SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, CONSTITUTE "RESTRICTED SECURITIES" AS DEFINED IN RULE
144 UNDER SUCH ACT, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN COMPLIANCE WITH
SUCH ACT AND THE TERMS SET FORTH HEREIN. ANY ATTEMPT TO TRANSFER THE SECURITIES
REPRESENTED BY THIS CERTIFICATE WITHOUT COMPLIANCE WITH SUCH ACT AND THE TERMS
SET FORTH HEREIN SHALL BE VOID
THIS NOTE IS EXPRESSLY SUBORDINATED TO ALL OBLIGATIONS OF THE MAKER TO PNC BANK,
NATIONAL ASSOCIATION, AS AGENT FOR ITSELF AND OTHER LENDERS AS MORE SPECIFICALLY
PROVIDED IN THAT CERTAIN SUBORDINATION AGREEMENT, DATED JULY 15, 1998, EXECUTED
BY THE PAYEE AND MAKER IN FAVOR OF PNC BANK, NATIONAL ASSOCIATION, AS AGENT FOR
ITSELF AND OTHER LENDERS.
TKS ACQUISITION, INC.
NON-NEGOTIABLE CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$5,000,000.00 July 15, 1998
FOR VALUE RECEIVED, the undersigned, TKS ACQUISITION, INC., a Delaware
corporation with its principal office located at 8677 Logoathletic Court,
Indianapolis, Indiana 46219 (hereinafter referred to as "Maker" which term
includes any successor corporation), hereby promises to pay to TULTEX
CORPORATION, a Virginia corporation (hereinafter referred to as "Payee" which
term includes any successor corporation), on or before July 15, 2003 ("Maturity
Date"), at Payee's offices located at 101 Commonwealth Boulevard, Martinsville,
Virginia 24112, the principal sum of FIVE MILLION AND 00/100 DOLLARS
($5,000,000.00), together with simple interest in arrears at a rate per annum of
seven and 2/10th (7.2%) percent, calculated on the basis of the actual days
elapsed but computed as if each year consisted of 365 days.
The principal of and all accrued but unpaid interest on this Note are
due and payable as follows: (a) interest is due and payable as it accrues
semi-annually in arrears on the 30th day of June and the 31st day of December
each year, commencing December 31, 1998, and on the Maturity Date; and (b) the
entire outstanding principal balance of this Note, together with accrued and
unpaid interest, is due and payable on the Maturity Date. To the extent that any
interest is not paid on or before the fifth (5th) day after it becomes due and
payable, Payee may, at its option, add such accrued interest to the principal of
this Note. If any payment of principal or interest on this Note is due and
payable on a day other than a "business day," such payment shall be due and
payable on the next succeeding business day. For purposes of this Note, the term
"business day" shall mean any day excluding Saturday, Sunday, and any day on
which banks in Indianapolis, Indiana are authorized by law or other governmental
action to close.
1. Prepayment. Maker may prepay all or any part of the principal or
accrued interest at any time and from time to time, without premium or penalty.
All partial prepayments shall be
applied first to accrued and unpaid interest and then to principal.
2. Subordination. Notwithstanding anything contained herein to the
contrary, payment under this Note is expressly subordinated and subject in right
of payment to any and all advances, indebtedness, liabilities, and obligations
of Maker arising under that certain Revolving Credit, Term Loan and Security
Agreement, dated as of July 15, 1998 (as the same may hereafter be amended,
supplemented or otherwise modified from time to time, the "Bank Credit
Agreement"), executed by and between Maker and PNC Bank, National Association,
as agent for itself and other lenders ("Bank"), as more specifically set forth
in that certain Subordination Agreement, dated as of July 15, 1998 (as the same
may hereafter be amended, supplemented or otherwise modified from time to time,
the "Subordination Agreement"), executed by and among Maker, Payee, and Bank.
Each holder of this Note, by accepting same, agrees to and shall be bound by all
the terms and conditions of this Note, including, without limitation, the
subordination provisions contained herein. Maker agrees to provide Payee with
its quarterly financial statements in the same format as those provided to the
Bank.
3. Default. Upon the occurrence of an Event of Default, the holder of
this Note may, at its option, subject to the terms of the Subordination
Agreement, declare the outstanding principal balance of and accrued but unpaid
interest on this Note at once due and payable; provided, however, that if an
Event of Default occurs pursuant to sub-clause (a) below, such accrued but
unpaid interest may (in accordance with the Subordination Agreement) be added to
and become principal instead.
"Event of Default" whenever used in this Note, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(a) default in the payment of any interest upon this Note when it
becomes due and payable, and continuance of such default for a period of thirty
(30) days; or
(b) default in the payment of the principal of this Note at its
maturity; or
(c) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Maker a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement or composition of
or in respect of the Maker under Federal bankruptcy laws or any other applicable
Federal or State law, or appointing a receiver, liquidator, assignee, trustee,
sequestrator (or similar official) of the Maker or of any substantial part of
its property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period of
sixty (60) consecutive days; or
(d) the institution by the Maker of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it or a petition or answer
or consent seeking reorganization or relief under Federal bankruptcy laws or any
other applicable Federal of State law, or the consent by it to the filing of any
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or similar official) of the Maker or of any substantial
part of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the Maker in
furtherance of any such action; or
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(e) a change in control of the Maker (a "change of control" will be
deemed to have occurred in the event that (a) any person or persons acting
together that would constitute a group (for purposes of Section 13(d) of the
Securities Exchange Act of 1934, or any successor provision thereto), together
with any affiliates or related persons thereof, other than any of the
stockholders, and/or their affiliates or related persons, of Maker as
constituted on even date herewith, shall beneficially own (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, or any successor provision
thereto) at least 50% percent of the voting stock of Maker; (b) any sale, lease
or other transfer (in one transaction or a series or related transactions) by
Maker or any of its subsidiaries of all or substantially all of the consolidated
assets of Maker to any person, other than a wholly owned subsidiary of Maker or
any of the stockholders, and/or their affiliates or related persons, of Maker as
constituted on even date herewith; or (c) the stockholders of Maker approve any
plan or proposal for the liquidation or dissolution of Maker); or
(f) in the event of a qualifying initial public offering of Maker (a
"qualifying initial public offering" will be deemed to have occurred at the
completion of a sale of the Maker's Common Stock in which the aggregate gross
proceeds equal at least $20,000,000, pursuant to a registration statement which
has been filed and declared effective under the Securities Act, excluding
registration statements on Form S-4, S-8 or similar limited purpose forms and
also excluding registration statements relating to a bona fide debt offering
that may include warrants or other similar supplemental equity securities issued
to non-Affiliates of the Maker as part of an offering of units comprised of such
equity security and a debt security of the Maker).
The failure to exercise the option to accelerate the maturity of this
Note or any other right, remedy, or recourse available to the Payee upon the
occurrence of an Event of Default shall not constitute a waiver of the right of
the Payee to exercise the same at that time or at any subsequent time with
respect to such Event of Default or any other Event of Default. The rights,
remedies, and recourses of the Payee, as provided in this Note, shall be
cumulative and concurrent and may be pursued separately, successively or
together as often as occasion therefor shall arise, at the sole discretion of
the Payee. The acceptance by the Payee of any payment under this Note which is
less than the payment in full of all amounts due and payable at the time of such
payment shall not (a) constitute a waiver of or impair, reduce, release or
extinguish any right, remedy, or recourse of the Payee, or nullify any prior
exercise of any such right, remedy, or recourse; or (b) impair, reduce, release,
or extinguish the obligations of Maker as provided herein.
4. Waiver. Maker waives presentment and demand for payment, protest,
notice of protest and nonpayment, and notice of the intention to accelerate, and
agree that its liability on this Note shall not be affected by, and hereby
consents to, any renewal or extension in the time of payment hereof.
5. Interest. Regardless of any provision contained in this Note, or any
other document executed or delivered in connection therewith, Payee shall never
be deemed to have contracted for or be entitled to receive, collect or apply as
interest on this Note (whether termed interest herein or deemed to be interest
by judicial determination or operation of law), any amount in excess of the
maximum rate allowed by applicable law, and, in the event that Payee ever
receives, collects or applies as interest any such excess, such amount which
would be excessive interest shall be applied to the reduction of the unpaid
principal balance of this Note, and, if the principal balance of this Note is
paid in full, any remaining excess shall forthwith be paid to Maker.
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6. Notice. Any notice hereunder shall be in writing and shall be deemed
give when delivered by hand or two (2) days after being deposited in the United
States mail, postage prepaid, addressed to the Maker or Payee at the address set
forth above; provided, that if either party shall have designated a different
address by notice to the other, then to the last address so designated.
7. Governing Law; Consent to Jurisdiction. Except to the extent that
the laws of the United States may apply to the terms hereof, the substantive
laws of the State of Delaware shall govern the validity, construction,
enforcement and interpretation of this Note. Maker and any holder agree for any
proceeding or action brought with respect to this Note shall be brought in the
Federal District Court for the Southern District of Indiana or the Superior
Court of Marion County, Indiana, and each party consents to being subject to the
jurisdiction of such court and to have any such proceedings take place in the
prescribed venue.
8. Entire Understanding. This Note, the Subordination Agreement, and
the Purchase Agreement represent the final agreement between Maker and Payee and
may not be contradicted by evidence of prior, contemporaneous, or subsequent
oral agreements of the parties. There are no unwritten oral agreements between
the parties.
9. Non-Negotiable. Neither this Note nor any rights under this Note may
be sold, transferred, pledged, assigned or otherwise disposed of by Payee,
except to a successor corporation to Payee. This Note will be binding upon and
inure to the benefit of the successors and permitted assigns of the parties
hereto.
10. Conversion Option. This Note, which may be prepaid by Maker at any
time, will be non-convertible until March 31, 2001 (or upon the date which
coincides with the end of Maker's fiscal quarter ending nearest to March 31,
2001) (the "Initial Convertible Date"), whereafter this Note shall be
convertible only upon the terms and subject to the conditions set forth herein.
In order to convert this Note, Payee must request in writing to Maker, at any
time during the period (the "Initial Conversion Period") commencing on the
Initial Conversion Date and ending on the later of (i) forty five (45) days
thereafter, or (ii) ten (10) days after Maker delivers its quarterly financial
statements to Payee for the fiscal quarter ending nearest to March 31, 2001,
that this Note be converted into shares of Maker's Common Stock at the
Conversion Price Per Share (as defined below) (the "Payee Notice"). Maker, at
its sole option, within forty five (45) days after receiving the Payee Notice,
may elect to prepay this Note in full by payment of the unpaid principal amount
hereof, together with all accrued but unpaid interest. If Payee elects not to
exercise its option to convert this Note during the Initial Conversion Period
and Maker has not previously prepaid this Note, Payee will have the option to
request conversion of the Note by delivery to Maker of a Payee Notice at any
time during the period commencing on March 31, 2002 (the "Second Conversion
Date") and ending on the later of (i) forty five (45) days thereafter, or (ii)
ten (10) days after Maker delivers its quarterly financial statements to Payee
for the fiscal quarter ending nearest to March 31, 2002 (the "Second Conversion
Period"). If Payee elects not to exercise its option to convert this Note during
the Initial Conversion Period or the Second Conversion Period and Maker has not
previously prepaid this Note, Payee will have the option to request conversion
of the Note by delivery to Maker of a Payee Notice at any time during the period
commencing on March 31, 2003 (the "Third Conversion Date") and ending on the
later of (i) forty five (45) days thereafter, or (ii) ten (10) days after Maker
delivers its quarterly financial statements to Payee for the fiscal quarter
ending nearest to March 31, 2003 (the "Third Conversion Period"). Maker will
have the right, at its sole option, during the Second Conversion Period or the
Third Conversion Period commencing on the date of its receipt of such
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Payee Notice to convert this Note or to prepay this Note as provided herein. In
any event, this Note otherwise shall become due and payable upon maturity as
provided herein. If Payee exercises its option to convert and Maker does not
elect to prepay this Note, Payee shall be entitled to receive upon the
conversion therefor the number of shares of Maker's Common Stock determined by
dividing the unpaid principal amount of this Note, together with accrued but
unpaid interest, by the Conversion Price Per Share.
For purposes of this Note, the "Conversion Price Per Share" shall mean
the greater of (i) $4,886.36 per share, or (ii) a value that is determined by
multiplying (a) ____ (a value that will be determined following the Closing
based upon dividing the Final Purchase Price, plus $4,000,000 of transaction
expenses, by the trailing twelve (12) month's EBITDA, pursuant to Schedule A,
attached hereto) times (b) the trailing 12 month EBITDA of Maker (as of the
quarter ending nearest to March 31 of the year Payee elects to convert) less the
amount of any outstanding debt, excluding this Note, and dividing that sum by
the then number of issued and outstanding shares. The parties hereto agree to
execute a new promissory note with the multiple in clause (a) completed, as soon
as such number is available following the Closing.
11. Exercise of Conversion Option. If Payee exercises its option to
convert and Maker does not elect to prepay this Note, no later then within
thirty (30) days after the date that is forty-five (45) days after the date of
delivery of the applicable Payee Notice, Payee shall surrender this Note,
properly endorsed, together with payment of any applicable taxes, and Payee
shall be entitled to receive, as soon as practicable thereafter, a share
certificate or certificates for the number of duly authorized and validly
issued, fully paid and nonassessable Common Shares into which this Note has been
converted pursuant to Section 10 hereof, registered in its name.
12. Disclosure. If Payee exercises its option to convert and Maker does
not elect to prepay this Note, the Maker shall deliver to Payee such information
concerning Maker as has been reasonably requested by Payee. Payee shall be
provided the opportunity to review and discuss such materials and the current
operations of Maker generally with its executive and financial officers, its
legal counsel and its independent accountants and to ask questions and satisfy
itself as to the accuracy of the information contained in such materials. Payee
covenants and agrees by its acceptance hereof that it shall, prior to the
conversion of this Note, confirm in writing that it is able to bear the economic
risk of converting this Note into Common Stock and of holding such Common Stock.
13. Date of Conversion. If any certificate for Common Stock is issued
to the Payee, the Payee shall, for all purposes, be deemed to have become the
holder of record of such shares on the Initial Convertible Date, the Second
Convertible Date or the Third Convertible Date, as the case may be, irrespective
of the date of issue or delivery of the share certificate(s).
14. Representations and Deliveries Required of Payee. Payee shall not
have the right to convert this Note, and Maker shall not be obligated to deliver
Common Stock as provided herein, unless Payee represents and warrants, and
agrees with Maker in writing (a) that the Common Stock to be delivered to it
upon conversion of this Note is being acquired for its account, for investment
and not with a view to or for resale or transfer in connection with the
distribution thereof, and not with any present intention of distributing or
reselling such Common Stock; (b) that Payee will not sell, transfer, pledge or
otherwise dispose of any Common Stock unless the sale or other disposition
thereof is pursuant to the terms of that certain Stockholders' Agreement
executed by and among
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Maker and its stockholders (the "Stockholders' Agreement"); and (c) that Payee
will agree to be bound by all the other terms and conditions contained in the
Stockholders' Agreement and become a party thereto.
15. Indemnification. Payee, by its acceptance of this Note, further
understands and agrees that the Common Stock to be issued upon conversion hereof
will be issued by Maker in reliance on an exemption from registration. Payee
further acknowledges and confirms that it is fully informed as to the applicable
limitations regarding the resale of the Common Stock to be issued hereunder.
Consequently, Payee agrees to indemnify and hold Maker harmless against any and
all loss, liability, claim, damage and expense (including reasonable attorneys'
fees and court costs) whatsoever arising out of any private or governmental
litigation, commenced or threatened, or claim against Maker based upon Payee's
proposed or actual resale or transfer of such Common Stock in violation of the
representations and warranties and agreements contained herein.
16. Payee Has No Rights as Stockholder. Payee shall not, by reason of
the ownership or possession of this Note, have the right to receive dividends,
to vote, or to exercise any other rights whatsoever as a stockholder of the
Maker.
17. Severability. If any provision of this Note or the application
thereof to any person or circumstance should, for any reason and to any extent,
be invalid or unenforceable, the remainder of this Note and the application of
such provision to other persons or circumstances shall not be affected thereby,
but rather shall be enforced to the greatest extent permitted by law.
IN WITNESS WHEREOF, Maker has executed and delivered this Note as of
the date first written above.
MAKER:
TKS ACQUISITION, INC.
By:__________________________
Thomas K. Shine, President
Acknowledged and Agreed as of
the date first written above.
PAYEE:
TULTEX CORPORATION
By: ____________________
Its: ____________________
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