-----------
-----------
20. SUMMARIZED FINANCIAL DATA OF ANVIL KNITWEAR, INC.
Summarized financial data of Anvil Knitwear, Inc. is as follows:
JANUARY 27, FEBRUARY 1,
1996 1997
----------- ----------- MAY 3,
1997
-----------
(UNAUDITED)
Current assets................................................ $ 63,903 $ 68,208 $ 73,275
----------- ----------- -----------
----------- ----------- -----------
Total assets.................................................. 136,527 $ 136,832 $ 142,588
----------- ----------- -----------
----------- ----------- -----------
Current liabilities........................................... $ 47,743 $ 38,740 $ 49,253
----------- ----------- -----------
----------- ----------- -----------
Long-term liabilities......................................... $ 49,094 $ 46,837 $ 129,784
----------- ----------- -----------
----------- ----------- -----------
Total liabilities............................................. $ 96,837 $ 85,577 $ 179,037
----------- ----------- -----------
----------- ----------- -----------
Stockholder's equity (deficiency)............................. $ 39,690 $ 51,255 $ (36,449)
----------- ----------- -----------
----------- ----------- -----------
PREDECESSOR
(COMBINED)
-------------
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 28, JANUARY 27, FEBRUARY 1,
1995 1996 1997
------------- ----------- ----------- THREE
MONTHS
ENDED
MAY 3,
1997
-----------
(UNAUDITED)
Net sales...................................... $ 169,923 $ 193,389 $ 204,154 $ 60,288
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Operating income............................... $ 9,878 $ 25,152 $ 24,705 $ (2,864)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Interest expense............................... $ 227 $ 7,662 $ 6,725 $ 3,142
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Net income..................................... $ 1,057 $ 10,864 $ 11,037 $ (6,467)
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
Anvil Knitwear, Inc. is a wholly-owned subsidiary of Anvil Holdings, Inc.
Anvil Holdings, Inc. has fully and unconditionally, jointly and severally (along
with Cottontops, Inc.) guaranteed the Old Senior Notes and the New Senior Notes.
Complete financial statements and other disclosures concerning Anvil Knitwear,
Inc. are not presented because management has determined they are not material
to investors. Anvil Holdings, Inc. has no independent operations apart from its
wholly owned subsidiary, Anvil Knitwear, Inc., and its sole asset is the capital
stock of Anvil Knitwear, Inc.
F-25
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
20. SUMMARIZED FINANCIAL DATA OF ANVIL KNITWEAR, INC. (CONTINUED)
Summarized financial data of Cottontops, Inc. is as follows:
FEBRUARY 1,
1997
----------- MAY 3,
1997
-------------
(UNAUDITED)
Current assets.................................................... $ 2,671 $ 2,685
----------- -------------
----------- -------------
Total assets...................................................... $ 3,100 $ 3,089
----------- -------------
----------- -------------
Current liabilities............................................... $ 1,403 $ 521
----------- -------------
----------- -------------
Long-term liabilities............................................. $ 1,202 $ 823
----------- -------------
----------- -------------
Total liabilities................................................. $ 2,605 $ 1,344
----------- -------------
----------- -------------
Stockholder's equity.............................................. $ 495 $ 1,745
----------- -------------
----------- -------------
THREE MONTHS
ENDED MAY 3,
1997
-------------
(UNAUDITED)
Net sales...................................................................... $ 1,452
-------------
-------------
Operating income............................................................... $ (152)
-------------
-------------
Interest expense............................................................... $ --
-------------
-------------
Net income..................................................................... $ (56)
-------------
-------------
The summarized balance sheet data presented above is subject to final
adjustment of the allocation of purchase price to the net assets acquired (see
Note 1). Cottontops, Inc. is a wholly-owned subsidiary of Anvil Knitwear, Inc.
and has fully and unconditionally, jointly and severally (along with Holdings)
guaranteed the Old Senior Notes and the New Senior Notes. Complete financial
statements and other disclosures concerning Cottontops Inc. are not presented
because management has determined they are not material to investors. Cottontops
does not currently have any material operations or assets of any kind.
Prospective investors of the Senior Notes should not rely upon Cottontops'
ability to service the principal or interest obligations of the Senior Notes.
Anvil is Holdings' only direct subsidiary. In addition to Cottontops, Anvil has
two other non-guarantor direct subsidiaries, Anvil (Czech), Inc., a Delaware
corporation and A.K.H., S.A., organized in Houndruas, and one non-guarantor
indirect subsidiary, Anvil SRO, organized in the Czech Republic (a direct
subsidiary of Anvil (Czech), Inc.) (collectively, the "Non-Guarantor
Subsidiaries"). Other than as stated herein, there are no other direct or
indirect subsidiaries of the Company. Management believes the Non-Guarantor
Subsidiaries are inconsequential both individually and in the aggregate.
F-26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ANVIL,
HOLDINGS OR COTTONTOPS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. 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 DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
Available Information............................ iv
Summary.......................................... 1
Risk Factors..................................... 16
The Recapitalization............................. 25
Use of Proceeds.................................. 26
Capitalization................................... 28
Dividend Policy.................................. 28
Selected Historical Financial Data............... 29
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 32
Business......................................... 40
Management....................................... 52
Security Ownership of Certain Beneficial Owners
and Management................................. 58
Certain Relationships and Related Transactions... 60
The Exchange Offer............................... 62
Description of Securities........................ 71
Description of Capital Stock..................... 146
Description of Certain Indebtedness.............. 150
Certain Federal Income Tax Consequences.......... 151
Plan of Distribution............................. 152
Legal Matters.................................... 152
Experts.......................................... 153
Unaudited Pro Forma Financial Statements......... P-1
Index to Financial Statements.................... F-1
UNTIL OCTOBER 22, 1997 (90 DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE
OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------
PROSPECTUS
---------------------
$130,000,000
ANVIL KNITWEAR, INC.
OFFER TO EXCHANGE
ITS 10 7/8 SERIES B SENIOR NOTES
DUE 2007
FOR ANY AND ALL
OF ITS OUTSTANDING
10 7/8 SENIOR NOTES DUE 2007
JULY 24, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
GENERAL CORPORATION LAW
Anvil, Holdings and Cottontops are each incorporated under the laws of the
State of Delaware. Section 145 ("Section 145") of the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended (the
"General Corporation Law"), INTER ALIA, provides that a Delaware corporation may
indemnify any persons who were, are or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer employee or agent of
another corporation, or enterprise. The indemnity may include expenses
(including attorneys's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was illegal. A Delaware corporation may indemnify
any persons who are, were or are threatened to be made, a party to any
threatened, pending or completed action or suit by or in the right of the
corporation by reasons of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorney's fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests, provided that no indemnification is
permitted without judicial approval if the officer, director, employee or agent
is adjudged to be liable to the corporation. Where an officer, director,
employee or agent is successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
CERTIFICATES OF INCORPORATION
Each of Anvil's, Holdings's and Cottontops' Certificate of Incorporation
("Certificate") provides that, to the fullest extent by the General Corporation
Law, a director of Anvil, Holdings or Cottontops (as the case may be) shall not
be liable to Anvil, Holdings or Cottontops (as the case may be) or its
stockholders for monetary damages for a breach of fiduciary duty as a director.
In addition, Holdings' Certificate provides that, to the fullest extent
permitted by the General Corporation Law, Holdings shall indemnify any director
from and against any and all expenses, liabilities or other losses of any
nature. Anvil's Certificate states that, to the fullest extent permitted by the
General Corporation Law, Anvil shall indemnify any director or officer from and
against any and all expenses, liabilities or other losses of any nature.
Cottontops' Certificate states that a director shall be liable to the extent
provided by applicable law, (i) for breach of the director's duty of loyalty to
Cottontops or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a
II-1
knowing violation of law, (iii) pursuant to Section 174 of the General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit.
BY-LAWS
Article V of the By-laws of Anvil ("Anvil's Article V") provides, among
other things, that each person who was or is a party or is threatened to be made
a part to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of Anvil) by reason of the fact that he or she is or was a
director, officer, employee, or agent of another corporation, or is or was
serving at the request of Anvil as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless by Anvil to the fullest extent which it
is empowered to do so by the General Corporation Law against all expenses
(including attorneys' fees), judgements, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of Anvil, and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of Anvil, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his or her conduct was lawful.
Anvil's Article V further provides that Anvil shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of Anvil to procure a judgment in
its favor by reason of the fact that he or she is or was a director, officer,
employee or agent of Anvil or is or was serving at the request of Anvil as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprises, against expenses (including attorney's
fees) actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of Anvil, except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable to Anvil 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 circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper. The indemnification and advancement of expenses
provided by, or granted pursuant to Anvil's Article V, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and inure to the benefit of the heirs,
executors and administrators of such a person.
Moreover, Anvil's Article V provides that to the extent that a director,
officer, employee or agent of Anvil has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Anvil's
Article V or in defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith. Any indemnification
under Anvil's Article V (unless ordered by a court) shall be made by Anvil only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee, or agent is proper in the circumstances because
he or she has met the applicable standard of conduct set for in Anvil's Article
V.
Article V of the By-laws of Cottontops ("Cottontops' Article V") provides,
among other things, that each person who was or is made a party or is threatened
to be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "Proceeding"),
by reason of the fact that he or she, is or was a director or officer, of
Cottontops or is or was serving at the request of Cottontops as a director,
officer, employee, fiduciary, or agent of another corporation or of a
II-2
partnership, joint venture, trust or other enterprise including service with
respect to employee benefit plans, whether the basis of such Proceeding is
alleged action in an official capacity as a director, officer, employee,
fiduciary or agent or in any other capacity while serving as a director,
officer, employee, fiduciary or agent, shall be indemnified and held harmless by
Cottontops to the fullest extent which it is empowered to do so by the General
Corporation Law against all expense, liability and loss (including attorneys'
fees actually and reasonably incurred by such person in connection with such
Proceeding) and such indemnification shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, except in certain
circumstances, Cottontops shall indemnify any such person seeking
indemnification in connection with a Proceeding initiated by such person only if
such Proceeding was authorized by the board of directors of Cottontops. The
right to indemnification conferred in Cottontops' Article V shall be a contract
right and shall include the right to be paid by Cottontops the expenses incurred
in defending any such Proceeding in advance of its final disposition. Cottontops
may, by action of its board of directors, provide indemnification to employees
and agents of Cottontops with the same scope and effect as the foregoing
indemnification of directors and officers.
Cottontops's Article V further provides that any indemnification of a
director, officer, employee, fiduciary or agent of Cottontops under Cottontops'
Article V or advance of expenses shall be made promptly, and in any event within
30 days, upon the written request of the director, officer, employee, fiduciary
or agent. If a determination (as defined in the General Corporation Law) by
Cottontops that the director, officer, employee, fiduciary or agent is entitled
to indemnification pursuant to Cottontops' Article V is required, and Cottontops
fails to respond within sixty days to a written request for indemnity,
Cottontops shall be deemed to have approved the request. If Cottontops denies a
written request for indemnification or advancing of expenses, in whole or in
part, or if payment in full pursuant to such request is not made within 30 days,
the right to indemnification or advances as granted by Cottontops' Article V
shall be enforceable by the director, officer, employee, fiduciary or agent in
any court of competent jurisdiction. Such person's costs and expenses incurred
in connection with successfully establishing his or her right to
indemnification, in whole or in part, in any such action shall also be
indemnified by Cottontops. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to Cottontops) that the claimant has not met the
standards of conduct which make it permissible under the General Corporation Law
for Cottontops to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on Cottontops. Neither the failure of Cottontops
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law, nor an actual determination by Cottontops (including
its board of directors, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct. Persons who are not covered by the Cottontops' article V
and who are or were employees or agents of Cottontops, or who are or were
serving at the request of Cottontops as employees or agents of another
corporation, partnership, joint venture, trust or other enterprise, may be
indemnified to the extent authorized at any time or from time to time by the
board of directors.
Holdings' By-Laws do not contain specific indemnification provisions.
INSURANCE
Anvil's Article V states that Anvil shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of Anvil or was serving at the request of Anvil director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her and
incurred by him or her in any such capacity,
II-3
or arising out of his or her status as such, whether or not Anvil would have the
power to indemnify him or her against such liability under the provisions of
Anvil's Article V.
Similarly, Cottontops' Article V provides that Cottontops may purchase and
maintain insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of Cottontops or was serving at
the request of Cottontops as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, whether or not Cottontops would have the power to indemnify such
person against such liability under Cottontops' Article V.
All of Anvil's, Holdings' and Cottontops' directors and officers will be
covered by insurance policies intended to be obtained by Anvil, Holdings and
Cottontops, respectively, against certain liabilities for actions taken in such
capacities, including liabilities under the Securities Act of 1933.
II-4
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
2.1 Recapitalization Agreement, dated as of February 12, 1997, by and among
Citicorp Venture Capital, Ltd., Bruckmann, Rosser, Sherrill & Co., Inc.
("BRS & Co."), Holdings, Anvil VT, Inc. And the stockholders and voting
trust certificate holders named on the signature pages thereto, as
amended by the certain Amendment and Consent to Assignment dated as of
February 21, 1997 and that Waiver and Second Amendment to the
Recapitalization Agreement dated as of March 13, 1997.+**
3.1 Certificate of Incorporation of Anvil.**
3.2 Restated Certificate of Incorporation of Holdings.**
3.3 Certificate of Incorporation of Cottontops.**
3.4 By-Laws of Anvil.**
3.5 By-Laws of Holdings.**
3.6 By-Laws of Cottontops.**
3.7 Certificate of Designation of Holdings.**
3.8 Form of Certificate of Designation of Holdings relating to Series B 13%
Senior Exchangeable Preferred Stock due 2009.**
4.1 Purchase Agreement, dated as of March 14, 1997, by and among Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), Wasserstein Perella
Securities, Inc. ("Wasserstein"), NationsBanc Capital Markets, Inc.
("NationsBanc"), Anvil and Holdings.**
4.2 Senior Indenture, dated as of March 14, 1997, by and among the Anvil,
Holdings, Cottontops and the other Subsidiary Guarantors and United
States Trust Company of New York, as trustee.**
4.3 Form of 10 7/8% Senior Notes and Guarantees.**
4.4 Form of Series B 10 7/8% Senior Notes and Guarantees.**
4.5 Amended and Restated Credit Agreement, dated as of March 14, 1997, among
Anvil, as Borrower, Holdings, Cottontops and certain subsidiaries, as
Guarantor, the Banks Identified therein as lending institutions,
NationsBank, N.A. ("NationsBank"), as Agent, and Bank of America
Illinois, Banque Nationale de Paris and Heller Financial Inc., as co-
agents.+**
4.6 Amended and Restated Pledge and Security Agreement, dated as of March 14,
1997, by and among Anvil, Holdings and NationsBank.+**
4.7 Registration Rights Agreement, dated as of March 14, 1997, by and among
Anvil, Holdings, Cottontops and DLJ, Wasserstein and NationsBanc, as
Initial Purchasers.**
5.1 Opinion of Kirkland & Ellis.**
8.1 Opinion of Kirkland & Ellis.
10.1 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and Bernard Geller.**
10.2 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and Jacob Hollander.**
II-5
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
10.3 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and William H. Turner.**
10.4 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and Anthony Corsano.**
10.5 Asset Purchase Agreement, dated as of December 29, 1994, by and among
McGregor Corporation, Winston Mills, Inc., Anvil and Holdings.+**
10.6 Guaranty Agreement, dated as of January 28, 1995, by and among Culligan
International Company, Astrum International Company and Anvil.**
10.7 Units Purchase Agreement, dated as of March 14, 1997, by and between DLJ
and Holdings.**
10.8 Unit Agreement, dated as of March 14, 1997, by and between Holdings and
United States Trust Company of New York, as trustee.**
10.9 Exchange Debenture Indenture, dated as of March 14, 1997, by and between
Holdings and United States Trust Company of New York, as trustee.**
10.10 Registration Rights Agreement, dated as of March 14, 1997, by and between
Holdings and DLJ, as the Initial Purchaser.**
10.11 Registration Rights and Securityholders Agreement, dated as of March 14,
1997, by and among Holdings, BRS & Co., 399 Venture Partners, Inc. ("399
Venture Partners"), CCT II Partners, L.P. ("CCT") and DLJ.**
10.12 Registration Rights Agreement, dated as of March 14, 1997, by and among
Holdings, BRS & Co., 399 Venture Partners, CCT, Bernard Geller, Anthony
Corsano, William Turner, Jacob Hollander and each other executive of
Holdings or its subsidiaries who acquires common stock from Holdings
after the date thereof and executes a joinder thereto, the persons set
forth on the signature pages thereto and DLJ.**
10.13 Stockholders Agreement, dated as of March 14, 1997, by and among Holding,
BRS & Co., 399 Venture Partners, CCT, Bernard Geller, Anthony Corsano,
William Turner, Jacob Hollander and each other executive of Holdings or
its subsidiaries who acquires common stock from Holdings after the date
thereof and executes a joinder thereto.**
10.14 Stock Option Plan.**
10.15 Form of Unit.**
10.16 Employment Agreement, dated as of January 31, 1997, by and between
Cottontops and Tom Glennon.**
12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Charges.**
12.2 Statement Regarding Computation of Ratios of Earnings to Fixed Charges and
Preferred Stock Dividends.**
12.3 Statement Regarding Computation of Ratios of EBITDA to Cash Interest
Expense.**
12.4 Statement Regarding Computation of Ratios of Net Debt to EBITDA.**
21.1 Subsidiaries of Anvil, Holdings and Cottontops.**
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).**
24.1 Powers of Attorney (included in Part I to the Registration Statement).**
II-6
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
25.1 Statement of Eligibility of Trustee on Form T-1.**
27.1 Financial Data Schedule.**
27.2 Financial Data Schedule.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Tender Instructions.**
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Anvil agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the
Commission.
(B) FINANCIAL STATEMENT SCHEDULES.
Schedule II--Anvil Holdings, Inc. -- Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(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;
(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 bonafide 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; and
(4) The undersigned registrants hereby undertake as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called
II-7
for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(5) The registrants undertake that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes 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 that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrants pursuant to the provisions described
under Item 20 or otherwise, the registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrants of expenses incurred or
paid by a director, officer or controlling person of the registrants 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 registrants will, unless in the opinion of their 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 and will be governed by
the final adjudication of such issue.
(6) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
(8) The undersigned registrants hereby undertake 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.
(9) The undersigned registrants hereby undertake 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.
ITEM 701. RECENT SALES OF UNREGISTERED SECURITIES.
Since its incorporation on November 23, 1994, Holdings has issued the
following securities without registration under the Securities Act:
On January 30, 1995, in connection with the Acquisition, Holdings sold: (i)
to Vestar, 3,564,809 shares of its old common stock for an aggregate purchase
price of $2,281,477.76 and 82,034 shares of its old preferred stock for an
aggregate purchase price of $8,203,400; (ii) to certain employees and affiliates
of 399 Venture Partners, Inc., 1,870,000 shares of its old common stock for an
aggregate purchase price of
II-8
$1,196,800 and 43,032 shares of its old preferred stock for an aggregate
purchase price of $4,303,200; (iii) to the Existing Shareholders, 4,565,191
shares of its old common stock for an aggregate purchase price of $2,921,722.24
and 74,934 shares of its old preferred stock for an aggregate purchase price of
$7,493,400 ($250,000 of the total purchase price paid by the Existing
Shareholders was in the form of promissory notes issued by such Existing
Shareholders to Holdings). In addition, on January 30, 1995, and in connection
with the Acquisition, Holdings issued a subordinated promissory note to Culligan
International Company in the aggregate principal amount of $7,500,000. These
sales of securities were made in reliance on the exemption contained in Section
4(2) of the Securities Act.
On April 9, 1996, 75,000 shares of old common stock were exercised by the
Management Investors pursuant to options granted to them in connection with the
Acquisition for an aggregate of $48,000, in reliance on the exemption contained
in Rule 701 of the Securities Act.
On December 18, 1996, Holdings sold 5,000 shares of its old common stock to
Peter H. Rothschild for an aggregate purchase price of $3,200. This sale of
securities was made in reliance on the exemption contained in Section 4(2) of
the Securities Act.
On March 14, 1997, the Company completed the Recapitalization. Pursuant to
the Recapitalization: (i) 399 Venture reinvested/retained 1,294,685 shares of
old common stock in exchange for 122,484 shares of Class A Common and 1,351,552
shares of Class B Common; (ii) the Management Investors exercised options
granted pursuant to the Acquisition and were issued 525,000 shares of old common
stock for an aggregate of $336,000; (iii) the Management Investors
reinvested/retained 475,987 shares of old common stock in exchange for 45,032
shares of Class A Common and 496,894 shares of Class B Common; (iv) 399 Venture
exchanged 33,300 shares of old preferred stock for 3,333 Units which consisted
of, in the aggregate, 133,320 shares of Old Senior Preferred Stock and 43,329
shares of Class B Common; and (v) BRS purchased from Holdings 105,643 shares of
Class A Common and 1,165,719 shares Class B Common for an aggregate purchase
price of $11,730,049.03. The reinvestment/retention and exchange in paragraphs
(i), (iii) and (iv) were made in reliance on the exemption contained in Section
3(a)(9) of the Securities Act. The sale described in paragraph (v) was made in
reliance on the exemption contained in Section 4(2) of the Securities Act. The
transactions described in paragraph (ii) were made in reliance on the exemption
contained in Rule 701 of the Securities Act.
On March 14, 1997, Anvil sold $130,000,000 aggregate principal amount of
10 7/8% Series A Senior Notes due 2007 (the "Old Senior Notes") to Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), Wasserstein Perella
Securities, Inc. and NationsBanc Capital Markets, Inc. (collectively, the
"Initial Purchasers") pursuant to a Purchase Agreement, dated March 11, 1997 in
a transaction not registered under the Securities Act in a private placement
pursuant to the exemption contained in Section 4(2) of the Securities Act.
On March 14, 1997, Holdings sold 26,667 Units to the Initial Purchaser and
3,333 Units, for which the Initial Purchaser acted as agent in connection with
the sale by Holdings, pursuant to a Purchase Agreement, dated March 11, 1997.
The Units consisted of an aggregate of 390,000 shares of Class B Common and 1.2
million shares of Old Senior Preferred Stock with an aggregate liquidation
preference of $30,000,000. These sales were made in transaction not registered
under the Securities Act in a private placement pursuant to the exemption
contained in Section 4(2) of the Securities Act.
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Anvil Knitwear,
Inc. has duly caused this Amendment No. 3 to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, State of New York on July 23, 1997.
ANVIL KNITWEAR, INC.
By: /s/ JACOB HOLLANDER
-----------------------------------------
Jacob Hollander
EXECUTIVE VICE PRESIDENT, CHIEF
ADMINISTRATIVE OFFICER, SECRETARY AND
GENERAL COUNSEL
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement and power of attorney have been signed by
the following persons in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATES
- ------------------------------ ----------------------------- ---------------
Chief Executive Officer,
** Chairman of the Board and
- ------------------------------ Director (Principal July 23, 1997
Bernard Geller Executive and Financial
Officer)
Executive Vice President,
** Chief Administrative
- ------------------------------ Officer, Secretary, General July 23, 1997
Jacob Hollander Counsel and Director
** Vice President of Finance
- ------------------------------ (Principal Accounting July 23, 1997
Pasquale Branchizio Officer)
**
- ------------------------------ Director July 23, 1997
Bruce C. Bruckmann
**
- ------------------------------ Director July 23, 1997
Stephen F. Edwards
**
- ------------------------------ Director July 23, 1997
David F. Thomas
**
- ------------------------------ Director July 23, 1997
John D. Weber
** The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to the Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney executed
by such officers and directors and previously filed with the Securities and
Exchange Commission.
/s/ JACOB HOLLANDER
- ------------------------------
Jacob Hollander
ATTORNEY-IN-FACT
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Anvil Holdings,
Inc. has duly caused this Amendment No. 3 to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, State of New York on July 23, 1997.
ANVIL HOLDINGS, INC.
By: /s/ JACOB HOLLANDER
-----------------------------------------
Jacob Hollander
VICE PRESIDENT, SECRETARY AND GENERAL
COUNSEL
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement and power of attorney have been signed by
the following persons in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATES
- ------------------------------ ----------------------------- ---------------
President, Chairman of the
** Board and Director
- ------------------------------ (Principal Executive and July 23, 1997
Bernard Geller Financial Officer)
** Vice President, Secretary,
- ------------------------------ General Counsel and July 23, 1997
Jacob Hollander Director
** Vice President of Finance
- ------------------------------ (Principal Accounting July 23, 1997
Pasquale Branchizio Officer)
**
- ------------------------------ Director July 23, 1997
Bruce C. Bruckmann
**
- ------------------------------ Director July 23, 1997
Stephen F. Edwards
**
- ------------------------------ Director July 23, 1997
David F. Thomas
**
- ------------------------------ Director July 23, 1997
John D. Weber
** The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to the Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney executed
by such officers and directors and previously filed with the Securities and
Exchange Commission.
/s/ JACOB HOLLANDER
- ------------------------------
Jacob Hollander
ATTORNEY-IN-FACT
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Cottontops, Inc.
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York on July 23, 1997.
COTTONTOPS, INC.
By: /s/ JACOB HOLLANDER
-----------------------------------------
Jacob Hollander
VICE PRESIDENT AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement and power of attorney have been signed by
the following persons in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATES
- ------------------------------ ----------------------------- ---------------
Chairman of the Board and
** Director (Principal
- ------------------------------ Executive and Financial July 23, 1997
Bernard Geller Officer)
**
- ------------------------------ Vice President, Secretary and July 23, 1997
Jacob Hollander Director
** Vice President of Finance
- ------------------------------ (Principal Accounting July 23, 1997
Pasquale Branchizio Officer)
**
- ------------------------------ Director July 23, 1997
Tom Glennon
** The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 3 to the Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney executed
by such officers and directors and previously filed with the Securities and
Exchange Commission.
/s/ JACOB HOLLANDER
- ------------------------------
Jacob Hollander
ATTORNEY-IN-FACT
II-12
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Anvil Knitwear
In connection with our audit of the combined statements of operations and cash
flows of Anvil Knitwear, a division of McGregor Corporation, which is a
subsidiary of Astrum International Corp., for the year ended January 28, 1995,
which financial statements are included in the Prospectus, we have also audited
the financial statement schedule of Valuation and Qualifying Accounts.
In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
KPMG Peat Marwick LLP
New York, New York
March 24, 1995
S-1
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
- ---------------------------------------------------- ----------- ----------- ------------ ------------ -----------
Predecessor (Combined)
Year ended January 28, 1995
Allowance for doubtful accounts................... $ 1,232 $ 501 $ (629)(b) $ 371(a) $ 733
----------- ----- ----- ----- -----------
----------- ----- ----- ----- -----------
The Company (Consolidated)
Year ended January 27, 1996
Allowance for doubtful accounts................... $ 733 $ 435 $ -- $ 717(a) $ 451
----------- ----- ----- ----- -----------
----------- ----- ----- ----- -----------
The Company (Consolidated)
Year ended February 1, 1997
Allowance for doubtful accounts..................... $ 451 $ 440 $ $ 17(a) $ 874
----------- ----- ----- ----- -----------
----------- ----- ----- ----- -----------
- ------------------------
(a) Accounts written-off as uncollectible.
(b) Recoveries of previously written-off accounts.
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
2.1 Recapitalization Agreement, dated as of February 12, 1997, by and among
Citicorp Venture Capital, Ltd., Bruckmann, Rosser, Sherrill & Co., Inc.
("BRS & Co."), Holdings, Anvil VT, Inc. And the stockholders and voting
trust certificate holders named on the signature pages thereto, as
amended by the certain Amendment and Consent to Assignment dated as of
February 21, 1997 and that Waiver and Second Amendment to the
Recapitalization Agreement dated as of March 13, 1997.+**
3.1 Certificate of Incorporation of Anvil.**
3.2 Restated Certificate of Incorporation of Holdings.**
3.3 Certificate of Incorporation of Cottontops.**
3.4 By-Laws of Anvil.**
3.5 By-Laws of Holdings.**
3.6 By-Laws of Cottontops.**
3.7 Certificate of Designation of Holdings.**
3.8 Form of Certificate of Designation of Holdings relating to Series B 13%
Senior Exchangeable Preferred Stock due 2009.**
4.1 Purchase Agreement, dated as of March 14, 1997, by and among Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), Wasserstein Perella
Securities, Inc. ("Wasserstein"), NationsBanc Capital Markets, Inc.
("NationsBanc"), Anvil and Holdings.**
4.2 Senior Indenture, dated as of March 14, 1997, by and among the Anvil,
Holdings, Cottontops and the other Subsidiary Guarantors and United
States Trust Company of New York, as trustee.**
4.3 Form of 10 7/8% Senior Notes and Guarantees.**
4.4 Form of Series B 10 7/8% Senior Notes and Guarantees.**
4.5 Amended and Restated Credit Agreement, dated as of March 14, 1997, among
Anvil, as Borrower, Holdings, Cottontops and certain subsidiaries, as
Guarantor, the Banks Identified therein as lending institutions,
NationsBank, N.A. ("NationsBank"), as Agent, and Bank of America
Illinois, Banque Nationale de Paris and Heller Financial Inc., as co-
agents.+**
4.6 Amended and Restated Pledge and Security Agreement, dated as of March 14,
1997, by and among Anvil, Holdings and NationsBank.+**
4.7 Registration Rights Agreement, dated as of March 14, 1997, by and among
Anvil, Holdings, Cottontops and DLJ, Wasserstein and NationsBanc, as
Initial Purchasers.**
5.1 Opinion of Kirkland & Ellis.**
8.1 Opinion of Kirkland & Ellis.
10.1 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and Bernard Geller.**
10.2 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and Jacob Hollander.**
10.3 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and William H. Turner.**
10.4 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and Anthony Corsano.**
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
10.5 Asset Purchase Agreement, dated as of December 29, 1994, by and among
McGregor Corporation, Winston Mills, Inc., Anvil and Holdings.+**
10.6 Guaranty Agreement, dated as of January 28, 1995, by and among Culligan
International Company, Astrum International Company and Anvil.**
10.7 Units Purchase Agreement, dated as of March 14, 1997, by and between DLJ
and Holdings.**
10.8 Unit Agreement, dated as of March 14, 1997, by and between Holdings and
United States Trust Company of New York, as trustee.**
10.9 Exchange Debenture Indenture, dated as of March 14, 1997, by and between
Holdings and United States Trust Company of New York, as trustee.**
10.10 Registration Rights Agreement, dated as of March 14, 1997, by and between
Holdings and DLJ, as the Initial Purchaser.**
10.11 Registration Rights and Securityholders Agreement, dated as of March 14,
1997, by and among Holdings, BRS & Co., 399 Venture Partners, Inc. ("399
Venture Partners"), CCT II Partners, L.P. ("CCT") and DLJ.**
10.12 Registration Rights Agreement, dated as of March 14, 1997, by and among
Holdings, BRS & Co., 399 Venture Partners, CCT, Bernard Geller, Anthony
Corsano, William Turner, Jacob Hollander and each other executive of
Holdings or its subsidiaries who acquires common stock from Holdings
after the date thereof and executes a joinder thereto, the persons set
forth on the signature pages thereto and DLJ.**
10.13 Stockholders Agreement, dated as of March 14, 1997, by and among Holding,
BRS & Co., 399 Venture Partners, CCT, Bernard Geller, Anthony Corsano,
William Turner, Jacob Hollander and each other executive of Holdings or
its subsidiaries who acquires common stock from Holdings after the date
thereof and executes a joinder thereto.**
10.14 Stock Option Plan.**
10.15 Form of Unit.**
10.16 Employment Agreement, dated as of January 31, 1997, by and between
Cottontops and Tom Glennon.**
12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Charges.**
12.2 Statement Regarding Computation of Ratios of Earnings to Fixed Charges and
Preferred Stock Dividends.**
12.3 Statement Regarding Computation of Ratios of EBITDA to Cash Interest
Expense.**
12.4 Statement Regarding Computation of Ratios of Net Debt to EBITDA.**
21.1 Subsidiaries of Anvil, Holdings and Cottontops.**
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).**
24.1 Powers of Attorney (included in Part I to the Registration Statement).**
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
25.1 Statement of Eligibility of Trustee on Form T-1.**
27.1 Financial Data Schedule.**
27.2 Financial Data Schedule.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Tender Instructions.**
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Anvil agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the
Commission.