AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1998
REGISTRATION NO. 333-51447
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST EFFECTIVE
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CARTER HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 2300 13-3912933
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
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1590 ADAMSON PARKWAY, SUITE 400
MORROW, GEORGIA 30260
(770) 961-8722
(Address, including zip code, and telephone number, including
area code, of registrant's and co-registrant's principal executive offices)
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MICHAEL D. CASEY
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
THE WILLIAM CARTER COMPANY
1590 ADAMSON PARKWAY, SUITE 400
MORROW, GEORGIA 30260
(770) 961-8722
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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WITH A COPY TO:
CHARLES K. MARQUIS, ESQ.
GIBSON, DUNN & CRUTCHER LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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. / /
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE PROPOSED OFFERING AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) PRICE REGISTRATION FEE
12% Series B Senior Subordinated
Notes due 2008 $20,000,000 100% $20,000,000 $5,900
(1) Estimated pursuant to Rule 457(f) solely for the purposes of calculating the
registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT 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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PROSPECTUS
OFFER FOR ALL OUTSTANDING 12% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR 12% SERIES B SENIOR SUBORDINATED NOTES DUE 2008 OF
CARTER HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 1998 UNLESS EXTENDED
---------------------
Carter Holdings, Inc., a Massachusetts corporation ("Holdings"), hereby
offers to exchange an aggregate principal amount of up to $20,000,000 of its 12%
Series B Senior Subordinated Notes due 2008 (the "New Notes") for a like
principal amount of its 12% Senior Subordinated Notes due 2008 (the "Old Notes")
outstanding on the date hereof upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer"). The New Notes and the Old Notes are
collectively hereinafter referred to as the "Notes". The terms of the New Notes
are identical in all material respects to those of the Old Notes, except for
certain transfer restrictions and registration rights relating to the Old Notes.
The New Notes will be issued pursuant to, and entitled to the benefits of, the
Indenture (as defined) governing the Old Notes.
The New Notes will be structurally subordinated to all indebtedness and
other liabilities and commitments (including trade payables and lease
obligations) of Holdings' Subsidiaries.
Interest on the New Notes will be payable semi-annually on May 1 and
November 1 of each year, accruing from their date of issuance October 30, 1996.
Payment of interest commenced on May 1, 1997. Upon the occurrence of a Change of
Control (as defined), Holdings will be required to offer to repurchase the
Notes. There is no assurance that Holdings will have, or will have access to,
sufficient funds to repurchase the Notes upon any such occurrence. See
"Description of Notes".
The New Notes are being offered hereunder in order to satisfy certain
obligations of Holdings contained in the Exchange and Registration Rights
Agreement dated March 25, 1997 (the "Registration Rights Agreement"), between
Holdings and the Initial Purchasers (as defined), with respect to the initial
sale of the Old Notes.
Holdings will not receive any proceeds from the Exchange Offer. Holdings
will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined) for the Exchange Offer. In the event Holdings
terminates the Exchange Offer and does not accept for exchange any Old Notes
with respect to the Exchange Offer, Holdings will promptly return such Old Notes
to the holders thereof. See "The Exchange Offer".
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivery of a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. Holdings has agreed
that, for a period of 90 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution".
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Prior to the Exchange Offer, there has been no public market for the Old
Notes. If a market for the New Notes should develop, such New Notes could trade
at a discount from their principal amount. Holdings currently does not intend to
list the New Notes on any securities exchange or to seek approval for quotation
through any automated quotation system and no active public market for the New
Notes is currently anticipated. There can be no assurance that an active public
market for the New Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES\COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1998.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE NEW NOTES OR OLD NOTES BY ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE EXCHANGE
PROPOSED TO BE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS.
AVAILABLE INFORMATION
Holdings is not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Pursuant to the Indenture, Holdings has agreed to file
with the Securities and Exchange Commission (the "Commission") and provide to
the holders of the Notes annual reports and the information, documents and other
reports that are specified in Sections 13 and 15(d) of the Exchange Act.
Holdings has filed with the Commission a Registration Statement (which term
includes any amendments thereto) on Form S-4 under the Securities Act with
respect to the New Notes offered by this Prospectus. This Prospectus does not
contain all information set forth in the Registration Statement and the exhibits
thereto, to which reference is hereby made. Statements made in this Prospectus
as to the contents of any contract, agreement, or other document are qualified
in their entirety by such documents. With respect to each such contract,
agreement, or other document filed as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description of the matter
involved.
2
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. FOR PURPOSES OF THIS PROSPECTUS, "HOLDINGS" REFERS TO CARTER
HOLDINGS, INC. AND "CARTER'S" REFERS TO THE WILLIAM CARTER COMPANY AND ITS
SUBSIDIARIES. ON OCTOBER 30, 1996, HOLDINGS ACQUIRED 100% OF THE OUTSTANDING
CAPITAL STOCK OF CARTER'S. HOLDINGS HAS SUBSTANTIALLY NO ASSETS OR INVESTMENTS
OTHER THAN THOSE RELATED TO ITS INVESTMENT IN CARTER'S. CARTER'S IS ALSO
REFERRED TO AS "PREDECESSOR" FOR THE PERIODS PRIOR TO THE ACQUISITION. THE
CONSOLIDATED ENTITY OF HOLDINGS AND CARTER'S IS COLLECTIVELY HEREINAFTER
REFERRED TO AS THE "COMPANY". THE FISCAL YEAR OF THE COMPANY ENDS ON THE
SATURDAY IN DECEMBER OR JANUARY NEAREST THE LAST DAY OF DECEMBER. ALL REFERENCES
TO DEMOGRAPHIC DATA IN THIS PROSPECTUS ARE BASED UPON INDUSTRY PUBLICATIONS,
CENSUS INFORMATION AND COMPANY DATA AND, UNLESS INDICATED, ALL REFERENCES TO
NUMBER OF STORES ARE AS OF JANUARY 3, 1998. AS USED HEREIN, REFERENCES TO "BABY
AND TODDLER" MEAN NEWBORNS THROUGH TODDLERS APPROXIMATELY AGE THREE (UP TO SIZE
4T) AND REFERENCES TO "YOUNG CHILDREN" MEAN CHILDREN FROM APPROXIMATELY AGE
THREE UP TO APPROXIMATELY AGE SIX (BOYS' SIZES 4-7 AND GIRLS' SIZES 4-6X).
THE COMPANY
Carter's is the largest branded manufacturer and marketer of baby and
toddler apparel and a leading marketer of young children's apparel. Over more
than 130 years of operation, CARTER'S has become one of the most highly
recognized brand names in the children's apparel industry. Carter's is a
vertically-integrated manufacturer that sells its products under the CARTER'S,
CARTER'S CLASSICS and BABY DIOR brand names to more than 300 department and
specialty store accounts (with an estimated 4,600 store fronts) and through its
138 retail outlet stores. Carter's is the leading provider of layette apparel (a
range of products for newborns) in its target distribution channels, with a
market share of approximately 26%, nearly three times that of its nearest
competitor. Carter's is also the leading provider of baby and toddler sleepwear
in its target distribution channels, with a market share of approximately 34%,
more than three times that of its nearest branded competitor. Carter's also has
a significant presence in the much larger and highly fragmented baby and toddler
playwear market.
Carter's generates a majority of its sales in the baby and toddler apparel
market, a $7.0 billion market. Management believes that the baby and toddler
market is well-insulated from changes in fashion trends and less sensitive to
general economic conditions, while offering strong prospects for continued
growth. The growth in this market is being driven by a number of factors,
including: (i) women having children later, resulting in more disposable income
available for expenditures on children; (ii) more women returning to the
workplace after having children, resulting in more disposable income and
increased daycare apparel needs; (iii) the increasing number of grandparents, a
demographic segment with high per capita discretionary income and an important
consumer base for children's apparel; (iv) an increasing social emphasis on
attractive children's apparel; and (v) an increase in the percentage of births
to first time mothers.
The Company's senior management has significantly increased earnings and
market share since joining Carter's in 1992. Management's fundamental strategy
has been to promote Carter's brand image as the absolute leader in baby apparel
products and to consistently provide high quality, attractive products at a
strong perceived value to consumers. To this end, management employs a
comprehensive four-step marketing strategy which incorporates: (i) extensive
consumer preference testing; (ii) superior brand and product presentation at the
consumer point-of-purchase; (iii) dominant marketing communications; and (iv)
consistent, premium service to fulfill customer and consumer needs. In addition,
Carter's continues to realize significant operating efficiencies by reducing
SKUs and product complexity, enhancing core product offerings, increasing
offshore production and implementing the wider use of advanced information
systems. As a result of these efforts, operating income has increased from $12.8
million in fiscal 1993 to $23.1 million in fiscal 1997. EBITDA (as defined--see
"Notes to Selected Financial Data") increased from $20.6 million in fiscal 1993
to $36.9 million in fiscal 1997.
3
COMPANY STRENGTHS
The Company attributes its market leadership and its significant
opportunities for continued growth and increased profitability to the following
competitive strengths:
SUPERIOR BRAND AWARENESS. Carter's has achieved a high level of positive
brand awareness with both consumers and retailers as a result of more than a
century of providing quality baby, toddler and young children's apparel. In a
1993 survey, 92% of mothers and grandmothers surveyed were familiar with the
CARTER'S brand name, and 80% reported that they had purchased CARTER'S brand
products. The Company has maintained this positive brand awareness despite a
relatively low marketing budget with little national advertising. Management
believes that the consolidation of the apparel industry and changes in the
retail environment will continue to favor strong branded companies such as
Carter's, as many department and specialty stores have focused on promoting
leading brands while reducing their number of suppliers.
LEADING AND GROWING MARKET POSITIONS. Carter's is the largest provider of
baby and toddler apparel, with leading market shares in the layette and
sleepwear product categories in its target distribution channels. Since 1993,
Carter's has increased its share of the layette market from 15% to 26% and its
share of the baby and toddler sleepwear market from 20% to 34%. In addition,
Carter's is the leading provider of young children's sleepwear and has increased
its share of the market from 14% to 17%. The Company has a significant presence
in the much larger and highly fragmented baby and toddler playwear market.
STRONG MANAGEMENT TEAM. Since joining Carter's in 1992, the management
team, led by Frederick J. Rowan, II, has been responsible for sales and EBITDA
increasing at compound annual rates of 9.7% and 24.3%, respectively. Four of the
Company's top executives, including Mr. Rowan, joined Carter's following
successful careers running the Bassett-Walker and Lee Jeans divisions of the VF
Corporation. The Company's five top executives average more than 20 years of
experience in the textile and apparel industries. Management believes that they
have significant experience in developing brand names, have a strong reputation
with customers, the trade and the financial community, and possess a diverse
skill base which incorporates brand marketing, multiple sourcing, offshore
production, vertical manufacturing and information technology integration.
VERTICALLY-INTEGRATED MANUFACTURING CAPABILITIES. Carter's is a
vertically-integrated manufacturer that knits, dyes, finishes, prints, cuts,
sews and embroiders approximately 80% of the products it sells. The Company
believes that its vertical integration allows it to maintain a competitive cost
structure, accelerate speed to market and provide consistent, premium quality.
Since 1992, Carter's has made significant investments in equipment, facilities
and systems to improve quality, reduce costs, minimize shrinkage, decrease
inventories and shorten cycle times. In 1991, Carter's commenced offshore sewing
operations to decrease costs of sewing, typically the most labor-intensive
portion of the manufacturing process. At year-end 1997, approximately 47% of the
Company's sewing production was conducted offshore. In addition, in 1993,
management initiated a substantial upgrade of its information technology
capabilities with a fully-integrated operating system designed to support the
growth of the business and to further improve manufacturing efficiencies. These
system upgrades are expected to be completed in 1998.
STRONG CUSTOMER RELATIONSHIPS. Due to focused and consistent management
efforts to create retail partnerships, the Company enjoys strong relationships
with its wholesale customers, as evidenced by the ten supplier awards Carter's
has received since 1992. Management meets frequently with the Company's major
accounts to review product offerings, establish and monitor sales plans and
design joint advertising and promotional campaigns. In addition, the Company has
introduced to several of its major wholesale customers, including Macy's,
Bloomingdale's, Burdine's, Rich's and JCPenney, its "store-in-store" concept in
which the Company creates a CARTER'S-brand shop within its wholesale customers'
children's apparel departments. Such store-in-store shops provide the Company
with dedicated selling space, superior and consistent brand presentation and
greater control of product mix, resulting in higher profitability and
productivity for both the Company and its wholesale customers.
4
OPERATING STRATEGY
The Company intends to strengthen its market leadership positions and
further increase sales and EBITDA by continuing to implement an operating
strategy which has the following primary components:
INCREASE INVESTMENTS IN BRAND EQUITY. Management believes Carter's enjoys
among the highest brand awareness of any children's apparel company. In order to
capitalize further on the potential of the CARTER'S name, the Company intends to
increase its joint promotional activities with its key wholesale accounts, roll
out its branded "store-in-store" shops to additional locations and selectively
increase its national print advertising, with heightened visibility of its tag
line "If they could just stay little 'til their CARTER'S wear out."-TM-
Management believes that selective investments in its brand will result in high
returns and will help support continued growth.
INCREASE OPERATING EFFICIENCIES. Carter's management team has successfully
increased EBITDA margins from 8.7% of sales in 1993 to 10.2% of sales in fiscal
1997. The Company has achieved these results by reducing SKUs, decreasing
product complexity, upgrading information systems and moving certain
labor-intensive portions of its production process offshore. Management believes
additional opportunities exist to continue to reduce manufacturing costs and
accelerate speed to market by shortening cycle times, more efficiently managing
inventories and further expanding offshore production. Management expects to
increase the Company's percentage of offshore sewing production to approximately
80% by the end of 2001, which is expected to yield incremental cost savings in
line with the Company's historical experience.
ENHANCE RETAIL OUTLET STORE PRODUCTIVITY. The Company currently operates
138 retail outlet stores in 41 states featuring all of CARTER'S quality
merchandise, complemented by select brand accessories and apparel. The stores,
which average 5,200 square feet per location, offer a broad assortment of baby,
toddler and young children's apparel including layette, sleepwear, underwear,
playwear, swimwear, outerwear and related accessories. Over the past 18 months,
the Company recruited a new retail management team to improve the retail
division's operating results. This team implemented a new marketing strategy and
improved store layouts, which resulted in the first increase in same store
revenues since 1992 with improved profitability.
In order to clearly communicate the Company's commitment to provide
outstanding quality and value to the consumer, a chainwide roll-out of a new
promotional and pricing strategy was implemented in 1997. This strategy, in
effect in 98 stores by year-end 1997 and in all 138 stores by February 1998,
communicates the value offered relative to comparable values elsewhere. Major
improvements in the merchandise planning and allocation process, a more
impactful and coordinated visual display of merchandise, continued commitment to
improving the quality of customer service and targeted cost reduction
initiatives all contributed to increased store productivity and profitability.
CAPITALIZE ON ADDITIONAL GROWTH OPPORTUNITIES. The Company intends to
aggressively pursue selected growth opportunities in its primary markets,
including:
- Leveraging its leading positions in layette and sleepwear to increase its
share of the larger and more highly fragmented playwear market, which is
more than five times the size of the sleepwear market. Management has
recently increased the marketing focus on its playwear lines and
introduced new playwear product designs.
- Continuing to implement the Company's "store-in-store" concept. Carter's
first introduced these shops in fiscal 1995, and currently has
approximately 400 such shops. Management believes that there are
significant opportunities to expand the "store-in-store" concept
throughout its wholesale customer base.
- Leveraging the CARTER'S brand through other growth opportunities. Carter's
has recently initiated product extensions through a gift-giving program
and a renewed focus on selectively increasing
5
licensing relationships. In addition, Carter's is investigating
opportunities for international and direct marketing sales, alternative
retail formats and brand extensions to serve the discount channel, a
market in which the Company currently does not compete.
THE ACQUISITION
On October 30, 1996 (the "Acquisition Closing Date"), Carter Holdings, Inc.
("Holdings"), a company organized on behalf of affiliates of INVESTCORP S.A.
("Investcorp"), management and certain other investors, acquired 100% of the
outstanding common and preferred stock of The William Carter Company
("Carter's") (the "Acquisition") from MBL Life Assurance Corporation ("MBL"),
CHC Charitable Irrevocable Trust (the "Trust") and certain management
stockholders (collectively, the "Sellers") for $208.0 million, which includes
the issuance of shares of non-voting stock of Holdings valued at $9.1 million to
certain members of management, plus certain other payments, costs and expenses
of approximately $18.1 million. Financing for the Acquisition was provided by
(i) $56.1 million of borrowings under a $100.0 million senior credit facility
among Carter's, certain lenders and The Chase Manhattan Bank, as administrative
agent (the "Senior Credit Facility"), (ii) $90.0 million of borrowings under a
subordinated loan facility among Carter's, certain lenders and Bankers Trust
Company, as administrative agent (the "Subordinated Loan Facility") and (iii)
$70.9 million of capital invested by affiliates of Investcorp and certain other
investors in Holdings. See "The Acquisition".
Carter's and Holdings are Massachusetts corporations. The principal
executive office of the Company is located at 1590 Adamson Parkway, Suite 400,
Morrow, Georgia 30260, and its telephone number is (770) 961-8722.
RISK FACTORS
Holders of Old Notes should carefully consider all of the information set
forth under "Risk Factors" in connection with the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered................ $20,000,000 aggregate principal amount of 12% Series B
Senior Subordinated Notes due 2008 (the "New Notes").
The terms of the New Notes and Old Notes are identical
in all material respects, except for certain transfer
restrictions and registration rights relating to the Old
Notes.
The Exchange Offer................ The New Notes are being offered in exchange for a like
principal amount of Old Notes. Old Notes may be
exchanged only in integral multiples of $1,000. The
issuance of the New Notes is intended to satisfy
obligations of the Company contained in the Registration
Rights Agreement.
Expiration Date; Withdrawal of
Tender.......................... The Exchange Offer will expire at 5:00 p.m. New York
City time, on July , 1998, or such later date and time
to which it is extended by Holdings. The tender of Old
Notes pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. Any Old Notes not
accepted for exchange for any reason will be returned
without expense to the tendering holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer.
6
Certain Conditions to the Exchange
Offer........................... Holdings obligation to accept for exchange, or to issue
New Notes in exchange for, any Old Notes is subject to
certain customary conditions relating to compliance with
any applicable law, order of any governmental agency or
any applicable interpretation by any staff of the
Commission, which may be waived by Holdings in its
reasonable discretion. Holdings currently expects that
each of the conditions will be satisfied and that no
waivers will be necessary. See "The Exchange Offer--
Certain Conditions to the Exchange Offer".
Procedures for Tendering Old
Notes........................... Each holder of Old Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal, or such
facsimile, together with such Old Notes and any other
required documentation, to the Exchange Agent (as
defined) at the address set forth herein. See "The
Exchange Offer--Procedures for Tendering Old Notes".
Use of Proceeds................... There will be no proceeds to Holdings from the Exchange
of Notes pursuant to the Exchange Offer.
Exchange Agent.................... State Street Bank and Trust Company is serving as the
Exchange Agent in connection with the Exchange Offer.
7
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT
TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, holders of Old Notes (other than any
holder who is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act) who exchange their Old Notes for New Notes pursuant to the
Exchange Offer generally may offer such New Notes for resale, resell such New
Notes, and otherwise transfer such New Notes without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
such New Notes are acquired in the ordinary course of the holder's business and
such holders have no arrangement with any person to participate in a
distribution of such New Notes. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. See "Plan of
Distribution". In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdiction or an
exemption from registration or qualification is available and is complied with.
The Company has agreed, pursuant to the Registration Rights Agreement and
subject to certain specified limitations therein, to register or qualify the New
Notes for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of the Notes reasonably requests in writing. If a
holder of Old Notes does not exchange such Old Notes for New Notes pursuant to
the Exchange Offer, such Old Notes will continue to be subject to the
restrictions on transfer contained in the legend thereon. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. See "The Exchange
Offer--Consequences of Failure to Exchange; Resales of New Notes".
The Old Notes are currently eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. Following
commencement of the Exchange Offer but prior to its consummation, the Old Notes
may continue to be traded in the PORTAL market. Following consummation of the
Exchange Offer, the New Notes will not be eligible for PORTAL trading.
THE NEW NOTES
THE TERMS OF THE NEW NOTES ARE IDENTICAL IN ALL MATERIAL RESPECTS TO THE OLD
NOTES, EXCEPT FOR CERTAIN TRANSFER RESTRICTIONS AND REGISTRATION RIGHTS RELATING
TO THE OLD NOTES. FOR PURPOSES OF THIS PROSPECTUS, THE TERM "NOTES" SHALL REFER
COLLECTIVELY TO THE NEW NOTES AND THE OLD NOTES.
Issuer............................ Carter Holdings, Inc.
Securities Offered................ $20,000,000 principal amount of 12% Series B Senior
Subordinated Notes due 2008 (the "New Notes").
Maturity Date..................... October 1, 2008.
Interest Payment Dates............ May 1 and November 1 of each year, commencing on May 1,
1997.
Optional Redemption............... Holdings may redeem the Notes, in whole or in part, at
the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of
redemption. See "Description of Notes--Optional
Redemption".
8
Change of Control................. Upon the occurrence of a Change of Control, Holdings
will be required to make an offer to repurchase the New
Notes at a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if
any, to the date of purchase. There can be no assurance
that Holdings will have, or will have access to,
sufficient funds to repurchase the New Notes upon any
such occurrence. See "Description of Notes--Change of
Control".
Ranking........................... The New Notes will be general unsecured obligations of
Holdings and are subordinated in right of payment to all
(i) existing and future Senior Indebtedness (as defined)
of Holdings; and (ii) all debts, liabilities and
obligations of Carter's. The New Notes will rank PARI
PASSU with all present and future Indebtedness of
Holdings other than Senior Indebtedness and will rank
senior to any Subordinated Obligations (as defined) of
Holdings. At April 4, 1998 and January 3, 1998, the
aggregate amount of Carter's outstanding Senior
Indebtedness was $65.6 million and $57.1 million,
respectively (exclusive of unused commitments). See
"Description of Notes--Ranking".
Certain Covenants................. The indenture under which the New Notes will be issued
(the "Indenture") limits, among other things, (i) the
incurrence of additional indebtedness by Holdings and
its subsidiaries, (ii) the payment of dividends on, and
redemption of, capital stock of Holdings and its
subsidiaries and the redemption of certain subordinated
obligations of Holdings and its subsidiaries, (iii)
investments, (iv) sales of assets and subsidiary stock,
(v) transactions with affiliates, (vi) the creation of
liens and (vii) consolidations, mergers and transfers of
all or substantially all of Holdings's assets. The
Indenture also prohibits certain restrictions on
distributions from subsidiaries. However, all of these
limitations and prohibitions are subject to a number of
important qualifications and exceptions. See
"Description of Notes--Certain Covenants".
Absence of a Public Market for the
New Notes....................... The New Notes are new securities and there is currently
no established market for the New Notes. Accordingly,
there can be no assurance as to the development or
liquidity of any market for the New Notes. Holdings does
not intend to apply for listing of the New Notes on a
securities exchange.
9
RISK FACTORS
IN EVALUATING AN INVESTMENT IN THE NEW NOTES, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AS WELL AS THE OTHER INFORMATION
SET FORTH ELSEWHERE IN THIS PROSPECTUS.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
Holdings is highly leveraged. In connection with the Acquisition of Carter's
and Holdings' offering of the Old Notes (the "Offering"), the Company's
consolidated indebtedness increased by approximately $103.0 million. At April 4,
1998 and January 3, 1998, the Company's total indebtedness was $185.6 million
and $177.1 million, respectively (exclusive of $28.5 million and $37.0 million,
respectively, of available borrowings and outstanding letters of credit under
the Senior Credit Facility), and the Company had stockholder's equity of $55.9
million and $57.9 million, respectively. The degree to which the Company is
leveraged could have important consequences to holders of the Notes, including
the following: (i) the Company's ability to obtain additional financing for
working capital, capital expenditures, acquisitions or general corporate
purposes may be impaired; (ii) a substantial portion of the Company's cash flows
from operations must be dedicated to the payment of interest on the Notes and
its other existing indebtedness, thereby reducing the funds available to
Carter's for other purposes; (iii) the agreements governing Carter's long-term
indebtedness contain certain restrictive financial and operating covenants; (iv)
certain indebtedness under Carter's Senior Credit Facility is at variable rates
of interest, which causes Carter's to be vulnerable to increases in interest
rates; (v) all of the indebtedness outstanding under the Senior Credit Facility
is collateralized by substantially all the assets of Carter's and becomes due
prior to the time the principal on the Notes will become due; (vi) Carter's is
substantially more leveraged than certain of its competitors, which might place
Carter's at a competitive disadvantage; (vii) Carter's may be hindered in its
ability to adjust rapidly to changing market conditions; and (viii) Carter's
substantial degree of leverage could make it more vulnerable in the event of a
downturn in general economic conditions or in its business.
Carter's may be required to refinance all or a portion of its Senior Credit
Facility at or prior to its maturity, which is prior to the maturity of the
Notes. Potential measures to raise cash may include the sale of assets or
equity. However, Carter's ability to raise funds by selling assets is restricted
by its Senior Credit Facility, and its ability to effect equity financings is
dependent on results of operations and market conditions. In the event that
Carter's is unable to refinance its Senior Credit Facility or raise funds
through asset sales, sales of equity or otherwise, its ability to provide
funding to Holdings to pay principal of and interest on Holdings Notes would be
adversely affected.
INVESTCORP RELATIONSHIP
Investcorp and its affiliates, through their ownership of the voting stock
of Holdings or through revocable contractual arrangements (see "Ownership of
Voting Securities"), indirectly control the power to vote all of the outstanding
voting capital stock of the Company for so long as such agreements are in
effect. Accordingly, Investcorp and its affiliates currently are entitled to
elect all directors of the Company, approve all amendments to the Company's
Articles of Organization and effect fundamental corporate transactions such as
mergers and asset sales.
POTENTIAL INABILITY TO PURCHASE TENDERED NOTES UPON A CHANGE OF CONTROL
A Change of Control (as defined) could require the Company to refinance
substantial amounts of indebtedness. Upon the occurrence of a Change of Control,
the holders of the Notes would be entitled to require Holdings to purchase the
Notes at a purchase price equal to 101% of the principal amount of such Notes,
plus accrued and unpaid interest, if any, to the date of purchase. However, the
Senior Credit Facility prohibits the purchase of the Notes by Holdings in the
event of a Change of Control, unless and until such time as the indebtedness
under the Senior Credit Facility is repaid in full. Holdings failure to purchase
the Notes would result in a default under the Indenture and the Senior Credit
Facility. The
10
inability to repay the indebtedness under the Senior Credit Facility, if
accelerated, would also constitute an event of default under the Indenture,
which could have adverse consequences to the Company and the holders of the
Notes. In the event of a Change of Control, there can be no assurance that the
Company would have sufficient assets to satisfy all of its obligations under the
Senior Credit Facility and the Notes. See "Capital Structure--Senior Credit
Facility" and "Description of Notes--Change of Control".
EFFECT OF HOLDING COMPANY STRUCTURE ON ABILITY TO PAY INTEREST AND PRINCIPLE ON
THE NOTES
Holdings is a holding company whose primary asset is its investment in 100%
of the outstanding capital stock of Carter's. All of the operations of Holdings
are conducted through subsidiaries. Accordingly, Holdings' ability to pay
interest on the Notes and to repay the Notes at maturity will be dependent upon
earnings and cash flows of Carter's and its Subsidiaries and payment of funds by
Carter's to Holdings in the form of loans, dividends and otherwise. The Holdings
Notes will be structurally subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
Holdings' Subsidiaries. Any right of Holdings to receive assets of any of its
direct or indirect Subsidiaries upon the latter's liquidation or reorganization
(and the consequent right of the holders of the Notes to participate in those
assets) will be structurally subordinated to the claims of those Subsidiaries'
creditors. The terms of the 10 3/8% Senior Subordinated Notes (as defined below)
and the Senior Credit Facility substantially restrict the ability of Carter's to
make certain restricted payments, including dividends and other distributions,
to Holdings; provided, however, that such restrictions do not prohibit certain
dividends and distributions by Carter's to Holdings (unless certain events of
default have occurred) to the extent applied by Holdings to pay interest due on
the Notes and reasonable general and administrative expenses of Holdings not to
exceed certain amounts in any fiscal year.
LIMITATIONS ON REPURCHASE OF HOLDINGS NOTES UPON CHANGE OF CONTROL
Upon a Change of Control (as defined), each holder of Notes will have
certain rights to require Holdings to repurchase all or a portion of such
holder's Notes. If a Change of Control were to occur, there can be no assurance
that Holdings would have sufficient funds to pay the repurchase price for all
Holdings Notes tendered by the holders thereof.
POTENTIAL CLAIMS OF FRAUDULENT CONVEYANCE OR PREFERENTIAL TREATMENT WITH RESPECT
TO THE NOTES
The obligations of Holdings under the Notes may be subject to review under
state or Federal fraudulent transfer laws in the event of the bankruptcy or
other financial difficulty of Holdings. If the court in a lawsuit brought by an
unpaid creditor or representative of creditors, such as a trustee in bankruptcy
or the Company as a debtor-in-possession, were to find under relevant federal
and state fraudulent conveyance statutes that the Company did not receive fair
consideration or reasonably equivalent value for incurring certain of the
indebtedness, including the Notes, incurred by the Company in connection with
the Acquisition, and that, at the time of such incurrence, the Company (i) was
insolvent, (ii) was rendered insolvent by reason of such incurrence or grant,
(iii) was engaged in a business or transaction for which the assets remaining
with the Company constituted unreasonably small capital or (iv) intended to
incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, such court, subject to applicable statutes of limitation,
could void the Company's obligations under the Notes, subordinate the Notes to
obligations of the Company that do not otherwise constitute Senior Indebtedness
or take other action detrimental to the holders of the Notes.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction being applied. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than all that company's property at a fair valuation, or if the present
fair salable value of that company's assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured. Moreover, regardless of solvency, a court could void an
incurrence of indebtedness, including the Notes, if it determined that such
transaction
11
was made with intent to hinder, delay or defraud creditors, or a court could
subordinate the indebtedness, including the Notes, to the claims of all existing
and future creditors on similar grounds.
There can be no assurance as to what standard a court would apply in order
to determine whether the Company was "insolvent" upon consummation of the
Acquisition or the sale of the Notes or that, regardless of the method of
valuation, a court would not determine that the Company was insolvent upon
consummation of the Acquisition or sale of the Notes.
Additionally, under federal bankruptcy or applicable state insolvency law,
if a bankruptcy or insolvency were initiated by or against the Company within 90
days after any payment by the Company with respect to the Notes, or if the
Company anticipated becoming insolvent at the time of such payment, all or a
portion of the payment could be avoided as a preferential transfer and the
recipient of such payment could be required to return such payment.
DECLINES IN COMPARABLE STORE SALES PERFORMANCE
Comparable store sales for the Company's retail outlet stores declined 1.4%,
2.8%, 7.1% and 8.8% in fiscal years 1993, 1994, 1995 and 1996, respectively.
Comparable store sales increased 0.4% in 1997 and increased 14.6% in the first
quarter of 1998 compared to the first quarter of 1997. The Company believes that
these prior year comparable store sales declines were a result of several
factors, including poor product mix, weak retail operating disciplines, the
removal of certain product lines and overall weaker performance in the outlet
industry. In an effort to slow comparable store sales declines, management
recently introduced new merchandise, changed its product mix and strengthened
certain operating disciplines. Despite these improvements, there can be no
assurance that recent performance can be maintained or further improved in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
RISKS RELATED TO FOREIGN SOURCING
The Company currently sources approximately 47% of its sewing production
through its offshore facilities, and intends to increase this percentage to up
to 80% by the year 2001. As a result, the Company may be adversely affected by
political instability resulting in the disruption of trade from foreign
countries in which the Company's manufacturing facilities are located, the
imposition of additional regulations relating to imports, duties, taxes and
other charges on imports, any significant decreases in the value of the dollar
against foreign currencies and restrictions on the transfer of funds. These and
other factors could result in the interruption of production in offshore
facilities or a delay in the receipt of the products by the Company in the
United States. The Company's future performance may be subject to such factors,
which are beyond the Company's control, and there can be no assurance that such
factors would not have a material adverse effect on the Company's financial
condition and results of operations.
Given the nature of the Company's business, it is committed to ensuring no
child-labor or any other unfair labor practice occurs in the production of the
Company's products. The Company complies with the requirements of the countries
in which its products are produced and also requires contractors which it
engages to produce Carter's products to meet the requirements of countries in
which they operate. There are frequent visits to the foreign operations to
monitor working conditions by various Company personnel including U.S. based
senior managers, internal audit, finance and human resource managers.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success is largely dependent upon the
abilities and experience of its senior management team. The loss of the services
of one or more of these senior executives could adversely affect the Company's
results of operations. See "Management--Employment Arrangements". The Company
does not maintain Company-beneficiary life insurance policies on any key
personnel.
12
DEPENDENCE ON MAJOR SUPPLIERS
The Company purchases the majority of the various raw materials used to
manufacture its products from a few vendors of each material. There can be no
assurance that the loss of one or more of these vendors as a supplier would not
result in an interruption of supply, which could have an adverse effect on the
Company's results of operations.
COMPETITION
The baby and toddler and young children's apparel markets are highly
competitive. Competition generally is based upon product quality, brand name
recognition, price, selection, service and convenience. Both branded and private
label manufacturers compete in the baby and toddler and children's apparel
markets. The Company's primary branded competitors include Health-Tex and
Oshkosh B'Gosh together with Disney licensed products in playwear, and numerous
smaller branded companies, as well as Disney licensed products, in sleepwear.
Certain retailers, including several which are customers of the Company, have
significant private label product offerings in playwear. The Company does not
believe that it has any significant branded competitors in its layette market in
which most of the alternative products are offered by private label
manufacturers. Because of the highly fragmented nature of the industry, the
Company also competes with many small, local manufacturers and retailers.
Certain competitors of the Company have greater financial resources, have larger
customer bases and are less financially leveraged.
DEPENDENCE ON WHOLESALE CUSTOMERS
Approximately 57.5% and 62.5% of Carter's total wholesale sales for fiscal
1996 and fiscal 1997, respectively, were derived from sales to its top six
customers, with no one customer accounting for more than 14.3% of such sales (or
more than 8.4% of the Company's total sales) in either period. The Company
expects that these wholesale customers will continue to represent a significant
portion of the Company's wholesale sales in the future. There can be no
assurance that the loss of, or a significant decrease in business from, one or
more of these customers would not result in a material adverse effect on the
Company's financial condition and results of operations.
LACK OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY
The New Notes are new securities for which there currently is no market.
Although the Initial Purchasers have been making a market in the Old Notes and
have informed the Company that they currently intend to make a market in the New
Notes, they are not obligated to do so and any such market making may be
discontinued at any time without notice. In addition, such market making
activity may be limited during the pendency of the Exchange Offer. Accordingly,
there can be no assurance as to the development or liquidity of any market for
the New Notes. The Old Notes are currently eligible for trading by qualified
buyers in the PORTAL market. The Company does not intend to apply for listing of
the New Notes on any securities exchange or for quotation through The Nasdaq
National Market.
The liquidity of, and trading market for, the New Notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
RISKS RELATED TO ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for response costs and certain damages resulting from past and current spills,
disposals or other releases of hazardous materials (together, "Environmental
Laws"). The Company believes that it currently conducts its operations, and in
the past has operated its business, in substantial compliance with applicable
Environmental
13
Laws. From time to time, operations of the Company have resulted or may result
in noncompliance with or liability for cleanup pursuant to Environmental Laws.
In July and August 1996, Carter's had Phase I Environmental Site Assessment and
Regulatory Compliance Reviews (the "Reports") conducted by an environmental
consultant for 13 facilities. Based on available information, including the
Reports, Carter's has identified certain non-compliance with Environmental Laws,
including waste water discharge at its textile manufacturing facility in
Barnesville, Georgia. The Company has also identified certain actions that may
be required in the future at this facility. In addition, in 1998, the Company
commenced an investigation in Lamar County, Georgia of a potential claim under
Georgia's environmental laws. Environmental Laws have changed rapidly in recent
years, and the Company may be subject to more stringent Environmental Laws in
the future. There can be no assurance that more stringent Environmental Laws
could not have a material adverse effect on the Company's results of operations.
See "Business-- Environmental Matters".
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes pursuant
to the Exchange Offer.
THE ACQUISITION
On the Acquisition Closing Date, Holdings, a company organized on behalf of
affiliates of Investcorp, management and certain other investors, acquired 100%
of the outstanding preferred and common stock of Carter's from the Sellers for
$208.0 million, which amount includes the base purchase price of $194.7 million
(including refinancing of indebtedness and certain payments to management but
excluding fees and expenses), the issuance of shares of non-voting stock of
Holdings valued at $9.1 million to certain members of management and a payment
of $4.2 million to the Sellers representing the estimated future tax benefit to
the Company resulting from certain payments. The Company also incurred
additional financing and transaction fees and expenses of $18.1 million related
to the Acquisition. Financing for the Acquisition was provided by (i) $56.1
million of borrowings under the Senior Credit Facility, (ii) $90.0 million of
borrowings under the Subordinated Loan Facility, (iii) $50.9 million of equity
investments in Holdings by affiliates of Investcorp and certain other investors
(which excludes the exchange of management stock described below) and (iv) the
issuance by Holdings of $20.0 million of 12% Senior Subordinated Notes to
affiliates of Investcorp and certain other investors which Holdings used to
purchase $20.0 million of Carter's redeemable preferred stock. Holdings has
substantially no assets or investments other than those related to its
investment in the shares of capital stock of Carter's.
Upon the Acquisition, the Company paid a total of approximately $11.3
million to members of management (the "Management Payments"), including payments
under a Management Equity Participation Plan and a Long-Term Incentive Plan. In
addition, upon the closing of the Acquisition, certain members of management
exchanged capital stock of Carter's with an aggregate value of $9.1 million for
non-voting stock of Holdings. See "Certain Transactions".
14
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at April 4, 1998 and January 3, 1998, respectively. There is no
adjustment necessary to give effect to the Exchange Offer. This table should be
read in conjunction with the "Selected Financial Data", "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and related notes thereto included elsewhere
in this Prospectus ($000):
APRIL 4, JANUARY 3,
1998 1998
------------ ----------
(UNAUDITED)
Debt:
Term loans (a)........................................................................ $ 44,100 $ 44,100
Revolving credit facility (a)......................................................... 21,500 13,000
10 3/8% Senior Subordinated Notes due 2006............................................ 100,000 100,000
Holdings 12% Senior Subordinated Notes due 2008....................................... 20,000 20,000
------------ ----------
Total debt.......................................................................... 185,600 177,100
------------ ----------
Stockholders' equity:
Class A Stock, nonvoting; par value $.01 per share; 775,000 shares authorized; 752,808
shares issued and outstanding; liquidation value of $.001 per share................. 45,168 45,168
Class C Stock, nonvoting; par value $.01 per share; 500,000 shares authorized; 242,192
shares issued; liquidation value of $.001 per share................................. 14,532 14,532
Class C Treasury Stock, 20,998 shares at cost at April 4, 1998, 19,709 shares at cost
at January 3, 1998.................................................................. (1,260) (1,183)
Class D Stock, voting; par value $.01 per share; 5,000 shares authorized, issued and
outstanding......................................................................... 300 300
Common Stock, voting; par value $.01 per share; 1,280,000 shares authorized; none
issued or outstanding............................................................... -- --
Accumulated deficit................................................................... (2,869) (897)
------------ ----------
Total stockholders' equity.......................................................... 55,871 57,920
------------ ----------
Total capitalization................................................................ $ 241,471 $ 235,020
------------ ----------
------------ ----------
- ------------------------
(a) The term loan portion of the Senior Credit Facility will mature in the year
2003 and requires semi-annual principal payments totaling $0.9 million in
each of 1997, 1998, 1999 and 2000 and $5.4 million, $13.5 million and $22.5
million in 2001, 2002 and 2003, respectively. See "Capital Structure--Senior
Credit Facility" for a description of the revolving credit facility and term
loans under the Senior Credit Facility. In November 1996, the term loan was
reduced by $5.0 million with proceeds from the issuance of the $100.0
million 10 3/8% Senior Subordinated Notes. The future scheduled payments
under the Senior Credit Facility have been reduced ratably for this payment.
15
SELECTED FINANCIAL DATA
The following table sets forth selected financial and other data of Carter
Holdings, Inc. and its subsidiaries (the "Company") as of April 4, 1998, January
3, 1998 and December 28, 1996, for the three-month periods ended April 4, 1998
and March 29, 1997, for the fiscal year ended January 3, 1998 ("fiscal year
1997") and for the period from October 30, 1996 (inception) through December 28,
1996. On October 30, 1996, Carter Holdings, Inc. acquired 100% of the
outstanding capital stock of The William Carter Company ("Carter's"). For
purposes of identification, Carter's and its subsidiaries is also referred to as
"Predecessor" for periods prior to the Acquisition. Also set forth below is
selected financial and other data of the Predecessor for the period from
December 31, 1995 through October 29, 1996, and as of and for the three
Predecessor fiscal years ended December 30, 1995.
As a result of the Acquisition and certain adjustments made in connection
therewith, the results of operations of the Company are not comparable to those
of the Predecessor.
The selected financial data of the Company for fiscal 1997 and 1996 were
derived from the Company's audited Consolidated Financial Statements. The
selected financial data of the Company for the three-month periods ended April
4, 1998 and March 29, 1997 were derived from the Company's unaudited
Consolidated Financial Statements. The selected financial data of the
Predecessor were derived from the Predecessor's audited Consolidated Financial
Statements.
The following table should be read in conjunction with "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". For reports by the Company's and the Predecessor's independent
accountants with respect to audited historical financial information, see "Index
to Consolidated Financial Statements".
16
(DOLLARS IN THOUSANDS)
THE COMPANY PREDECESSOR
--------------------------------------------------- ------------------------------------------------
OCT. 30,
1996 DEC. 31,
THREE MONTHS ENDED (INCEPTION) 1995
----------------------- THROUGH THROUGH FISCAL YEAR
APRIL 4, MARCH 29, FISCAL YEAR DECEMBER 28, OCT. 29, ----------------------------------
1998 (A) 1997 (A) 1997 (A) 1996 (A) 1996 1995 1994 1993
---------- ----------- ------------ ------------ ------------ ---------- ---------- ----------
OPERATING DATA:
Wholesale sales......... $ 51,555 $ 48,120 $ 219,535 $ 28,506 $ 160,485 $ 166,884 $ 150,175 $ 127,457
Retail sales............ 33,589 27,081 143,419 22,990 106,254 128,547 121,374 109,554
---------- ----------- ------------ ------------ ------------ ---------- ---------- ----------
Net sales............... 85,144 75,201 362,954 51,496 266,739 295,431 271,549 237,011
Cost of goods sold...... 54,509 47,809 228,358 31,708 170,027 191,105 175,244 156,525
---------- ----------- ------------ ------------ ------------ ---------- ---------- ----------
Gross profit............ 30,635 27,392 134,596 19,788 96,712 104,326 96,305 80,486
Selling, general and
administrative........ 29,375 26,382 111,505 16,672 79,296 83,223 77,472 67,699
Nonrecurring charges
(b)(f)................ -- -- -- -- 8,834 -- -- --
---------- ----------- ------------ ------------ ------------ ---------- ---------- ----------
Operating income........ 1,260 1,010 23,091 3,116 8,582 21,103 18,833 12,787
Interest expense........ 5,132 4,681 20,246 3,065 7,075 7,849 6,445 5,957
---------- ----------- ------------ ------------ ------------ ---------- ---------- ----------
Income (loss) before
income taxes and
extraordinary item.... (3,872) (3,671) 2,845 51 1,507 13,254 12,388 6,830
Provision for (benefit
from) income taxes.... (1,900) (1,795) 1,391 51 1,885 5,179 4,000 3,000
---------- ----------- ------------ ------------ ------------ ---------- ---------- ----------
Income (loss) before
extraordinary item.... (1,972) (1,876) 1,454 -- (378) 8,075 8,388 3,830
Extraordinary item, net
of tax (c)............ -- -- -- 2,351 -- -- -- --
---------- ----------- ------------ ------------ ------------ ---------- ---------- ----------
Net income (loss)....... $ (1,972) $ (1,876) $ 1,454 $ (2,351) $ (378) $ 8,075 $ 8,388 $ 3,830
---------- ----------- ------------ ------------ ------------ ---------- ---------- ----------
---------- ----------- ------------ ------------ ------------ ---------- ---------- ----------
Net income (loss) avail-
able to common stock-
holders............... $ (1,972) $ (1,876) $ 1,454 $ (2,351) $ (1,510) $ 6,460 $ 6,710 $ 3,830
---------- ----------- ------------ ------------ ------------ ---------- ---------- ----------
---------- ----------- ------------ ------------ ------------ ---------- ---------- ----------
BALANCE SHEET DATA
(END OF PERIOD):
Working capital (d)..... $ 97,387 $ 88,374 $ 70,553 $ 84,593 $ 68,595 $ 66,670
Total assets............ 344,703 334,565 321,036 167,216 135,471 123,938
Total debt, including
current maturities.... 185,600 177,100 165,000 87,495 71,660 73,406
Stockholders' equity.... 55,871 57,920 57,649 (4,678) (11,351) (19,739)
CASH FLOW DATA:
Net cash (used in) pro-
vided by operating
activities............ $ (6,473) $ (2,221) $ 1,642 $ 7,095 $ 24,405 $ (5,516) $ 14,643 $ 9,952
Net cash used in
investing
activities............ $ (1,577) $ (1,016) $ (13,965) $(143,227) $ (4,007) $ (13,369) $ (10,926) $ (4,270)
Net cash provided by
(used in) financing
activities............ $ 8,917 $ 2,000 $ 14,621 $ 134,263 $ (19,433) $ 14,157 $ (1,746) $ (7,926)
OTHER DATA:
Gross margin............ 36.0% 36.4% 37.1% 38.4% 36.3% 35.3% 35.5% 34.0%
EBITDA (e).............. $ 5,050 $ 4,413 $ 36,926 $ 5,530 $ 25,628 $ 30,562 $ 27,098 $ 20,647
Depreciation and amorti-
zation................ $ 3,790 $ 3,403 $ 13,835 $ 2,414 $ 6,612 $ 7,337 $ 6,515 $ 6,431
Capital expenditures.... $ 1,580 $ 1,027 $ 14,013 $ 3,749 $ 4,007 $ 13,715 $ 10,996 $ 7,941
Ratio of earnings to
fixed charges (f)..... -- -- 1.1x 1.0x 1.1x 2.1x 2.3x 1.8x
See Notes to Selected Financial Data.
17
NOTES TO SELECTED FINANCIAL DATA
(a) As a result of the Acquisition, Carter's assets and liabilities were
adjusted to their estimated fair values as of October 30, 1996. In addition,
the Company entered into new financing arrangements and changed its capital
structure. Accordingly, the results of operations for the periods subsequent
to October 30, 1996 are not comparable to prior periods. The periods
subsequent to October 30, 1996 reflect increased depreciation, amortization
and interest expenses.
(b) The nonrecurring charge for the period December 31, 1995 through October 29,
1996 includes: (1) compensation-related charges of $5.3 million for amounts
paid to management in connection with the Acquisition; and (2) other expense
charges of $3.5 million for costs and fees Carter's incurred in connection
with the Acquisition.
(c) The extraordinary item for the period October 30, 1996 through December 28,
1996 reflects the write-off of $3.4 million and $0.2 million of deferred
debt issuance costs related to the Subordinated Loan Facility and the
portion of the Senior Credit Facility, respectively, repaid with the
proceeds of the 10 3/8% Notes in November 1996, net of income tax effects.
(d) Represents total current assets less total current liabilities.
(e) EBITDA represents earnings before interest expense and income tax expense
(i.e., operating income) excluding the following charges:
(i) depreciation and amortization expense, including prepaid management
fee amortization of $1.35 and $0.23 million for the fiscal year ended
January 3, 1998 and the period October 30, 1996 through December 28, 1996,
respectively, incurred in connection with the Acquisition;
(ii) costs associated with certain benefit plans that were terminated as
a result of the Acquisition and not replaced, as follows: (1) Long-Term
Incentive Plan expenses of $0.8 million, $1.2 million, $1.1 million and $1.0
million for fiscal 1993, 1994, 1995 and the period December 31, 1995 through
October 29, 1996, respectively; (2) Management Equity Participation Plan
expenses of $0.6 million, $0.6 million, $0.6 million and $0.6 million for
fiscal 1993, 1994, 1995 and the period December 31, 1995 through October 29,
1996, respectively; and (3) Stock Compensation Plan expense of $0.4 million
in fiscal 1995; and
(iii) in fiscal 1996, the nonrecurring charge of $8.8 million related to
the Acquisition.
The Company has reported EBITDA as it is relevant for covenant analysis
under the $100 million 10 3/8% Notes Indenture, which defines EBITDA as set
forth above for the periods shown. In addition, management believes that
EBITDA is generally accepted as providing useful information regarding a
company's ability to service and/or incur debt. EBITDA should not be
considered in isolation or as a substitute for net income, cash flows or
other consolidated income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity. The EBITDA amounts presented herein may not be
comparable to other similarly titled measures presented by other companies.
(f) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes and fixed charges. Fixed
charges consist of interest expense, which includes the amortization of
deferred debt issuance costs and the interest portion of rent expense
(assumed to be one-third of total rent expense). Earnings were insufficient
to cover fixed charges by approximately $3.9 million and $3.7 million for
the three-month periods ended April 4, 1998 and March 29, 1997,
respectively.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED
FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING
STATEMENTS THAT INCLUDE RISKS AND OTHER UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE THOSE DISCUSSED
BELOW, AS WELL AS GENERAL ECONOMIC AND BUSINESS CONDITIONS, COMPETITION AND
OTHER FACTORS DISCUSSED ELSEWHERE IN THIS PROSPECTUS. THE COMPANY UNDERTAKES NO
OBLIGATION TO RELEASE PUBLICLY ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS
THAT MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO
REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS.
GENERAL
The Company is a leading marketer and manufacturer of baby, toddler and
young children's apparel. The Company sells its products to more than 300
department and specialty store customers (60.5% of fiscal 1997 sales) and
through its 138 retail outlet stores (39.5% of fiscal 1997 sales).
Carter's senior management has significantly increased earnings and market
share since joining Carter's in 1992. Management believes these improvements
resulted primarily from efforts to strengthen customer relationships, improve
product offerings and further enhance the CARTER'S brand image. In addition, the
Company has realized significant operating efficiencies by reducing the scope of
its product offerings while enhancing core product offerings, increasing
offshore production, and implementing the wider use of advanced operating and
financial information systems. Management believes that these actions have been
instrumental in enabling Carter's to increase sales and operating income from
$237.0 million and $12.8 million, respectively, in fiscal 1993 to $363.0 million
and $23.1 million, respectively, in fiscal 1997. In addition, during this
period, Carter's gross margins increased from 34.0% to 37.1%, respectively.
Carter's annual sales growth since fiscal 1993 resulted from a $92.1 million
increase in wholesale sales and a $33.9 million increase in retail sales. The
increase in wholesale sales resulted primarily from new product introductions
and the opening of new wholesale accounts, including Sears and JCPenney,
partially offset by the removal of certain product lines, such as outerwear,
boys' and girls' underwear and certain BABY DIOR seasonal lines. The increase in
retail sales resulted primarily from new store openings, partially offset by
comparable store sales declines since the beginning of fiscal 1993 through 1996.
Management believes the comparable store sales declines were due to a soft
retailing environment and to certain operational and merchandising problems,
which were corrected in 1997. Comparable store sales increased 0.4% in 1997 over
the prior year and 14.6% in the first quarter of 1998 compared to the first
quarter of 1997. See "--Liquidity and Capital Resources" and
"Business--Distribution and Sales--Retail Operations".
Since fiscal 1993, Carter's has invested an aggregate of $56.0 million in
capital expenditures which were primarily related to the purchase of new
equipment, information systems and offshore production facilities.
For purposes of the presentation and the discussions that follow, fiscal
1996 data reflects the mathematical aggregation of historical results of the
Company for the period from October 30, 1996 (inception) through December 28,
1996 plus historical results of the Predecessor for the period from December 31,
1995 through October 29, 1996. This aggregation is not indicative of results
that would actually have been obtained if the Acquisition had occurred on
December 31, 1995 (the first day of fiscal 1996). Likewise, fiscal 1995 data
reflects that of the Predecessor and fiscal 1997 and 1998 data reflects that of
the Company.
19
RESULTS OF OPERATIONS
The following table sets forth certain components of the Company's
Consolidated Statement of Operations data expressed as a percentage of net
sales:
FISCAL YEAR 1996
--------------------------------------------
THREE MONTHS ENDED OCT. 30, 1996
------------------------- FISCAL (INCEPTION) DEC. 31, 1995
APRIL 4, MARCH 29, YEAR THROUGH THROUGH
1998 1997 1997 COMBINED DEC. 28, 1996 OCT. 29, 1996
----------- ------------ ----------- ------------ -------------- --------------
STATEMENT OF OPERATIONS:
Wholesale sales........................ 60.6% 64.0% 60.5% 59.4% 55.4% 60.2%
Retail sales........................... 39.4 36.0 39.5 40.6 44.6 39.8
----- ----- ----- ----- ----- -----
Net sales.............................. 100.0 100.0 100.0 100.0 100.0 100.0
Cost of goods sold..................... 64.0 63.6 62.9 63.4 61.6 63.7
----- ----- ----- ----- ----- -----
Gross profit........................... 36.0 36.4 37.1 36.6 38.4 36.3
Selling, general and administrative
expenses............................. 34.5 35.1 30.7 30.2 32.4 29.7
Nonrecurring charge.................... -- -- -- 2.8 -- 3.3
----- ----- ----- ----- ----- -----
Operating income....................... 1.5 1.3 6.4 3.7 6.1 3.2
Interest expense....................... 6.0 6.2 5.6 3.2 6.0 2.7
----- ----- ----- ----- ----- -----
Income (loss) before income taxes and
extraordinary item................... (4.5) (4.9) 0.8 0.5 0.1 0.6
Provision for (benefit from) income
taxes................................ (2.2) (2.4) 0.4 0.6 0.1 0.7
Extraordinary item, net................ -- -- -- 0.7 4.6 --
----- ----- ----- ----- ----- -----
Net income (loss)...................... (2.3)% (2.5)% 0.4% (0.9)% (4.6)% (0.1)%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
FISCAL
YEAR
1995
-----------
STATEMENT OF OPERATIONS:
Wholesale sales........................ 56.5%
Retail sales........................... 43.5
-----
Net sales.............................. 100.0
Cost of goods sold..................... 64.7
-----
Gross profit........................... 35.3
Selling, general and administrative
expenses............................. 28.2
Nonrecurring charge.................... --
-----
Operating income....................... 7.1
Interest expense....................... 2.7
-----
Income (loss) before income taxes and
extraordinary item................... 4.5
Provision for (benefit from) income
taxes................................ 1.8
Extraordinary item, net................ --
-----
Net income (loss)...................... 2.7%
-----
-----
THREE MONTHS ENDED APRIL 4, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 29, 1997
NET SALES. In the first quarter of fiscal 1998, consolidated net sales
increased 13.2% to $85.1 million from $75.2 million in the first quarter of
fiscal 1997. The Company's wholesale sales increased 11.7% to approximately
$51.6 million in the first quarter of 1998 from $46.2 million in the first
quarter of 1997. The increase in wholesale sales was due primarily to the new
Special Delivery and Baby Basics product line introductions and the continued
success of the Company's first lifestyle marketing product line, JOY (acronym
for "Just One Year", a total nursery concept focused on apparel and related
accessories for a child's first year of life introduced in 1997.
The Company's retail store sales were approximately $33.6 million for the
first quarter of 1998, which represented an increase of 24.0% compared to the
first quarter of 1997. Comparable store sales increased 14.6% in the first
quarter of 1998 compared to the first quarter of 1997. This increase is
attributed to a new marketing strategy implemented in the latter part of 1997.
This strategy was designed to clearly communicate the value of Carter's products
sold through the outlet stores relative to comparable values offered elsewhere.
Improvements in the merchandise planning and allocation process, a more
impactful and coordinated visual display of merchandise, and a commitment to
improve the quality of customer service, contributed to the increase in retail
sales in the first quarter of 1998.
GROSS PROFIT. Gross profit increased 11.8% to $30.6 million in the first
quarter of 1998 from $27.4 million in the first quarter of 1997. The improvement
in gross profit reflects the benefit derived from the growth in wholesale sales
in the "baby" product category, including the new JOY program, and growth in
retail store sales in the first quarter of 1998 compared to the first quarter of
1997. Gross profit as a percentage of net sales in the first quarter of 1998
decreased to 36.0% from 36.4% in the first quarter of
20
1997. This decrease in gross margin as a percentage of net sales reflects the
impact of start-up costs incurred in the development of the Company's sewing
operations in Mexico.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first quarter of 1998 increased 11.3% to $29.4
million from $26.4 million in the first quarter of 1997. Selling, general and
administrative expenses as a percentage of net sales decreased to 34.5% in the
first quarter of 1998 from 35.1% in the first quarter of 1997. The improvement
in selling, general and administrative expenses as a percentage of net sales
reflects the benefit from comparable store sales increases achieved by the
Company's retail outlet stores and lower retail store expenses relative to sales
resulting from cost controls implemented in store operations.
OPERATING INCOME. Operating income for the first quarter of 1998 was $1.3
million compared to income of $1.0 million in the first quarter of 1997. This
increase reflects the changes in gross profit and selling, general and
administration expenses described above.
INTEREST EXPENSE. Interest expense in the first quarter of 1998 increased
to $5.1 million from $4.7 million in the first quarter of 1997. This increase
reflects the cost of higher average revolver borrowings for working capital
requirements in the first quarter of 1998, needed to support an increased level
of demand for Carter's products. Average revolver borrowings during the first
quarter of 1998 were $17.7 million compared to $2.8 million in the first quarter
of 1997. At April 4, 1998, outstanding debt aggregated $185.6 million compared
to $167.0 million at March 29, 1997.
NET INCOME (LOSS). As a result of the factors described above, the Company
reported a net loss of $2.0 million in the first quarter of 1998 compared to a
net loss of $1.9 million in the first quarter of 1997.
FISCAL YEAR ENDED JANUARY 3, 1998 COMPARED WITH FISCAL YEAR ENDED DECEMBER 28,
1996
As a result of the Acquisition, Carter's assets and liabilities were
adjusted to their estimated fair values as of October 30, 1996. In addition, the
Company entered into new financing arrangements and had a change in its capital
structure (see Notes 1, 5 and 6 to the 1997 Consolidated Financial Statements of
the Company). In 1996, certain nonrecurring charges and an extraordinary loss
were recorded in connection with the Acquisition and financing. Accordingly, the
results of operations for 1997 and 1996 are not comparable to prior periods. The
1996 period prior to the Acquisition reflects nonrecurring charges, principally
Predecessor and Sellers' expenses, such as accelerated compensation plan
payments to management and professional fees. The 1996 period subsequent to the
Acquisition reflects increased cost of sales due to higher depreciation expense
for assets revalued at the Acquisition, increased interest expense, the
amortization of goodwill and tradename and certain prepaid expenses, and an
extraordinary loss resulting from the early extinguishment of debt.
NET SALES. Net sales for fiscal 1997 increased 14.1% to $363.0 million from
$318.2 million in fiscal 1996. This increase was due to a 16.2% increase in
wholesale sales and a 11.0% increase in retail sales. Wholesale sales for fiscal
1997 increased to $219.5 million from $189.0 million in fiscal 1996. This
increase was due primarily to the successful launch of the Company's first
lifestyle marketing product line "JOY" (acronym for "Just One Year"). Retail
sales for fiscal 1997 increased to $143.4 million from $129.2 million in fiscal
1996. Comparable store sales increased 0.4% in 1997, the first increase posted
since 1992. The improvement in outlet store performance during 1997 is
attributed primarily to the investment made in a new management team for the
retail outlet stores. Each of the key retail management positions was upgraded
over the past 18 month period. This team implemented a new marketing strategy
and made other operating improvements, which resulted in the first same store
sales increase since 1992, with improved profitability.
GROSS PROFIT. Gross profit for fiscal 1997 increased 15.5% to $134.6
million from $116.5 million in fiscal 1996. Gross profit as a percentage of net
sales in fiscal 1997 increased to 37.1% from 36.6% in fiscal 1996. The
improvement is attributed to the growth in the Company's "baby" product
category, including
21
the new JOY program, improvement in margins from off-price sales, the maturing
effect of the Company's three offshore sewing plants and higher levels of
efficiency in the Company's manufacturing operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1997 increased 16.2% to $111.5 million from
$96.0 million in fiscal 1996. Selling, general and administrative expenses as a
percentage of net sales increased to 30.7% in fiscal 1997 from 30.2% in fiscal
1996. The 1997 expense includes $4.8 million of amortization related to
intangibles recorded at Acquisition. Such expenses for the two-month period
ended December 28, 1996 were $0.8 million. Excluding these Acquisition-related
expenses, selling, general and administrative expenses for fiscal 1997 increased
12.1% to $106.7 million from $95.2 million in fiscal 1996. The higher selling,
general and administrative expenses can be attributed to an increase in retail
store expenses related to the addition of new outlet stores and higher volume
related wholesale distribution costs.
Excluding the above effects of the Acquisition, selling, general and
administrative expenses as a percentage of net sales decreased to 29.4% in
fiscal 1997 from 29.9% in fiscal 1996.
NONRECURRING CHARGE. In connection with the Acquisition, the Predecessor
recorded an $8.8 million nonrecurring charge in the period December 31, 1995
through October 29, 1996. This charge includes $3.5 million of Predecessor and
Sellers' expenses and $5.3 million of expenses related to management payments,
including the unaccrued costs associated with accelerated compensation plan
payments.
OPERATING INCOME. Operating income for fiscal 1997 increased to $23.1
million from $11.7 million in fiscal 1996 as a result of the changes in gross
profit, selling, general and administrative expenses and the nonrecurring charge
described above. Operating income as a percentage of net sales increased to 6.4%
in fiscal 1997 from 3.7% in fiscal 1996. Excluding depreciation and amortization
expenses related to the Acquisition, which were $5.1 million in fiscal 1997 and
$0.8 million for the two-month period ended December 28, 1996, and the $8.8
million nonrecurring charge in the period ended October 29, 1996, operating
income for fiscal 1997 increased $6.9 million to $28.2 million from $21.3
million in fiscal 1996. Excluding these Acquisition-related expenses, operating
income as a percentage of net sales increased to 7.8% in fiscal 1997 from 6.7%
in fiscal 1996.
INTEREST EXPENSE. Interest expense for fiscal 1997 increased to $20.2
million from $10.1 million in fiscal 1996. Average outstanding debt was $174.3
million, $162.5 million and $82.2 million for the periods ended January 3, 1998,
December 28, 1996 and October 29, 1996, respectively. The higher borrowings
subsequent to the Acquisition reflect incremental borrowings to finance the
Acquisition and changes in revolver borrowings for seasonal and operating needs.
At January 3, 1998, outstanding debt aggregated $177.1 million, of which a $44.1
million term loan and a $13.0 million revolving credit facility balance bore
interest at a variable rate, so that an increase of 1% in the applicable rate
would increase the Company's annual interest cost by $571,000. At January 3,
1998, borrowings under the Company's $50.0 million revolving credit facility
were $13.0 million. The Company also had $4.3 million of outstanding letters of
credit.
EXTRAORDINARY LOSS. In November 1996, the Company used the proceeds from
the issuance of $100 million 10 3/8% Senior Subordinated Notes to prepay $90.0
million of Acquisition-related borrowings under the Subordinated Loan Facility
and $5.0 million of the term loan portion of the Senior Credit Facility. As a
result, the Company recorded an after-tax loss of $2.4 million, which has been
reflected in the Company's Consolidated Statement of Operations for the period
October 30, 1996 through December 28, 1996, as an extraordinary item.
NET INCOME (LOSS). As a result of the factors described above, the Company
reported net income (loss) of $1.5 million, ($2.4) million and ($0.4) million
for the periods ended January 3, 1998, December 28, 1996 and October 29, 1996,
respectively.
22
FISCAL YEAR ENDED DECEMBER 28, 1996 COMPARED WITH FISCAL YEAR ENDED DECEMBER 30,
1995
NET SALES. Net sales for fiscal 1996 increased 7.7% to $318.2 million from
$295.4 million in fiscal 1995. This increase was due to a 13.2% increase in
wholesale sales and a 0.5% increase in retail sales. Wholesale sales for fiscal
1996 increased to $189.0 million from $166.9 million in fiscal 1995. This
increase was due primarily to continued strong sales to wholesale customers and
improved average pricing, as well as to increased clearance and off-price
merchandise sales resulting from the Company's efforts to reduce the high
inventory levels experienced at the end of fiscal 1995. In addition, the Company
continued to rationalize its product lines by scaling back certain products and
by continuing to reduce the overall number of SKUs. Retail sales for fiscal 1996
increased to $129.2 million from $128.5 million in fiscal 1995. This increase
was a result of the incremental volume provided by 36 new stores opened since
the beginning of fiscal 1995, reduced by comparable store sales declines of
8.8%. Management believes that the comparable store sales declines were due
primarily to certain operational and merchandising problems, as well as to a
soft retailing environment. Although the soft retailing environment negatively
affected the financial performance of all stores, its impact was more measurable
when analyzing the performance of comparable stores.
Comparable store sales declines were also affected by the removal of certain
product categories that were sold in Carter's retail outlet stores in fiscal
1995. Management addressed the comparable store sales declines by improving
product mix; emphasizing core layette and sleepwear products; improving store
layouts; assessing locations, demographics and store sizes; and most notably, a
new retail management team was recruited in 1996 and 1997 at the corporate,
regional and store levels.
GROSS PROFIT. Gross profit for fiscal 1996 increased 11.7% to $116.5
million from $104.3 million in fiscal 1995. Gross profit as a percentage of net
sales in fiscal 1996 increased to 36.6% from 35.3% in fiscal 1995. This increase
resulted primarily from pricing improvements in the Company's wholesale and
retail businesses, the maturing effect of the Company's three offshore sewing
plants, one of which was opened in 1995, and the change in the retail store
product mix toward higher margin sleepwear and layette products, partially
offset by an increase in depreciation expense and lower margins in the first
quarter of 1996 as a result of actions taken to decrease inventories that had
built up at the end of fiscal 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1996 increased 15.3% to $96.0 million from
$83.2 million in fiscal 1995. Selling, general and administrative expenses as a
percentage of net sales increased to 30.2% in fiscal 1996 from 28.2% in fiscal
1995. The 1996 expense includes $0.8 million of amortization related to
intangibles recorded at Acquisition. Excluding these Acquisition-related
expenses, selling, general and administrative expenses for fiscal 1996 increased
14.4% to $95.2 million and were 29.9% of net sales compared to the 28.2% of net
sales in fiscal 1995. This increase in selling, general and administrative
expenses as a percentage of net sales resulted from the comparable store sales
declines experienced by Carter's retail outlet stores and higher retail store
expenses associated with the 36 new stores opened since the beginning of fiscal
1995.
NONRECURRING CHARGE. In connection with the Acquisition, the Predecessor
recorded an $8.8 million nonrecurring charge. This charge includes $3.5 million
of Predecessor and Sellers' expenses and $5.3 million of expenses related to
management payments, including the unaccrued costs associated with accelerated
compensation plan payments.
OPERATING INCOME. Operating income for fiscal 1996 decreased 44.6% to $11.7
million from $21.1 million in fiscal 1995 as a result of the changes in gross
margin, selling, general and administrative expenses and the nonrecurring
charges described above. Operating income as a percentage of net sales decreased
to 3.7% in fiscal 1996 from 7.1% in fiscal 1995. Excluding the $0.8 million of
Acquisition-related expenses in the two-month period ended December 28, 1996 and
the $8.8 million nonrecurring charge in the period ended October 29, 1996, as
described above, operating income increased to $21.3 million for fiscal 1996
from $21.1 million in fiscal 1995.
23
INTEREST EXPENSE. Interest expense for fiscal 1996 increased 29.2% to $10.1
million from $7.8 million in fiscal 1995. This increase reflects higher interest
expense on additional indebtedness resulting from the Acquisition, and higher
average borrowings in 1996 under Carter's revolving credit facility in place
prior to the Acquisition. Average outstanding debt was $162.5 million, $82.2
million and $76.4 million for the periods ended December 28, 1996, October 29,
1996 and December 30, 1995, respectively. The higher borrowings subsequent to
the Acquisition reflect incremental borrowings to finance the Acquisition and
changes in revolver borrowings for seasonal and operating needs. At December 28,
1996, outstanding debt aggregated $165.0 million, of which a $45.0 million term
loan bore interest at a variable rate, so that an increase of 1% in the
applicable rate would increase the Company's annual interest cost by $450,000.
At December 28, 1996, there were no borrowings under the Company's $50.0 million
revolving credit facility, except for $4.2 million of outstanding letters of
credit. Any borrowings under the revolving credit facility would bear interest
at a variable rate.
EXTRAORDINARY LOSS. In November 1996, the Company used the proceeds from
the issuance of $100 million 10 3/8% Senior Subordinated Notes to prepay $90.0
million of Acquisition-related borrowings under the Subordinated Loan Facility
and $5.0 million of the term loan portion of the Senior Credit Facility. As a
result, the Company recorded an after-tax loss of $2.4 million, which has been
reflected in the Company's Consolidated Statement of Operations as an
extraordinary item.
NET INCOME (LOSS). As a result of the factors described above, the Company
reported a net loss of ($2.4) million and ($0.4) million for the periods ended
December 28, 1996 and October 29, 1996, respectively and net income of $8.1
million for the period ended December 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
On a consolidated basis, the Company's primary cash needs are working
capital, capital expenditures and debt service. The Company has financed its
working capital, capital expenditures and debt service requirements primarily
through internally generated cash flow, in addition to funds borrowed under the
Company's credit facilities. Holdings is dependent upon dividends and other
payments from Carter's to fund its obligations and meet its cash needs.
Accordingly, Holdings' ability to pay interest on the Notes and to repay the
Notes at maturity will be dependent upon earnings and cash flows of Carter's and
payment of funds by Carter's to Holdings in the form of dividends or loans. The
Senior Credit Facility imposes certain covenants, requirements, and restrictions
on actions by the Company and its subsidiaries that, among other things,
restrict the payment of dividends by Carter's to Holdings except under certain
specified conditions. The Company does not expect this to negatively impact
Holdings' ability to meet its cash obligations. Likewise, at April 4, 1998 and
January 3, 1998, Holdings was effectively precluded from declaring or paying
dividends on its Capital Stock.
Net cash provided by (used in) operating activities ($ millions) in 1997,
1996 and 1995 was $1.6, $31.5 and ($5.5), respectively and for the three-month
periods ended April 4, 1998 and March 29, 1997 was ($6.5) and ($2.2),
respectively.
The net cash flow provided by operating activities in 1997 was $1.6 million,
a decrease of $29.9 million compared to fiscal year 1996. This decrease is
attributed to an increase in both the 1997 year-end inventory levels and
accounts receivable balances. Year-end inventory levels grew to $87.6 million at
fiscal year-end 1997 from $76.5 at fiscal year-end 1996. This increase reflects
the growth in inventory required to support higher levels of sales demand. The
higher accounts receivable balance was due to the increased level of wholesale
revenues generated in the fourth quarter of 1997. Wholesale revenues of $53.5
million in the fourth quarter of 1997 reflected an increase of $7.7 million
compared to the fourth quarter of 1996.
At the end of fiscal 1995, Carter's inventory levels exceeded its prior
year-end inventories by $28.1 million. Management attributes the inventory
build-up during fiscal 1995 to a number of items which the Company believes were
successfully addressed in fiscal 1996. Improvements in production planning and
reporting were made possible with new information systems, as well as with the
implementation of an automatic replenishment system which was fully functioning
at its retail stores as of August 1996. In
24
addition, Carter's was continuing to aggressively reduce the scope of its
product offerings and reduce the amount of open-market purchases, which
management believes will help mitigate the Company's exposure to excess finished
goods and will allow the Company to continue moderating inventory levels going
forward. As a result of these factors, the Company's inventory levels at fiscal
year-end 1996 were lower than those at fiscal year-end 1995 despite higher
sales.
The Company invested $1.6 million and $1.0 million in capital expenditures
for the three-month periods ended April 4, 1998 and March 29, 1997,
respectively, and $14.0 million, $7.8 million and $13.7 million in capital
expenditures during fiscal years 1997, 1996 and 1995, respectively. Although
there are no material commitments for capital expenditures, the Company plans
capital expenditures of approximately $18.0 million in fiscal 1998.
The Company incurred significant indebtedness in connection with the
Acquisition. At April 4, 1998, the Company had $185.6 million of indebtedness
outstanding, consisting of $20.0 million of Holdings 12% Senior Subordinated
Notes, $100.0 million of 10 3/8% Senior Subordinated Notes, $44.1 million in
term loan borrowings under the Senior Credit Facility, and $21.5 million of
borrowings outstanding under its $50.0 million revolving credit portion of the
Senior Credit Facility (exclusive of approximately $5.8 million of outstanding
letters of credit). The term loan portion of the Senior Credit Facility will
mature on October 31, 2003 and requires semi-annual principal payments totaling
$0.9 million in each of 1997, 1998, 1999 and 2000, and $5.4 million, $13.5
million and $22.5 million in 2001, 2002 and 2003, respectively. In November
1996, the term loan was reduced by $5.0 million with proceeds from the issuance
of the $100.0 million 10 3/8% Senior Subordinated Notes. The future scheduled
payments under the Senior Credit Facility have been reduced ratably for this
payment. The revolving credit portion of the Senior Credit Facility will mature
on October 31, 2001 and has no scheduled interim amortization. No principal
payments are required on the $20.0 million Notes or the $100.0 million Notes
prior to their scheduled maturity in 2008 and 2006, respectively. Fiscal 1998
interest payments for Carter's and Holdings will approximate $17.6 million and
$2.4 million, respectively. Carter's will fund its debt service requirements
through current operations and amounts available under the revolving portion of
the Senior Credit Facility. Holdings will fund its debt service requirements
through permitted dividend payments from Carter's.
The Company believes that cash generated from operations, together with
amounts available under the revolving portion of the Senior Credit Facility,
will be adequate to meet its debt service requirements, capital expenditures and
working capital needs for the foreseeable future, although no assurance can be
given in this regard.
EFFECTS OF INFLATION
The Company is affected by inflation primarily through the purchase of raw
material, increased operating costs and expenses, and higher interest rates. The
effects of inflation on the Company's operations have not been material in
recent years.
SEASONALITY
The Company experiences seasonal fluctuations in its sales and
profitability, with generally lower sales and gross profit in the first and
second quarters of its fiscal year. The Company believes that seasonality of
sales and profitability is a factor that affects the baby and children's apparel
industry generally and is primarily due to retailers' emphasis on price
reductions in the first quarter and promotional retailers' and manufacturers'
emphasis on the sale of closeouts of the prior year's product lines.
YEAR 2000
The potential for software processing errors arising from calculations using
the Year 2000 date are a known risk. The Company is currently evaluating its
financial and operating systems capabilities to ensure such systems and related
processes are not adversely affected by conversion of system dates to Year 2000.
25
The Company is also communicating with its strategic suppliers and financial
institutions to determine whether their information systems will comply with
Year 2000 requirements and not disrupt transactions with the Company. The
Company has established a task force to address Year 2000 requirements and to
determine cost of compliance. The assessment of Year 2000 requirement is an
ongoing process. Accordingly, while the ultimate costs to comply with such
requirements have not been fully determined, the expenditures are not expected
to be material to the Company's business operations or financial condition. The
Company expects to be fully compliant by the end of the first quarter of 1999.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), which establishes
standards for reporting information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. SFAS 131 is effective for
fiscal years beginning after December 15, 1997. In February 1998, the FASB
issued Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"),
which revises employers' disclosures about pension and other postretirement
benefit plans. SFAS 132 does not change the measurement or recognition of those
plans. SFAS 132 is effective for fiscal years beginning after December 15, 1997.
The Company is currently evaluating the impact of the new statements on its end
of year 1998 disclosures.
CHANGE IN ACCOUNTANTS
In connection with the Acquisition, on November 1, 1996, the Company
dismissed Price Waterhouse LLP ("Price Waterhouse") as its principal independent
accountant and engaged Coopers & Lybrand L.L.P. as its principal independent
accountant. The decision to change accountants was approved by the Company's
Board of Directors. In connection with the audits of the Predecessor's financial
statements for the two most recent completed fiscal years prior to the
Acquisition and during the interim period up until the date of the change in
accountants, there were no disagreements with Price Waterhouse on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure. Price Waterhouse's report on the financial statements for
such years did not contain an adverse opinion or disclaimer of opinion, nor was
it modified as to uncertainty, audit scope or accounting principles.
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
GENERAL. Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), the Company will accept for exchange Old Notes
which are properly tendered on or prior to the Expiration Date and not withdrawn
as permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on July 1998; PROVIDED, HOWEVER, that if the Company has
extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer is
extended.
As of the date of this Prospectus, $20.0 million aggregate principal amount
of the Old Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about June 1998, to all holders of Old
Notes known to the Company. The Company's obligation to accept Old Notes for
exchange pursuant to the Exchange Offer is subject to certain conditions as set
forth under "--Certain Conditions to the Exchange Offer" below.
EXTENSION; RETURN OF OLD NOTES NOT ACCEPTED FOR EXCHANGE. The Company
expressly reserves the right, at any time or from time to time, to extend the
period of time during which the Exchange Offer is open,
26
and thereby delay acceptance for exchange of any Old Notes, by giving notice of
such extension to the holders thereof. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
AMENDMENT; TERMINATION. The Company expressly reserves the right to amend
or terminate the Exchange Offer, and not to accept for exchange any Old Notes
not theretofore accepted for exchange, upon the occurrence of any of the
conditions of the Exchange Offer specified below under "--Certain Conditions to
the Exchange Offer".
NOTICE. The Company will give notice of any extension, amendment,
non-acceptance or termination to the holders of the Old Notes as promptly as
practicable, such notice in the case of any extension to be issued no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
NO APPRAISAL OR DISSENTERS' RIGHTS. Holders of Old Notes do not have any
appraisal or dissenters' rights under the Massachusetts Business Corporation Law
in connection with the Exchange Offer.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to State Street Bank and Trust Company
(the "Exchange Agent") at one of the addresses set forth below under "Exchange
Agent" on or prior to the Expiration Date. In addition, either (i) certificates
for such Old Notes must be received by the Exchange Agent along with the Letter
of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY. THE COMPANY IS NOT ASKING NOTEHOLDERS FOR A PROXY AND
NOTEHOLDERS ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instruction" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). 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 guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be
27
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder with the signature thereon guaranteed by an
Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each broker-dealer holder will represent to the Company that,
among other things, the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the holder and any
beneficial holder, that neither the holder nor any such beneficial holder has an
arrangement or understanding with any person to participate in the distribution
of such New Notes and that neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company. If
the holder is not a broker-dealer, the holder must represent that it is not
engaged in nor does it intend to engage in a distribution of the New Notes.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "--Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral and
written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
28
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, such non-exchanged Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration of the Exchange Offer.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form to be provided by the Company upon request
(by telegram, telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the holder of Old Notes and the amount of Old
Notes tendered, stating that the tender is being made thereby and guaranteeing
that within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution with the Exchange
Agent and (iii) the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
all other documents required by the Letter of Transmittal are received by the
Exchange Agent within three NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date. For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent". Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All
29
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for exchange for purposes of the Exchange Offer.
Any Old Notes that have been tendered for exchange but that are not exchanged
for any reason will be returned to the holder thereof without cost to such
holder (or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Old Notes will be credited
to an account maintained with such Book-Entry Transfer Facility for the Old
Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering Old Notes" above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the
"TIA"). In any such event, the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible time.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or of
the Letter of Transmittal and requests for Notices of Guaranteed Delivery should
be directed to the Exchange Agent addressed as follows:
BY HAND/OVERNIGHT EXPRESS/MAIL/OVERNIGHT DELIVERY:
(insured if registered recommended)
State Street Bank and Trust Company
Corporate Trust Division
Two International Place--4th Floor
Boston, MA 02110
VIA FACSIMILE:
(617) 664-5290
FOR INFORMATION CALL:
Kellie Mullen
(617) 664-5587
30
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $0.2 million, which includes fees and expenses of the Trustee,
accounting, legal, printing and related fees and expenses.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the principal amount as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Exchange Offer will be
capitalized as debt issuance costs and amortized over the term of the New Notes
through 2008.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct the
Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities law. Old Notes not exchanged pursuant to the
Exchange Offer will continue to accrue interest at 12% per annum and will
otherwise remain outstanding in accordance with their terms. Holders of Old
Notes do not have any appraisal or dissenters' rights under the Massachusetts
Business Corporation Law in connection with the Exchange Offer. In general, the
Old Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. However, (i) if any Initial Purchaser so requests with respect to Old Notes
not eligible to be exchanged for New Notes in the Exchange Offer and held by it
following consummation of the Exchange Offer or (ii) if any holder of Old Notes
is not eligible to participate in the Exchange Offer or, in the case of any
holder of Old Notes that participates in the Exchange Offer, does not receive
freely tradable New Notes in exchange for Old Notes, the Company is obligated to
file a registration statement on the appropriate form under the Securities Act
relating to the Old Notes held by such persons.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by
holders thereof (other than (i) any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act or (ii) any
broker-dealer that purchases Notes from the Company to resell pursuant to Rule
144A or any other available exemption) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no
31
arrangement or understanding with any person to participate in the distribution
of such New Notes. If any holder has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder (i) could not rely on the applicable interpretations
of the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. The Company has not sought, and does not intend to
seek, its own interpretive letter from the Commission with respect to the resale
of the New Notes. There can be no assurance that the Commission would make
similar interpretations with respect to the Exchange Offer. A broker-dealer who
holds Old Notes that were acquired for its own account as a result of
market-making or other trading activities may be deemed to be an "underwriter"
within the meaning of the Securities Act and must, therefore, deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of New Notes. Each such broker-dealer who receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge in the Letter of Transmittal that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution". While the Company has an obligation under the Registration Rights
Agreement to update this Prospectus by amendment or supplement for a period of
90 days following consummation of the Exchange Offer, the Company has no
obligation thereafter to update the Prospectus and, therefore, holders required
to deliver a prospectus may not thereafter be able to resell because they may be
unable to comply with the prospectus delivery requirements described above.
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably requests in writing.
32
BUSINESS
GENERAL
The William Carter Company ("Carter's") is the largest branded manufacturer
and marketer of baby and toddler apparel and a leading marketer of young
children's apparel. Over Carter's more than 130 years of operation, CARTER'S has
become one of the most highly recognized brand names in the children's apparel
industry. The Company is a vertically-integrated manufacturer which sells its
products under the CARTER'S, CARTER'S CLASSICS and BABY DIOR brand names to more
than 300 department and specialty store accounts (with an estimated 4,600 store
fronts) and through its 138 retail outlet stores.
Carter's generates a majority of its sales in the baby and toddler apparel
market, a $7.0 billion market. Management believes that the baby and toddler
market is well-insulated from changes in fashion trends and less sensitive to
general economic conditions than other apparel companies. Strong prospects for
continued growth in this market is being driven by a number of factors,
including: (i) women having children later, resulting in more disposable income
available for expenditures on children; (ii) more women returning to the
workplace after having children, resulting in more disposable income and
increased day care apparel needs; (iii) the increasing number of grandparents, a
demographic segment with high per capita discretionary income and an important
consumer base for children's apparel; (iv) an increasing social emphasis on
attractive children's apparel; and (v) an increase in the percentage of births
to first time mothers.
Carter's senior management has significantly increased earnings and market
share since joining Carter's in 1992. Management's fundamental strategy has been
to promote Carter's brand image as the absolute leader in baby apparel products
and to consistently provide high quality, attractive products at a strong
perceived value to consumers. To this end, management employs a comprehensive
four-step marketing strategy which incorporates: (i) extensive consumer
preference testing; (ii) superior brand and product presentation at the consumer
point-of-purchase; (iii) dominant marketing communications; and (iv) consistent,
premium service to fulfill customer and consumer needs. In addition, Carter's
continues to realize significant operating efficiencies by reducing SKUs and
product complexity, enhancing core product offerings, increasing offshore
production and implementing the wider use of advanced information systems. As a
result of these efforts, Carter's has increased its operating income from $12.8
million in 1993 to $23.1 million in fiscal 1997. EBITDA increased from $20.6
million in 1993 to $36.9 million in fiscal 1997.
COMPANY STRENGTHS
The Company attributes its market leadership and its significant
opportunities for continued growth and increased profitability to the following
competitive strengths:
SUPERIOR BRAND AWARENESS
Carter's has achieved a high level of positive brand awareness with both
consumers and retailers as a result of more than a century of providing quality
baby, toddler and young children's apparel. In a 1993 survey, 92% of mothers and
grandmothers surveyed were familiar with the CARTER'S brand name, and 80%
reported that they had purchased CARTER'S brand products. Carter's has
maintained this positive brand awareness despite a relatively low marketing
budget with little national advertising. Management believes that the
consolidation of the apparel industry and changes in the retail environment will
continue to favor strong branded companies such as Carter's, as many department
and specialty stores have focused on promoting leading brands while reducing
their number of suppliers.
LEADING AND GROWING MARKET POSITIONS
Carter's is the largest marketer of baby and toddler apparel, with leading
market shares in the layette and sleepwear product categories in its target
distribution channels. Since 1993, Carter's has increased its
33
share of the layette apparel market from 15% to 26% and its share of the baby
and toddler sleepwear market from 20% to 34%. In addition, Carter's is the
leading provider of young children's sleepwear and has increased its share of
the market from 14% in 1993 to 17% in 1997. Carter's has a significant presence
in the much larger and highly fragmented baby and toddler playwear market.
STRONG MANAGEMENT TEAM
Since joining Carter's in 1992, the Company's management team, led by
Frederick J. Rowan, II, has been responsible for sales and EBITDA increasing at
compound annual rates of 9.7% and 24.3%, respectively. Four of the Company's top
executives, including Mr. Rowan, joined Carter's following successful careers
running the Bassett-Walker and Lee Jeans divisions of the VF Corporation.
Carter's five top executives average more than 20 years of experience in the
textile and apparel industries. Management believes that they have significant
experience in developing brand names, have a strong reputation with customers,
the trade and the financial community, and possess a diverse skill base which
incorporates brand marketing, multiple sourcing, offshore production, vertical
manufacturing and information technology integration.
VERTICALLY-INTEGRATED MANUFACTURING CAPABILITIES
Carter's is a vertically-integrated manufacturer that knits, dyes, finishes,
prints, cuts, sews and embroiders approximately 80% of the products it sells.
Carter's believes that its vertical integration allows it to maintain a
competitive cost structure, accelerate speed to market and provide consistent,
premium quality. Since 1992 Carter's has made significant investments in
equipment, facilities and systems to improve quality, reduce costs, minimize
shrinkage, decrease inventories and shorten cycle times. In 1991, Carter's
commenced offshore sewing operations to decrease costs of sewing, typically the
most labor-intensive portion of the manufacturing process. At year-end 1997,
approximately 47% of Carter's sewing production was conducted offshore which
reduced annual manufacturing costs by approximately $12.0 million. In addition,
in 1993, management initiated a substantial upgrade of its information
technology capabilities with a fully-integrated operating system designed to
support the growth of the business and to further improve manufacturing
efficiencies. These system upgrades are expected to be completed in 1998.
STRONG CUSTOMER RELATIONSHIPS
Due to focused and consistent management efforts to create retail
partnerships, Carter's enjoys strong relationships with its wholesale customers,
as evidenced by the ten supplier awards Carter's has received since 1992.
Management meets frequently with Carter's major accounts to review product
offerings, establish and monitor sales plans and design joint advertising and
promotional campaigns. In addition, Carter's has introduced to several of its
major wholesale customers, including Macy's, Bloomingdale's, Burdine's, Rich's
and JCPenney, its "store-in-store" concept in which Carter's creates a
CARTER'S-brand shop within its wholesale customers' children's apparel
departments. Such store-in-store shops provide Carter's with dedicated selling
space, superior and consistent brand presentation and greater control of product
mix, resulting in higher profitability and productivity for both Carter's and
its wholesale customers.
OPERATING STRATEGY
The Company intends to strengthen its market leadership positions and
further increase sales and EBITDA by continuing to implement an operating
strategy that has the following primary components:
INCREASE INVESTMENTS IN BRAND EQUITY
Management believes Carter's enjoys among the highest brand awareness of any
children's apparel company. In order to capitalize further on the potential of
the CARTER'S name, the Company intends to increase its joint promotional
activities with its key wholesale accounts, accelerate the roll out of its
34
branded "store-in-store" shops and selectively increase its national print
advertising with heightened visibility of its tag line "If they could just stay
little 'til their CARTER'S wear out."-TM- Management believes that selective
investments in its brand will result in high returns and will help support
continued growth.
INCREASE OPERATING EFFICIENCIES
Carter's management team has successfully increased EBITDA margins from 8.7%
of sales in 1993 to 10.2% of sales in fiscal 1997. Carter's has achieved these
results by reducing SKUs, decreasing product complexity, upgrading information
systems and moving certain labor-intensive portions of its production process
offshore. Management believes additional opportunities exist to continue to
reduce manufacturing costs and accelerate speed to market by shortening cycle
times, more efficiently managing inventories and further expanding offshore
production. Management expects to increase the Company's percentage of offshore
sewing to approximately 80% by the end of 2001, which is expected to yield
incremental cost savings in line with Carter's historical experience.
ENHANCE RETAIL OUTLET STORE PRODUCTIVITY
The Company currently operates 138 retail outlet stores in 41 states
featuring all of CARTER'S quality merchandise, complemented by select brand
accessories and apparel. The stores, which average 5,200 square feet per
location, offer a broad assortment of baby, toddler and young children's apparel
including layette, sleepwear, underwear, playwear, swimwear, outerwear and
related accessories. Over the past 21 months, the Company recruited a new retail
management team to improve the retail division's operating results. This team
implemented a new marketing strategy and improved store layouts, which in 1997
resulted in the first increase in same store revenues since 1992 with improved
profitability.
In order to clearly communicate the Company's commitment to provide
outstanding quality and value to the consumer, a chainwide roll-out of a new
promotional and pricing strategy was implemented in 1997. This strategy, in
effect in 98 stores by year-end 1997 and in all 138 stores by February 1998,
communicates the value offered relative to comparable values elsewhere. Major
improvements in the merchandise planning and allocation process, a more
impactful and coordinated visual display of merchandise, continued commitment to
improving the quality of customer service and targeted cost reduction
initiatives all contributed to increased store productivity and profitability.
CAPITALIZE ON ADDITIONAL GROWTH OPPORTUNITIES
The Company intends to aggressively pursue selected growth opportunities in
its primary markets, including:
- Leveraging its leading positions in layette and sleepwear to increase its
share of the larger and more highly fragmented playwear market, which is
more than five times the size of the sleepwear market. Management has
recently increased the marketing focus on its playwear lines and
introduced new playwear product designs.
- Continuing to implement the Company's "store-in-store" concept. Carter's
first introduced these shops in fiscal 1995, and had approximately 400 of
such shops at the end of fiscal 1997. Management believes that there are
significant opportunities to expand the "store-in-store" concept
throughout its wholesale customer base.
- Leveraging the CARTER'S brand through other growth opportunities. Carter's
has recently initiated product extensions through a gift-giving program
and a renewed focus on selectively increasing licensing relationships. In
addition, Carter's is investigating opportunities for international and
direct marketing sales, alternative retail formats and brand extensions to
serve the discount channel, a market in which the Company currently does
not compete.
35
PRODUCTS AND MARKETS
The Company markets and manufactures a broad array of baby, toddler and
young children's apparel under the CARTER'S, CARTER'S CLASSICS and BABY DIOR
brand names. The Company's product offerings can be broadly grouped into two
primary categories: (i) "baby and toddler," which includes newborns through
toddlers approximately age three (up to size 4T); and (ii) "young children,"
which includes children approximately age three through approximately age six
(boys' sizes 4-7 and girls' sizes 4-6x). The Company's product offerings in
these categories include layette, sleepwear and playwear for the baby and
toddler market, and sleepwear and playwear for the young children's market. In
addition, the Company sells products such as diaper bags, lamps, socks,
strollers, hair accessories, outerwear, underwear and shoes, including products
for which the Company licenses the CARTER'S and CARTER'S CLASSIC names.
BABY AND TODDLER
From 1993 through 1997, total industry sales of baby and toddler apparel
increased from $4.9 billion to $7.0 billion, a compound annual rate of 9.2%,
making it one of the fastest growing sectors of the apparel industry. Carter's
target distribution channels, which include department and specialty stores,
account for approximately half of this market. Carter's is currently the leading
supplier of baby and toddler apparel in the United States, with a 6.6% market
share in its target distribution channels, nearly twice that of its nearest
branded competitor.
LAYETTE. Layette includes a complete range of products primarily made of
cotton for newborns, including bodysuits, undershirts, towels, washcloths,
receiving blankets, layette gowns, bibs, caps and booties. In fiscal 1997,
Carter's generated $79.9 million in sales of these products. Carter's is the
leading supplier of layette products, with an approximate 26% market share in
layette apparel in its target distribution channels. Management attributes
Carter's leading market position to Carter's distinctive print designs, unique
embroidery and the reputation for quality Carter's has developed over its 130
year history. In 1997 the company introduced new baby programs targeted toward
three consumer groups: gift-givers, experienced mothers and first-time mothers.
Just One Year is a complete nursery program aimed at the first-time mother and
comprised 5.6% of Carter's 1997 baby business. Special Deliveries is targeted at
the gift giver and is designed and packaged to make buying gifts easy. Baby
Basics, the final component of Carter's baby business, provides the experienced
mom with the essentials in value-focused multi-packs. The Company's primary
competitors in the layette market are private label manufacturers.
SLEEPWEAR. Baby sleepwear includes pajamas, long underwear and one-piece
footed sleepers. In fiscal 1997, Carter's generated $89.7 million in sales of
these products. Carter's is the leading supplier of baby sleepwear products with
an approximate 34% marketshare in its target distribution channels. As in
layette, management attempts to differentiate its sleepwear products from its
competition by offering consumer-tested prints and embroideries with an
emotional appeal. In addition, management believes Carter's baby and toddler
sleepwear product line, which is well-coordinated with its layette product line,
features more functional, higher quality products than those of its competitors.
The Company's primary competitors in the baby sleepwear market are both private
label manufacturers and other branded children's apparel companies.
PLAYWEAR. Baby and toddler playwear includes cotton knit apparel for
everyday use. In fiscal 1997, Carter's generated $102.6 million in sales of
these products. Although Carter's has historically focused on strengthening its
core volume layette and sleepwear products, it has recently begun to focus on
strengthening its playwear product offerings by introducing original print
designs and innovative artistic treatments in an effort to drive sales growth
and increase market share. Management believes that these new product offerings
and an increased marketing focus, in addition to Carter's high brand name
awareness and strong wholesale customer relationships, will allow the Company's
sales and market share in this category to grow. The success of this strategy is
reflected in the 16.5% increase in wholesale playwear shipments from fiscal
36
1996 to fiscal 1997. The baby and toddler playwear market is highly fragmented,
with no one branded competitor enjoying more than a 5.0% share of the market.
OTHER. Other baby and toddler products include bedding, outerwear, shoes,
socks, diaper bags, gift sets, lamps and hair accessories, including products
for which the Company licenses the CARTER'S name. In fiscal 1997, Carter's
generated $18.5 million in sales of these products.
YOUNG CHILDREN'S
From 1993 through 1997, total industry sales of young children's apparel
increased from $5.0 billion to $5.6 billion, a compound annual rate of 2.9%.
Carter's target distribution channels, which include department and specialty
stores, account for approximately half of this market. The Company is the
largest supplier of young children's sleepwear products, and is also a supplier
of young children's playwear products. In fiscal 1997, Carter's generated $42.8
million of sales, or 12.8% of its total regular-priced sales, in the young
children's apparel market.
SLEEPWEAR. Young children's sleepwear product offerings include basic
two-piece pajamas, long underwear and polyester blanket-fleece one-piece
sleepers. In fiscal 1997, Carter's generated $26.8 million in sales of these
products. As with baby and toddler sleepwear, Carter's attempts to differentiate
its young children's sleepwear products from those of its competitors by
offering consumer-tested prints and embroideries with an emotional appeal.
Carter's primary competitors in the young children's sleepwear market are both
branded children's apparel companies and private label manufacturers.
PLAYWEAR. Young children's playwear product offerings include cotton knit
apparel for everyday use. In fiscal 1997, Carter's generated $16.0 million in
sales of these products. Carter's management elected to focus initially on
strengthening Carter's core products in layette and sleepwear when it joined
Carter's in 1992. Carter's has recently begun to leverage its high brand
awareness and leading market shares in layette and sleepwear to increase its
sales of young children's playwear. Carter's primary competitors in the young
children's playwear market are both branded children's apparel companies and
private label manufacturers.
OTHER. Other young children's products include underwear, outerwear, shoes,
socks, lamps and hair accessories, including products for which Carter's
licenses the CARTER'S name. In fiscal 1997, Carter's generated $1.8 million in
royalty income from the sale of these products.
BRAND NAMES
Carter's markets its products under three distinct brands, each with its own
positioning, distribution and price point. The traditional CARTER'S brand is
positioned as a premium, moderately-priced core resource for department and
specialty stores and for the Company's retail outlet stores. CARTER'S CLASSICS
products are targeted solely for the baby market and are distributed only
through department stores and the Company's retail outlet stores at a price
point approximately 15% higher than CARTER'S brand products. Management expects
to increase the price differential between CARTER'S CLASSICS and CARTER'S over
time in order to create greater brand differentiation among the Company's
brands. BABY DIOR, the Company's only licensed brand, is also produced solely
for the baby market. BABY DIOR products are sold at a price point approximately
100% higher than that of the CARTER'S CLASSICS brand. In fiscal 1997,
approximately 91%, 6%, and 3% of CARTER'S sales were of CARTER'S, CARTER'S
CLASSICS, and BABY DIOR apparel, respectively.
CARTER'S
CARTER'S products are characterized by a distinct look representing classic
yet updated styling, practical yet innovative design and childlike yet
sophisticated artistic applications. CARTER'S represents the Company's opening
price point and is positioned at the upper portion of the middle market. As a
result of this positioning, CARTER'S is represented prominently throughout the
Company's targeted distribution channels
37
(i.e., all department and specialty stores), as well as in Carter's retail
outlet stores. The Carter's brand includes baby, playwear and sleepwear. Within
baby, the brand targets three distinct consumer groups with Just One Year,
Special Deliveries and Baby Basics. Management expects that growth will be
driven by product line initiatives such as fabric innovation and creative
embroidery rather than by brand repositioning. Management believes that further
growth opportunity for the CARTER'S brand lies in additional licensing
potential. Currently, the CARTER'S name appears on bedding, diaper bags, lamps,
socks, strollers, hair accessories, outerwear, underwear and shoes.
CARTER'S CLASSICS
Introduced in 1994, the CARTER'S CLASSICS brand is positioned further
upscale than the CARTER'S brand. CARTER'S CLASSICS products are offered
primarily through the department store channel of distribution, and secondarily
through the Company's retail outlet stores. The Company currently produces only
baby products under the CARTER'S CLASSICS brand name. The Company maintains a
cohesive theme in the CARTER'S CLASSICS brand as contrasted with the broad
offerings available under the CARTER'S brand; colors tend to be pastels and
naturals, more luxurious fabrics are utilized and a greater amount of embroidery
is applied. CARTER'S CLASSICS is also differentiated from CARTER'S by packaging
in softer materials and colors. As a result of its higher price point, CARTER'S
CLASSICS products provide higher margins for both the Company and its wholesale
customers.
BABY DIOR
The Company is the exclusive sub-licensee of the BABY DIOR brand name for
baby clothes through 1998. This licensing relationship began in 1978 and BABY
DIOR is now positioned as the most elegant and luxurious brand marketed by the
Company. Over the past three years, management has focused on reducing the
complexity of the BABY DIOR line. The number of SKUs has been reduced as
CARTER'S has moved toward core products and eliminated seasonal products. The
BABY DIOR line maintains a cohesive theme through soft-pastel or white clothing
designed with a European flair. As with CARTER'S CLASSICS, this product line
provides higher margins for both the Company and its wholesale customers.
Department stores and specialty retailers, as well as Carter's retail outlet
stores, offer BABY DIOR brand products.
PRODUCT DESIGN AND DEVELOPMENT
The Company's management team has significantly improved the Company's
product design and development process by investing in advanced design systems,
improving its design staff and introducing proven customer marketing tools. The
Company's product design and development organization is now comprised of teams
that focus on each of the Company's primary product markets. Each team has its
own artistic and design staff to develop new ideas specifically for its
respective market. Management believes that this organizational structure
provides the Company greater flexibility and allows it to introduce products
more quickly and with a greater success rate.
The Company's design staff continuously strives toward product innovation.
Consumer preference testing drives the product offerings and defines the look
for the brand, while a few showpieces are developed each season to add variety
and interest. Generally, graphics and prints are used to provide originality and
depth. A sophisticated graphic computer network enhances artistic talent.
Due to the importance of graphics and prints, the Company devotes particular
effort to consumer preference testing for colors, prints, art and silhouettes.
Each year, more than 1,000 different prints are consumer-tested, of which 40%
are eventually used. As part of the Company's extensive testing program, more
than 10,000 potential consumers are surveyed in the Company's outlet stores as
well as in geographically-diverse malls. While testing of new prints is an
important aspect of consumer research, layette prints, for example, are changed,
on average, once every two years. Prints in "basic" items are
38
tested quarterly by consumers as well as constantly monitored through sales
data. Consumer preference tests are also conducted on sizing and functionality
for new product introductions.
After consumer preference testing of a fabric or product occurs and internal
review committees approve selections, retailers are often shown a color drawing
in "board form" to register their reactions. Finally, product development teams
from the Company's merchandising department coordinate plans with the managers
from manufacturing to ensure cost-effective execution and quality of the
proposed item.
DISTRIBUTION AND SALES
The Company sells its products to wholesale accounts and through the
Company's retail outlet stores. In fiscal 1997, sales through the wholesale
channel accounted for 60.5% of total sales, while the retail channel accounted
for 39.5% of total sales.
WHOLESALE OPERATIONS
In fiscal 1997, more than 90% of the Company's wholesale business was
generated from department and specialty stores. The Company sells its products
in the United States through a network of 33 sales professionals. Sales
professionals work with each account in his/her jurisdiction to establish annual
plans for "basics" (primarily layette and certain baby apparel) within the
CARTER'S line, as well as all products in the CARTER'S CLASSICS and BABY DIOR
lines. Once an annual plan has been established with an account, CARTER'S places
the account on its semi-monthly automatic reorder plan for "basics." Management
intends to increase the number of accounts on this program to help better manage
inventories, control costs and increase sales. Automatic reorder allows the
Company to plan its manufacturing further in advance and benefits both the
Company and its wholesale customers by maximizing customers' in-stock positions,
thereby maximizing sales and profitability. Currently, CARTER'S non-basics
sleepwear and playwear are planned and ordered seasonally as new products are
introduced.
RETAIL OPERATIONS
The Company currently operates 138 retail outlet stores in 41 states
featuring all of CARTER'S quality merchandise, complemented by select brand
accessories and apparel. The stores, which average 5,200 square feet per
location, offer a broad assortment of baby, toddler and young children's apparel
including layette, sleepwear, underwear, playwear, swimwear, outerwear and
related accessories.
Over the past 21 months, the Company recruited a new retail management team
to improve the retail division's operating results. This team implemented a new
marketing strategy and improved store layouts, which in 1997 resulted in the
first increase in same store revenues since 1992 with improved profitability.
In order to clearly communicate the Company's commitment to provide
outstanding quality and value to the consumer, a chainwide roll-out of a new
promotional and pricing strategy was implemented in 1997. This strategy, in
effect in 98 stores by year-end 1997 and in all 138 stores by February 1998,
communicates the value offered relative to comparable values elsewhere. Major
improvements in the merchandise planning and allocation process, a more
impactful and coordinated visual display of merchandise, continued commitment to
improving the quality of customer service and targeted cost reduction
initiatives all contributed to increased store productivity and profitability.
MARKETING
Management's fundamental strategy has been to promote the Company's brand
image as the absolute leader in baby apparel products and to consistently
provide high quality, attractive products at a high value to consumers. To this
end, management employs a comprehensive four-step marketing strategy which
incorporates identifying core products through extensive consumer preference
testing; superior brand and product presentation at the consumer
point-of-purchase; marketing the brand name through dominant
39
communications; and providing consistent, premium service, including delivering
and replenishing products at the right time to fulfill customer and consumer
needs.
Management believes that the Company has further strengthened its brand
image to the consumer through innovative product designs, national print
advertising, joint mailers with wholesale customers, meetings between senior
account representatives and Carter's executives, trade show participation and
store-in-store shops.
MANUFACTURING
The Company is a vertically-integrated manufacturer that knits, dyes,
finishes, prints, cuts, sews and embroiders a majority of the products it sells.
The Company believes that its vertical integration allows it to maintain a
competitive cost structure, accelerate speed to market and provide consistent,
premium quality. Domestically, the Company currently operates five sewing
facilities, one textile facility, three distribution centers, a cutting facility
and an embroidery facility. Internationally, the Company operates two sewing
facilities in Costa Rica, one sewing facility in the Dominican Republic and two
sewing facilities in Mexico.
Despite the Company's historical operating improvements, management believes
significant additional opportunities exist to reduce product costs, shorten
cycle times and reduce inventories through the wider use of advanced information
systems, the expansion of offshore production, reductions in SKUs and product
complexity and the enhancement of core product offerings. The Company intends to
further invest in the expansion of its offshore sewing production capacity, as
sewing is currently the most labor-intensive portion of the Company's production
process. Carter's established its first offshore sewing production facility in
Costa Rica in 1991. The Company currently operates five offshore sewing plants
which process approximately 41% of the Company's sewing requirements. Management
intends to increase its percentage of offshore sewing to 80% by the end of 2001,
which is expected to yield significant incremental cost savings in line with the
Company's historical experience.
DEMOGRAPHIC TRENDS
The total U.S. apparel industry generated more than $169.0 billion in sales
in 1997, of which approximately $29.0 billion was spent on children's apparel.
Of the $29.0 billion spent on children's apparel, approximately $7.0 billion was
spent on baby and toddler apparel, and approximately $5.6 billion was spent on
young children's apparel. From 1993 through 1997, sales of baby and toddler
apparel grew at a compound annual rate of 9.2% and sales of young children's
apparel grew at a compound annual rate of 3.0%.
Management believes that numerous demographic trends have contributed to a
particularly strong baby, toddler and young children's apparel market during the
1990s, including the following:
- WOMEN HAVING CHILDREN LATER. In 1994, 34% of the births which took place
in the U.S. were to women over the age of 30. This was twice as many as in
1975. Of these births, 21% were first children. Management believes these
trends have led to increased spending per child as parents tend to spend
more money on their first born child and older parents generally have more
disposable income.
- MORE WOMEN RETURNING TO THE WORKPLACE AFTER HAVING CHILDREN. In 1994, 59%
of all married women with a child under one year of age were employed.
This compares with only 17% of these women being employed in the early
1960s. Management believes this trend has had a positive effect on sales
of children's apparel because these dual income families report higher
family incomes and spend more of their discretionary income on their
children.
- GRANDPARENT BOOM. According to the U.S. Bureau of the Census, people in
the U.S. age 45 or older numbered approximately 85.7 million in 1995. The
U.S. Bureau of the Census projects this number to increase by
approximately 25% to approximately 107.3 million by the year 2005.
40
Management expects that this will result in an increase in the total
number of grandparents in the U.S., which is an important demographic
segment for children's apparel manufacturers.
- INCREASED FOCUS ON CHILDREN'S CLOTHING. Management believes that there is
an increasing social emphasis on attractive children's apparel, which is
resulting in increased spending per child. As a result of this, as well as
the other factors discussed above, from 1994 through 1996, when the
population of children from ages one to six was increasing at a 0.1%
compound annual rate, sales of baby and toddler and young children's
apparel increased at a 6.8% compound annual rate.
- MORE FIRST BIRTHS CREATE MORE NEW FAMILY FORMATIONS. In recent years,
approximately 41% of all births have been first births. This differs
dramatically from the baby boom years (1951 to 1965) when 28% of children
born were born to first-time mothers. This has significant implications to
the baby apparel business because first-time mothers are forming new
families and have greater purchasing needs.
Although total births are expected to remain relatively flat through the end
of the 1990s, management believes the aforementioned demographic trends, in
addition to other non-population growth factors, will continue to drive
increased spending per child for the foreseeable future and will lead to
increased sales of children's apparel in the Company's primary markets.
COMPETITION
The baby and toddler and young children's apparel markets are highly
competitive. Competition is generally based upon product quality, brand name
recognition, price, selection, service and convenience. Both branded and private
label manufacturers compete in the baby and toddler and young children's
markets. The Company's primary branded competitors include Health-Tex and
Oshkosh B'Gosh, together with Disney licensed products, in playwear and numerous
smaller branded companies, as well as Disney licensed products, in sleepwear.
Although management believes that the Company does not compete as directly with
most private label manufacturers in sleepwear and playwear, certain retailers,
including several which are customers of the Company, have significant private
label product offerings. The Company does not believe that it has any
significant branded competitors in its layette market in which most of the
alternative products are offered by private label manufacturers. Because of the
highly fragmented nature of the industry, the Company also competes with many
small, local manufacturers and retailers. Certain competitors of the Company
have greater financial resources, have larger customer bases and are less
financially leveraged.
REAL PROPERTY
The Company operates 138 leased retail outlet stores located primarily in
outlet centers across the United States, having an average size of 5,200 square
feet. The leases have an average term of approximately five years with
additional five-year renewal options. Domestically, the Company also owns three
distribution and five manufacturing facilities in Georgia and Pennsylvania, and
has ground leases on three additional manufacturing facilities in Texas and
Mississippi. Internationally, the Company leases two sewing facilities in Costa
Rica, one in the Dominican Republic and two in Mexico.
ENVIRONMENTAL MATTERS
The Company is subject to certain Environmental Laws. The Company believes
that it currently conducts its operations, and in the past has operated its
business, in substantial compliance with applicable Environmental Laws. From
time to time, operations of the Company have resulted or may result in
noncompliance with or liability pursuant to Environmental Laws. In July and
August 1996, Carter's had Reports conducted by an environmental consultant for
13 facilities. Based on available information, including the Reports, the
Company has identified certain non-compliance with Environmental Laws. The
Company has also identified certain actions which may be required in the future.
The costs incurred to
41
date and the likely future costs associated with any existing non-compliance or
liability regarding such matters would not have a material adverse effect on the
Company's results of operations or financial condition. In addition, the Company
is in the process of investigating a potential claim under Environmen-
tal Laws in Lamar County, Georgia. Based on the information available at this
time, the ultimate outcome of this matter is uncertain and, therefore, the
Company is unable to determine the amount of its liability or whether the
resolution of such matter will have a material effect on the Company.
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
The Company owns many trademarks and tradenames, including
CARTER'S-REGISTERED TRADEMARK-, CARTER'S GROWBODY-REGISTERED TRADEMARK-,
CARTER-SET-REGISTERED TRADEMARK-, JAMAKINS-REGISTERED TRADEMARK-, TODAY'S
CLASSICS-REGISTERED TRADEMARK- and TYKES-REGISTERED TRADEMARK-, as well as
patents and copyrights, most of which are registered in the United States and in
46 foreign countries. The Company licenses the CARTER'S name and many of its
trademarks, tradenames and patents to third-party manufacturers to produce and
distribute children's apparel and related products such as diaper bags, lamps,
socks, strollers, hair accessories, outerwear, underwear, bedding, plush toys
and shoes. BABY DIOR-REGISTERED TRADEMARK- is a registered trademark
sub-licensed to, but not owned by, the Company.
EMPLOYEES
As of April 4, 1998, the Company had approximately 7,678 employees, 4,137 of
which were employed on a full-time basis in the Company's domestic operations,
1,135 of which were employed on a part-time basis in the Company's domestic
operations and 2,406 of which were employed on a full-time basis in the
Company's foreign operations. None of the Company's employees is unionized. The
Company has had no labor-related work stoppages and believes that its labor
relations are good.
LEGAL PROCEEDINGS
From time to time, the Company has been involved in various legal
proceedings. Management believes that all of such litigation is routine in
nature and incidental to the conduct of its business, and that none of such
litigation, if determined adversely to the Company, would have a material
adverse effect on the financial condition or results of operations of the
Company.
42
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of the Company. Each director of the Company
will hold office until the next annual meeting of shareholders of the Company or
until his successor has been elected and qualified. Mr. Brown is a Director of
Carter's only. Officers of the Company are elected by the Board of Directors of
the Company and serve at the discretion of the Board of Directors.
NAME AGE POSITIONS
- -------------------------------------- --- ------------------------------------------------
Frederick J. Rowan, II................ 58 Chairman of the Board of Directors, President
and Chief Executive Officer.
Joseph Pacifico....................... 48 President--Marketing.
Charles E. Whetzel, Jr................ 47 Executive Vice President--Manufacturing.
David A. Brown........................ 40 Executive Vice President--Business Planning &
Administration (Director of Carter's only).
Michael D. Casey...................... 37 Senior Vice President and Chief Financial
Officer.
Christopher J. O'Brien................ 39 Director.
Charles J. Philippin.................. 47 Director.
Christopher J. Stadler................ 33 Director.
FREDERICK J. ROWAN, II joined Carter's in 1992 as President and Chief
Executive Officer and became Chairman of the Board of Directors of the Company
in October 1996. Prior to joining the Company, Mr. Rowan was Group Vice
President of VF Corporation, a multi-division apparel company and, among other
positions, served as President and Chief Executive Officer of both the H.D. Lee
Company and Bassett-Walker, Inc., divisions of VF Corporation. Mr. Rowan, who
has been involved in the textile and apparel industries for 33 years, has been
in senior executive positions for more than 20 of those years. Mr. Rowan began
his career at the DuPont Corporation and later joined Aileen Inc., a
manufacturer of women's apparel, where he subsequently became President and
Chief Operating Officer.
JOSEPH PACIFICO joined Carter's in 1992 as Executive Vice President--Sales
and Marketing and was named President--Marketing in 1997. Mr. Pacifico began his
career with VF Corporation in 1981 as a sales representative for the H.D. Lee
Company and was promoted to the position of Vice President of Marketing in 1989,
a position he held until 1992.
CHARLES E. WHETZEL, JR. joined Carter's in 1992 as Executive Vice
President--Operations and was named Executive Vice President--Manufacturing in
1997. Mr. Whetzel began his career at Aileen Inc. in 1971 in the Quality
function and was later promoted to Vice President of Apparel. Following Aileen
Inc., Mr. Whetzel held positions of increasing responsibility with Mast
Industries, Health-Tex and Wellmade Industries, respectively. In 1988, Mr.
Whetzel joined Bassett-Walker, Inc. and was later promoted to Vice President of
Manufacturing for the H.D. Lee Company.
DAVID A. BROWN joined Carter's in 1992 as Senior Vice President--Business
Planning and Administration and became a Director of Carter's in October 1996.
In 1997 Mr. Brown was named Executive Vice President--Business Planning and
Administration. Prior to 1992, Mr. Brown held various positions at VF
Corporation including Vice President--Human Resources for both the H.D. Lee
Company and Bassett-Walker, Inc. Mr. Brown also held personnel-focused positions
with Blue Bell, Inc. and Milliken & Company earlier in his career.
MICHAEL D. CASEY joined Carter's in 1993 as Vice President--Finance and was
named Senior Vice President--Finance of the Company in 1997. In 1998, Mr. Casey
was named Senior Vice President and
43
Chief Financial Officer. Prior to joining Carter's, Mr. Casey was a Senior
Manager with Price Waterhouse LLP.
CHRISTOPHER J. O'BRIEN became a Director of the Company in October 1996. He
has been an executive of Investcorp, its predecessor or one or more of its
wholly owned subsidiaries since December 1993. Prior to joining Investcorp, Mr.
O'Brien was a Managing Director of Mancuso & Company for four years. Mr. O'Brien
is a Director of The William Carter Company, Simmons Holdings, Inc., Star
Markets Holdings, Inc., CSK Auto Corporation and Falcon Building Products, Inc.
CHARLES J. PHILIPPIN became a Director of the Company in October 1996. He
has been an executive of Investcorp, its predecessor or one or more of its
wholly owned subsidiaries since July 1994. Prior to joining Investcorp, Mr.
Philippin was a partner of Coopers & Lybrand L.L.P. Mr. Philippin is a Director
of The William Carter Company, Saks Holdings, Inc., CSK Auto Corporation Inc.
and Falcon Building Products, Inc.
CHRISTOPHER J. STADLER became a Director of the Company in October 1996. He
has been an executive of Investcorp, its predecessor or one or more of its
wholly owned subsidiaries since April 1996. Prior to joining Investcorp, Mr.
Stadler was a Managing Director with BT Securities Corporation from prior to
June 1993 through April 1995, a Managing Director with the Davis Companies from
April 1995 through September 1995, and a Managing Director with CS First Boston
Corporation from September 1995 through April 1996. Mr. Stadler is a Director of
The William Carter Company, Prime Service, Inc. and CSK Auto Corporation and
Falcon Building Products, Inc.
DIRECTOR COMPENSATION
The Company pays no additional remuneration to its employees or to
executives of Investcorp for serving as Directors. There are no family
relationships among any of the Directors or executive officers.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation earned in fiscal 1997
by the Company's Chief Executive Officer and each of the other four most highly
compensated executive officers whose remuneration exceeded $100,000
(collectively, the "Named Executive Officers"). The current compensation
arrangements for each of these officers are described in "Employment
Arrangements" below:
SUMMARY COMPENSATION TABLE
OTHER ANNUAL
SALARY BONUS(A) COMPENSATION(B)
NAME AND PRINCIPAL POSITION ($) ($) ($)
- ------------------------------------------------------ --------- --------- ----------------
Frederick J. Rowan, II ............................... 483,542 440,600 351,244
Chairman of the Board of Directors, President and
Chief Executive Officer
Joseph Pacifico ...................................... 335,271 189,800 204,163
President--Marketing
Charles E. Whetzel, Jr. .............................. 222,058 97,400 240,922
Executive Vice President--Manufacturing
David A. Brown ....................................... 209,804 118,700 320,502
Executive Vice President--Business Planning &
Administration and Director
Michael D. Casey ..................................... 142,042 60,000 --
Senior Vice President and Chief Financial Officer
- ------------------------
(a) Earned in 1997 but paid in 1998.
(b) Includes Holdings' Class C Stock compensation, supplemental retirement plan
benefits, automobile allowances, insurance premiums, and medical cost
reimbursement. Other compensation for Messrs. Whetzel and Brown include
relocation assistance.
44
EMPLOYMENT ARRANGEMENTS
Frederick J. Rowan, II, President and Chief Executive Officer, and Carter's
entered into a three-year employment agreement as of October 30, 1996, which
automatically extends annually for successive one-year terms, subject to
termination upon notice. Pursuant to such agreement, Mr. Rowan is entitled to
receive (i) a base salary, currently $489,500 per year (subject to annual cost
of living adjustments and any increases approved by the Board of Directors),
(ii) annual cash bonuses based upon a bonus plan to be determined each year by
the Board of Directors in conjunction with Carter's achievement of targeted
performance levels as defined in the plan and (iii) certain specified fringe
benefits, including a retirement trust. If Mr. Rowan's employment with Carter's
is terminated without cause (as defined), he will continue to receive his then
current salary for the remainder of the employment term and Carter's will
maintain certain fringe benefits on his behalf until either the expiration of
the remainder of the employment term or his 65th birthday. Mr. Rowan has agreed
not to compete with Carter's for the two-year period following the end of his
employment with Carter's, unless he is terminated without cause, in which case
the duration of such period is one year.
Joseph Pacifico, Charles E. Whetzel, Jr. and David A. Brown entered into
two-year employment agreements with Carter's as of October 30, 1996. Michael D.
Casey entered into a one-year employment agreement on April 1, 1998. The
employment agreements automatically extend annually for successive one-year
terms, subject to termination upon notice. Pursuant to such agreements, Messrs.
Pacifico, Whetzel, Brown and Casey (each, an "Executive") are entitled to
receive (i) a base salary, currently $375,000, $250,000, $235,000 and $200,000,
respectively (subject to annual cost of living adjustments and any increases
approved by the Board of Directors), (ii) annual cash bonuses based upon a bonus
plan to be determined each year by the Board of Directors and (iii) certain
specified fringe benefits. If an Executive's employment with Carter's is
terminated without cause (as defined), he will continue to receive his then
current salary for the remainder of the employment term and Carter's will
maintain certain fringe benefits on his behalf until either the expiration of
the remainder of the employment term or his 65th birthday. Each Executive has
agreed not to compete with Carter's for a one-year period following the end of
his employment with Carter's, unless he is terminated without cause, in which
case the duration of such period is six months. All executive officers are
eligible to participate in Carter's Annual Cash Bonus Plan, payments under which
are based upon Carter's achievement of targeted performance levels as determined
by the Board of Directors.
MANAGEMENT STOCK INCENTIVE PLAN
Upon the consummation of the Acquisition, Holdings adopted a Management
Stock Incentive Plan (the "Plan"), in order to provide incentives to employees
and directors of Holdings and Carter's by granting them awards tied to the Class
C Stock of Holdings. The Plan is administered by a committee of the Board of
Directors of Holdings (the "Compensation Committee"), which has broad authority
to administer and interpret the Plan. Awards to employees are not restricted to
any specified form or structure and may include, without limitation, restricted
stock, stock options, deferred stock or stock appreciation rights (collectively,
"Awards"). Options granted under the Plan may be options intended to qualify as
incentive stock options under Section 422 of the Code or options not intended to
so qualify. An Award granted under the Plan to an employee may include a
provision terminating the Award upon termination of employment under certain
circumstances or accelerating the receipt of benefits upon the occurrence of
specified events, including, at the discretion of the Compensation Committee,
any change of control of Carter's.
In connection with the Acquisition, Holdings granted options to purchase up
to 72,199 shares of its Class C Stock to certain members of Carter's senior
management, other officers and employees of Carter's. As of April 4, 1998 and
January 3, 1998, options to purchase up to 71,279 and 67,302 shares of Class C
stock were outstanding, respectively. The exercise price of each such option is
$60.00 per share, which is the same price per share paid by existing holders of
Class C Stock of Holdings to acquire such
45
Class C Stock. The exercise price of each option granted in the future will be
equal to the fair market value of Holdings' Class C Stock at the time of the
grant. Each option will be subject to certain vesting provisions. To the extent
not earlier vested or terminated, all options will vest on the tenth anniversary
of the date of grant and will expire 30 days thereafter if not exercised.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 13 of Chapter 156B of the Massachusetts Business Corporation Law
(the "MBCL") authorizes a Massachusetts corporation to include a provision in
its articles of organization limiting or eliminating the personal liability of
its directors to the corporation and its shareholders for monetary damages for
breach of the directors' fiduciary duty of care. The duty of care requires that,
when acting on behalf of the corporation, directors exercise an informed
business judgment based on all material information reasonably available to
them. Absent the limitations authorized by such provision, directors are
accountable to corporations and their shareholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Although Section 13 of Chapter 156B of the MBCL does not change a director's
duty of care, it enables corporations to limit available relief to equitable
remedies such as injunction or rescission. The Company's Articles of
Organization and Bylaws include provisions which limit or eliminate the personal
liability of its directors to the fullest extent permitted by Section 13 of
Chapter 156B of the MBCL. Consequently, a director or officer will not be
personally liable to the Company or its shareholders for monetary damages for
breach of fiduciary duty as a director, except for (i) any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) unlawful payments of dividends or unlawful stock
repurchases, redemptions, loans or other distributions and (iv) any transaction
from which the director derived an improper personal benefit.
The Company's Bylaws also provide, in effect, to the fullest extent under
the circumstances permitted by Section 67 of Chapter 156B of the MBCL, the
Company will indemnify any person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was a director or an officer of the Company or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation or enterprise. The inclusion of these indemnification
provisions in the Company's Articles of Organization and Bylaws is intended to
enable the Company to attract qualified persons to serve as directors and
officers who might otherwise be reluctant to do so. The Company may, in it
discretion, similarly indemnify its employees and agents.
Depending upon the character of the proceeding, the Company may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with any action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had no
cause to believe his or her conduct was unlawful. To the extent that a director
or officer of the Company has been successful in the defense of any action, suit
or proceeding referred to above, the Company would have the right to indemnify
him or her against expenses (including attorneys' fees) actually and reasonably
incurred in connection therewith.
46
OWNERSHIP OF VOTING SECURITIES
Class D Stock, par value $.01 per share, is the only class of Holdings'
stock that currently possesses voting rights. At January 3, 1998, there were
5,000 shares of Holdings' Class D Stock issued and outstanding. As of April 4,
1998 and January 3, 1998, members of Carter's management owned 130,051 and
131,340 shares of Class C Stock of Holdings, respectively. This stock has no
voting rights except in certain limited circumstances. The following table sets
forth the beneficial ownership of each class of issued and outstanding
securities of Holdings, as of the date hereof, by each director of the Company,
each of the executive officers of the Company, the directors and executive
officers of the Company as a group and each person who beneficially owns more
than 5% of the outstanding shares of any class of voting securities of Holdings.
CLASS D VOTING STOCK:
NUMBER OF PERCENT OF
NAME SHARES(A) CLASS(A)
- ---------------------------------------------------------------------- ----------- -----------
INVESTCORP S.A.(b)(c)................................................. 5,000 100.0%
SIPCO Limited(d)...................................................... 5,000 100.0
CIP Limited(e)(f)..................................................... 4,600 92.0
Ballet Limited(e)(f).................................................. 460 9.2
Denary Limited(e)(f).................................................. 460 9.2
Gleam Limited(e)(f)................................................... 460 9.2
Highlands Limited(e)(f)............................................... 460 9.2
Noble Limited(e)(f)................................................... 460 9.2
Outrigger Limited(e)(f)............................................... 460 9.2
Quill Limited(e)(f)................................................... 460 9.2
Radial Limited(e)(f).................................................. 460 9.2
Shoreline Limited(e)(f)............................................... 460 9.2
Zinnia Limited(e)(f).................................................. 460 9.2
INVESTCORP Investment Equity Limited(c)............................... 400 8.0
- ------------------------
(a) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of a security, or the sole or shared power
to dispose, or direct the disposition of, a security.
(b) Investcorp does not directly own any stock in Holdings. The number of shares
shown as owned by Investcorp includes all of the shares owned by INVESTCORP
Investment Equity Limited (see (c) below). Investcorp owns no stock in
Ballet Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble
Limited, Outrigger Limited, Quill Limited, Radial Limited, Shoreline
Limited, Zinnia Limited, or in the beneficial owners of these entities (see
(f) below). Investcorp may be deemed to share beneficial ownership of the
shares of voting stock held by these entities because the entities have
entered into revocable management services or similar agreements with an
affiliate of Investcorp, pursuant to which each of such entities has granted
such affiliate the authority to direct the voting and disposition of the
Holdings voting stock owned by such entity for so long as such agreement is
in effect. Investcorp is a Luxembourg corporation with its address at 37 rue
Notre-Dame, Luxembourg.
(c) INVESTCORP Investment Equity Limited is a Cayman Islands corporation, and a
wholly-owned subsidiary of Investcorp, with its address at P.O. Box 1111,
West Wind Building, George Town, Grand Cayman, Cayman Islands.
(d) SIPCO Limited may be deemed to control Investcorp through its ownership of a
majority of a company's stock that indirectly owns a majority of
Investcorp's shares. SIPCO Limited's address is P.O. Box 1111, West Wind
Building, George Town, Grand Cayman, Cayman Islands.
(e) CIP ("CIP") owns no stock in Holdings. CIP indirectly owns less than 0.1 %
of the stock in each of Ballet Limited, Denary Limited, Gleam Limited,
Highlands Limited, Noble Limited, Outrigger
47
Limited, Quill Limited, Radial Limited, Shoreline Limited and Zinnia Limited
(see (f) below). CIP may be deemed to share beneficial ownership of the
shares of voting stock of Holdings held by such entities because CIP acts as
a director of such entities and the ultimate beneficial shareholders of each
of those entities have granted to CIP revocable proxies in companies that
own those entities' stock. None of the ultimate beneficial owners of such
entities beneficially owns individually more than 5% of Holdings' voting
stock.
(f) Each of CIP Limited, Ballet Limited, Denary Limited, Gleam Limited,
Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial
Limited, Shoreline Limited and Zinnia Limited is a Cayman Islands
corporation with its address at P.O. Box 2197, West Wind Building, George
Town, Grand Cayman, Cayman Islands.
CLASS C NON-VOTING STOCK:
NUMBER PERCENT
OF OF
NAME SHARES(A) CLASS
- -------------------------------------------------------------------------- ----------- -----------
Frederick J. Rowan, II.................................................... 56,649 23.4%
Joseph Pacifico........................................................... 15,051 6.2%
Charles E. Whetzel, Jr.................................................... 15,051 6.2%
David A. Brown............................................................ 15,051 6.2%
Michael D. Casey.......................................................... 2,289 1.0%
All directors and executive officers of the Company as a group (8
persons)................................................................ 104,091 43.0%
- ------------------------
(a) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of a security, or the sole or shared power
to dispose, or direct the disposition of, a security.
CERTAIN TRANSACTIONS
Holdings was formed to consummate the Acquisition on behalf of affiliates of
Investcorp, management and certain other investors. Financing for the
Acquisition was provided in part by $70.9 million of capital provided by
affiliates of Investcorp and other investors. In addition, certain employees of
Carter's exchanged capital stock of Carter's with an aggregate value of $9.1
million for non-voting stock of Holdings, representing approximately 15% of the
outstanding equity of Holdings.
In connection with the issuance by Holdings of $20.0 million of senior
subordinated debt, Invifin SA ("Invifin"), an affiliate of Investcorp, received
a fee of $2.2 million. In connection with the Acquisition, the Company paid
Investcorp International Inc. ("International") advisory fees aggregating $2.25
million. The Company also paid $1.5 million to Invifin in fees in connection
with providing a standby commitment for up to $100.0 million to fund the
Acquisition.
In connection with the closing of the Acquisition, the Company entered into
an agreement for management advisory and consulting services (the "Management
Agreement") with International pursuant to which the Company agreed to pay
International $1.35 million per annum for a five-year term. At the closing of
the Acquisition, the Company paid International $4.05 million for the first
three years of the term of the Management Agreement in accordance with its
terms. Upon the Acquisition, the Company was required to pay the Management
Payments in an aggregate amount of $11.3 million to certain members of
management.
The Company believes the transactions described above were on terms no less
favorable to the Company than could have been obtained with unaffiliated third
parties.
In October 1996, the Company made a $1.5 million loan to an officer. The
loan has a term of five years, collateralized by the officer's stock of Holdings
and bears interest at 6.49%, compounded semi-annually. The loan is prepayable
with the proceeds of any disposition by the officer of his stock in Holdings.
48
CAPITAL STRUCTURE
SENIOR CREDIT FACILITY
GENERAL. The Senior Credit Facility, dated as of October 30, 1996, among
Carter's, the several lenders from time to time parties thereto (collectively,
the "Lenders") and The Chase Manhattan Bank, as administrative agent for the
Lenders (the "Administrative Agent"), provides for a $100.0 million term and
revolving loan credit facility (the "Loans").
At April 4, 1998, the amount under the revolving credit portion of the
Senior Credit Facility that was available to be drawn was approximately $28.5
million, excluding $5.8 million that was reserved in respect of the Company's
obligations under outstanding letters of credit. The remaining availability
under the revolving credit facility may be utilized to meet Carter's current
working capital requirements, including issuance of stand-by and trade letters
of credit. Carter's also may utilize the remaining availability under the
revolving credit facility to fund acquisitions and capital expenditures.
The Loans are collateralized by a first priority collateral interest in
substantially all the personal property and certain real property of the Company
and a pledge of all the issued and outstanding stock of Carter's and its
domestic subsidiary, as well as 65% of the issued and outstanding stock of
Carter's foreign subsidiaries. Upon the request of the Administrative Agent, any
domestic subsidiary of the Company formed in the future that has material assets
will also be required to issue a guarantee of the Loans which will be secured by
a first priority security interest in substantially all personal property of
such subsidiary, and, upon the request of the Administrative Agent, the Company
will be required to pledge the issued and outstanding capital stock of such
subsidiary owned by the Company or any of its subsidiaries or up to 65% of the
issued and outstanding capital stock of any foreign subsidiary owned by the
Company or any of its subsidiaries that has material assets to secure
indebtedness under the Senior Credit Facility.
TERM LOANS. The Senior Credit Facility provides for a $50.0 million Tranche
B term loan facility. The Tranche B term loans have a final scheduled maturity
date of October 31, 2003. The principal amounts of the Tranche B term loans are
required to be repaid in 14 consecutive semi-annual installments totaling $1.0
million in each of fiscal years 1997 through 2000, $6.0 million in fiscal year
2001, $15.0 million in fiscal year 2002 and $25.0 million in fiscal year 2003.
In November 1996, the term loan was reduced by $5.0 million with proceeds from
the issuance of the Old Notes. The future scheduled payments under the Senior
Credit Facility will be reduced ratably for this payment.
REVOLVING CREDIT FACILITY. The Senior Credit Facility provides for a $50.0
million revolving credit facility. The revolving credit facility will expire on
the earlier of (a) October 31, 2001 and (b) such other date as the revolving
credit commitments thereunder shall terminate in accordance with the terms of
the Senior Credit Facility.
INTEREST RATES. Borrowings under the Senior Credit Facility accrue interest
at either the Alternate Base Rate (the "Alternate Base Rate") or an adjusted
Eurodollar Rate (the "Eurodollar Rate"), at the option of the Company, plus the
applicable interest margin. The Alternate Base Rate at any time is determined to
be the highest of (i) the Federal Effective Funds Rate plus 1/2 of 1% per annum,
(ii) the Base CD Rate plus 1% per annum and (iii) The Chase Manhattan Bank's
Prime Rate. The applicable interest margin with respect to loans made under the
revolving credit facility is 2.50% per annum with respect to loans that accrue
interest at the Eurodollar Rate and 1.50% per annum for loans that accrue
interest at the Alternate Base Rate. The applicable interest margin with respect
to Tranche B term loans is 3.00% per annum for loans that accrue interest at the
Eurodollar Rate and 2.00% per annum for loans that accrue interest at the
Alternate Base Rate.
MANDATORY AND OPTIONAL PREPAYMENTS. The Senior Credit Facility requires
that upon a public offering Holdings or any subsidiary of the Company of its
common or other voting stock, 50% of the net proceeds from such offering (only
after the redemption or repurchase or cancellation of the Preferred Stock and
the
49
redemption of up to 35% of the Notes) is required to be applied toward the
prepayment of indebtedness under the Senior Credit Facility. Upon the incurrence
of any additional indebtedness (other than indebtedness permitted under the
Senior Credit Facility), or upon the receipt of proceeds from certain asset
sales and exchanges, 100% of the net proceeds from such incurrence, sale or
exchange is required to be so applied. In addition, the Senior Credit Facility
requires that either 75% or 50% (depending on certain circumstances) of Excess
Cash Flow (as defined in the Senior Credit Facility) is required to be applied
toward the prepayment of indebtedness under the Senior Credit Facility. Such
prepayments are required to be applied first to the prepayment of the term loans
and, second, to reduce permanently the revolving credit commitments. Subject to
certain conditions, the Company may, from time to time, make optional
prepayments of Loans without premium or penalty.
COVENANTS. The Senior Credit Facility imposes certain covenants and other
requirements on Carter's and its subsidiaries. In general, the affirmative
covenants provide for mandatory reporting by Carter's of financial and other
information to the Lenders and notice by the Company to the Lenders upon the
occurrence of certain events. The affirmative covenants also include standard
operating covenants requiring the Company to operate its business in an orderly
manner consistent with past practice.
The Senior Credit Facility also contains certain negative covenants and
restrictions on actions by Carter's and its subsidiaries that, among other
things, restrict: (i) the incurrence and existence of indebtedness, (ii)
consolidations, mergers and sales of assets; (iii) the incurrence and existence
of liens or other encumbrances; (iv) the incurrence and existence of contingent
obligations; (v) the payment of dividends and repurchases of common stock; (vi)
prepayments and amendments of certain subordinated debt instruments (including
the Notes and the Indenture) and equity; (vii) investments, loans and advances;
(viii) capital expenditures; (ix) changes in fiscal year; (x) certain
transactions with affiliates; and (xi) changes in lines of business. In
addition, the Senior Credit Facility requires that Carter's comply with
specified financial ratios and tests, including minimum cash flow, a maximum
ratio of indebtedness to cash flow and a minimum interest coverage ratio.
EVENTS OF DEFAULT. The Senior Credit Facility specifies certain customary
events of default including non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties in any
material respect, cross default and cross-acceleration to certain other
indebtedness and agreements, bankruptcy and insolvency events, material
judgments and liabilities, change of control, unenforceability of certain
documents under the Senior Credit Facility and any amendment or other
modification of the Subordinated Loan Facility or the $100 million 10 3/8% Notes
made without all required written consents in accordance with the terms of the
Senior Credit Facility. If certain bankruptcy and insolvency events of default
occur, then all amounts owing under the Senior Credit Facility become
immediately due and payable. If any other event of default occurs, and so long
as such event of default continues, the Administrative Agent may, with the
consent of, or shall upon the request of, a majority of the Lenders, declare all
amounts owing under the Senior Credit Facility to be due and payable.
FEES AND EXPENSES. The Company is required to pay to the Administrative
Agent an agent's fee in an amount agreed between the Company and the
Administrative Agent.
The description of the Senior Credit Facility set forth above does not
purport to be complete and is qualified in its entirety by reference to the
Senior Credit Facility, which is available upon request from the Company.
10 3/8% SENIOR SUBORDINATED NOTES
The 10 3/8% Senior Subordinated Notes were issued in November 1996. The
proceeds from the 10 3/8% Notes were used to repay $90.0 million of
Acquisition-related financing and $5.0 million of the Senior Credit Facility
term loan.
50
In April 1997, Carter's completed a registration with the Securities and
Exchange Commission related to an Exchange Offer for $100,000,000 of 10 3/8%
Series A Senior Subordinated Notes for a like amount of the 10 3/8% Senior
Subordinated Notes issued in the November 1996 private placement. The terms and
provisions of the 10 3/8% Notes were essentially unchanged.
Interest on the 10 3/8% Notes is to be paid semi-annually on June 1 and
December 1 of each year, commencing on June 1, 1997. The 10 3/8% Notes will be
redeemable, in whole or in part, at the option of the Company on or after
December 1, 2001 at the following redemption prices, plus accrued interest to
the date of redemption:
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
2001............................................................................. 105.188%
2002............................................................................. 103.458%
2003............................................................................. 101.729%
2004 and thereafter.............................................................. 100.000%
The 10 3/8% Notes are uncollateralized. The 10 3/8% Notes contain provisions
and covenants, including limitations on other indebtedness, restricted payments
and distributions, sales of assets and subsidiary stock, liens and certain other
transactions.
CAPITAL STOCK
Holdings is authorized to issue 775,000 shares of Class A Stock at a par
value of $0.01 per share, 500,000 shares of Class C Stock at a par value of
$0.01 per share, and 5,000 shares of Class D Stock at a par value of $0.01 per
share. As of April 4, 1998, there were 752,808 shares of Class A Stock, 221,194
shares of Class C Stock and 5,000 share of Class D Stock outstanding. Holdings
may, by an amendment to the Articles of Organization duly adopted, increase or
decrease, at any time and from time to time (but not below the number of shares
of Class A Stock, Class C Stock or Class D Stock), the number of authorized
shares of Class A Stock, Class C Stock and Class D Stock, as the case may be.
Shares of Stock redeemed, purchased or otherwise acquired by Holdings pursuant
to its Certificate of Designation shall be retired and shall revert to
authorized but unissued Class A Stock, Class C Stock and Class D Stock, as the
case may be.
Holders of shares of Class D Stock shall be entitled to one vote for each
share of such stock held on all matters as to which stockholders may be entitled
to vote pursuant to the Massachusetts Business Corporation Law. Prior to a
change of Control, holders of Class A or Class C Stock shall not have any voting
rights except that the holders of the Class A and Class C Stock shall have the
right to one vote for each share of stock held as to (i) the approval of any
amendment, or the alteration or repeal, whether by merger, consolidation or
otherwise, of any provision of the Certificate of Designation of the Corporation
or the Articles of Organization that would increase or decrease the par value of
those shares of Class A or Class C Stock, or alter or change the powers,
preferences, or special rights of the shares of the Class A or Class C Stock, as
to affect such holders adversely, provided that each such holder of Class A or
Class C Stock shall have the right to vote on such matters affecting the Class A
or Class C Stock, so as relevant; and (ii) any other matters required under the
laws of the Commonwealth of Massachusetts; provided, however, that unless
otherwise required by the terms of the Certificate of Designation of the
Corporation, Chapter 156B, Section 71 of the Massachusetts Business Corporation
Law shall not entitle the holder of a share of such Class A or Class C Stock to
vote on the increase of the number of authorized shares of such class of Stock
or the decrease of the number of authorized but not outstanding shares of such
class of Stock. Effective upon a Change of Control, holders of shares of Class A
or Class C Stock shall be entitled to one vote for each share of stock held on
all matters as to which Stockholders may be entitled to vote pursuant to the
Massachusetts Business Corporation Law.
51
Upon the liquidation, dissolution or winding up of the affairs of Holdings,
whether voluntary or involuntary, each holder of Class A or Class C Stock shall
be entitled to receive out of the net assets of the Corporation or the proceeds
thereof available for distribution to Stockholders, before any payment or
distribution shall be made or set aside for payment on the Class D or Common
Stock, the amount of $0.001 per share. Such distribution shall be allocated pro
rata according to the number of shares of Class A or Class C Stock held by each
Stockholder. If the assets of Holdings or the proceeds thereof available for
distribution to the holders of shares of the Class A or Class C Stock shall be
insufficient to pay in full all amounts to which such holders are entitled, no
distribution shall be made on any of Holdings' Class D or Common Stock.
COMMON STOCK
The authorized common stock of Holdings consists of 1,280,000 shares of
common stock at a par value of $0.01 per share ("Common Stock"). At April 4,
1998, there were no shares of Common Stock issued or outstanding. Holdings may,
by an amendment to the Articles of Organization duly adopted, increase or
decrease, at any time and from time to time (but not below the number of shares
then outstanding), the number of authorized shares of Common Stock. Shares of
Stock redeemed, purchased or otherwise acquired by Holdings shall be retired and
shall revert to authorized but unissued Common Stock.
Holders of shares of Common Stock shall be entitled to one vote for each
share of such stock held on all matters as to which stockholders may be entitled
to vote pursuant to the Massachusetts Business Corporation Law.
Upon the liquidation, dissolution or winding up of the affairs of Holdings,
whether voluntary or involuntary, distribution of proceeds to the holders of
Holdings' Class D or Common Stock will be made subsequent to distribution of
proceeds to the holders of shares of the Class A or Class C Stock . If the
assets of Holdings or the proceeds there of available for distribution to the
holders of shares of the Class A or Class C Stock shall be insufficient to pay
in full all amounts to which such holders are entitled, no distribution shall be
made on any of Holdings' Class D or Common Stock.
52
DESCRIPTION OF NOTES
GENERAL
The New Notes are to be issued under an Indenture, dated as of October 30,
1996, as amended on March 25, 1997 (the "Indenture"), between Holdings and State
Street Bank and Trust Company, as Trustee (the "Trustee"), a copy of which is
available upon request to Holdings.
The following summary of certain provisions of the Indenture and the Notes
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended ("TIA"). Capitalized terms used herein
and not otherwise defined have the meanings set forth in "--Certain
Definitions".
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of
Holdings in the Borough of Manhattan, The City of New York (which initially
shall be the corporate trust office of the Trustee's agent, at State Street Bank
and Trust Company N.A., 61 Broadway, Concourse Level, Corporate Trust Window,
New York, New York 10006), except that, at the option of Holdings, payment of
interest may be made by check mailed to the addresses of the Holders as such
addresses appear in the Note Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but Holdings
may require payment of a sum sufficient to cover any transfer tax or other
similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes will be unsecured senior subordinated obligations of Holdings,
limited to $20.0 million aggregate principal amount, and will mature on October
1, 2008. Each Note will bear interest at a rate per annum shown on the front
cover of this Prospectus from October 30, 1996, or from the most recent date to
which interest has been paid or provided for, payable semiannually to Holders at
the close of business on the April 15 or October 15 immediately preceding the
interest payment date on May 1 and November 1 of each year, commencing May 1,
1997.
OPTIONAL REDEMPTION
The Notes are redeemable, at Holdings' option, in whole or in part, at any
time upon not less than 30 nor more than 60 days prior notice mailed by
first-class mail to each Holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
interest to the Redemption Date (subject to the right of Holders on the relevant
record date to receive interest due on the relevant interest payment date) if
redeemed during the period beginning on the respective date indicated below and
ending on the day before the next date indicated:
REDEMPTION
PERIOD PRICE
- --------------------------------------------------------------------------------- -----------
December 31, 1996................................................................ 109.0%
October 1, 1999.................................................................. 107.0%
October 1, 2000.................................................................. 105.0%
October 1, 2001.................................................................. 103.0%
October 1, 2002.................................................................. 101.0%
October 1, 2003 and thereafter................................................... 100.0%
53
SELECTION
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a PRO RATA basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
provided that no Note of $1,000 in original principal amount or less will be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
RANKING
The payment of the principal of, premium (if any) and interest on the Notes
is subordinated in right of payment, as set forth in the Indenture, to the
payment when due of all Senior Indebtedness of Holdings and all debts,
liabilities and obligations of Carter's. However, payment from the money or the
proceeds of U.S. Government Obligations held in any defeasance trust described
under "Defeasance" below is not subordinated to any Senior Indebtedness or
subject to the restrictions described herein. On April 4, 1998, the outstanding
Senior Indebtedness of Carter's was $65.6 million (exclusive of unused
commitments). Although the Indenture contains limitations on the amount of
additional Indebtedness which the Company may incur, under certain circumstances
the amount of such Indebtedness could be substantial and, in any case, such
Indebtedness may be Senior Indebtedness. See "--Certain Covenants--Limitation on
Indebtedness" below.
"Senior Indebtedness" whether outstanding on the date of the Indenture or
thereafter issued, is defined as: (i) all obligations consisting of the Bank
Indebtedness; (ii) all obligations consisting of the principal of and premium,
if any, and accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to
Holdings regardless of whether post-filing interest is allowed in such
proceeding) in respect of (A) indebtedness of Holdings for money borrowed and
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which Holdings is responsible or liable; (iii)
all Capitalized Lease Obligations of Holdings; (iv) all obligations of Holdings
(A) for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction, (B) under Hedging Obligations entered
into in respect of any obligations described in clauses (i), (ii) and (iii) or
(C) the deferred purchase price of newly acquired property, or the price of
construction or improvement of any property, in each case used in the ordinary
course of business of Holdings and its Subsidiaries, whether such indebtedness
is owed to the seller or Person carrying out such construction or improvement or
to any third party; (v) all obligations of other persons of the type referred to
in clauses (ii), (iii) and (iv) and all dividends of other persons for the
payment of which, in either case, Holdings is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including Guarantees of such
obligations and dividends; and (vi) all obligations of Holdings consisting of
modifications, renewals, extensions, replacements and refundings of any
obligations described in clauses (i), (ii), (iii), (iv) or (v); unless, in each
case in the instrument creating or evidencing the same or pursuant to which the
same is outstanding, it is provided that such obligations are not superior in
right of payment to the Notes; PROVIDED, HOWEVER, that Senior Indebtedness will
not 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
subordinate or junior to any other Indebtedness, Guarantee or obligation of
Holdings or (5) any Indebtedness that is incurred in violation of the Indenture.
If any Designated Senior Indebtedness is disallowed, avoided or subordinated
pursuant to the provisions of Section 548 of Title 11 of the United States Code
or any applicable state fraudulent conveyance law, such Designated Senior
Indebtedness nevertheless will constitute Senior Indebtedness.
54
Indebtedness of Holdings that is Senior Indebtedness will rank senior to the
Notes in accordance with the provisions of the Indenture. In addition, the Notes
are structurally subordinated to all debts, liabilities and obligations of
Holding's subsidiaries. The Notes will in all respects rank PARI PASSU with all
Indebtedness of Holdings other than Senior Indebtedness or Subordinated
Obligations.
Holdings may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not otherwise purchase or retire any Notes
(collectively, "pay the Notes") if any payment due under the Senior Credit
Facility is not paid as and when due unless the default has been cured or
waived. During the continuance of any default (other than a default of payment
due) with respect to the Senior Credit Facility pursuant to which the maturity
thereof may be accelerated immediately without further notice (except such
notice as may be required to effect such acceleration) or the expiration of any
applicable grace periods, Holdings may not pay the Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Trustee (with a
copy to Holdings) of written notice (a "Blockage Notice") of such default from
the Representative of the Designated Senior Indebtedness specifying an election
to effect a Payment Blockage Period and ending 179 days thereafter (or earlier
if such Payment Blockage Period is terminated (i) by written notice to the
Trustee and Holdings from the Person or Persons who gave such Blockage Notice,
(ii) because the default giving rise to such Blockage Notice is no longer
continuing or (iii) because such Designated Senior Indebtedness has been repaid
in full). In no event, however, may the total number of days during which any
Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate
during any consecutive 365-day period and provided further that no default that
formed the basis of a Blockage Notice shall form the basis of any subsequent
Blockage Notice.
Upon any payment or distribution of the assets of Holdings upon a total or
partial liquidation or dissolution, whether voluntary or involuntary, or any
reorganization, bankruptcy or receivership of or similar proceeding relating to
Holdings or its property, or any assignment for the benefit of creditors or
other marshalling of assets or liabilities of Holdings, the holders of Senior
Indebtedness will be entitled to receive payment in full of the Senior
Indebtedness before the Noteholders are entitled to receive any payment and
until the Senior Indebtedness is paid in full, any payment or distribution to
which Noteholders would be entitled, but for the subordination provisions of the
Indenture, will be made to holders of the Senior Indebtedness as their interest
may appear. If a distribution is made to Noteholders that, due to the
subordination provisions, should not have been made to them, such Noteholders
are required to hold it in trust for the holders of Senior Indebtedness and
promptly pay it over to them as their interests may appear.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of Holdings who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
Holdings who are not holders of Senior Indebtedness or of Senior Subordinated
Indebtedness (including the Notes) may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than the holders of Senior
Subordinated Indebtedness (including the Notes).
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require Holdings to repurchase all
or any part of such Holder's Notes at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of Holders on the relevant record date to
receive interest due on the relevant interest payment date):
(i) prior to the first public offering of Voting Stock of Holdings or Carter's,
as the case may be, the Permitted Holders cease to be the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of majority voting power of the Voting Stock of Holdings, or
Holdings shall cease to own 100% of the issued and outstanding Voting Stock
of Carter's, whether as a
55
result of issuance of securities of Holdings or Carter's, as the case may
be, any merger, consolidation, liquidation or dissolution of Holdings or
Carter's, as the case may be, any direct or indirect transfer of securities
by any Permitted Holder or otherwise (for purposes of this clause (i) and
clause (ii) below, the Permitted Holders will be deemed to beneficially own
any Voting Stock of a corporation (the "specified corporation") held by any
other corporation (the "parent corporation") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, a majority
of the Voting Stock of the parent corporation);
(ii) following the first public offering of Voting Stock of Holdings or
Carter's, as the case may be, any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than one or more Permitted
Holders, is or becomes the beneficial owner, directly or indirectly, of 40%
or more, on a fully diluted basis of the total voting power of the Voting
Stock of Holdings or Carter's, as the case may be (excluding, for the
purposes of such determination, the percentage, on a fully diluted basis, of
the voting Stock of the Company outstanding on the date of the Indenture and
owned by such person or persons); provided that Permitted Holders
beneficially own (as defined in clause (i) above), directly or indirectly,
in the aggregate a lesser percentage of the total voting power of the Voting
Stock of Holdings or Carter's, as the case may be, than such other person
and do not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the board of directors of
Holdings or Carter's, as the case may be (for purposes of this clause (ii),
such other person shall be deemed to beneficially own any Voting Stock of a
specified corporation held by a parent corporation, if such other person
"beneficially owns" (as defined in this clause (ii)), directly or
indirectly, 40% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders "beneficially own" (as defined in
clause (i) above), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent
corporation and do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the board of
directors of such parent corporation); or
(iii) following the first public offering of Voting Stock of Holdings or
Carter's, as the case may be, (a) any person (other than one or more
Permitted Holders) nominates one or more individuals for election to the
board of directors of Holdings or Carter's, as the case may be, and solicits
proxies, authorizations or consents in connection therewith and (b) as a
result, such number of nominees elected to serve on the board of directors
represents a majority of the board of directors of Holdings or Carter's, as
the case may be, following such election.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in the
immediately following paragraph but in any event within 30 days following any
Change of Control, Holdings shall (i) repay in full all Bank Indebtedness or
offer to repay in full all Bank Indebtedness and repay the Bank Indebtedness of
each lender who has accepted such offer or (ii) obtain the requisite consent
under the agreements governing the Bank Indebtedness to permit the repurchase of
the Notes as provided for in the immediately following paragraph, unless notice
of redemption of all of the Notes has been given pursuant to the fourth
paragraph of "Optional Redemption" above and such redemption is permitted by the
terms of the Bank Indebtedness (or the requisite number of lenders thereof has
consented thereto).
Within 30 days following any Change of Control, unless notice of redemption
of the Notes has then been given pursuant to the fourth paragraph of "Optional
Redemption" above, Holdings shall mail a notice to each Holder with a copy to
the Trustee stating: (1) that a Change of Control has occurred and that such
Holder has the right to require Holdings to purchase such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of Holders of record on a record date to receive interest on the relevant
interest payment date); (2) the circumstances and relevant facts and financial
information regarding such Change of Control; (3) the repurchase date (which
shall be no earlier than 30 days nor later than 60 days
56
from the date such notice is mailed and not more than 90 days after the Change
of Control); and (4) the instructions determined by Holdings, consistent with
this covenant, that a Holder must follow in order to have its Notes purchased.
Holdings will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, Holdings will comply with the applicable securities
laws and regulations and will not be deemed to have breached its obligations
under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
Holdings and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that Holdings would decide to do so in the future. Subject to the limitations
discussed below, Holdings could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Indenture, but that could increase the
amount of indebtedness outstanding at such time or otherwise affect Holdings'
capital structure or credit ratings.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Senior Credit Facility. Future
Senior Indebtedness of Holdings may contain prohibitions of certain events which
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the Holders of
their right to require Holdings to repurchase the Notes could cause a default
under such Senior Indebtedness, even if the Change of Control itself does not.
Finally, Holdings' ability to pay cash to the Holders upon a repurchase may be
limited by Holdings' then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases.
SINKING FUND
There will be no mandatory sinking fund for the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (a) Holdings will not, and will not permit any
Restricted Subsidiary to, Incur any Indebtedness; PROVIDED, HOWEVER, that
Holdings or any Restricted Subsidiary may Incur Indebtedness if on the date
thereof the Consolidated Coverage Ratio would be greater than 1.75:1.00, if such
Indebtedness is incurred on or prior to September 30, 1998; and 2.00:1.00 if
such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), Holdings and its Restricted
Subsidiaries may Incur the following Indebtedness: (i) Indebtedness under the
Senior Credit Facility (as the same may be amended from time to time) and any
Refinancing Indebtedness with respect thereto in each case in an aggregate
principal amount that, when added to all other Indebtedness Incurred pursuant to
this clause (i) and then outstanding, shall not exceed $100.0 million less the
sum of all repayments thereon made with the Net Cash Proceeds from Asset
Dispositions (to the extent, in the case of repayment of revolving credit
Indebtedness, that the corresponding commitments have been permanently reduced);
PROVIDED, HOWEVER, that any Refinancing Indebtedness with respect to
Indebtedness Incurred pursuant to this clause (i) shall not be subject to the
limitations contained in clauses (i) and (ii) of the definition of Refinancing
Indebtedness set forth in "--Certain Definitions" below; (ii) Indebtedness (A)
of Holdings to any Restricted Subsidiary, and (B) of any Restricted Subsidiary
to Holdings, Carter's or any other Restricted Subsidiary; (iii) Indebtedness
represented by the Notes, any Indebtedness (other than the Indebtedness
described in clauses (i) and (ii) above) outstanding on the date of the
Indenture, including Indebtedness
57
represented by the Carter Subordinated Debt up to an aggregate principal amount
of $125,000,000, and any Refinancing Indebtedness Incurred in respect of any
Indebtedness described in this clause (iii) or paragraph (a); provided that
Refinancing Indebtedness with respect to the Carter Subordinated Debt shall not
be subject to the limitations contained in clause (iii) of the definition of
Refinancing Indebtedness as long as the aggregate principal amount of the Carter
Subordinated Debt and such Refinancing Indebtedness does not exceed
$125,000,000; (iv) Indebtedness of Holdings and its Restricted Subsidiaries in
respect of (A) industrial revenue bonds or other similar governmental and
municipal bonds and (B) the deferred purchase price of newly acquired property
of Holdings and its Restricted Subsidiaries, or the price of construction or
improvement of any property of Holdings or its Subsidiaries, in each case used
in the ordinary course of business of Holdings and its Subsidiaries, including
Capitalized Lease Obligations, whether such Indebtedness is owed to the seller
or Person carrying out such construction or improvement or to a third party
(PROVIDED such financing is entered into within 180 days of the acquisition or
the conclusion of such construction or improvement of such property) in an
amount (based on the remaining balance of the obligations therefor on the books
of Holdings and its Restricted Subsidiaries) which in the case of the preceding
clauses (A) and (B) shall not exceed $15.0 million in the aggregate at any time
outstanding; (v) Indebtedness of Holdings or any of its Restricted Subsidiaries
(which may comprise Bank Indebtedness) in an aggregate principal amount at any
time outstanding not in excess of $20.0 million; (vi) Indebtedness in an
aggregate principal amount at any time outstanding not in excess of $7.5 million
in respect of letters of credit (other than letters of credit issued under the
Senior Credit Facility); (vii) (A) Indebtedness assumed in connection with
acquisitions permitted under the Senior Credit Facility or any Refinancing
Indebtedness in respect thereof (so long as such Indebtedness was not incurred
in anticipation of such acquisitions), (B) Indebtedness of newly acquired
Subsidiaries acquired in such acquisitions (so long as such Indebtedness was not
incurred in anticipation of such acquisitions) and (C) Indebtedness owed to the
seller in any acquisition permitted under the Senior Credit Facility or any
Refinancing Indebtedness in respect thereof constituting part of the purchase
price thereof, all in an aggregate principal amount at any time outstanding not
in excess of $7.5 million; (viii) Indebtedness represented by Guarantees of
Indebtedness Incurred pursuant to clause (i), (iii), (iv) or (v) above; (ix)
Indebtedness incurred in connection with the repurchase of shares of the Capital
Stock of Carter's or Holdings as permitted by paragraph (b) (vii) of the
covenant described under "--Limitation on Restricted Payments"; (x) Refinancing
Indebtedness with respect to Indebtedness permitted pursuant to clauses (iv),
(vii) or (ix) of this paragraph (b) (provided that such Refinancing Indebtedness
shall be included in determining the aggregate amount of Indebtedness for
purposes of the monetary limitations contained in such clauses); and (xi)
Hedging Obligations designed to protect Holdings or its Subsidiaries from
fluctuations in interest or exchange rates.
(c) Notwithstanding any other provision of this covenant, Holdings will not
incur any Indebtedness (i) pursuant to paragraph (b) if the proceeds thereof are
used, directly or indirectly, to repay, prepay, redeem, defease, retire, refund
or refinance any Subordinated Obligations unless such Indebtedness shall be
subordinated to the Notes to at least the same extent as such Subordinated
Obligations or (ii) pursuant to paragraph (a) or (b) if such Indebtedness is
subordinate or junior in right of payment to any Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness.
LIMITATION ON RESTRICTED PAYMENTS. (a) Holdings will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay
any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
Holdings) except dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock) and except dividends or distributions payable to
Holdings or another Restricted Subsidiary (and, if such Restricted Subsidiary is
not wholly owned, to its other shareholders on a PRO RATA basis), (ii)
repurchase, redeem, retire or otherwise acquire for value any Capital Stock of
Holdings, Carter's or any Restricted Subsidiary held by persons other than
Holdings or another Restricted Subsidiary, (iii) purchase, repurchase, redeem,
defease or otherwise acquire or retire for value, prior to scheduled maturity,
scheduled
58
repayment or scheduled sinking fund payment any Subordinated Obligations (other
than the purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
acquisition), or (iv) make any Investment (other than a Permitted Investment) in
any Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement, payment or Investment being herein
referred to as a "Restricted Payment") if at the time Holdings or such
Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing (or would result therefrom); (2) Holdings could not
Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) of the
covenant described under "--Limitation on Indebtedness"; or (3) the aggregate
amount of such Restricted Payment and all other Restricted Payments (the amount
so expended, if other than in cash, to be determined in good faith by the Board
of Directors, whose determination shall be conclusive and evidenced by a
resolution of the Board of Directors) declared or made subsequent to the Issue
Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued
during the period (treated as one accounting period) from the beginning of the
fiscal quarter during which the Notes are originally issued to the end of the
most recent fiscal quarter ending prior to the date of such Restricted Payment
for which consolidated income statements of Holdings are available (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by Holdings from capital
contributions with respect to, or the issue or sale of, Holdings' Capital Stock
(other than Disqualified Stock) subsequent to the Issue Date (other than an
issuance or sale to a Subsidiary of Holdings or an employee stock ownership plan
or other trust established by Holdings or any of its Subsidiaries); (C) the
amount by which Indebtedness of Holdings or its Restricted Subsidiaries is
reduced on Holdings' balance sheet upon the conversion or exchange (other than
by a Subsidiary) subsequent to the Issue Date of any Indebtedness of the Company
or its Restricted Subsidiaries convertible into or exchangeable for Capital
Stock (other than Disqualified Stock) of Holdings (less the amount of any cash
or other property distributed by Holdings or any Restricted Subsidiary upon such
conversion or exchange); and (D) without duplication, the sum of (x) the
aggregate amount returned in cash on or with respect to Investments (other than
Permitted Investments) made subsequent to the Issue Date whether through
interest payments, principal payments, dividends or other distributions or
payments, (y) the Net Cash Proceeds received by Holdings or any Restricted
Subsidiary from the disposition of all or any portion of such Investments (other
than to a Subsidiary of Holdings) and (z) upon redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary;
PROVIDED, HOWEVER, that with respect to all Investments made in any Unrestricted
Subsidiary or joint venture the sum of clauses (x), (y) and (z) above with
respect to such Investments shall not exceed the aggregate amount of all such
Investments made subsequent to the date hereof in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph shall not prohibit: (i) any
purchase or redemption of Capital Stock of Holdings or any Subsidiary or
Subordinated Obligations made out of a substantially concurrent capital
contribution to, or by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of Holdings or any Subsidiary (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
or an employee stock ownership plan or other trust established by Holdings or
any of its Subsidiaries); PROVIDED, HOWEVER, that (A) such capital contribution,
purchase or redemption will be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such capital contribution
or sale applied in the manner set forth in this clause (i) will be excluded from
clause (3)(B) of paragraph (a); (ii) any purchase or redemption of Subordinated
Obligations made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of Holdings or any Restricted Subsidiary which
is permitted to be Incurred pursuant to the covenant described under
"--Limitation on Indebtedness"; PROVIDED, HOWEVER, that such purchase or
redemption will be excluded in the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash; PROVIDED, HOWEVER, that such purchase or redemption will be
excluded in the calculation of the amount of Restricted Payments; (iv) dividends
paid within 60 days after the date of declaration thereof if at such date of
declaration such dividend would
59
have complied with paragraph (a); PROVIDED, HOWEVER, that such dividend will be
included in the calculation of the amount of Restricted Payments; (v) payments
by Holdings or any Subsidiary to members of management of Holdings or any
Subsidiary under the management incentive and equity participation plans as a
result of and upon the Acquisition; PROVIDED, HOWEVER, that such payments shall
be excluded in the calculation of the amount of Restricted Payments; (vi)
payment of dividends, other distributions or other amounts by any Subsidiary to
any Restricted Subsidiary, Carter's or Holdings; (vii) payments by Holdings for
the purposes set forth in repurchase Capital Stock of Holdings owned by former
employees of Holdings or its Subsidiaries or their assigns, estates and heirs;
PROVIDED, HOWEVER, that the aggregate amount paid, loaned or advanced to
Holdings pursuant to this clause (viii) shall not, in the aggregate, exceed $5.0
million per fiscal year of Holdings, up to a maximum aggregate amount of $15
million during the term of the Indenture, plus any amounts received by Holdings
as a result of resales of such repurchased shares of Capital Stock; provided
further, however, that such payments shall be included in the calculation of the
amount of Restricted Payments; (ix) payments which would otherwise be Restricted
Payments in an aggregate amount not to exceed $5.0 million; PROVIDED, HOWEVER,
that such payments shall be included in the calculation of the amount of
Restricted Payments; or (x) after December 1, 1998, Investments in Unrestricted
Subsidiaries or joint ventures in an amount not to exceed $5.0 million at any
time outstanding; PROVIDED, HOWEVER, that such Investments shall be included in
the calculation of the amount of Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. Holdings will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to Holdings, (ii) make
any loans or advances to Holdings or (iii) transfer any of its property or
assets to Holdings, except: (1) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the date of the Indenture; (2) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to
an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary
prior to the date on which such Restricted Subsidiary was acquired by Holdings
or designated as a Restricted Subsidiary (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by Holdings) and outstanding on such date; (3) any
encumbrance or restriction pursuant to an agreement effecting a refinancing of
Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2)
of this covenant or this clause (3) or contained in any amendment, supplement or
other modification to an agreement referred to in clause (1) or (2) of this
covenant or this clause (3); PROVIDED, HOWEVER, that the encumbrances and
restrictions contained in any such refinancing agreement or amendment,
supplement or other modification are not materially less favorable to the
Noteholders than encumbrances and restrictions contained in such agreements; (4)
in the case of clause (iii), any encumbrance or restriction (A) that restricts
in a customary manner the subletting, assignment or transfer of any property or
asset that is subject to a lease, license or similar contract, (B) by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of Holdings or any Restricted Subsidiary not
otherwise prohibited by the Indenture or (C) contained in security agreements or
mortgages securing Indebtedness of a Restricted Subsidiary to the extent such
encumbrance or restrictions restrict the transfer of the property subject to
such security agreements or mortgages; (5) any restriction with respect to a
Restricted Subsidiary imposed pursuant to an agreement entered into for the sale
or disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition; and (6)
any encumbrance or restriction which is not more restrictive than any such
encumbrance or restriction in place as of the Date of the Indenture, including
any such restriction or encumbrance imposed in connection with the Incurrence of
Refinancing Indebtedness provided that such Refinancing Indebtedness shall not
prohibit either Carter's ability to redeem the Existing Preferred Stock at its
Stated Maturity or Holdings' ability to repay the Notes at their Stated
Maturity.
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LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) Holdings will not,
and will not permit any Restricted Subsidiary to, make any Asset Disposition
unless (i) Holdings or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise) at the time of
such Asset Disposition at least equal to fair market value of the shares and
assets subject to such Asset Disposition and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by Holdings (or such
Restricted Subsidiary, as the case may be): (A) FIRST, to the extent Holdings or
such Restricted Subsidiary elects (or is required by the terms of any Senior
Indebtedness or Indebtedness of a Subsidiary), to prepay, repay or purchase
Senior Indebtedness or such Indebtedness of a Subsidiary (in each case other
than Indebtedness owed to Holdings or an Affiliate of the Company) within twelve
months after the later of the date of such Asset Disposition or the receipt of
such Net Available Cash; (B) SECOND, to the extent of the balance of Net
Available Cash after application in accordance with clause (A), to the extent
Holdings or such Restricted Subsidiary elects, to reinvest in Additional Assets
(including by means of an Investment in Additional Assets by a Restricted
Subsidiary with Net Available Cash received by Holdings or another Restricted
Subsidiary) within twelve months from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash; (C) THIRD, if not
prohibited by any Indebtedness of Holdings or any Subsidiary (including any
limitations on Carter's ability to distribute funds to the Company) and to the
extent of the balance of such Net Available Cash after application in accordance
with clauses (A) and (B), to make an offer to purchase Notes pursuant and
subject to the conditions of the Indenture to the Noteholders at a purchase
price of 100% of the principal amount thereof plus accrued and unpaid interest
to the purchase date; and (D) FOURTH, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A), (B) and (C), to
any application not prohibited by the Indenture. Holdings and the Restricted
Subsidiaries will not be required to apply any Net Available Cash in accordance
with this covenant except to the extent that the aggregate Net Available Cash
from all Asset Dispositions that is not applied in accordance with this covenant
exceeds $5.0 million.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(C), Holdings will be required to purchase Notes
tendered pursuant to an offer by Holdings for the Notes (the "Offer") at a
purchase price of 100% of their principal amount plus accrued and unpaid
interest to the Purchase Date in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Indenture. If the
aggregate purchase price of the Notes tendered pursuant to the Offer is less
than the Net Available Cash allotted to the purchase of the Notes, Holdings will
apply the remaining Net Available Cash in accordance with clause (a)(iii)(D)
above. Holdings shall not be required to make an Offer for Notes pursuant to
this covenant if the Net Available Cash available therefor (after application of
the proceeds as provided in clauses (a)(iii)(A) and (a)(iii)(B)) is less than
$5.0 million for any particular Asset Disposition (which lesser amounts shall be
carried forward for purposes of determining whether an Offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
(c) Holdings will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, Holdings will comply with the applicable securities
laws and regulations and will not be deemed to have breached its obligations
under this covenant by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) Holdings will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of Holdings (an
"Affiliate Transaction") on terms (i) that are less favorable to Holdings or
such Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's-length dealings with a Person
who is not such an Affiliate and (ii) that, in the event such Affiliate
Transactions involves an aggregate amount in excess of $750,000, are not in
writing and have not been approved by a majority of the
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members of the Board of Directors having no personal stake in such Affiliate
Transaction. In addition, any transaction involving aggregate payments or other
transfers by Holdings and its Restricted Subsidiaries in excess of $3.5 million
will also require an opinion from an independent investment banking firm or
appraiser that is nationally recognized, as appropriate, to the effect that such
transaction is fair to Holdings or such Restricted Subsidiary from a financial
point of view.
(b) The provisions of the foregoing paragraph (a) will not apply to (i) any
Permitted Investment or Restricted Payment permitted to be made or paid pursuant
to the covenant described under "--Limitation on Restricted Payments," (ii) the
performance of Holdings' or any Subsidiary's obligations under any employment
contract, collective bargaining agreement, employee benefit plan, related trust
agreement or any other similar arrangement heretofore or hereafter entered into
in the ordinary course of business, (iii) payment of compensation to employees,
officers, directors or consultants in the ordinary course of business, (iv)
maintenance in the ordinary course of business (and payments required thereby)
of benefit programs or arrangements for employees, officers or directors,
including vacation plans, health and life insurance plans, deferred compensation
plans, directors' and officers' indemnification agreements, arrangements and
insurance and retirement or savings plans and similar plans, (v) any transaction
between Holdings and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries, (vi) beginning November 1, 1999, the payment of certain fees under
the Management Agreement or any amendment or supplement thereto, to the extent
that such payment will not exceed an aggregate amount of $1.35 million during
any twelve-month period, (vii) payments made by Carter's to Holdings to
reimburse Holdings for costs, fees and expenses incident to a registration of
any of the capital stock of Holdings for a primary offering under the Securities
Act, so long as the net proceeds (after application to the redemption of the
Holding Securities) of such offering (if it is completed) are contributed to, or
otherwise used for the benefit of, Holdings, or (viii) payments of principal and
interest on the Notes.
LIMITATION ON LIENS. Holdings will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or permit to exist any Lien on any
of its property or assets (including Capital Stock), whether owned on the date
of the Indenture or thereafter acquired, securing any obligation other than
Permitted Liens unless the obligations due under the Indenture and the Notes are
secured, on an equal and ratable basis (or on a senior basis, in the case of
Indebtedness subordinated in right of payment to the Notes), with the
obligations so secured.
COMMISSION REPORTS. Holdings shall file with the Trustee and provide
Noteholders, within 15 days after it files them with the Commission, copies of
its annual report and the information, documents and other reports which
Holdings is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act. Notwithstanding that Holdings may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, Holdings
shall file with the Commission (if then permissible) and, within 15 days after
such reports would be required to be filed, provide the Trustee and Noteholders
(at their addresses as set forth in the register of Notes) with the annual
reports and the information, documents and other reports which are specified in
Sections 13 and 15(d) of the Exchange Act. Holdings shall also comply with the
other provisions of TIA 314(a).
LIMITATION ON LINES OF BUSINESS. Holdings will not, and will not permit any
Restricted Subsidiary to, engage in any business, other than a Related Business.
OFFER TO REDEEM UPON REDEMPTION OF THE EXISTING PREFERRED STOCK. If either
(i) Carter's redeems the Existing Preferred Stock or (ii) Holdings sells the
Existing Preferred Stock, in either case prior to its Stated Maturity, Holding
shall either (I) exercise its legal or covenant defeasance option or (II)
initiate the redemption of the Notes within 60 days of the completion of such
transaction.
MERGER AND CONSOLIDATION. Holdings will not consolidate with or merge with
or into, or convey, transfer or lease all or substantially all its assets to,
any Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") is a corporation organized and existing under the laws of
the
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United States of America, any State thereof of the District of Columbia and the
Successor Company (if not Holdings) expressly assumes, by a supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of Holdings under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness that becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been Incurred by
the Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default will have occurred and be continuing; (iii) immediately
after giving effect of such transaction, the Successor Company would be able to
incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the
covenant described under "--Limitation on Indebtedness"; (iv) immediately after
giving effect to such transaction, the Successor Company will have Consolidated
Net Worth in an amount that is not less than the Consolidated Net Worth of
Holdings immediately prior to such transaction; and (v) Holdings will have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, Holdings under the Indenture, but the
predecessor Company in the case of a lease of all or substantially all its
assets will not be released from the obligation to pay the principal of and
interest on the Notes.
Notwithstanding the foregoing clauses (ii), (iii) and (v), (1) any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to Holdings and (2) Holdings may merge with an
Affiliate incorporated for the purpose of reincorporating Holdings in another
jurisdiction to realize tax or other benefits.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, (iii)
the failure by Holdings to comply with its payment obligations under the
covenants described under "--Change of Control" and "--Redemption" above, (iv)
the failure by Holdings to comply for 60 days after notice with its other
agreements contained in the Indenture, (v) the failure by Holdings or any
Significant Subsidiary to pay any Indebtedness within any applicable grace
period after final maturity or acceleration by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated exceeds
$20 million (the "cross acceleration provision"), (vi) certain events of
bankruptcy, insolvency or reorganization of Holdings or a Significant Subsidiary
(the "bankruptcy provisions"), or (vii) the rendering of any judgment or decree
for the payment or money in excess of $20 million against Holdings or a
Significant Subsidiary if (A) an enforcement proceeding thereon is commenced or
(B) such judgment or decree remains outstanding for a period of 60 days
following such judgment and is not discharged, waived or stayed (the "judgment
default provision"). However, a default under clauses (iv) and (vi) will not
constitute an Event of Default until the Trustee or the Holders of 25% in
principal amount of the outstanding Notes notify Holdings of the default and
Holdings does not cure such default within the time specified in clauses (iv)
and (vi) hereof after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the outstanding Notes by notice to
Holdings may declare the principal of and accrued but unpaid interest on all the
Notes to be due and payable. Upon such a declaration, such principal and
interest shall be due and payable immediately. If an Event of Default relating
to certain events of bankruptcy, insolvency or reorganization of Holdings occurs
and is continuing, the principal of and interest on all the Notes will become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. Under certain circumstances, the Holders of a
majority in principal amount of the outstanding Notes any rescind any such
acceleration with respect to the Notes and its consequences.
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Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
Holders or a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability. Prior
to taking any action under the Indenture, the Trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
no later than the date that is the earlier of 90 days after such default occurs
or 30 days after it is known to a trust officer or written notice is received by
the Trustee. Except in the case of a Default in the payment of principal of,
premium (if any) or interest on any Note, the Trustee may withhold notice if and
so long as a committee of its Trust officers in good faith determines that
withholding notice is in the interests of the Noteholders. In addition, Holdings
is required to deliver to the Trustee, within 120 days after the end of each
fiscal year, a certificate indicating whether the signers thereof know of any
Default that occurred during the previous year. Holdings also is required to
deliver to the Trustee, within 30 days after the occurrence thereof, written
notice of any event which would constitute certain Defaults, their status and
what action Holdings is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
and any past default or compliance with any provisions may be waived with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding. However, without the consent of each Holder of an outstanding Note
affected, no amendment may, among other things, (i) reduce the amount of Notes
whose Holders must consent to an amendment, (ii) reduce the rate of or extend
the time for payment of interest on any Note, (iii) reduce the principal of or
extend the Stated Maturity of any Note, (iv) reduce the premium payable upon the
redemption of any Note or change the time at which any Note may be redeemed as
described under "-- Optional Redemption" above, (v) make any Note payable in
money other than that stated in the Note, (vi) may any change to the
subordination provisions of the Indenture that adversely affects the rights of
any Holder, (vii) impair the right of any Holder to receive payment of principal
of and interest on such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes or (viii) make any change in the amendment provisions which
require each Holder's consent or in the waiver provisions.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
or any Note Guarantor under the Indenture or under any Note Guarantee,
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as the case may be, to provide for uncertificated Notes in addition to or in
place of certificated Notes (PROVIDED, HOWEVER, that the uncertificated Notes
are issued in registered form for purposes of Section 163(f) of the Code, or in
a manner such that the uncertificated Notes are described in Section
163(f)(2)(b) of the Code), to add Note Guarantees with respect to the Notes, to
secure the Notes, to add to the covenants of the Company for the benefit of the
Noteholders or to surrender any right or power conferred upon the Company, to
make any change that does not adversely affect the rights of any Holder or to
comply with any requirement of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act. However, no
amendment may be made to the subordination provisions of the Indenture that
adversely affects the rights of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or any group or
representative thereof authorized to give a consent) consent to such change.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
or other governmental charges required by law or permitted by the Indenture. The
Company is not required to transfer or exchange any Note selected for redemption
or repurchase or to transfer or exchange any Note for a period of 15 days prior
to a selection of Notes to be redeemed or repurchased. The Notes will be issued
in registered form and the registered holder of a Note will be treated as the
owner of such Note for all purposes.
DEFEASANCE
The Company and the Note Guarantors, if any, at any time may terminate all
their obligations under the Notes and the Note Guarantees and the Indenture
("legal defeasance"), except for certain obligations, including those respecting
the defeasance trust and obligations to register the transfer or exchange of the
Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a
registrar and paying agent in respect of the Notes. The Company at any time may
terminate its obligations under the covenants described under "--Certain
Covenants," the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Subsidiaries and the judgment default provision
described under "--Defaults" above and the limitations contained in clauses
(iii) and (iv) under "--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default under the provisions described in the last sentence of the
foregoing paragraph.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a
65
result of such deposit and defeasance and will be subject to Federal income tax
on the same amount and in the same manner and at the same times as would have
been the case if such deposit and defeasance had not occurred (and, in the case
of legal defeasance only, such Opinion of Counsel must be based on a ruling of
the Internal Revenue Service or other change in applicable Federal income tax
law).
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one or more permanent global Notes in definitive, fully registered form
without interest coupons (each, a "Global Note"). Upon issuance, each Global
Note will be deposited with the Trustee as custodian for, and registered in the
name of, a nominee of The Depository Trust Company ("DTC").
If a holder tendering Old Notes so requests, such holder's New Notes will be
issued as described below under "--Certificated Securities" in registered form
without coupons (the "Certificated Securities").
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants).
So long as DTC, or its nominee, is the registered owner or Holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or Holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture.
Payments of the principal of, premium, if any, and interest, on a Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. Neither the Company, the Trustee nor any Paying Agent will have
any responsibility or liability for any aspects of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, and interest in respect of a Global Note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by a
Holder of a Note only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such portion of the aggregate principal amount of a Note as to which such
participant or participants has or have given direction.
DTC has advised the Company that it is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act.
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DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants. Indirect access
to the DTC system is available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Note among participants of DTC, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository and the Company is unable to locate a
qualified successor within 90 days or (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by DTC of its Global
Note, Certificated Securities will be issued to each person that DTC identifies
as the beneficial owner of the New Notes represented by the Global Note. In
addition, any person having a beneficial interest in a Global Note or any holder
of Old Notes whose Old Notes have been accepted for exchange may, upon request
to the Trustee or the Exchange Agent, as the case may be, exchange such
beneficial interest or Old Notes for Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of such person or persons (or the nominee of any thereof), and cause
the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any participant or indirect participant in identifying the beneficial owners of
the related New Notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the New Notes to be issued).
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is to be the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
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GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other that
Indebtedness and Capital Stock of the acquiring person) to be used by Holdings
or a Restricted Subsidiary in a Related Business; (ii) the Capital Stock of a
Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by Holdings or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; PROVIDED, HOWEVER, that, in the case of clauses (ii)
and (iii), such Restricted Subsidiary is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any Person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purpose
of this definition as a "disposition") by Holdings or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction) other than: (i) a disposition by a Restricted Subsidiary to
Holdings or by Holdings or a Restricted Subsidiary to a Wholly Owned Subsidiary;
(ii) a disposition of property or assets in the ordinary course of business;
(iii) for purposes of the covenants described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition subject to the covenants described under "--Certain Covenants--
Limitation on Restricted Payments" and "--Merger and Consolidation"; (iv) leases
or subleases to third parties of real property owned in fee or leased by
Holdings or its Subsidiaries; (v) a disposition of a lease of real property; and
(vi) any disposition of property of Holdings or any of its Subsidiaries that, in
the reasonable judgment of Holdings, has become uneconomic, obsolete or worn
out.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Senior Credit Facility and the other Senior Credit Documents and the
Refinancing Indebtedness with respect thereto, as amended, supplemented or
otherwise modified from time to time, including increases in the principal
amount thereof permitted under the Indenture and including principal, premium
(if any), interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to Holdings whether or not
a claim for post filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of Holdings or any
committee thereof duly authorized to act on behalf of such Board.
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"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banking institutions (including, without limitation, the
Federal Reserve System) are authorized or required by law to close in New York
City.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Carter Subordinated Debt" or "Senior Subordinated Notes" means the 10 3/8%
Senior Subordinated Notes due 2006 of Carter's outstanding from time to time.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending prior to the date of such determination
to (ii) the Consolidated Interest Expense for such four fiscal quarters;
PROVIDED, HOWEVER, that (1) if Holdings or any Restricted Subsidiary (x) has
Incurred any Indebtedness (other than Indebtedness Incurred for working capital
purposes under a revolving credit facility) since the beginning of such period
that remains outstanding on such date of determination or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio is an
Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, or (y) has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of the period that is no longer outstanding on such date of
determination, or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio involves a discharge of Indebtedness, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect to such discharge of such Indebtedness, including with the proceeds of
such new Indebtedness, as if such discharge had occurred on the first day of
such period (except that, in making such computation, the amount of Indebtedness
under any revolving credit facility shall be computed based upon the average
daily balance of such Indebtedness during such four-quarter period); (2) if
since the beginning of such period Holdings or any Restricted Subsidiary shall
have made any Asset Disposition of a company, business or group of assets
comprising an operating unit, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period or increased by
an amount equal to the EBITDA (if negative) directly attributable thereto for
such period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of Holdings or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its continuing
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent Holdings and its continuing
Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if
since the beginning of such period Holdings or any Restricted Subsidiary (by
merger or otherwise) shall have made an Investment in any Restricted Subsidiary
(or any Person which becomes a Restricted Subsidiary) or an acquisition of
assets, including any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit of a business, EBITDA and
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Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto (including the Incurrence of any Indebtedness) as if
such Investment or acquisition occurred on the first day of such period and (4)
if since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into Holdings or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset
Disposition or any Investment or acquisition of assets that would have required
an adjustment pursuant to clause (2) or (3) above if made by Holdings or a
Restricted Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition of assets
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of Holdings. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term as at the date of determination in
excess of twelve months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of Holdings and its consolidated Subsidiaries, plus, to the extent
incurred by Holdings and its Subsidiaries in such period but not included in
such interest expense, (i) interest expense attributable to Capitalized Lease
Obligations, (ii) amortization of debt discount, (iii) capitalized interest,
(iv) noncash interest expense (excluding amortization of debt issuance costs,
commissions, and other fees and expenses), (v) commissions, discounts and other
fees and charges attributable to letters of credit and bankers' acceptance
financing, (vi) interest actually paid by Holdings or any such Subsidiary under
any Guarantee of Indebtedness or other obligation of any other Person, (vii) net
costs associated with Hedging Obligations (including amortization of fees), and
(viii) the product of (a) all Preferred Stock dividends in respect of all
Preferred Stock of Subsidiaries of Holdings (excluding the Existing Preferred
Stock) and Disqualified Stock of Holdings held by Persons other than Holdings or
a Wholly Owned Subsidiary multiplied by (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 Holdings, expressed as a decimal,
in each case, determined on a consolidated basis in accordance with GAAP;
PROVIDED, HOWEVER, that there shall be excluded therefrom any such interest
expense of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by Holdings or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income (loss) of
Holdings and its consolidated Subsidiaries before any reduction in respect of
Preferred Stock dividends plus, in each case, to the extent deducted in
determining net income for such period, any expenses incurred in connection with
the Acquisition (other than the amortization of the prepaid management fee)
including, without limitation, management bonuses and payments under the
management incentive and equity participation plans; PROVIDED, HOWEVER, that
there shall not be included in such Consolidated Net Income: (i) any net income
of any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the limitations contained in clause (iv) below, Holdings' equity in
the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Person during such period to Holdings or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in clause
(iv) below) and (B) Holdings' equity in a net loss of any such Person (other
than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income; (ii) any expense recognized (net of
tax benefits related thereto) as a consequence of payments permitted to be made
by Carter's under clauses (b)(vi))(B) of Section 4.04 of the Carter Subordinated
Debt indenture; (iii) any net income (loss) of any person acquired by Holdings
or a Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition; (iv) any net income (loss) of
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any Restricted Subsidiary if such Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to
Holdings, except that (A) subject to the limitations contained in (v) below,
Holdings' equity in the net income of any such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the aggregate
amount of cash that could have been distributed by such Restricted Subsidiary
during such period to Holdings or another Restricted Subsidiary as a dividend
(subject, in the case of a dividend that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause), (B)
Holdings' equity in a net loss of any such Restricted Subsidiary for such period
shall be included in determining such Consolidated Net Income, and (C) such
restrictions imposed on Carter's shall be disregarded for purposes of this
definition; (v) any gain or loss realized upon the sale or other disposition of
any asset of Holdings or its consolidated Subsidiaries (including pursuant to
any sale/ leaseback transaction) that is not sold or otherwise disposed of in
the ordinary course of business and any gain or loss realized upon the sale or
other disposition of any Capital Stock of any Person; (vi) any extraordinary or
non-recurring gain, loss or charge (together with any related provisions for
taxes on such extraordinary or non-recurring gain, loss or charge); and (vii)
the cumulative effect of a change in accounting principles (effected either
through cumulative effect adjustment or a retroactive application, in each case,
in accordance with GAAP).
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of Holdings and the Restricted Subsidiaries, determined on a consolidated
basis, as of the end of the most recent fiscal quarter of the Company ending
prior to the taking of any action for the purpose of which the determination is
being made, as (i) the par or stated value of all outstanding Capital Stock of
Holdings plus (ii) paid-in capital or capital surplus relating to such Capital
Stock plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit and (B) any amounts attributable to Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Date of this Indenture" means March 25, 1997.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, at the date of determination, has an
aggregate principal outstanding amount of, or under which, at the date of
determination, the holders thereof, are committed to lend up to, at least $10.0
million and is specifically designated by Holdings in the instrument evidencing
or governing such Senior Indebtedness as "Designated Senior Indebtedness" for
purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, 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 exercisable) or upon the happening of any
event (other than as a result of a Change of Control) (i) matures or is
mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii)
is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii)
is redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the first anniversary of the Stated Maturity of the Notes;
provided however that the currently authorized classes of Capital Stock of the
Company (as in effect on the Date of the Indenture and as amended from time to
time, including such amendments with respect to those matters set forth in
clauses (i), (ii) and (iii) above which will not have an adverse effect on the
Holders) shall not be Disqualified Stock.
"Domestic Subsidiary" means any Restricted Subsidiary of Holdings other than
a Foreign Subsidiary.
"EBITDA" means, for any period, the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) total income tax expense, (ii) Consolidated Interest Expense
together with amortization of debt issuance costs, commissions, and
71
other fees and expenses, (iii) depreciation expense, (iv) amortization expense,
including amortization of inventory write-up under APB 16, amortization of
intangibles (including, but not limited to, goodwill and the costs of Interest
Rate Agreements or Currency Agreements, license agreements and non-competition
agreements) and organization costs, (v) non-cash expenses related to the
amortization of prepaid management fees pursuant to certain agreements referred
to in the Indenture, (vi) costs of surety bonds in connection with financing
activities, (vii) non-cash amortization of Capitalized Lease Obligations, (viii)
franchise taxes, (ix) expenses recorded in historical periods through the
Acquisition Date related to the management incentive and equity participation
plans and allocation of "C" stock, (x) any other write-downs, write-offs,
minority interests and other non-cash charges in determining such Consolidated
Net Income for such period, and (xi) all extraordinary non-cash charges in
determining such Consolidated Net Income for such period; provided that the
impact of foreign currency translations shall be excluded.
"Existing Preferred Stock" means the 12% preferred stock of Carter's issued
and outstanding on the Date of the Indenture, and any extensions, refinancings,
renewals or replacements thereof (the "Refinancing Preferred Stock"); provided
that (i) the aggregate liquidation preference of such Refinancing Preferred
Stock does not exceed the aggregate liquidation preference of the Existing
Preferred Stock, (ii) the dividend rate per annum of such Refinancing Preferred
Stock does not exceed the dividend rate per annum of the Existing Preferred
Stock and (iii) the Refinancing Preferred Stock has a mandatory redemption date
no earlier than the Existing Preferred Stock.
"Foreign Subsidiary" means any Restricted Subsidiary of Holdings that is not
organized under the laws of the United States of America or any state thereof or
the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those 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 approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP as in effect as of the Issue Date.
"Government Authority" means any nation or government, any state or other
political subdivision thereof or any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name at the time of any
determination thereof a particular Note a Note is registered on the Note
Register.
"Holding Securities" means the $20.0 million aggregate principal amount of
senior subordinated notes of Holdings, as amended from time to time.
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"Holdings" means Carter Holdings, Inc., a Massachusetts corporation.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary.
"Indebtedness" means, with respect to any Person, the principal of and
premium, if any, on, any of the following (without duplication), whether
outstanding at the date hereof or hereafter incurred, created, assumed or
guarantied: (a) the principal of and premium (if any) in respect of indebtedness
of such Person for borrowed money; (b) the principal of and premium (if any) in
respect of all obligations of such Person evidenced by notes, debentures, bonds
or other similar instruments; (c) all obligations of such Person in respect of
letters of credit or other similar instruments (including reimbursement
obligations with respect thereto but excluding letters of credit supporting the
purchase of goods in the ordinary course of business and expiring no more than
six months from the date of issuance), (d) all obligations of such Person to pay
the deferred and unpaid purchase price of property or services (except Trade
Payables), which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services, (e) all Capitalized Lease Obligations of such
Person, (f) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of the Company, any Preferred Stock (other than the
Existing Preferred Stock) (but excluding, in each case, any accrued dividends),
(g) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person; provided,
however, that the amount of Indebtedness of such Person shall be the lesser of
(A) the fair market value of such asset at such date of determination and (B)
the amount of such Indebtedness of such other Persons, (h) all Indebtedness of
other Persons to the extent Guaranteed by such Person, and (i) to the extent not
otherwise included in this definition, Hedging Obligations of such Person.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person) or other extension
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments," (i) "Investment" shall include
the portion (proportionate to Holdings' equity interest in such Subsidiary) of
the fair market value of the net assets of any Subsidiary of Holdings at the
time that such Subsidiary is designated an Unrestricted Subsidiary; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes were originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Group" means the senior management of Carter's or Holdings.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or
73
otherwise, but only as and when received, but excluding any other consideration
received in the form of assumption by the acquiring person of Indebtedness or
other obligations relating to the properties or assets that are the subject of
such Asset Disposition or received in any other noncash form) therefrom, in each
case net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred (including legal, accounting and investment
banking fees and any relocation expenses incurred as a result of an Asset
Disposition), and all Federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law be
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Disposition and (iv)
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition and retained (including by way of indemnification
obligations) by Holdings or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock
or disposition of any Investment by Holdings or any Subsidiary, means the cash
proceeds of such issuance, sale or disposition net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
disposition of any commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance, sale or disposition and net of taxes
paid or payable as a result thereof.
"Officer" means the President, the Treasurer or the Clerk of Holdings.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman, the President or a Vice President and by the Treasurer,
an Assistant Treasurer, the Chief Financial Officer, the Clerk or an Assistant
Clerk of Holdings, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to
Carter's, Holdings or the Trustee.
"Permitted Holders" means Investcorp, its Affiliates, members of the
Management Group, the international investors who are initial holders of the
Capital Stock of Holdings and any Person acting in the capacity of an
underwriter in connection with a public or private offering of the Capital Stock
of Holdings or Carter's.
"Permitted Investment" means an Investment by Holdings or any Restricted
Subsidiary in (i) a Restricted Subsidiary, Holdings or a Person which will, upon
the making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Holdings or a Restricted Subsidiary; PROVIDED,
HOWEVER, that such Person's primary business is a Related Business; (iii)
Temporary Cash Investments; (iv) receivables owing to Holdings or any Restricted
Subsidiary, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; PROVIDED,
HOWEVER, that such trade terms may include such concessionary trade terms as
Holdings or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel, entertainment, relocation and similar
advances that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of Holdings or such Restricted Subsidiary; (vii) loans or
advances to employees (or guarantees of third party loans to employees) in an
aggregate amount not to exceed $5.0 million at any time outstanding; (viii)
stock, obligations or securities received in settlement of debts created in the
ordinary course of business and owing to Holdings or any Restricted Subsidiary
or in satisfaction of judgments; or (ix) securities received in connection with
an Asset Disposition.
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"Permitted Liens" means: (a) Liens securing Senior Indebtedness,
Indebtedness incurred pursuant to the Senior Credit Facility or Indebtedness of
a Subsidiary of Holdings permitted to be Incurred under the Indenture; (b) Liens
for taxes, assessments or other governmental charges not yet delinquent or that
are being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of Holdings or such
Restricted Subsidiary, as the case may be, in accordance with GAAP; (c)
carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business in respect of
obligations that are not yet due or that are bonded or that are being contested
in good faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of Holdings or such Restricted Subsidiary,
as the case may be, in accordance with GAAP; (d) pledges or deposits in
connection with workmen's compensation, unemployment insurance and other social
security legislation; (e) deposits to secure the performance of bids, tenders,
trade or government contracts (other than for borrowed money), leases, licenses,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business; (f)
easements (including reciprocal easement agreements), rights-of-way, building,
zoning and similar restrictions, utility agreements, covenants, reservations,
restrictions, encroachments, changes, and other similar encumbrances or title
defects incurred, or leases or subleases granted to others, in the ordinary
course of business, which do not in the aggregate materially detract from the
aggregate value of the properties of Holdings and its Subsidiaries, on the
properties subject thereto, taken as a whole; (g) Liens pursuant to the Senior
Credit Documents, Liens in connection with industrial revenue bonds, Liens
securing the Bank Indebtedness and bankers' Liens arising by operation of law;
(h) Liens on property of Holdings or any of its Restricted Subsidiaries created
solely for the purpose of securing Indebtedness permitted by clause (b)(iv) of
the covenant described under "--Certain Covenants--Limitation on Indebtedness"
or incurred in connection with Indebtedness permitted by clause (b)(vii)
thereof; PROVIDED, HOWEVER that, in the case of Liens described in such clause
(b)(iv), no such Lien shall extend to or cover other property of Holdings or
such Restricted Subsidiary other than the respective property so acquired, and
the principal amount of Indebtedness secured by any such Lien shall at no time
exceed the original purchase price of such property; (i) Liens existing on the
date of the Indenture; (j) Liens on goods (and the proceeds thereof) and
documents of title and the property covered thereby securing Indebtedness in
respect of commercial letters of credit; (k) (i) mortgages, liens, security
interests, restrictions, encumbrances or any other matters of record that have
been placed by any developer, landlord or other third party on property over
which Holdings or any Restricted Subsidiary of Holdings has easement rights or
on any real property leased by Holdings on the Issue Date and subordination or
similar agreements relating thereto and (ii) any condemnation or eminent domain
proceedings affecting any real property; (l) leases or subleases to third
parties; (m) Liens in connection with workmen's compensation obligations and
general liability exposure of Holdings and its Restricted Subsidiaries; (n)
Liens securing Indebtedness Incurred under clauses (a) or (b)(v) of the covenant
described under "--Certain Covenants--Limitation on Indebtedness" PROVIDED,
HOWEVER, that such Indebtedness is not subordinate or junior in ranking to the
Notes; and (o) Liens securing Indebtedness of any Subsidiary of Holdings to
Holdings or Carter's.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, or a government or any agency or
political subdivision thereof.
"Preferred Stock" as applied to the Capital Stock of any corporation means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note that is due or overdue or is to become due at the
relevant time.
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"Public Equity Offering" means an underwritten primary public offering of
common stock (or other voting stock) of Holdings or Carter's pursuant to an
effective registration statement (other than a registration statement on Form
S-4, S-8 or any successor or similar forms) under the Securities Act.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances," and "refinanced" shall have
a correlative meaning) any Indebtedness existing on the date of the Indenture or
Incurred in compliance with the Indenture (including Indebtedness of Holdings
that refinances Indebtedness of any Restricted Subsidiary (to the extent
permitted in the Indenture) and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including Indebtedness
that refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that (i) except in
the case of any refunding, refinancing, replacement, renewal, repayment or
extension of any Bank Indebtedness, the Refinancing Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the Indebtedness being
refinanced, (ii) except in the case of any refunding, refinancing, replacement,
renewal, repayment or extension of any Bank Indebtedness, the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being refinanced and (iii) such Refinancing Indebtedness is Incurred in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the sum of (A) the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being refinanced,
(B) in the case of revolving credit Indebtedness, the unused commitment
thereunder, plus (C) fees, underwriting discounts and other costs and expenses
incurred in connection with such Refinancing Indebtedness; PROVIDED FURTHER,
HOWEVER, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Restricted Subsidiary that refinances Indebtedness of Holdings or (y)
Indebtedness of Holdings or a Restricted Subsidiary that refinances Indebtedness
of an Unrestricted Subsidiary.
"Related Business" means those businesses in which Holdings or any of its
Subsidiaries are engaged on the date of the Indenture, or that are related
thereto.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of Holdings other than an
Unrestricted Subsidiary.
"Senior Credit Documents" means collectively, the Senior Credit Facility,
the notes issued pursuant thereto and the Guarantees thereof, and the Security
Agreements, the Mortgages and the Pledge Agreements (each as defined in the
Senior Credit Facility).
"Senior Credit Facility" means the credit facilities under the Credit
Agreement dated as of October 30, 1996, among Carter's, Chase Manhattan Bank, as
Administrative Agent for the lenders and the financial institutions which are
parties thereto from time to time, including all obligations of Holdings,
Carter's and its Subsidiaries to be incurred thereunder and any related notes,
collateral documents, letter of credit applications and guaranties, and any
increases, renewals, extensions, refundings, deferrals, restructurings,
amendments, modifications, replacements or refinancings of any of the foregoing
(whether provided by the original Administrative Agent, collateral agent and
lenders under such Credit Agreement or another Administrative Agent, collateral
agent or other lenders and whether or not provided under the original Credit
Agreement).
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of Holdings that specifically provides that such Indebtedness is to
rank PARI PASSU with the Notes or is not subordinated by its terms to any
Indebtedness or other obligation of Holdings that is not Senior Indebtedness.
"Significant Subsidiary" means, on any date, any Restricted Subsidiary of
Holdings that would be a "Significant Subsidiary" of Holdings within the meaning
of Rule 1-02 under Regulation S-X promulgated by the Commission.
76
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of Holdings (whether
outstanding on the date of the Indenture or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" with respect to any Person, means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) 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 (i) such Person or (ii) one or
more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency or
instrumentality thereof or obligations Guaranteed by the United States of
America or any agency or instrumentality thereof or in a money market mutual
fund registered under the Investment Company Act of 1940, the principal of which
is invested solely in such direct or Guaranteed obligations; (ii) investments in
time deposit accounts, certificates of deposit and money market deposits
maturing within 180 days of the date of acquisition thereof, bankers'
acceptances with maturities of 180 days or less and overnight bank deposits, in
each case with or issued by a bank or trust company that is organized under the
laws of the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and undivided
profits aggregating in excess of $300.0 million (or the foreign currency
equivalent thereof); (iii) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) or
(ii) above entered into with a bank meeting the qualifications described in
clause (ii) above; and (iv) investments in commercial paper, maturing not more
than six months after the date of acquisition, issued by any Lender (as defined
under the Senior Credit Facility) or the parent corporation of any Lender, and
commercial paper with a rating at the time as of which any investment therein is
made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1"
(or higher) according to Standard and Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Unrestricted Subsidiary" means (i) any Subsidiary of Holdings that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
Holdings (including any newly acquired or newly formed Subsidiary of Holdings)
to be an Unrestricted Subsidiary if (a) such Subsidiary or any of its
Subsidiaries does not own any Capital Stock or Indebtedness of, or own or hold
any Lien on any property of, Holdings or any other Subsidiary of Holdings that
is not a Subsidiary of the Subsidiary to be so designated; and (b) either (A)
the Subsidiary to be so designated has total consolidated assets of $1,000 or
less or (B) if such Subsidiary has consolidated assets greater than $1,000, then
such designation would be permitted under the provisions of the covenant
described under "--Certain Covenants--Limitations on Restricted Payments." The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such
designation (x) Holdings could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "--Certain Covenants--Limitation
on Indebtedness" and (y) no Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
77
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of Holdings all the
Capital Stock of which (other than directors' qualifying shares) is owned by
Holdings or another Wholly Owned Subsidiary.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of the material United States federal income tax
consequences of the Exchange Offer is for general information only. It is based
on the Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"), existing and proposed Treasury regulations, and judicial and
administrative determinations, all of which are subject to change at any time,
possibly on a retroactive basis. The following relates only to Old Notes, and
New Notes received therefor, that are held as "capital assets" within the
meaning of Section 1221 of the Code by persons who are citizens or residents of
the United States. It does not discuss state, local, or foreign tax
consequences, nor does it discuss tax consequences to categories of holders that
are subject to special rules, such as foreign persons, tax-exempt organizations,
insurance companies, banks, and dealers in stocks and securities. Tax
consequences may vary depending on the particular status of an investor. No
rulings will be sought from the Internal Revenue Service ("IRS") with respect to
the federal income tax consequences of the Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO PURCHASE THE NOTES.
EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING THE APPLICATION
OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS PARTICULAR SITUATION
BEFORE DETERMINING WHETHER TO PURCHASE THE NOTES.
THE EXCHANGE OFFER
In the opinion of Gibson, Dunn & Crutcher LLP, counsel to the Company, the
exchange of Old Notes for New Notes pursuant to the Exchange Offer will not
constitute a material modification of the terms of the Notes and, accordingly,
such exchange will not constitute an exchange for federal income tax purposes.
Accordingly, such exchange will have no federal income tax consequences to
holders of Notes, either those who exchange or those who do not, and each holder
of Notes will continue to be required to include interest on the Notes in its
gross income in accordance with its method of accounting for federal income tax
purposes and the Company intends, to the extent required, to take such position.
BACKUP WITHHOLDING
Under the Code, a holder of a Note may be subject, under certain
circumstances, to "backup withholding" at a 31% rate with respect to payments in
respect of interest thereon or the gross proceeds from the disposition thereof.
This withholding generally applies only if the holder (i) fails to furnish his
or her social security or other taxpayer identification number ("TIN") within a
reasonable time after request therefor, (ii) furnishes an incorrect TIN, (iii)
is notified by the IRS that he or she has failed to report properly payments of
interest and dividends and the IRS has notified the Company that he or she is
subject to backup withholding, or (iv) fails, under certain circumstances, to
provide a certified statement, signed
78
under penalty of perjury, that the TIN provided is his or her correct number and
that he or she is not subject to backup withholding. Any amount withheld from a
payment to a holder under the backup withholding rules is allowable as a credit
against such holder's federal income tax liability, provided that the required
information is furnished to the IRS. Corporations and certain other entities
described in the Code and Treasury regulations are exempt from such withholding
if their exempt status is properly established.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 90 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until
1998 (90 days after the date of this Prospectus), all dealers effecting
transactions in the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at 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
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the holders of the Old
Notes), other than commissions or concessions of any brokers or dealers, and
will indemnify the holders of the Old Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Gibson, Dunn & Crutcher LLP, New York, New York.
EXPERTS
The consolidated financial statements of The William Carter Company for the
fiscal year ended December 30, 1995 appearing in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of such firm as experts in auditing and
accounting.
79
The consolidated balance sheets of Carter Holdings, Inc. and its
subsidiaries as of January 3, 1998 and December 28, 1996, and the related
consolidated statements of operations, cash flows and changes in stockholders'
equity for the year ended January 3, 1998 and for the period from October 30,
1996 (inception) through December 28, 1996; and the consolidated statements of
operations, cash flows and changes in common stockholders' equity of The William
Carter Company and its subsidiaries for the Predecessor period from December 31,
1995 through October 29, 1996; included in this Prospectus, have been included
herein in reliance on the reports, which contain explanatory paragraphs
regarding the October 30, 1996 acquisition by Carter Holdings, Inc. of The
William Carter Company and the resultant change in controlling ownership of The
William Carter Company, of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
80
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
---------
CARTER HOLDINGS, INC.:
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets at April 4, 1998 (unaudited), January 3, 1998 and December 28, 1996............ F-3
Consolidated Statements of Operations for the three-month periods ended April 4, 1998 (unaudited) and March
29, 1997 (unaudited), for the fiscal year ended January 3, 1998 and for the period from October 30, 1996
(inception) through December 28, 1996.................................................................... F-4
Consolidated Statements of Cash Flows for the three-month periods ended April 4, 1998 (unaudited) and March
29, 1997 (unaudited), for the fiscal year ended January 3, 1998 and for the period from October 30, 1996
(inception) through December 28, 1996.................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the three-month periods ended April 4, 1998
(unaudited) and March 29, 1997 (unaudited), for the fiscal year ended January 3, 1998 and for the period
from October 30, 1996 (inception) through December 28, 1996.............................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
THE WILLIAM CARTER COMPANY ("PREDECESSOR"):
Report of Independent Accountants.......................................................................... F-24
Consolidated Statement of Operations for the period from December 31, 1995 through October 29, 1996........ F-25
Consolidated Statement of Cash Flows for the period from December 31, 1995 through October 29, 1996........ F-26
Consolidated Statement of Changes in Common Stockholders' Equity for the period from December 31, 1995
through October 29, 1996................................................................................. F-27
Notes to Consolidated Financial Statements................................................................. F-28
Report of Independent Accountants.......................................................................... F-33
Consolidated Statement of Income for the fiscal year ended December 30, 1995............................... F-34
Consolidated Statement of Cash Flows for the fiscal year ended December 30, 1995........................... F-35
Consolidated Statement of Changes in Stockholders' Equity for the fiscal year ended December 30, 1995...... F-36
Notes to Consolidated Financial Statements................................................................. F-37
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Carter Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Carter
Holdings, Inc. and its subsidiaries (the "Company") as of January 3, 1998 and
December 28, 1996 and the related consolidated statements of operations, cash
flows and changes in stockholders' equity for the year ended January 3, 1998 and
the period from October 30, 1996 (inception) through December 28, 1996. 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.
As explained in Note 1 to the financial statements, Carter Holdings, Inc.
was organized on behalf of affiliates of INVESTCORP S.A., management of The
William Carter Company and certain other investors, to acquire, on October 30,
1996, 100% of the previously outstanding Common and Preferred Stock of The
William Carter Company from former owners.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Carter
Holdings, Inc. and its subsidiaries as of January 3, 1998 and December 28, 1996,
and the consolidated results of their operations and their cash flows for the
year ended January 3, 1998 and the period from October 30, 1996 (inception)
through December 28, 1996 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Stamford, Connecticut
March 27, 1998
F-2
CARTER HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JANUARY 3, DECEMBER 28,
1998 1996
APRIL 4, ----------- -------------
1998
-----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 5,126 $ 4,259 $ 1,961
Accounts receivable, net of allowance for doubtful accounts of $2,354 in
1998 (unaudited), $2,374 in 1997 and $2,691 in 1996...................... 26,858 30,134 19,259
Inventories................................................................ 102,589 87,639 76,540
Prepaid expenses and other current assets.................................. 3,508 3,390 6,378
Deferred income taxes...................................................... 13,681 13,630 14,663
----------- ----------- -------------
Total current assets................................................... 151,762 139,052 118,801
Property, plant and equipment, net............................................. 51,992 53,011 48,221
Tradename, net................................................................. 96,458 97,083 99,583
Cost in excess of fair value of net assets acquired, net....................... 31,205 31,445 38,363
Deferred debt issuance costs, net.............................................. 9,551 9,926 10,784
Other assets................................................................... 3,735 4,048 5,284
----------- ----------- -------------
Total assets........................................................... $ 344,703 $ 334,565 $ 321,036
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt......................................... $ 900 $ 900 $ 900
Accounts payable............................................................. 17,579 14,582 14,593
Other current liabilities.................................................... 35,896 35,196 32,755
----------- ----------- -------------
Total current liabilities.............................................. 54,375 50,678 48,248
Long-term debt............................................................... 184,700 176,200 164,100
Deferred income taxes........................................................ 39,767 39,777 40,861
Other long-term liabilities.................................................. 9,990 9,990 10,178
----------- ----------- -------------
Total liabilities...................................................... 288,832 276,645 263,387
----------- ----------- -------------
Commitments and contingencies
Stockholders' equity:
Class A Stock, nonvoting; par value $.01 per share; 775,000 shares
authorized; 752,808 shares issued and outstanding; liquidation value of
$.001 per share............................................................ 45,168 45,168 45,168
Class C Stock, nonvoting; par value $.01 per share; 500,000 shares
authorized; 242,192 shares issued at April 4, 1998 (unaudited) and January
3, 1998, 242,192 shares issued and outstanding at December 28, 1996;
liquidation value of $.001 per share....................................... 14,532 14,532 14,532
Class C Treasury Stock, 20,998 shares at cost at April 4, 1998 (unaudited),
19,709 shares at cost at January 3, 1998................................... (1,260) (1,183) --
Class D Stock, voting; par value $.01 per share; 5,000 shares authorized,
issued and outstanding..................................................... 300 300 300
Common Stock, voting; par value $.01 per share; 1,280,000 shares authorized;
none issued or outstanding................................................. -- -- --
Accumulated deficit.......................................................... (2,869) (897) (2,351)
----------- ----------- -------------
Total stockholders' equity................................................... 55,871 57,920 57,649
----------- ----------- -------------
Total liabilities and stockholders' equity............................. $ 344,703 $ 334,565 $ 321,036
----------- ----------- -------------
----------- ----------- -------------
The accompanying notes are an integral part of the consolidated financial
statements
F-3
CARTER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
FOR THE PERIOD
FOR THE FROM OCTOBER 30,
YEAR ENDED 1996 (INCEPTION)
JANUARY 3, THROUGH
1998 DECEMBER 28, 1996
FOR THE THREE MONTHS -------------- -----------------
ENDED
------------------------
MARCH 29,
APRIL 4, 1997
1998 -----------
----------- (UNAUDITED)
(UNAUDITED)
Net sales.......................................... $ 85,144 $ 75,201 $ 362,954 $ 51,496
Cost of goods sold................................. 54,509 47,809 228,358 31,708
----------- ----------- -------------- -------
Gross profit....................................... 30,635 27,392 134,596 19,788
Selling, general and administrative................ 29,375 26,382 111,505 16,672
----------- ----------- -------------- -------
Operating income................................... 1,260 1,010 23,091 3,116
Interest expense................................... 5,132 4,681 20,246 3,065
----------- ----------- -------------- -------
Income (loss) before income taxes and extraordinary
item............................................. (3,872) (3,671) 2,845 51
Provision for (benefit from) income taxes.......... (1,900) (1,795) 1,391 51
----------- ----------- -------------- -------
Income (loss) before extraordinary item............ (1,972) (1,876) 1,454 --
Extraordinary item, net of income tax benefit of
$1,270........................................... -- -- -- 2,351
----------- ----------- -------------- -------
Net income (loss).................................. $ (1,972) $ (1,876) $ 1,454 $ (2,351)
----------- ----------- -------------- -------
----------- ----------- -------------- -------
The accompanying notes are an integral part of the consolidated financial
statements
F-4
CARTER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE PERIOD
FROM
OCTOBER 30,
1996
FOR THE (INCEPTION)
YEAR ENDED THROUGH
JANUARY 3, DECEMBER 28,
1998 1996
FOR THE THREE MONTHS ----------- ---------------
ENDED
------------------------
MARCH 29,
APRIL 4, 1997
1998 -----------
----------- (UNAUDITED)
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)........................................ $ (1,972) $ (1,876) $ 1,454 $ (2,351)
Extraordinary loss, net of taxes......................... -- -- -- 2,351
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 4,173 3,762 15,342 2,622
Loss on disposal of fixed assets....................... -- -- 153 --
Deferred tax (benefit) provision....................... (61) 126 311 51
Effect of changes in operating assets and liabilities:
(Increase) decrease in accounts receivable........... 3,276 (1,896) (10,875) 7,975
Increase in inventories.............................. (14,950) (6,055) (7,047) (704)
Decrease (increase) in prepaid expenses and other
assets............................................. (142) 1,398 2,876 (4,432)
(Decrease) increase in accounts payable and other
liabilities........................................ 3,203 2,320 (409) 1,583
Other................................................ -- -- (163) --
----------- ----------- ----------- ---------------
Net cash (used in) provided by operating
activities....................................... (6,473) (2,221) 1,642 7,095
----------- ----------- ----------- ---------------
Cash flows from investing activities:
Proceeds from sale of fixed assets....................... 3 11 48 --
Capital expenditures..................................... (1,580) (1,027) (14,013) (3,749)
Payment to Sellers for the Acquisition, net of $3,830 of
cash received from the Predessor....................... -- -- -- (117,773)
Payments of Acquisition costs............................ -- -- -- (21,705)
----------- ----------- ----------- ---------------
Net cash used in investing activities.............. (1,577) (1,016) (13,965) (143,227)
----------- ----------- ----------- ---------------
Cash flows from financing activities:
Proceeds from revolving line of credit................... 36,000 19,000 107,000 6,100
Payments of revolving line of credit..................... (27,500) (17,000) (94,000) (6,100)
Proceeds from issuance of Holdings 12% Senior
Subordinated Notes..................................... -- -- -- 20,000
Proceeds from other debt................................. -- -- -- 240,000
Payments of other debt................................... -- -- (900) (95,000)
Payments of Predecessor debt............................. -- -- -- (68,062)
Payment of Predecessor accrued interest.................. -- -- -- (1,059)
Payments of financing costs.............................. -- -- (650) (14,632)
Proceeds from issuance of Class A stock.................. -- -- -- 45,168
Proceeds from issuance of Class C stock.................. -- -- -- 14,532
Proceeds from issuance of Class D stock.................. -- -- -- 300
Repurchase of capital stock.............................. (137) -- (1,183) --
Proceeds from sale of Class C Treasury stock............. 60 -- -- --
Payment of Predecessor preferred stock dividends......... -- -- -- (2,747)
Payment of Predecessor's guaranteed yield dividend on
common stock........................................... -- -- -- (4,237)
Other.................................................... 494 -- 4,354 --
----------- ----------- ----------- ---------------
Net cash provided by financing activities.......... 8,917 2,000 14,621 134,263
----------- ----------- ----------- ---------------
Net increase (decrease) in cash and cash equivalents....... 867 (1,237) 2,298 (1,869)
Cash and cash equivalents at beginning of period........... 4,259 1,961 1,961 3,830
----------- ----------- ----------- ---------------
Cash and cash equivalents at end of period................. $ 5,126 $ 724 $ 4,259 $ 1,961
----------- ----------- ----------- ---------------
----------- ----------- ----------- ---------------
The accompanying notes are an integral part of the consolidated financial
statements
F-5
CARTER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
CLASS C
COMMON CLASS A CLASS C TREASURY CLASS D ACCUMULATED
STOCK STOCK STOCK STOCK STOCK DEFICIT
----------- --------- --------- --------- ----------- ------------
BALANCE AT OCTOBER 30, 1996 (INCEPTION)............ $ -- $ -- $ --
Issuance of Class A Stock (752,808 shares)....... $ 45,168
Issuance of Class C Stock (242,192 shares)....... $ 14,532
Issuance of Class D Stock (5,000 shares)......... $ 300
Net loss......................................... (2,351)
----------- --------- --------- --------- ----- ------------
BALANCE AT DECEMBER 28, 1996....................... -- 45,168 14,532 -- 300 (2,351)
Purchase of Class C Treasury Stock (19,709
shares)........................................ (1,183)
Net income....................................... 1,454
----------- --------- --------- --------- ----- ------------
BALANCE AT JANUARY 3, 1998......................... -- 45,168 14,532 (1,183) 300 (897)
Sale of Class C Treasury Stock (1,000 shares)
(unaudited).................................... 60
Purchase of Class C Treasury Stock (2,289 shares)
(unaudited).................................... (137)
Net loss (unaudited)............................. (1,972)
----------- --------- --------- --------- ----- ------------
BALANCE AT APRIL 4, 1998 (UNAUDITED)............... $ -- $ 45,168 $ 14,532 $ (1,260) $ 300 $ (2,869)
----------- --------- --------- --------- ----- ------------
----------- --------- --------- --------- ----- ------------
The accompanying notes are an integral part of the consolidated financial
statements
F-6
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 1--THE COMPANY:
Carter Holdings, Inc. ("Holdings") is a holding company whose primary asset
consists of an investment in 100% of the outstanding capital stock of The
William Carter Company, Inc. ("Carter's"). On October 30, 1996, Holdings,
organized on behalf of affiliates of INVESTCORP S.A. ("Investcorp"), management
and certain other investors, acquired 100% of the previously outstanding Common
and Preferred Stock of Carter's from MBL Life Assurance Corporation, CHC
Charitable Irrevocable Trust and certain management stockholders (collectively,
the "Sellers"). Financing for the Acquisition totaled $226.1 million and was
provided by (i) $56.1 million borrowings under a $100.0 million Senior Credit
Facility; (ii) $90.0 million of borrowings under a Subordinated Loan Facility;
(iii) $70.9 million of capital invested by affiliates of Investcorp and certain
other investors in Holdings, which included $20.0 million in proceeds from
issuance of Holdings 12% Senior Subordinated Notes used to make a $20.0 million
investment by Holdings in Carter's newly issued redeemable preferred stock; and
(iv) issuance of non-voting stock of Holdings valued at $9.1 million to certain
members of management.
In addition to purchasing or exchanging and retiring the previously issued
capital stock of Carter's, the proceeds of the Acquisition and financing were
used to make certain contractual payments to management ($11.3 million), pay for
costs of the transactions ($20.9 million), and to retire all outstanding
balances on Carter's previously outstanding long-term debt along with accrued
interest thereon ($69.1 million). In November 1996, Carter's offered and sold in
a private placement $100 million of Subordinated Notes, the net proceeds of
which were used to retire the $90 million of Subordinated Loan Facility
borrowings and $5 million of borrowings under the Senior Credit Facility.
For purposes of identification and description, Carter's is referred to as
the "Predecessor" for the period prior to the Acquisition, the "Successor" for
the period subsequent to the Acquisition and Carter's for both periods.
The Acquisition was accounted for by the purchase method. Accordingly, the
assets and liabilities of the Predecessor were adjusted, at the Acquisition
date, to reflect the allocation of the purchase price based
F-7
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 1--THE COMPANY: (CONTINUED)
on estimated fair values. A summary of the purchase price allocation, at the
Acquisition date, is as follows ($000):
Total financed purchase price..................................................... $ 226,100
----------
----------
Allocated to:
Cash and cash equivalents......................................................... $ 3,830
Accounts receivable, net.......................................................... 27,234
Inventories....................................................................... 75,836
Prepaid expenses and other assets................................................. 5,999
Property, plant and equipment, net................................................ 46,081
Tradename......................................................................... 100,000
Cost in excess of fair value...................................................... 38,522
Deferred debt issuance costs...................................................... 8,283
Accounts payable.................................................................. (13,393)
Other current liabilities......................................................... (32,882)
Other long-term liabilities....................................................... (9,590)
Net deferred taxes................................................................ (26,020)
Preferred stock issuance costs.................................................... 2,200
----------
$ 226,100
----------
----------
In fiscal 1997, certain revisions to the preceding estimates were made, as
follows ($000):
Inventories......................................................................... $ 4,052
Cost in excess of fair value........................................................ (5,956)
Net deferred taxes.................................................................. 201
Other current liabilities........................................................... 1,703
While actual results may differ from these revised estimates, such
differences are not expected to be material.
A $14.9 million portion of the purchase price was applied to pay certain
Predecessor dividends and expenses during the period ended December 28, 1996.
This consisted of $2.8 million and $4.2 million, respectively, in dividends
triggered on the Predecessor's Preferred and Common Stock, plus portions of
compensation-related charges ($5.1 million) and other expense charges ($2.8
million) of the Predecessor incurred in connection with the Acquisition and
expensed by the Predecessor.
The following unaudited pro forma statement of operations presents the
results of operations of Holdings and its subsidiaries for the fiscal year ended
December 28, 1996 as though the controlling ownership of the Predecessor had
been acquired on December 31, 1995, with financing established through the
private placement, and assumes that there were no other changes in the
operations of the Predecessor. The pro forma results are not necessarily
indicative of the financial results that might have occurred had
F-8
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 1--THE COMPANY: (CONTINUED)
the transaction included in the pro forma statement actually taken place on
December 31, 1995, or of future results of operations ($000).
PERIOD FROM
OCTOBER 30,
PREDECESSOR 1996
PERIOD (INCEPTION)
FROM DECEMBER 31, THROUGH PRO FORMA FOR
1995 THROUGH DECEMBER 28, PRO FORMA THE YEAR ENDED
OCTOBER 29, 1996 1996 ADJUSTMENTS DECEMBER 28, 1996
----------------- ------------ ----------- -----------------
Net sales...................................... $ 266,739 $ 51,496 $ -- $ 318,235
-------- ------------ ----------- --------
Gross profit................................... 96,712 19,788 (282)(a) 116,218
Selling, general and administrative............ 79,296 16,672 3,519(b) 99,487
Nonrecurring charge............................ 8,834 -- (8,834)(c) --
-------- ------------ ----------- --------
Operating income............................... 8,582 3,116 5,033 16,731
Interest expense............................... 7,075 3,065 9,847(d) 19,987
-------- ------------ ----------- --------
Income (loss) before income taxes and
extraordinary item........................... 1,507 51 (4,814) (3,256)
Provision (benefit) for income taxes........... 1,885 51 (2,918)(e) (982)
-------- ------------ ----------- --------
Income (loss) before extraordinary item........ (378) -- (1,896) (2,274)
Extraordinary item, net........................ -- 2,351 (2,351)(f) --
-------- ------------ ----------- --------
Net income (loss).............................. $ (378) $ (2,351) $ 455 $ (2,274)
-------- ------------ ----------- --------
-------- ------------ ----------- --------
Pro forma adjustments represent: (a) increase in depreciation expenses
relating to revaluation of property, plant and equipment; (b) amortization of
tradename and cost in excess of fair value of net assets acquired; decrease to
periodic expense for postretirement benefits; and management fee expense in
accordance with the terms of Carter's new management agreement with an affiliate
of Investcorp; (c) elimination of nonrecurring charges directly related to the
transactions; (d) increases in interest expense resulting from the change in
debt structure; (e) income tax effects of pro forma adjustments; and (f)
elimination of extraordinary charges directly related to the transactions.
NOTE 2--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Carter's is a United States based manufacturer and marketer of premier
branded childrenswear under the Carter's and Baby Dior labels. Carter's
manufactures its products in plants located in the southern United States, Costa
Rica, the Dominican Republic and Mexico. Products are manufactured for wholesale
distribution to major domestic retailers and for the Carter's 138 retail outlet
stores that market its brand name merchandise and certain products manufactured
by other companies. The retail operations represent approximately 40% of
consolidated net sales.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Holdings,
Carter's and Carter's wholly-owned subsidiaries (all together, the "Company").
These additional subsidiaries consist of facilities in Costa Rica, the Dominican
Republic and, added in fiscal 1997, Mexico. These non-U.S. facilities represent
F-9
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 2--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
approximately 47% of the Company's sewing production. Total net assets
(primarily property, plant and equipment and inventory) at the offshore
facilities were approximately $10.4 million at January 3, 1998. All intercompany
transactions and balances have been eliminated in consolidation.
INTERIM RESULTS:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of the Company contain all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial position of the Company as of April 4, 1998, and the results of
its operations and cash flows for the three-month periods ended April 4, 1998
and March 29, 1997. Operating results for the three months ended April 4, 1998
are not necessarily indicative of the results that may be expected for the
fiscal year ending January 2, 1999.
FISCAL YEAR:
The Company's fiscal year ends on the Saturday in December or January
nearest the last day of December. The accompanying consolidated financial
statements reflect the Company's financial position as of January 3, 1998 and
December 28, 1996 and results of operations for the year ended January 3, 1998
and the period from October 30, 1996 (inception) through December 28, 1996. The
fiscal year ended January 3, 1998 (fiscal 1997) contains 53 weeks, and the
fiscal 1996 period from October 30, 1996 (inception) through December 28, 1996
contains nine weeks. The Company's quarter ends on the nearest Saturday to the
calendar month end.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments that have original
maturities of three months or less to be cash equivalents. The Company had cash
concentrations, in excess of deposit insurance limits, in six banks at both
January 3, 1998 and December 28, 1996.
ACCOUNTS RECEIVABLE:
Approximately 71% of the Company's gross accounts receivable at April 4,
1998 and 69% and 75% at January 3, 1998 and December 28, 1996, respectively,
were from its ten largest wholesale customers, primarily major retailers. Of
these customers, three have individual receivable balances in excess of 10% but
not more than 16% of gross accounts receivable. Sales to these customers
represent comparable percentages to total wholesale revenues.
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out basis for
wholesale inventories and retail method for retail inventories) or market.
F-10
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 2--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. When fixed assets are sold
or otherwise disposed, the accounts are relieved of the original costs of the
assets and the related accumulated depreciation and any resulting profit or loss
is credited or charged to income. For financial reporting purposes, depreciation
is computed on the straight-line method over the estimated useful lives of the
assets as follows: buildings-- 15 to 50 years; and machinery and equipment--3 to
10 years. Leasehold improvements are amortized over the lesser of the asset life
or related lease term.
TRADENAME AND COST IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED:
Cost in excess of fair value of net assets acquired ("goodwill") represents
the excess of the cost of the Acquisition over the fair value of the net assets
acquired. At each balance sheet date, management determines whether there has
been a permanent impairment in the value of the tradename and goodwill by
comparing anticipated undiscounted future cash flows from operating activities
with the carrying value of these intangibles. The amount of any resulting
impairment will be calculated using the present value of the same cash flows
from operating activities. The factors considered in this assessment will
include operating results, trends and prospects, as well as the effects of
demand, competition and other economic factors.
The tradename and goodwill are each being amortized on a straight-line basis
over their estimated lives of 40 years. Accumulated amortization of the
tradename at April 4, 1998, January 3, 1998 and December 28, 1996 was
$3,542,000, $2,917,000 and $417,000, respectively. Accumulated amortization of
goodwill at April 4, 1998, January 3, 1998 and December 28, 1996 was $1,361,000,
$1,121,000 and $159,000, respectively.
DEFERRED DEBT ISSUANCE COSTS:
Debt issuance costs are deferred and amortized to interest expense using the
straight line method, which approximates the effective interest method, over the
lives of the related debt. Amortization approximated $320,000 and $304,000 for
the three-month periods ended April 4, 1998 and March 29, 1997, respectively,
and $1,507,000 and $208,000 for the year ended January 3, 1998 and the period
ended December 28, 1996, respectively. An extraordinary item for the period from
October 30, 1996 through December 28, 1996 reflects the write-off of $3.4
million and $0.2 million of deferred debt issuance costs related to the $90.0
million Subordinated Loan Facility and portion of the Senior Credit Facility,
respectively, repaid with the proceeds of the $100.0 million Senior Subordinated
Notes in November 1996, net of income tax effects.
STOCK-BASED EMPLOYEE COMPENSATION ARRANGEMENTS:
The Company accounts for stock-based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS
123") was adopted in 1996 for disclosure purposes only (See Note 8).
F-11
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 2--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
INCOME TAXES:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). In accordance with SFAS 109, the deferred tax provision is determined
under the liability method. Deferred tax assets and liabilities are recognized
based on differences between the book and tax bases of assets and liabilities
using presently enacted tax rates. Valuation allowances are established when it
is more likely than not that a deferred tax asset will not be recovered. The
provision for income taxes is generally the sum of the amount of income taxes
paid or payable for the year as determined by applying the provisions of enacted
tax laws to the taxable income for that year; the net change during the year in
the Company's deferred tax assets and liabilities; and the net change during the
year in any valuation allowances.
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid in cash approximated $1,725,000 and $926,000 for the
three-month periods ended April 4, 1998 and March 29, 1997 and $18,730,000 and
$2,463,000 for the year ended January 3, 1998 and the period ended December 28,
1996, respectively. Income tax refunds received in cash approximated $900,000
and $771,000 for the year ended January 3, 1998 and the period ended December
28, 1996, respectively.
USE OF ESTIMATES IN THE PREPARATION OF THE CONSOLIDATED FINANCIAL
STATEMENTS:
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management of the Company
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures 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.
NEW ACCOUNTING STANDARDS:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), which establishes
standards for reporting information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. SFAS 131 is effective for
fiscal years beginning after December 15, 1997. In February 1998, the FASB
issued Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"),
which revises employers' disclosures about pension and other postretirement
benefit plans. SFAS 132 does not change the measurement or recognition of those
plans. SFAS 132 is effective for fiscal years beginning after December 15, 1997.
The Company is currently evaluating the impact of the new statements on its end
of year 1998 disclosures.
F-12
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 3--INVENTORIES:
Inventories consisted of the following ($000):
APRIL 4, JANUARY 3, DECEMBER 28,
1998 1998 1996
---------- ----------- ------------
Finished goods............................................................. $ 62,077 $ 50,026 $ 51,700
Work in process............................................................ 27,222 24,069 15,884
Raw materials and supplies................................................. 13,290 13,544 8,956
---------- ----------- ------------
$ 102,589 $ 87,639 $ 76,540
---------- ----------- ------------
---------- ----------- ------------
NOTE 4--FIXED ASSETS:
Fixed assets consisted of the following ($000):
APRIL 4, JANUARY 3, DECEMBER 28,
1998 1998 1996
---------- ----------- ------------
Land, buildings and improvements........................................... $ 14,693 $ 14,526 $ 12,679
Machinery and equipment.................................................... 50,487 49,077 37,155
---------- ----------- ------------
65,180 63,603 49,834
Accumulated depreciation and amortization.................................. (13,188) (10,592) (1,613)
---------- ----------- ------------
$ 51,992 $ 53,011 $ 48,221
---------- ----------- ------------
---------- ----------- ------------
Depreciation expense ($000) was $2,596 and $2,199 for the three-month
periods ended April 4, 1998, and March 29, 1997, respectively, and $9,023 for
the year ended January 3, 1998 and $1,613 for the period ended December 28,
1996.
NOTE 5--LONG-TERM DEBT:
Long-term debt consisted of the following ($000):
APRIL 4, JANUARY 3, DECEMBER 28,
1998 1998 1996
---------- ---------- ------------
Senior Credit Facility term loan........................................... $ 44,100 $ 44,100 $ 45,000
Senior Credit Facility revolving credit.................................... 21,500 13,000 --
10 3/8% Series A Senior Subordinated Notes due 2006........................ 100,000 100,000 100,000
12% Senior Subordinated Notes due 2008..................................... 20,000 20,000 20,000
---------- ---------- ------------
185,600 177,100 165,000
Current maturities......................................................... (900) (900) (900)
---------- ---------- ------------
$ 184,700 $ 176,200 $ 164,100
---------- ---------- ------------
---------- ---------- ------------
The Senior Credit Facility provides for a $50.0 million Tranche B term loan
facility. The Tranche B term loans have a final scheduled maturity date of
October 31, 2003. The principal amounts of the Tranche B term loans are required
to be repaid in 14 consecutive semi-annual installments totaling $0.9 million in
F-13
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 5--LONG-TERM DEBT: (CONTINUED)
each of fiscal years 1997 through 2000, $5.4 million in fiscal year 2001, $13.5
million in fiscal year 2002 and $22.5 million in fiscal year 2003. In November
1996, proceeds of the 10 3/8% Senior Subordinated Notes were used to repay $5.0
million of the term loan. The repayment schedule has been adjusted ratably for
this payment.
The Senior Credit Facility also provides for a $50.0 million revolving
credit facility. The revolving credit facility will expire on the earlier of (a)
October 31, 2001 or (b) such other date as the revolving credit commitments
thereunder shall terminate in accordance with the terms of the Senior Credit
Facility. There is no scheduled interim amortization of principal. The facility
has a sublimit of $10.0 million for letters of credit of which $5.8 million and
$4.3 million was used for letters of credit as of April 4, 1998 and January 3,
1998, respectively. A commitment fee of 1/2 of 1% per annum is charged on the
unused portion of the revolving credit facility.
Borrowings under the Senior Credit Facility accrue interest at either the
Alternate Base Rate (the "Alternate Base Rate") or an adjusted Eurodollar Rate
(the "Eurodollar Rate"), at the option of the Company, plus the applicable
interest margin. The Alternate Base Rate at any time is determined to be the
highest of (i) the Federal Effective Funds Rate plus 1/2 of 1% per annum, (ii)
the Base CD Rate plus 1% per annum and (iii) The Chase Manhattan Bank's Prime
Rate. The applicable interest margin with respect to loans made under the
revolving credit facility is 2.50% per annum with respect to loans that accrue
interest at the Eurodollar Rate and 1.50% per annum for loans that accrue
interest at the Alternate Base Rate. The applicable interest margin with respect
to Tranche B term loans is 3.00% per annum for loans that accrue interest at the
Eurodollar Rate and 2.00% per annum for loans that accrue interest at the
Alternate Base Rate. The effective interest rate on borrowings outstanding at
April 4, 1998, January 3, 1998 and December 28, 1996 was 10.1%. Interest on the
Senior Credit Facility is payable quarterly.
The Senior Credit Facility requires that upon a public offering by Holdings
or any subsidiary of Holdings of its common or other voting stock, 50% of the
net proceeds from such offering (only after satisfaction of certain specified
obligations) is required to be applied toward the prepayment of indebtedness
under the Senior Credit Facility. Upon the incurrence of any additional
indebtedness (other than indebtedness permitted under the Senior Credit
Facility), or upon the receipt of proceeds from certain asset sales and
exchanges, 100% of the net proceeds from such incurrence, sale or exchange is
required to be applied. In addition, the Senior Credit Facility requires that
either 75% or 50% (depending on certain circumstances) of Excess Cash Flow (as
defined in the Senior Credit Facility) is required to be applied toward the
prepayment of indebtedness under the Senior Credit Facility. Such prepayments
are required to be so applied first to the prepayment of the term loans and
second to reduce permanently the revolving credit commitments. Subject to
certain conditions, the Company may, from time to time, make optional
prepayments of loans without premium or penalty.
The loans are collateralized by a first priority interest in substantially
all the personal property and certain real property of Carter's and a pledge of
all the issued and outstanding stock of Carter's, as well as 65% of the issued
and outstanding stock of Carter's foreign subsidiaries.
The Senior Credit Facility imposes certain covenants, requirements, and
restrictions on actions by Carter's and its subsidiaries that, among other
things, restrict: (i) the incurrence and existence of indebtedness; (ii)
consolidations, mergers and sales of assets; (iii) the incurrence and existence
of liens or other encumbrances; (iv) the incurrence and existence of contingent
obligations; (v) the payment of
F-14
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 5--LONG-TERM DEBT: (CONTINUED)
dividends and repurchases of common stock; (vi)prepayments and amendments of
certain subordinated debt instruments and equity; (vii) investments, loans and
advances; (viii) capital expenditures; (ix) changes in fiscal year; (x) certain
transactions with affiliates; and (xi) changes in lines of business. In
addition, the Senior Credit Facility requires that Carter's comply with
specified financial ratios and tests, including minimum cash flow, a maximum
ratio of indebtedness to cash flow and a minimum interest coverage ratio.
The 10 3/8% Senior Subordinated Notes were issued in November 1996. The
proceeds from the 10 3/8% Notes were used to repay $90.0 million of
Acquisition-related financing and $5.0 million of the Senior Credit Facility
term loan.
In April 1997, Carter's completed a registration with the Securities and
Exchange Commission related to an Exchange Offer for $100,000,000 of 10 3/8%
Series A Senior Subordinated Notes for a like amount of the 10 3/8% Senior
Subordinated Notes issued in the November 1996 private placement. The terms and
provisions of the 10 3/8% Notes were essentially unchanged.
Interest on the 10 3/8% Notes is to be paid semi-annually on June 1 and
December 1 of each year, commencing on June 1, 1997. The 10 3/8% Notes will be
redeemable, in whole or in part, at the option of the Company on or after
December 1, 2001 at the following redemption prices, plus accrued interest to
the date of redemption:
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
2001............................................................................. 105.188%
2002............................................................................. 103.458%
2003............................................................................. 101.729%
2004 and thereafter.............................................................. 100.000%
The 10 3/8% Notes are uncollateralized. The 10 3/8% Notes contain provisions
and covenants, including limitations on other indebtedness, restricted payments
and distributions, sales of assets and subsidiary stock, liens and certain other
transactions.
The 12% Senior Subordinated Notes ("Holdings Notes") were originally issued
by Holdings to Investcorp affiliates on October 30, 1996 in connection with the
Acquisition as described in Note 1.
In March 1997, pursuant to a Private Placement for $16,350,000 of the
$20,000,000 outstanding Holdings Notes, Holdings agreed to register the Holdings
Notes with the Securities and Exchange Commission. This registration, being
undertaken in 1998, is intended to provide the holders of Holdings Notes with
the opportunity to exchange such notes for New Holdings Notes, identical in all
material respects to the original notes, except that the New Holdings Notes
would be registered under the Securities Act of 1933.
Interest on the Holdings Notes is to be paid semi-annually on May 1 and
November 1 of each year, commencing on May 1, 1997. The Holdings Notes are
redeemable, in whole or in part at the option of the
F-15
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 5--LONG-TERM DEBT: (CONTINUED)
Company on or after the dates indicated, at the following redemption prices,
plus accrued interest to the date of redemption:
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
December 31, 1996................................................................ 109.000%
October 1, 1999.................................................................. 107.000%
October 1, 2000.................................................................. 105.000%
October 1, 2001.................................................................. 103.000%
October 1, 2002.................................................................. 101.000%
October 1, 2003 and thereafter................................................... 100.000%
Upon a "Change in Control", (as defined in the indenture pursuant to which
the Holdings Notes were issued (the "Subordinated Note Indenture")), each holder
shall have the right to require that Holdings repurchase all or any part of such
Holdings Notes at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase.
The Holdings Notes are general uncollateralized obligations of Holdings and
are subordinated in right of payment to all existing and future Senior
Indebtedness (as defined in the Subordinated Note Indenture) of Holdings. In
addition, the Holdings Notes are subordinated to all debts, liabilities and
obligations of Carter's. The Holdings Notes contain provisions and covenants,
including limitations on other indebtedness, dividends and distributions,
transactions with affiliates, sales of assets and subsidiary stock, liens and
certain other transactions.
As noted above, provisions of Carter's and Holdings' debt agreements contain
restrictions and limitations which effectively preclude dividends,
distributions, or advances from Carter's to Holdings, except under certain
specified conditions. Restricted net assets of Carter's at April 4, 1998 and
January 3, 1998 totaled approximately $54.2 million and $56.7 million,
respectively. Likewise, at April 4, 1998 and January 3, 1998, Holdings was
effectively precluded from declaring or paying dividends on its Capital Stock.
Aggregate minimum scheduled maturities of long-term debt during each of the
next five fiscal years subsequent to January 3, 1998 are as follows ($000):
fiscal 1998--$900; 1999--$900; 2000--900; 2001-- $18,400; and 2002--$13,500.
The fair value of the Company's long term debt was deemed to approximate its
carrying value at January 3, 1998, except for the 10 3/8% Notes and the Holdings
Notes whose fair values were approximately 106% and 104%, respectively, of their
book values as of January 3, 1998. The fair values were estimated based on
similar issues or on current rates offered to the Company for debt of the same
remaining maturities. At December 28, 1996, the carrying value of the Company's
debt was deemed to approximate its fair value since the terms of such debt,
including interest rates, are variable with market rates and/or were recently
negotiated.
F-16
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 6--CAPITAL STOCK:
Features of Holdings' various classes of capital stock are specified in a
Certificate of Designation (the "Certificate"). The Certificate specifies, among
other things, restrictions on transfers of shares; certain "tag along rights" of
the Class A and Class C shares pursuant to certain transfers of Class D shares;
and redemptions required in connection with tag-along transfers or warrant
exercises (see below).
In the event of an initial public offering or sale of Holdings, as defined
in the Certificate, all issued and outstanding shares of Class A, Class C, and
Class D Stock not otherwise redeemed by Holdings shall automatically convert
into shares of Common Stock on a one-for-one basis.
Holders of shares of Class D Stock and Common Stock shall be entitled to one
vote per share of such stock held, on all matters. Until a change in control of
the Company, as defined, holders of Class A or Class C stock shall not have any
voting rights except that the holders of the Class A and Class C Stock shall
have the right to one vote for each share of such stock held as to (i) the
approval of any amendments, or the alteration or repeal, whether by merger,
consolidation or otherwise, of any provision of the Certificate or the Articles
of Organization that would increase or decrease the par value of those shares of
the Class A or Class C Stock, or alter or change the powers, preferences, or
special rights of the shares of the Class A or Class C Stock, so as to affect
such holders adversely; and (ii) matters as required under law.
Effective upon a change in control, holders of shares of Class A or Class C
Stock shall be entitled to one vote for each share of stock held, on all
matters.
In the event of liquidation of Holdings, each holder of Class A or Class C
Stock shall be entitled to receive out of the net assets of the Company or the
proceeds thereof available for distribution to stockholders, before any payment
or distribution shall be made or set aside for payment on the Class D or Common
Stock upon such liquidation, the amount of $.001 per share. Such distribution
shall be allocated on a pro rata basis according to the number of shares of
Class A or Class C Stock held by each stockholder.
Certain officers and employees of the Company held 130,051, 131,340 and
151,049 shares of Class C Stock as of April 4, 1998, January 3, 1998 and
December 28, 1996, respectively. Under certain circumstances, these officers and
employees have the right to require an affiliate of Investcorp to purchase their
Class C shares. In such cases, the Company has a right of first refusal to
purchase such shares.
In connection with the Acquisition, Holdings issued a Class A Warrant to an
affiliate of Investcorp. Upon an initial public offering or sale of Holdings, as
defined, the Class A Warrant entitles its holder to purchase, at a specified
price, a specified number of shares of Holdings Common Stock. This will be
accomplished via a redemption by Holdings of a corresponding number of Class A
shares and issuance by Holdings to the Warrant holder of a corresponding number
of Common shares.
NOTE 7--EMPLOYEE BENEFIT PLANS:
The Company offers a comprehensive plan to current and certain future
retirees and their spouses until they become eligible for Medicare and a
Medicare Supplement plan. The Company also offers life insurance to current and
certain future retirees. Employee contributions are required as a condition of
participation for both medical benefits and life insurance, and the Company's
liabilities are net of these employee contributions.
F-17
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 7--EMPLOYEE BENEFIT PLANS: (CONTINUED)
The following table sets forth the components of the accumulated
postretirement benefit obligation (APBO) at January 3, 1998 and December 28,
1996 ($000):
JANUARY 3, DECEMBER 28,
1998 1996
----------- -------------
Retirees........................................................... $ 6,139 $ 5,527
Actives ineligible to retire....................................... 2,813 2,552
Actives eligible to retire......................................... 1,043 406
----------- ------
Total APBO......................................................... $ 9,995 $ 8,485
----------- ------
----------- ------
The funded status of the plan is reconciled to the accrued postretirement
benefit liability recognized in the accompanying consolidated balance sheets
(included in "Other long-term liabilities") at January 3, 1998 and December 28,
1996, as follows ($000):
JANUARY 3, DECEMBER 28,
1998 1996
----------- -------------
Total APBO......................................................... $ 9,995 $ 8,485
Plan assets at fair value.......................................... -- --
Unrecognized net loss.............................................. (1,442) 56
----------- ------
Accrued postretirement benefit liability........................... $ 8,553 $ 8,541
----------- ------
----------- ------
Net periodic postretirement benefit cost (NPPBC) charged to operations for
the period from October 30, 1996 through December 28, 1996 and for the year
ended January 3, 1998 included the following components ($000):
FOR THE
PERIOD FROM OCTOBER 30,
FOR THE YEAR ENDED 1996 (INCEPTION) THROUGH
JANUARY 3, 1998 DECEMBER 28, 1996
--------------------- -------------------------
Service cost...................................... $ 169 $ 21
Interest cost..................................... 649 95
Amortization of transition obligation............. -- --
Amortization of net loss.......................... 34 --
----- -----
Total NPPBC....................................... $ 852 $ 116
----- -----
----- -----
The discount rate used in determining the APBO was 6.75% and 7.0% as of
January 3, 1998 and December 28, 1996, respectively. In conjunction with
purchase accounting for the Acquisition, the Company was required to record a
liability on its balance sheet for the accumulated postretirement benefit
obligation at the Acquisition date. The effects on the Company's plan of all
future increases in health care cost are borne by employees; accordingly,
increasing medical costs are not expected to have any material effect on the
Company's future financial results.
F-18
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 7--EMPLOYEE BENEFIT PLANS: (CONTINUED)
The Company has an obligation under a defined benefit plan covering certain
former officers. At January 3, 1998 and December 28, 1996, the present value of
the estimated remaining payments under this plan was approximately $1.8 million
and is included in other current and long-term liabilities.
The Company also sponsors a defined contribution plan within the U.S. The
plan covers employees who are at least 21 years of age and have completed one
year of service, during which at least 1,000 hours were served. The plan
provides for the option for employee contributions of between 1% and 15% of
salary, of which the Company matches up to 4% of the employee contribution, at a
rate of 75% on the first 2% and 50% on the second 2%. The Company's expense for
the defined contribution plan totaled approximately ($000): $345 and $303 for
the three-month periods ended April 4, 1998 and March 29, 1997, $785 for the
fiscal year ended January 3, 1998 and $100 for the period ended December 28,
1996.
NOTE 8--MANAGEMENT STOCK INCENTIVE PLAN:
Upon consummation of the Acquisition, Holdings adopted a Management Stock
Incentive Plan in order to provide incentives to employees and directors of the
Company by granting them awards tied to Class C stock of Holdings. Options for
up to 75,268 shares may be granted to certain employees under the plan, of which
3,989, 7,966 and 3,069 remain ungranted at April 4, 1998, January 3, 1998 and
December 28, 1996, respectively. In October 1996, Holdings granted options to
purchase 72,199 shares of its Class C stock to certain employees of the Company.
The exercise price of each such option and options granted in fiscal year 1997
and 1998 is $60.00 per share, which is deemed to be the fair market value of the
stock at the time the options were granted. Accordingly, no compensation expense
has been recognized on the options granted in any of the periods. All options
granted vest ratably over five years contingent upon the Company meeting
specific earnings targets) and expire in ten years, with weighted average
remaining contractual lives of approximately nine years at January 3, 1998.
A summary of stock options and changes therein is presented below:
OPTION TO
PURCHASE
NUMBER OF
SHARES
-----------
Outstanding, December 29, 1996 (none exercisable)................................. 72,199
Granted........................................................................... 4,000
Exercised......................................................................... --
Forfeited......................................................................... (8,897)
Expired........................................................................... --
-----------
Outstanding, January 3, 1998...................................................... 67,302
Granted........................................................................... 3,977
-----------
Outstanding April 4, 1998......................................................... 71,279
-----------
-----------
Exercisable, January 3, 1998...................................................... 13,460
-----------
-----------
Exercisable, April 4, 1998........................................................ 14,256
-----------
-----------
F-19
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 8--MANAGEMENT STOCK INCENTIVE PLAN: (CONTINUED)
The fair value of each granted option, at the date of grant, has been
estimated to be $29.50. This was estimated using a minimum value method, at a
risk free interest rate assumption of 7.0%, expected life of ten years, and no
expected dividends.
If the fair value based method required by SFAS 123 had been applied,
estimated compensation expense for the year ended January 3, 1998 would have
been approximately $400,000, resulting in pro forma net income of $1,357,000.
There would have been no compensation cost associated with these option grants
for the period ended December 28, 1996 and the Company's net income would have
been unchanged.
NOTE 9--INCOME TAXES:
The provision for income taxes consisted of the following ($000):
FOR THE
THREE MONTHS ENDED FOR THE PERIOD
---------------------- FOR THE OCTOBER 30, 1996
APRIL 4, MARCH 29, YEAR ENDED (INCEPTION) THROUGH
1998 1997 JANUARY 3, 1998 DECEMBER 28, 1996
--------- ----------- --------------- -------------------
Current tax provision (benefit):
Federal.............................................. $ (1,563) $ (1,633) $ 752 $ --
State................................................ (276) (288) 278 --
Foreign.............................................. -- -- 50 --
--------- ----------- ------ -----
Total current provision (benefit).................. (1,839) (1,921) 1,080 --
--------- ----------- ------ -----
Deferred tax provision (benefit):
Federal.............................................. (52) 107 277 44
State................................................ (9) 19 34 7
--------- ----------- ------ -----
Total deferred provision (benefit)................. (61) 126 311 51
--------- ----------- ------ -----
Total provision (benefit).......................... $ (1,900) $ (1,795) $ 1,391 $ 51
--------- ----------- ------ -----
--------- ----------- ------ -----
F-20
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 9--INCOME TAXES: (CONTINUED)
Components of deferred tax assets and liabilities were as follows ($000):
APRIL 4, JANUARY 3, DECEMBER 28,
1998 1998 1996
--------- ----------- ------------
Deferred tax assets:
Accounts receivable allowance............................................. $ 1,122 $ 1,237 $ 1,279
Inventory valuation....................................................... 5,822 5,777 7,740
Liability accruals........................................................ 6,001 5,879 6,659
Deferred employee benefits................................................ 3,738 3,755 3,820
Loss and tax credit carryforwards......................................... 913 913 1,310
Other..................................................................... 923 929 808
--------- ----------- ------------
Total deferred tax assets............................................... $ 18,519 $ 18,490 $ 21,616
--------- ----------- ------------
--------- ----------- ------------
Deferred tax liabilities:
Tradename................................................................. $ 35,921 $ 35,921 $ 36,846
Depreciation.............................................................. 8,252 8,284 8,788
Deferred employee benefits................................................ 432 432 1,733
Other..................................................................... -- -- 447
--------- ----------- ------------
Total deferred tax liabilities.......................................... $ 44,605 $ 44,637 $ 47,814
--------- ----------- ------------
--------- ----------- ------------
The difference between the Company's effective income tax rate and the
federal statutory tax rate is reconciled below:
FOR THE
THREE MONTHS ENDED
------------------------------
APRIL 4, MARCH 29, FOR THE YEAR ENDED
1998 1997 JANUARY 3, 1998
------------- --------------- -----------------------
Statutory federal income tax rate.................... 34% 34% 34%
State income taxes, net of federal income tax
benefit............................................ 7 7 7
Non-deductible Acquisition costs..................... -- -- --
Goodwill amortization................................ 5 11 11
Other permanent items................................ 1 2 2
Foreign income, net of tax........................... -- (4) (4)
Other................................................ 2 (1) (1)
-- -- --
Total................................................ 49% 49% 49%
-- -- --
-- -- --
PERIOD FROM
OCTOBER 30, 1996
(INCEPTION) THROUGH
DECEMBER 28, 1996
---------------------
Statutory federal income tax rate.................... 34%
State income taxes, net of federal income tax
benefit............................................ 9
Non-deductible Acquisition costs..................... --
Goodwill amortization................................ 106
Other permanent items................................ --
Foreign income, net of tax........................... (21)
Other................................................ (28)
---
Total................................................ 100%
---
---
The portion of income before income taxes and extraordinary item
attributable to foreign income was approximately $437,000 for the year ended
January 3, 1998 and $40,000 for the period ended December 28, 1996.
F-21
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 10--LEASE COMMITMENTS:
Annual rent expense ($000) under operating leases was $3,398 and $3,505 for
the three-month periods ended April 4, 1998 and March 29, 1997, respectively and
$14,093 and $2,148 for the year ended January 3, 1998 and for the period ended
December 28, 1996, respectively.
Minimum annual rental commitments under current noncancelable operating
leases as of January 3, 1998 were as follows ($000):
BUILDINGS,
PRIMARILY DATA TOTAL
RETAIL TRANSPORTATION PROCESSING MANUFACTURING NONCANCELABLE
YEAR STORES EQUIPMENT EQUIPMENT EQUIPMENT LEASES
- ------------------------------------------ ----------- --------------- ------------- ----------------- -------------
1998...................................... $ 10,850 $ 555 $ 355 $ 185 $ 11,945
1999...................................... 8,556 294 226 175 9,251
2000...................................... 5,624 170 184 145 6,123
2001...................................... 3,441 122 -- 5 3,568
2002...................................... 1,808 81 -- 5 1,894
Thereafter................................ 1,669 -- -- -- 1,669
----------- ------ ----- ----- -------------
Total..................................... $ 31,948 $ 1,222 $ 765 $ 515 $ 34,450
----------- ------ ----- ----- -------------
----------- ------ ----- ----- -------------
NOTE 11--OTHER CURRENT LIABILITIES:
Other current liabilities consisted of the following ($000):
APRIL 4, JANUARY 3, DECEMBER 28,
1998 1998 1996
--------- ----------- ------------
Accrued liability for retail store closures............. $ 2,381 $ 2,381 $ 6,000
Accrued liability for plant closures.................... 2,748 2,748 3,000
Accrued income taxes.................................... 4,718 6,538 4,477
Accrued workers compensation............................ 4,500 4,500 3,000
Accrued incentive compensation.......................... 647 2,650 2,400
Other current liabilities............................... 20,902 16,379 13,878
--------- ----------- ------------
$ 35,896 $ 35,196 $ 32,755
--------- ----------- ------------
--------- ----------- ------------
F-22
CARTER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE THREE-MONTH PERIODS ENDED APRIL 4, 1998 AND MARCH
29, 1997 IS UNAUDITED)
NOTE 12--VALUATION AND QUALIFYING ACCOUNTS:
Information regarding valuation and qualifying accounts is as follows
($000):
ALLOWANCE FOR
DOUBTFUL INVENTORY
ACCOUNTS VALUATION
------------- -----------
Balance, October 30, 1996........................................... $ 2,524 $ 2,414
Additions, charged to expense..................................... 156 100
Recoveries (Writeoffs)............................................ 11 (10)
------ -----------
Balance, December 28, 1996.......................................... 2,691 2,504
Additions, charged to expense..................................... 1,178 2,254
Writeoffs......................................................... (1,495) (1,992)
------ -----------
Balance at January 3, 1998.......................................... 2,374 2,766
Additions, charged to expense..................................... 314 697
Writeoffs......................................................... (334) (16)
------ -----------
Balance at April 4, 1998............................................ $ 2,354 $ 3,447
------ -----------
------ -----------
NOTE 13--RELATED PARTY TRANSACTIONS:
In connection with the Acquisition, Invifin SA ("Invifin"), an affiliate of
Investcorp, received a fee of $2.2 million. Also in connection with the
Acquisition, the Company paid Investcorp International, Inc. ("International")
advisory fees aggregating $2.25 million. The Company also paid $1.5 million to
Invifin in fees in connection with providing a standby commitment to fund the
Acquisition. In connection with the closing of the Acquisition, the Company
entered into an agreement for management advisory and consulting services (the
"Management Agreement") with International pursuant to which the Company agreed
to pay International $1.35 million per annum for a five-year term. At the
closing of the Acquisition, the Company prepaid International $4.05 million for
the first three years of the term of the Management Agreement in accordance with
its terms.
In October 1996, the Company made a $1.5 million loan to an officer of the
Company. The loan has a term of five years, is collateralized by the officer's
stock of Holdings and bears interest at 6.49%, compounded semi-annually. The
loan is prepayable with the proceeds of any disposition of the officer's stock
in Holdings.
During 1997, Holdings repurchased 19,709 shares of its Class C Stock owned
by three former Company employees for cash payments totaling $1,183,000.
During the quarter ended April 4, 1998, the Company repurchased 2,289 shares
of its Class C stock owned by a former employee of the Company for a cash
payment totaling approximately $137,000. In addition, the Company sold 1,000
shares of its Class C Treasury stock for $60,000 to an employee of the Company.
NOTE 14--ENVIRONMENTAL MATTERS
In 1998, the Company commenced an investigation in Lamar County, Georgia of
a potential claim under Georgia's environmental laws. Based on the information
available at this time, the ultimate outcome of this matter is uncertain and,
therefore, the Company is unable to determine the amount of its liability or
assess whether the resolution of this matter will have a material adverse effect
on its results of operations or financial condition. Accordingly, no provision
for any liability has been made in the accompanying financial statements.
F-23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
The William Carter Company:
We have audited the accompanying consolidated statements of operations, cash
flows and changes in common stockholders' equity of The William Carter Company
and its subsidiaries for the period from December 31, 1995 through October 29,
1996 (the "Predecessor"). These financial statements are the responsibility of
The William Carter Company's management. Our responsibility is to express an
opinion on these 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.
As explained in Note 8 to the financial statements, controlling ownership of
The William Carter Company was acquired by Carter Holdings, Inc. in a purchase
transaction as of October 30, 1996. The Acquisition was accounted for as a
purchase and, accordingly, the purchase price was allocated to the assets and
liabilities of the Predecessor based upon their estimated fair value at October
30, 1996. Accordingly, the accompanying financial statements of the Predecessor
are not comparable to any financial statements of Carter Holdings, Inc. and its
consolidated subsidiaries.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of the Predecessor for the period from December 31, 1995 through October 29,
1996 in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Stamford, Connecticut
February 20, 1997
F-24
THE WILLIAM CARTER COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
FOR THE
PREDECESSOR
PERIOD FROM
DECEMBER 31, 1995
THROUGH
OCTOBER 29, 1996
-----------------
Net sales...................................................................................... $ 266,739
Cost of goods sold............................................................................. 170,027
--------
Gross profit................................................................................... 96,712
Selling, general and administrative............................................................ 79,296
Nonrecurring charge............................................................................ 8,834
--------
Operating income............................................................................... 8,582
Interest expense............................................................................... 7,075
--------
Income before income taxes..................................................................... 1,507
Provision for income taxes..................................................................... 1,885
--------
Net loss....................................................................................... (378)
Dividend requirements on preferred stock....................................................... (1,132)
--------
Net loss applicable to common stockholder...................................................... $ (1,510)
--------
--------
The accompanying notes are an integral part of the consolidated financial
statements
F-25
THE WILLIAM CARTER COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE
PREDECESSOR
PERIOD FROM
DECEMBER 31, 1995
THROUGH
OCTOBER 29, 1996
-----------------
Cash flows from operating activities:
Net loss..................................................................................... $ (378)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization.............................................................. 6,979
Deferred tax provision..................................................................... 2,381
Effect of changes in operating assets and liabilities:
Increase in accounts receivable.......................................................... (12,540)
Decrease in inventories.................................................................. 8,392
Decrease in prepaid expenses and other assets............................................ 2,759
Increase in accounts payable and other liabilities....................................... 16,812
--------
Net cash provided by operating activities.............................................. 24,405
--------
Cash flow from investing activities:
Capital expenditures....................................................................... (4,007)
--------
Net cash used in investing activities.................................................. (4,007)
--------
Cash flows from financing activities:
Payments of Predecessor revolving line of credit........................................... (31,500)
Proceeds from Predecessor revolving line of credit......................................... 12,500
Payment of other Predecessor debt.......................................................... (433)
--------
Net cash used in financing activities.................................................. (19,433)
--------
Net increase in cash and cash equivalents...................................................... 965
Cash and cash equivalents at beginning of period............................................... 2,865
--------
Cash and cash equivalents at end of period..................................................... $ 3,830
--------
--------
The accompanying notes are an integral part of the consolidated financial
statements
F-26
THE WILLIAM CARTER COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
ADDITIONAL
CLASS A CLASS B CLASS C PAID-IN ACCUMULATED
COMMON STOCK COMMON STOCK COMMON STOCK CAPITAL DEFICIT
------------- ------------- ------------- ----------- ------------
PREDECESSOR:
BALANCE AT DECEMBER 30, 1995............................ $ -- $ -- $ -- $ 92,379 $ (97,057)
Net loss................................................ (378)
Preferred stock dividend................................ (2,747)
Common stock guaranteed-
yield dividend........................................ (4,237)
--- --- --- ----------- ------------
BALANCE AT OCTOBER 29, 1996............................. $ -- $ -- $ -- $ 92,379 $ (104,419)
--- --- --- ----------- ------------
--- --- --- ----------- ------------
The accompanying notes are an integral part of the consolidated financial
statements
F-27
THE WILLIAM CARTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The William Carter Company ("Carter's") is a United States based
manufacturer and marketer of premier branded childrenswear under the Carter's
and Baby Dior labels. Carter's manufactures its products in plants located in
the southern United States, Costa Rica and the Dominican Republic. Products are
manufactured for wholesale distribution to major domestic retailers, and for the
Company's 132 retail outlet stores that market its brand name merchandise and
certain products manufactured by other companies. The retail operations
represent approximately 40% of consolidated net sales.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Carter's and
its wholly owned subsidiaries. These subsidiaries consist of facilities in Costa
Rica and the Dominican Republic and represent approximately 40% of Carter's
sewing production. All intercompany transactions and balances have been
eliminated in consolidation.
FISCAL YEAR:
Carter's fiscal year ends on the Saturday in December or January nearest the
last day of December. The accompanying consolidated financial statements reflect
Carter's results of operations for the period from December 31, 1995 through
October 29, 1996. As discussed in Note 8, Carter's was acquired by Carter
Holdings, Inc. on October 30, 1996. All financial data for Carter's for periods
prior to the Acquisition are referred to as "Predecessor".
DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT:
For financial reporting purposes, depreciation is computed on the
straight-line method over the estimated useful lives of the assets as follows:
buildings--15 to 50 years; and machinery and equipment--3 to 10 years. Leasehold
improvements are amortized over the lesser of the asset life or related lease
term. Depreciation expense was $6,612,000 for the period ended October 29, 1996
DEFERRED DEBT ISSUANCE COSTS:
Debt issuance costs are deferred and amortized to interest expense using the
straight-line method, which approximated the effective interest method, over the
lives of the related debt. Amortization approximated $367,000 for the period
ended October 29, 1996.
STOCK-BASED EMPLOYEE COMPENSATION ARRANGEMENTS:
Carter's accounts for stock-based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," was
adopted in fiscal 1996 for disclosure purposes only.
INCOME TAXES:
Carter's accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). In accordance with SFAS 109, the deferred tax provision is determined
under the liability method. Deferred tax assets and liabilities are recognized
based on differences between the book and tax bases of assets and liabilities
using presently
F-28
THE WILLIAM CARTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
enacted tax rates. Valuation allowances are established when it is more likely
than not that a deferred tax asset will not be recovered. The provision for
income taxes is the sum of the amount of income taxes paid or payable for the
year as determined by applying the provisions of enacted tax laws to the taxable
income for that year; the net change during the year in Carter's deferred tax
assets and liabilities; and the net change during the year in any valuation
allowances.
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid in cash approximated $6,708,000 for the period ended October
29, 1996. Income taxes paid in cash approximated $903,000 for the same period.
USE OF ESTIMATES IN THE PREPARATION OF THE CONSOLIDATED FINANCIAL
STATEMENTS:
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management of Carter's to
make estimates and assumptions that affect disclosures 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.
NOTE 2--INTEREST EXPENSE:
Interest expense for the period ended October 29, 1996 represents such costs
related to approximately $47 million of borrowings on a term loan, approximately
$4 million on a senior subordinated note, approximately $16 million on a
subordinated note, approximately $1 million on an industrial revenue bond, and
fluctuating borrowings on a revolving credit facility, all of which bore
interest at variable rates.
NOTE 3--CAPITAL STOCK:
At December 30, 1995 and until October 30, 1996, Carter's had outstanding
50,000 shares of Series A preferred stock, $.01 par value per share, carried at
$50.0 million; 10,000 shares of Class A Common, $.01 par value per share; 10,000
shares of Class B Common, $.01 par value per share; 2,785 shares of Class C
Common; and $92.4 million of additional paid-in-capital. In conjunction with the
Acquisition, (See Note 8), cumulative dividends totaling $2.8 million on the
Series A Preferred Stock and $4.2 million guaranteed yield dividends on the
Common Stock were required to be paid to the respective stockholders and all
shares were acquired and retired.
NOTE 4--EMPLOYEE BENEFIT PLANS:
Carter's offers a comprehensive plan to current and certain future retirees
and their spouses until they become eligible for Medicare and a Medicare
Supplement plan. Carter's also offers life insurance to current and certain
future retirees. Employee contributions are required as a condition of
participation for both medical benefits and life insurance, and Carter's
liabilities are net of these employee contributions.
F-29
THE WILLIAM CARTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--EMPLOYEE BENEFIT PLANS: (CONTINUED)
Net periodic postretirement benefit cost (NPPBC) charged to operations for
the period from December 31, 1995 through October 29, 1996 included the
following components ($000):
Service cost.......................................................................... $ 100
Interest cost......................................................................... 482
Amortization of transition obligation................................................. 318
Amortization of net loss.............................................................. 45
---------
Total NPPBC........................................................................... $ 945
---------
---------
The effects on the plan of all future increases in health care cost are
borne by employees; accordingly, increasing medical costs are not expected to
have any material effect on Carter's future financial results.
Carter's has an obligation under a defined benefit plan covering certain
former officers. Carter's also maintained a Management Equity Participation Plan
and a Long Term Incentive Plan for executive and other key salaried employees.
Expense related to these two plans for the period ended October 29, 1996 totaled
$4.9 million, including $3.3 million triggered as a result of the Acquisition.
NOTE 5--INCOME TAXES:
The provision for income taxes consisted of the following ($000):
FOR THE
PREDECESSOR
PERIOD
FROM
DECEMBER 31, 1995
THROUGH
OCTOBER 29, 1996
-----------------
Current tax provision (benefit):
Federal.................................................................. $ (484)
State.................................................................... (12)
------
Total current benefit:................................................. (496)
------
Deferred tax provision (benefit):
Federal.................................................................. 2,121
State.................................................................... 260
------
Total deferred tax provision........................................... 2,381
------
Total provision........................................................ $ 1,885
------
------
F-30
THE WILLIAM CARTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--INCOME TAXES: (CONTINUED)
The difference between Carter's effective income tax rate and the federal
statutory tax rate is reconciled below:
FOR THE
PREDECESSOR PERIOD
FROM
DECEMBER 31, 1995
THROUGH
OCTOBER 29, 1996
---------------------
Statutory federal income tax rate.......................................... 34%
State income taxes, net of federal income tax benefit...................... 11
Non-deductible Acquisition costs........................................... 77
Foreign income, net of tax................................................. (3)
Other...................................................................... 6
---
Total...................................................................... 125%
---
---
NOTE 6--LEASE COMMITMENTS:
Rent expense under operating leases was $10,902 during the period ended
October 29, 1996. Minimum annual rental commitments under current noncancelable
operating leases as of October 29, 1996 were as follows ($000):
BUILDINGS,
PRIMARILY DATA TOTAL
RETAIL TRANSPORTATION PROCESSING NONCANCELABLE
YEAR STORES EQUIPMENT EQUIPMENT LEASES
- -------------------------------------------------------- ------------ --------------- ------------- -------------
1996 (remainder of year)................................ $ 1,845 $ 55 $ 44 $ 1,944
1997.................................................... 10,905 544 180 11,629
1998.................................................... 8,254 262 180 8,696
1999.................................................... 6,359 157 -- 6,516
2000.................................................... 4,125 96 -- 4,221
2001.................................................... 2,193 40 -- 2,233
Thereafter.............................................. 2,445 -- -- 2,445
------------ ------ ----- -------------
Total................................................... $ 36,126 $ 1,154 $ 404 $ 37,684
------------ ------ ----- -------------
------------ ------ ----- -------------
NOTE 7--VALUATION AND QUALIFYING ACCOUNTS:
Information regarding valuation and qualifying accounts for the period ended
October 29, 1996 was as follows ($000):
ALLOWANCE
FOR
DOUBTFUL
ACCOUNTS
-----------
Balance, December 30, 1995....................................................... $ 2,888
Additions, charged to expense.................................................... 408
Writeoffs........................................................................ (772)
-----------
Balance, October 29, 1996........................................................ $ 2,524
-----------
-----------
F-31
THE WILLIAM CARTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--SUBSEQUENT EVENT:
On October 30, 1996, Carter Holdings, Inc. ("Holdings"), a holding company
organized on behalf of affiliates of INVESTCORP S.A. ("Investcorp"), management
and certain other investors, acquired 100% of the previously outstanding Common
and Preferred stock of Carter's from MBL Life Assurance Corporation, CHC
Charitable Irrevocable Trust and certain management stockholders (collectively,
the "Sellers").
In addition to purchasing or exchanging and retiring the previously issued
capital stock of Carter's, the proceeds of the Acquisition and financing were
used to make certain contractual payments to management ($11.3 million), pay for
costs of the transactions ($20.9 million), and to retire all outstanding
balances on Carter's previously outstanding long-term debt along with accrued
interest thereon ($69.1 million).
The Acquisition was accounted for by the purchase method. Accordingly, the
assets and liabilities of the Predecessor were adjusted at the Acquisition date
to reflect the allocation of the purchase price based on estimated fair values.
A $14.9 million portion of the purchase price was applied to pay certain
Predecessor dividends and expenses. This consisted of $2.8 million and $4.2
million, respectively, in dividends triggered on the Predecessor's Preferred and
Common Stock, plus portions of compensation-related charges ($5.1 million) and
other expense charges ($2.8 million) of the Predecessor incurred in connection
with the Acquisition.
The nonrecurring charge in the Predecessor period December 31, 1995 through
October 29, 1996 reflects total compensation-related charges of $5.3 million for
amounts paid to management in connection with the Acquisition and total other
expense charges of $3.5 million for costs and fees that Carter's incurred in
connection with the Acquisition.
F-32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The William Carter Company
In our opinion, the consolidated statements of income, of cash flows and of
changes in stockholders' equity for the fiscal year ended December 30, 1995
(appearing on pages F-34 through F-36 of this Form S-4 Registration Statement)
present fairly, in all material respects, the results of operations and cash
flows of The William Carter Company and its subsidiaries for the fiscal year
ended December 30, 1995 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of The William
Carter Company's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of The William Carter Company for any period
subsequent to December 30, 1995.
/s/ Price Waterhouse LLP
Stamford, Connecticut
February 16, 1996
F-33
THE WILLIAM CARTER COMPANY
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
FOR THE
FISCAL YEAR
ENDED
DECEMBER 30, 1995
-----------------
Net sales...................................................................................... $ 295,431
Cost of goods sold............................................................................. 191,105
--------
Gross profit................................................................................... 104,326
Selling, general and administrative............................................................ 83,223
--------
Operating income............................................................................... 21,103
Interest expense............................................................................... 7,849
--------
Income before income taxes..................................................................... 13,254
Provision for income taxes..................................................................... 5,179
--------
Net income..................................................................................... $ 8,075
--------
--------
The accompanying notes are an integral part of the consolidated financial
statements
F-34
THE WILLIAM CARTER COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE
FISCAL YEAR
ENDED
DECEMBER 30, 1995
-----------------
Cash flows from operating activities:
Net income................................................................................... $ 8,075
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.............................................................. 7,737
Deferred income tax benefit................................................................ (465)
Gain on disposal of assets................................................................. (40)
Compensation charge on stock issued to employees........................................... 276
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable........................................................................ (3,878)
Inventories................................................................................ (28,099)
Prepaid expenses and other current assets.................................................. 1,641
Increase in liabilities:
Accounts payable........................................................................... 3,981
Other current liabilities.................................................................. 3,431
Other long-term liabilities................................................................ 1,825
--------
Net cash used in operating activities.................................................... (5,516)
--------
Cash flows from investing activities:
Proceeds from sale of assets................................................................. 346
Capital expenditures......................................................................... (13,715)
--------
Net cash used in investing activities.................................................... (13,369)
--------
Cash flows from financing activities:
Borrowings under revolving credit facility................................................... 19,000
Payments under term loan and subordinated note agreements.................................... (2,732)
Payments of industrial revenue bond.......................................................... (433)
Preferred stock dividend..................................................................... (1,678)
--------
Net cash provided by financing activities................................................ 14,157
--------
Net decrease in cash and cash equivalents...................................................... (4,728)
Cash and cash equivalents at beginning of period............................................... 7,593
--------
Cash and cash equivalents at end of period..................................................... $ 2,865
--------
--------
The accompanying notes are an integral part of the consolidated financial
statements
F-35
THE WILLIAM CARTER COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
SERIES A CLASS A CLASS B CLASS C CAPITAL IN
PREFERRED COMMON COMMON COMMON EXCESS OF ACCUMULATED
STOCK STOCK STOCK STOCK PAR VALUE DEFICIT TOTAL
----------- ----------- ----------- ----------- ----------- ------------ ---------
BALANCE AT DECEMBER 31, 1994....... $ 50,000 -- -- -- $ 92,103 $ (103,454) $ 38,649
Preferred stock dividend........... -- -- -- -- -- (1,678) (1,678)
Issuance of Class C common stock to
employees........................ -- -- -- -- 276 -- 276
Net income......................... -- -- -- -- -- 8,075 8,075
----------- ----- ----- ----- ----------- ------------ ---------
BALANCE AT DECEMBER 30, 1995....... $ 50,000 $ -- $ -- $ -- $ 92,379 $ (97,057) $ 45,322
----------- ----- ----- ----- ----------- ------------ ---------
----------- ----- ----- ----- ----------- ------------ ---------
The accompanying notes are an integral part of the consolidated financial
statements
F-36
THE WILLIAM CARTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The William Carter Company (Carter's) is a United States based manufacturer
and marketer of premier branded childrenswear under the CARTER'S and BABY DIOR
labels. Carter's manufactures its products in plants located in the southern
United States, Costa Rica and the Dominican Republic. Products are manufactured
for wholesale distribution to major domestic retailers, and for Carter's more
than 120 retail outlet stores that market its brand name merchandise and certain
products manufactured by other companies. Approximately 56.5% of Carter's 1995
net sales were wholesale and 43.5% were retail.
PRINCIPLES OF CONSOLIDATION:
Effective January 1, 1995, Carter Holdings Corp., the former parent company,
was merged into Carter's. The consolidated financial statements include the
accounts of Carter's and its wholly owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
FISCAL YEAR:
Carter's fiscal year ends on the Saturday in December or January nearest the
last day of December. The fiscal year ended December 30, 1995 contained 52
weeks.
REVENUE RECOGNITION:
Revenues from Carter's wholesale operations are recognized upon shipment;
revenues from retail operations are recognized at point of sale.
DEBT ISSUE COSTS:
Debt issue costs are deferred and amortized over a five year period ending
in fiscal year 1996. Amortization approximated $400 in fiscal 1995.
INCOME TAXES:
Carter's accounts for income taxes under the provisions of FASB Statement
No. 109, "Accounting for Income Taxes" (FAS 109). In accordance with FAS 109,
the deferred tax provision is determined under the liability method. Deferred
tax assets and liabilities are recognized based on differences between the book
and tax bases of assets and liabilities using presently enacted tax rates. The
provision for income taxes is the sum of the amount of income taxes paid or
payable for the year as determined by applying the provisions of enacted tax
laws to the taxable income for that year and the net change during the year in
Carter's deferred tax assets and liabilities.
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid in cash approximated $7,323 for the fiscal year ended December
30, 1995. Income taxes paid in cash approximated $4,212 in fiscal 1995.
USE OF ESTIMATES IN THE PREPARATION OF THE CONSOLIDATED FINANCIAL
STATEMENTS:
The preparation of these consolidated financial statements in conformity
with generally accepted accounting principles requires management of Carter's to
make estimates and assumptions that affect the
F-37
THE WILLIAM CARTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 1--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
reported amounts of assets and liabilities and disclosures 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.
NOTE 2--CAPITAL STOCK:
For each of Class A and Class B common stock, 100,000 shares of stock, par
value $.01 per share, are authorized. There were 10,000 shares each of Class A
and Class B common stock issued and outstanding at the end of fiscal 1995. The
holders of Class A and Class B common stock are entitled to four votes per share
and one vote per share, respectively.
In January 1995, 100,000 shares of Class C non-voting common stock, par
value $.01 per share, were authorized of which 2,785 shares were issued to
participants in the Management Equity Participation Plan (see Note 6).
As of the end of fiscal 1995, 50,000 shares of non-voting Series A preferred
stock, par value $.01 per share, were authorized, issued and outstanding.
Dividends on Series A preferred stock are payable on May 31 of each year,
commencing May 31, 1995, and will be equal to the lesser of (1) 20% of
consolidated net income for the preceding fiscal year or (2) 5% of the
liquidation value of all preferred stock; such dividends are cumulative. The
dividend payable on May 31, 1996, calculated based on 1995 consolidated net
income, will be $1,615. The dividend paid on May 31, 1995 was $1,678.
NOTE 3--INCOME TAXES:
The provision for income taxes for fiscal 1995 consisted of the following:
Current tax provision (benefit):
Federal........................................................... $ 4,612
State............................................................. 1,032
---------
Total current provision......................................... 5,644
Deferred tax provision (benefit):
Federal........................................................... (372)
State (93)
---------
Deferred tax benefit................................................ (465)
---------
Total provision................................................. $ 5,179
---------
---------
F-38
THE WILLIAM CARTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--INCOME TAXES: (CONTINUED)
The difference between Carter's effective income tax rate and the federal
statutory tax rate for fiscal 1995 is reconciled below:
Statutory federal income tax rate..................................... 35.0%
State income taxes, net of federal income tax benefit................. 4.6
Jobs tax credit....................................................... (0.7)
Other................................................................. 0.2
---
Total............................................................. 39.1%
---
---
NOTE 4--LEASE COMMITMENTS:
Annual rent expense under operating leases was $11,228 in fiscal 1995.
Minimum annual rental commitments under current noncancelable operating leases
as of December 30, 1995 were as follows:
BUILDINGS,
PRIMARILY DATA TOTAL
RETAIL TRANSPORTATION PROCESSING NONCANCELABLE
YEAR STORES EQUIPMENT EQUIPMENT LEASES
- ----------------------------------------------------- ----------- --------------- ----------- -------------
1996................................................. $ 10,893 $ 490 $ 262 $ 11,645
1997................................................. 9,388 469 -- 9,857
1998................................................. 7,057 206 -- 7,263
1999................................................. 5,122 110 -- 5,232
2000................................................. 2,878 50 -- 2,928
Thereafter........................................... 3,806 -- -- 3,806
----------- ------ ----------- -------------
Total................................................ $ 39,144 $ 1,325 $ 262 $ 40,731
----------- ------ ----------- -------------
----------- ------ ----------- -------------
NOTE 5--VALUATION AND QUALIFYING ACCOUNTS:
Information regarding valuation and qualifying accounts for fiscal year 1995
were as follows:
ALLOWANCE
FOR
DOUBTFUL
ACCOUNTS
-----------
Balance at December 31, 1994....................................................... $ 2,151
Additions, charged to expense...................................................... 653
Recoveries......................................................................... 84
-----------
Balance at December 30, 1995....................................................... $ 2,888
-----------
-----------
F-39
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
Available Information..................................................... 2
Summary................................................................... 3
Risk Factors.............................................................. 10
Use of Proceeds........................................................... 14
The Acquisition........................................................... 14
Capitalization............................................................ 15
Selected Financial Data................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 19
The Exchange Offer........................................................ 26
Business.................................................................. 33
Management................................................................ 43
Ownership of Voting Securities............................................ 47
Certain Transactions...................................................... 48
Capital Structure......................................................... 49
Description of Notes...................................................... 53
Certain Federal Income Tax Considerations................................. 78
Plan of Distribution...................................................... 79
Legal Matters............................................................. 79
Experts................................................................... 79
Index to Consolidated Financial Statements................................ F-1
------------------------
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THE
ORIGINAL DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS 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.
$20,000,000
CARTER HOLDINGS, INC.
12% SERIES B
SENIOR SUBORDINATED NOTES
DUE 2008
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 13 of Chapter 156B of the Massachusetts Business Corporation Law
(the "MBCL") authorizes a Massachusetts corporation to include a provision in
its articles of organization limiting or eliminating the personal liability of
its directors to the corporation and its shareholders for monetary damages for
breach of the directors' fiduciary duty of care except for (i) any breach of the
directors' duty of loyalty to the Company or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) unlawful payments of dividends or unlawful stock
repurchases, redemptions, loans or other distributions and (iv) any transaction
from which the director derived an improper personal benefit. Although Section
13 of Chapter 156B of the MBCL does not change a director's duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Company's Articles of Organization includes a
provision which limits or eliminates the personal liability of its directors to
the fullest extent permitted by Section 13 of Chapter 156B of the MBCL.
The Company's Bylaws provide, in effect, that, to the fullest extent under
the circumstances permitted by Section 67 of Chapter 156B of the MBCL, the
Company will indemnify against any expense, liability and loss (including
attorneys' fees) any person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact.
Under Section 67 of Chapter 156B of the MBCL, no indemnification shall be
provided for any person with respect to any matter as to which such person shall
have been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that their action was in the best interest of the Company. The
inclusion of these indemnification provisions in the Company's Bylaws is
intended to enable the Company to attract qualified persons to serve as
directors and officers who might otherwise be reluctant to do so. The Company is
also required, under certain circumstances, to advance expenses to an
indemnitee.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
*2 Agreement of Merger between TWCC Acquisition Corp. and Carter's, dated September 18, 1996. (incorporated
by reference to Exhibit 2 filed with Carter's Registration Statement Form S-4) (file #333-22155 dated
February 21, 1997)
*3.1 Articles of Organization of Holdings.
*3.2 By-laws of Holdings.
*3.3 Certificate of Designation relating to the Preferred Stock of Holdings, dated October 30, 1996.
4.1 Indenture between Holdings and State Street Bank and Trust Company, as Trustee, dated as of March 25,
1997.
*4.2 Exchange and Registration Rights Agreement between Holdings and BT Securities Corporation, dated March
25, 1997.
4.3 Letter of Transmittal.
5.1 Opinion of Gibson, Dunn & Crutcher LLP.
5.2 Opinion of Testa, Hurwitz & Thibeault L.L.P.
II-1
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ----------- --------------------------------------------------------------------------------------------------------
*8.1 Opinion of Gibson, Dunn & Crutcher LLP relating to tax matters.
*10.1 Employment Agreement between the Company and Frederick J. Rowan, II. (incorporated by reference to
Exhibit 10.1 filed with Carter's Registration Statement Form S-4) (file #333-22155 dated February 21,
1997)
*10.2 Employment Agreement between the Company and Joseph Pacifico. (incorporated by reference to Exhibit 10.2
filed with Carter's Registration Statement Form S-4) (file #333-22155 dated February 21, 1997)
*10.3 Employment Agreement between the Company and Charles E. Whetzel, Jr. (incorporated by reference to
Exhibit 10.3 filed with Carter's Registration Statement Form S-4) (file #333-22155 dated February 21,
1997)
*10.4 Employment Agreement between the Company and David A. Brown. (incorporated by reference to Exhibit 10.4
filed with Carter's Registration Statement Form S-4) (file #333-22155 dated February 21, 1997)
*10.5 Employment Agreement between the Company and Jay A. Berman. (incorporated by reference to Exhibit 10.5
filed with Carter's Registration Statement Form S-4) (file #333-22155 dated February 21, 1997)
*10.6 Credit Agreement dated October 30, 1996 among the Company, certain lenders and The Chase Manhattan Bank,
as administrative agent. (incorporated by reference to Exhibit 10.6 filed with Carter's Registration
Statement Form S-4) (file #333-22155 dated February 21, 1997)
*10.7 Purchase Agreement dated March 19, 1997 between Holdings and BT Securities Corporation.
10.8 Employment Agreement between the Company and Michael D. Casey.
12 Statement re: Computation of Ratio of Earnings to Fixed Charges.
16 Letter of Price Waterhouse LLP.
*21 Subsidiaries of Holdings.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).
23.4 Consent of Massachusetts Counsel (included in Exhibit 5.2).
*25 Statement of Eligibility of Trustee.
*27 Financial Data Schedule.
- ------------------------
* filed previously
(b) Financial Statement Schedules:
PAGE
NUMBER
- ------
S-1 Report of Independent Accountants
S-2 Schedule I--Condensed Financial Information of Registrant (Parent Company)
II-2
ITEM 22. UNDERTAKINGS
(a) The Company undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, as
amended; (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; and (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 will be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time will 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.
(b) The Company undertakes to respond to requests for information that is
incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or
13 of this form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding to
the request.
(c) The Company undertakes to supply by means of a post-effective amendment
all information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the Registration
Statement when it became effective.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Post-Effective Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Morrow,
Georgia on June 15, 1998.
CARTER HOLDINGS, INC.
By: /s/ FREDERICK J. ROWAN II
-----------------------------------------
Frederick J. Rowan, II
CHAIRMAN OF THE BOARD OF DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael D. Casey and David A. Brown and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including,
without limitation, any registration statement filed pursuant to Rule 462 under
the Securities Act of 1933, as amended, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents or any of them or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 to Registration Statement has been signed by the
following persons in the capacities indicated on June 15, 1998.
NAME TITLE
- ------------------------------ --------------------------
Chairman of the Board of
/s/ FREDERICK J. ROWAN, II Directors, President and
- ------------------------------ Chief Executive Officer
Frederick J. Rowan, II (Principal Executive
Officer)
Senior Vice President and
/s/ MICHAEL D. CASEY Chief Financial Officer
- ------------------------------ (Principal Accounting
Michael D. Casey Officer)
/s/ CHRISTOPHER J. O'BRIEN
- ------------------------------ Director
Christopher J. O'Brien
/s/ CHARLES J. PHILIPPIN
- ------------------------------ Director
Charles J. Philippin
/s/ CHRISTOPHER J. STADLER
- ------------------------------ Director
Christopher J. Stadler
II-4
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
In connection with our audits of the consolidated financial statements of
Carter Holdings, Inc. and its subsidiaries as of January 3, 1998 and December
28, 1996, and for the year ended January 3, 1998 and for the period October 30,
1996 (inception) through December 28, 1996, which financial statements are
included in the Prospectus, we have also audited the financial statement
schedule listed in Item 21 herein.
In our opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements of Carter Holdings, Inc.
and its subsidiaries, taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Stamford, Connecticut
March 27, 1998
S-1
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
CARTER HOLDINGS, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JANUARY 3, DECEMBER 28,
1998 1996
----------- ------------
ASSETS
Income tax receivable................................................................ $ 479 $ --
Deferred tax asset................................................................... 720 161
Investment in Carter's............................................................... 75,183 75,722
Deferred debt issuance costs, net.................................................... 1,946 2,166
----------- ------------
Total assets....................................................................... $ 78,328 $ 78,049
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest..................................................................... 408 400
12% Senior Subordinated Notes........................................................ 20,000 20,000
----------- ------------
Total liabilities.................................................................. 20,408 20,400
----------- ------------
Stockholders' equity:
Class A Stock, nonvoting; par value $.01 per share 775,000 shares authorized; 752,808
shares issued and outstanding; liquidation value of $.001 per share................ 45,168 45,168
Class C Stock, nonvoting; par value $.01 per share; 500,000 shares authorized;
242,192 shares issued at January 3, 1998; 242,192 shares issued and outstanding at
December 28, 1996; liquidation value of $.001 per share............................ 14,532 14,532
Class C Treasury Stock, 19,702 shares, at cost....................................... (1,183) --
Class D Stock, voting; par value $.01 per share; 5,000 shares authorized, issued and
outstanding........................................................................ 300 300
Common stock, voting; par value $.01 per share; 1,280,000 shares authorized; none
issued or outstanding.............................................................. -- --
Accumulated deficit.................................................................. (897) (2,351)
----------- ------------
Total stockholders' equity........................................................... 57,920 57,649
----------- ------------
Total liabilities and stockholders' equity......................................... $ 78,328 $ 78,049
----------- ------------
----------- ------------
See accompanying notes
S-2
CARTER HOLDINGS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
FOR THE PERIOD
FROM
OCTOBER 30, 1996
FOR THE FISCAL (INCEPTION)
YEAR ENDED THROUGH
JANUARY 3, 1998 DECEMBER 28, 1996
--------------- -----------------
Interest expense.............................................................. $ (2,675) $ (434)
Income tax benefit............................................................ 1,038 161
------- -------
Loss before equity interest in Carter's....................................... (1,637) (273)
Equity in net income (loss) of Carter's....................................... 3,091 (2,078)
------- -------
Net income (loss)............................................................. $ 1,454 $ (2,351)
------- -------
------- -------
See accompanying notes
S-3
CARTER HOLDINGS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE PERIOD
FROM
OCTOBER 30, 1996
FOR THE FISCAL (INCEPTION)
YEAR ENDED THROUGH
JANUARY 3, 1998 DECEMBER 28, 1996
--------------- -----------------
Cash flows from operating activities:
Net income (loss)........................................................... $ 1,454 $ (2,351)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Equity in (net income) loss of Carter's................................... (3,091) 2,078
Dividend received from earnings of Carters................................ 1,013 --
Amortization of debt issuance costs....................................... 220 34
Deferred tax benefit...................................................... (559) (161)
Increase in tax receivable................................................ (479) --
Increase in accrued interest.............................................. 8 400
------- --------
Net cash used in operating activities................................... (1,434) --
------- --------
Cash flows from investing activities:
Investment in Carter's common stock......................................... -- (60,000)
Investment in Carter's redeemable preferred stock........................... -- (17,800)
Additional dividends received from Carter's................................. 2,617 --
------- --------
Net cash provided by (used in) investing activities..................... 2,617 (77,800)
------- --------
Cash flows from financing activities:
Proceeds from issuance of Class A stock..................................... -- 45,168
Proceeds from issuance of Class C stock..................................... -- 14,532
Proceeds from issuance of Class D stock..................................... -- 300
Proceeds from issuance of 12% Senior Subordinated Notes..................... -- 20,000
Repurchase of Class C stock................................................. (1,183) --
Payment of financing costs.................................................. -- (2,200)
------- --------
Net cash (used in) provided by financing activities..................... (1,183) 77,800
------- --------
Net increase in cash and cash equivalents..................................... -- --
Cash and cash equivalents at the beginning of the period......................
Cash and cash equivalents at end of period.................................... $ -- $ --
------- --------
------- --------
See accompanying notes
S-4
CARTER HOLDINGS, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
CLASS C
COMMON CLASS A CLASS C TREASURY CLASS D ACCUMULATED
STOCK STOCK STOCK STOCK STOCK DEFICIT
--------- --------- ---------- --------- ----------- ------------
BALANCE AT OCTOBER 30, 1996 (INCEPTION)........ $ -- $ -- $ --
Issuance of Class A Stock
(752,808 shares)........................... $ 45,168
Issuance of Class C Stock
(242,192 shares)........................... $ 14,532
Issuance of Class D Stock
(5,000 shares)............................. $ 300
Net loss..................................... (2,351)
--------- --------- ---------- --------- ----- ------------
BALANCE AT DECEMBER 28, 1996................... -- 45,168 14,532 -- 300 (2,351)
Purchase of Class C Treasury Stock
(19,709 shares)............................ (1,183)
Net income................................... 1,454
--------- --------- ---------- --------- ----- ------------
BALANCE AT JANUARY 3, 1998..................... $ -- $ 45,168 $ 14,532 ($ 1,183) $ 300 $ (897)
--------- --------- ---------- --------- ----- ------------
--------- --------- ---------- --------- ----- ------------
See accompanying notes
S-5
CARTER HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
NOTE 1--THE COMPANY:
Carter Holdings, Inc. ("Holdings") is a holding company whose primary asset
consists of an investment in 100% of the outstanding capital stock of The
William Carter Company, Inc. ("Carter's"). On October 30, 1996 (inception),
Holdings, organized on behalf of affiliates of INVESTCORP S.A. ("Investcorp"),
management and certain other investors, acquired 100% of the previously
outstanding Common and Preferred Stock of Carter's from MBL Life Assurance
Corporation, CHC Charitable Irrevocable Trust and certain management
stockholders. Financing for the Acquisition totaled $226.1 million and was
provided by (i) $56.1 million borrowings under a Carter's $100.0 million Senior
Credit Facility; (ii) $90.0 million of borrowings under a Carter's Subordinated
Loan Facility; (iii) $70.9 million of capital invested by affiliates of
Investcorp and certain other investors in Holdings, which included $20.0 million
in proceeds from issuance of Holdings 12% Senior Subordinated Notes (due 2008)
used to make a $20.0 million investment by Holdings in Carter's newly issued
redeemable preferred stock; and (iv) issuance of non-voting stock of Holdings
valued at $9.1 million to certain members of management. For further
information, reference should be made to the Notes to Consolidated Financial
Statements of Carter Holdings, Inc. included in the accompanying Form S-4
Registration Statement.
S-6
- --------------------------------------------------------------------------------
CARTER HOLDINGS, INC.
to
STATE STREET BANK AND
TRUST COMPANY
Trustee
---------------------------
SUPPLEMENTAL
INDENTURE
Dated as of March 25, 1997
amending and restating
the INDENTURE
Dated as of
October 30, 1996
---------------------------
$20,000,000
12% Senior Subordinated Notes Due October 1, 2008
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
SECTION 1.01. Definitions........................................... 1
SECTION 9.03. Waiver of Certain Covenants........................... 54
SECTION 9.04. Limitation on Restricted Payments..................... 54
SECTION 9.05. Limitation on Restrictions on Distributions from
Restricted Subsidiaries............................... 57
SECTION 9.06 Limitation on Indebtedness............................ 58
SECTION 9.07. Limitation on Transactions with Affiliates............ 61
SECTION 9.08. Change of Control..................................... 61
i
This SUPPLEMENTAL INDENTURE (this "Indenture") is dated as of March 25,
1997 from CARTER HOLDINGS, INC., a Massachusetts corporation (the "Company"), to
STATE STREET BANK AND TRUST COMPANY (the "Trustee"), and amends and restates the
Indenture dated as of October 30, 1996 (the "Existing Indenture") in its
entirety.
RECITALS OF THE COMPANY
For the lawful corporate purposes, the Company has duly authorized the
issue of its 12% Senior Subordinated Notes dues October 1, 2008 (the "Notes") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of the
Existing Indenture.
All acts and things necessary to constitute this Indenture a valid
agreement according to its terms, have been done and performed, including
obtaining the consent of all holders of outstanding Notes as required by the
Existing Indenture, and the execution of this Indenture and the issue hereunder
of the currently outstanding and future Notes in all respects have been duly
authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
In consideration of the premises, the Company covenants and agrees with
the Trustee for the equal and proportionate benefit of the Holders from time to
time of the Notes as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.01. Definitions.
The terms defined in this Section 1.01 (except as herein otherwise
expressly provided or unless the context otherwise requires) for all purposes of
this Indenture and of any indenture supplemental hereto shall have the
respective meanings specified in this Section 1.01. The words "herein," "hereof"
and "hereunder" and words of similar import refer to this Indenture as a whole
and not to any particular Article, Section or other subdivision. The terms
defined in this Article One include the plural as well as the singular.
Acquisition means the acquisition on October 30, 1996, by the Company,
management and certain other investors, through the merger of TWCC Acquisition
Corp., a wholly owned subsidiary of the Company, with and into Carter,
Act when used with respect to any Holder, has the meaning specified in
Section 1.04.
Additional Assets means (i) any property or assets (other than
Indebtedness and Capital Stock of the acquiring person) to be used by the
Company or a Restricted Subsidiary in a Related Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; PROVIDED, HOWEVER, that, in the case of clauses (ii)
and (iii), such Restricted Subsidiary is primarily engaged in a Related
Business.
AFFILIATE of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting Notes, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
AUTHENTICATING AGENT means any Person authorized by the Trustee to act on
behalf of the Trustee to authenticate Notes.
ASSET DISPOSITION means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purpose
of this definition as a "disposition") by the Company or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary; (ii) a disposition of property or assets in the ordinary course of
business; (iii) leases or subleases to third parties of real property owned in
fee or leased by the Company or its Subsidiaries; (iv) a disposition of a lease
of real property; (v) for purposes of Section 9.14 only, a disposition subject
to Section 9.04 and Article 7; and (vi) any disposition of property of the
Company or any of its Subsidiaries that, in the reasonable judgment of the
Company, has become uneconomic, obsolete or worn out.
AVERAGE LIFE means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
BANK AGENT means (a) Chase Manhattan Bank as long as Chase Manhattan Bank
is the Administrative Agent under the Senior Credit Facility and (b) thereafter,
any other administrative agent under the Senior Credit Facility.
BANK INDEBTEDNESS means any and all amounts payable under or in respect of
the Senior Credit Facility, the other Senior Credit Documents and the
Refinancing Indebtedness with respect thereto, as amended, supplemented or
otherwise modified from time to time, including increases in the principal
amount thereof permitted under this Indenture and including principal, premium
(if any), interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not a claim for post-filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof
2
BANKRUPTCY LAW means Title 11 of the U.S. Code or any similar Federal or
state law for the relief of debtors.
BANKS has the meaning specified in the Senior Credit Facility.
BOARD OF DIRECTORS means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
BUSINESS DAY means any day other than a Saturday, Sunday or other day on
which commercial banking institutions (including, without limitation, the
Federal Reserve System) are authorized or required by law to close in New York
City.
CAPITAL STOCK of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
CAPITALIZED LEASE OBLIGATION means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP; the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the stated maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
CARTER means The William Carter Company, a Massachusetts corporation.
CARTER SUBORDINATED DEBT means the 10 3/8% Senior Subordinated Notes due
2006 of Carter outstanding from time to time.
CHANGE OF CONTROL means the occurrence of any of the following events:
(a) at any time prior to the first Public Offering of Voting Stock of
the Company or the Operating Company, as the case may be, the Permitted
Holders cease to be the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of a majority of the
voting power of the Voting Stock of the Company, or the Company shall cease
to own 100% of the issued and outstanding Voting Stock of the Operating
Company, whether as a result of issuance of securities of the Operating
Company or the Company, as the case may be, any merger, consolidation,
liquidation or dissolution of the Operating Company or the Company, as the
case may be, any direct or indirect transfer of securities by any Permitted
Holder or otherwise (for purposes of this clause (a) and clause (b) below,
the Permitted Holders shall be deemed to own beneficially any Voting Stock of
a corporation (the "specified corporation") held by any other corporation
(the "parent corporation') so long as the Permitted Holders beneficially own
(as so defined), directly or indirectly, a majority of the Voting Stock of
the parent corporation);
3
(b) at any time after the first Public Offering of Voting Stock by the
Company or the Operating Company, as the case may be, if any Person (other than
one or more Permitted Holders), directly or indirectly, is or becomes the
beneficial owner of 40% or more, on a fully diluted basis, of the voting power
of the outstanding Voting Stock of the Company, or the Operating Company, as the
case may be (excluding, for purposes of such determination, the percentage, on a
fully diluted basis, of the Voting Stock of the Company outstanding on the date
hereof and owned, directly or indirectly, by such Person or Persons), provided
that the Permitted Holders "beneficially own" (as defined in clause (a) above),
directly or indirectly, in the aggregate a lesser percentage of the total voting
power of the Voting Stock of the Company, or the Operating Company, as the case
may be, than such other person and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority of
the board of directors of the Company, or the Operating Company, as the case may
be (for the purposes of this clause (b), such other person shall be deemed to
beneficially own any voting stock of a specified corporation held by a parent
corporation, if such other person "beneficially owns" (as defined in clause
(a)), directly or indirectly, 40% of the voting power of the Voting Stock of
such parent corporation and the Permitted Holders "beneficially own" (as defined
in clause (a) above), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent corporation
and do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the board of directors of such
parent corporation); or
(c) at any time after the first Public Offering of Voting Stock by the
Company or the Operating Company, as the case may be, (i) any Person (other than
one or more Permitted Holders) nominates one or more individuals for election to
the board of directors of the Company or the Operating Company, as the case may
be, and solicits proxies, authorizations or consents in connection therewith and
(ii) as a result, such number of nominees elected to serve on the board of
directors represents a majority of the board of directors of the Company or the
Operating Company, as the case may be, following such election.
COMMISSION means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, as amended,
or, if at any time after the execution of this instrument such Commission is not
existing, the body performing its duties at such time.
COMPANY means Carter Holdings, Inc. and any corporation that succeeds to
Carter Holdings, Inc. or any successor corporation pursuant to the provisions of
Article Seven, and thereafter "Company" shall mean such successor corporation.
COMPANY ORDER or COMPANY REQUEST means a written order or request signed
in the name of the Company by its Chairman of the Board, a Vice Chairman, its
President or a Vice President, and by its Treasurer, an Assistant Treasurer, its
Clerk or an Assistant Clerk, and delivered to the Trustee.
CONSOLIDATED COVERAGE RATIO as of any date of determination means the
ratio of(i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters
4
ending prior to the date of such determination to (ii) the Consolidated Interest
Expense for such four fiscal quarters; provided, however, that (A) if the
Company or any Restricted Subsidiary (1) has incurred any Indebtedness (other
than Indebtedness incurred for working capital purposes under a revolving credit
facility) since the beginning of such period that remains outstanding on such
date of determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an incurrence of Indebtedness, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, or (2) has repaid, repurchased, defeased or otherwise
discharged any Indebtedness since the beginning of the period that is no longer
outstanding on such date of determination, or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio involves a discharge of
Indebtedness, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect to such discharge of such Indebtedness, including
with the proceeds of such new Indebtedness, as if such discharge had occurred on
the first day of such period (except that, in making such computation, the
amount of Indebtedness under any revolving credit facility shall be computed
based upon the average daily balance of such Indebtedness during such
four-quarter period); (B) if since the beginning of such period the Company or
any Restricted Subsidiary shall have made any Asset Disposition of a company,
business or group of assets comprising an operating unit, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period or increased by an amount equal to the EBITDA (if negative) directly
attributable thereto for such period and Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to
the Company and its continuing Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Subsidiaries are no longer liable for such
Indebtedness after such sale); (C) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction causing a calculation to be
made hereunder, which constitutes all or substantially all of an operating unit
of a business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness ) as if such Investment or acquisition occurred on the first
day of such period; and (D) if since the beginning of such period any Person
(that subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition or any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (B) or (C) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
of assets occurred on the first day
5
of such period. For purposes of this definition, whenever pro forma effect is to
be given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in good faith by a responsible financial or accounting officer of
the Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term as at the date of determination in excess of 12 months).
Consolidated Interest Expense means, for any period, the total interest
expense of the Company and its consolidated Subsidiaries, plus, to the extent
incurred by the Company and its Subsidiaries in such period but not included in
such interest expense, (i) interest expense attributable to Capitalized Lease
Obligations, (ii) amortization of debt discount, (iii) capitalized interest,
(iv) non-cash interest expense (excluding amortization of debt issuance costs,
commissions, and other fees and expenses), (v) commissions, discounts and other
fees and charges attributable to letters of credit and bankers acceptance
financing, (vi) interest actually paid by the Company or any such Subsidiary
under any Guarantee of Indebtedness or other obligation of any other Person,
(vii) net costs associated with any Hedging Obligations (including amortization
of fees), and (viii) the product of (A) all preferred stock dividends in respect
of all preferred stock of Subsidiaries of the Company (excluding the Existing
Preferred Stock) and Disqualified Stock of the Company held by Persons other
than the Company or a Wholly Owned Subsidiary multiplied by (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 the Company,
expressed as a decimal, in each case, determined on a consolidated basis in
accordance with GAAP; provided, however, that there shall be excluded therefrom
any such interest expense of any Unrestricted Subsidiary to the extent the
related Indebtedness is not Guaranteed or paid by the Company or any Restricted
Subsidiary.
Consolidated Net Income means, for any period, the net income (loss) of
the Company and its consolidated Subsidiaries before any reduction in respect of
Preferred Stock dividends plus, in each case, to the extent deducted in
determining net income for such period, any expenses incurred in connection with
the Acquisition (other than the amortization of the prepaid management fee)
including without limitation, management bonuses and payments under the
management incentive and equity participation plans; provided, however, that
there shall not be included in such Consolidated Net Income:
(i) any net income of any Person if such Person is not a Restricted
Subsidiary, except that (A) subject to the limitations contained in
clause (iv) below, the Company's equity in the net income of any
such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed
by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to
the limitations contained in clause (iv) below) and (B) the
Company's equity in a net loss of any such Person (other
6
than an Unrestricted Subsidiary) for such period shall be included
in determining such Consolidated Net Income,
(ii) any expense recognized (net of tax benefits related thereto) as a
consequence of payments permitted to be made by the Operating
Company and the Company under clauses (b)(vi)(B) of Section 4.04 of
the Carter Subordinated Debt indenture,
(iii) any net income (loss) of any person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition,
(iv) any net income (loss) of any Restricted Subsidiary if such
Subsidiary is subject to restrictions, directly or indirectly, on
the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company,
except that (A) subject to the limitations contained in (v) below,
the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash that could have been
distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend (subject, in
the case of a dividend that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause),
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income, and (C) such restrictions imposed on the
Operating Company shall be disregarded for purposes of this
definition,
(v) any gain or loss realized upon the sale or other disposition of any
asset of the Company or its consolidated Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) which is not sold or
otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale of other disposition of any
Capital Stock of any Person,
(vi) any extraordinary or non-recurring gain, loss or charge (together
with any related provisions for taxes on such extraordinary or
non-recurring gain, loss or charge), and
(vii) the cumulative effect of a change in accounting principles (effected
either through cumulative effect adjustment or a retroactive
application, in each case, in accordance with GAAP).
CONSOLIDATED NET WORTH means the total of the amounts shown on the balance
sheet of the Company and the Restricted Subsidiaries, determined on a
consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending prior to the taking of any action for the purpose of which the
determination is being made, as (i) the par or stated value of all outstanding
Capital Stock of the Company plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
7
Consolidation means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" shall not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in a Unrestricted Subsidiary shall
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
Currency Agreement means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
Custodian means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
Date of this Indenture means March 25, 1997.
Definitive Notes means Notes that are in the form of Exhibit A or Exhibit
B attached hereto that do not include the information called for by footnote 1
thereof
Depository means, with respect to the Notes issuable or issued in whole or
in part in global form, the person specified in Section 2.03 as the Depository
with respect to the Notes, until a successor shall have been appointed and
become such pursuant to the applicable provisions of this Indenture, and
thereafter "Depository" shall mean or include such successor.
Designated Senior Indebtedness means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, at the date of determination, has an
aggregate principal amount outstanding of; or under which, at the date of
determination, the holders thereof; are committed to lend up to, at least
$10,000,000 and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of this Indenture.
Disqualified Stock means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (other than as a result of a Change of Control) (i) matures or is
mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii)
is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii)
is redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the first anniversary of the Stated Maturity of the Notes;
provided however that the currently authorized classes of Capital Stock of the
Company (as in effect on the Date of this Indenture and as amended from time to
time, including such amendments with respect to those matters set forth in
clauses (i), (ii) and (iii) above which will not have an adverse effect on the
Holders) shall not be Disqualified Stock.
Domestic Subsidiary means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
8
EBITDA means, for any period, the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) total income tax expense, (ii) Consolidated Interest Expense
together with amortization of debt issuance costs, commissions, and other fees
and expenses, (iii) depreciation expense, (iv) amortization expense, including
amortization of inventory write-up under APB 16, amortization of intangibles
(including, but not limited to, goodwill and the costs of Interest Rate
Agreements or Currency Agreements, license agreements and non-competition
agreements) and organization costs, (v) non-cash expenses related to the
amortization of prepaid management fees pursuant to certain agreements referred
to in the Indenture, (vi) costs of surety bonds in connection with financing
activities, (vii) non-cash amortization of Capitalized Lease Obligations, (viii)
franchise taxes, (ix) expenses recorded in historical periods through the date
of the Acquisition related to the management incentive and equity participation
plans and allocation of "C" stock, (x) any other write-downs, write-offs,
minority interests and other non-cash charges in determining such Consolidated
Net Income for such period, and (xi) all extraordinary non-cash charges in
determining such Consolidated Net Income for such period; provided that the
impact of foreign currency translations shall be excluded.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT means the Exchange and
Registration Rights Agreement dated March 25, 1997, by and between the Initial
Purchaser and the Company, as such agreement may be amended, modified, or
supplemented from time to time in accordance with the terms thereof.
EXCHANGE NOTES means the 12% Senior Subordinated Notes due 2008 Series B
to be issued pursuant to this Indenture in connection with the offer to exchange
Notes for the Initial Notes that may be made by the Company pursuant to the
Exchange and Registration Rights Agreement.
EXISTING PREFERRED STOCK means the 12% preferred stock of the Operating
Company issued and outstanding on the Date of this Indenture, and any
extensions, refinancings, renewals or replacements thereof (the "Refinancing
Preferred Stock"); PROVIDED that (i) the aggregate liquidation preference of
such Refinancing Preferred Stock does not exceed the aggregate liquidation
preference of the Existing Preferred Stock, (ii) the dividend rate per annum of
such Refinancing Preferred Stock does not exceed the dividend rate per annum of
the Existing Preferred Stock and (iii) the Refinancing Preferred Stock has a
mandatory redemption date no earlier than the Existing Preferred Stock.
EVENT OF DEFAULT has the meaning specified in Section 4.01.
FISCAL YEAR of the Company means the fiscal year of the Company in effect
at the time of any determination thereof.
FOREIGN SUBSIDIARY means any Restricted Subsidiary of the Company which is
not organized under the laws of the United States of America or any state
thereof or the District of Columbia.
9
GAAP means generally accepted accounting principles in the United States
of America as in effect form time to time, including those 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 approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in this Indenture shall be
computed in conformity with GAAP as in effect as of the Issue Date.
GLOBAL NOTE means a Note that is in the form of Exhibit A or Exhibit B
hereto that includes the information called for by footnote 1 thereof.
GUARANTEE means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof(in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
HEDGING OBLIGATIONS of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
HOLDER means a Person in whose name at the time of any determination
thereof a particular Note is registered on the Note Register.
INCUR means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary.
INDEBTEDNESS means, with respect to any Person, the principal of and
premium, if any, on, any of the following (without duplication), whether
outstanding at the date hereof or hereafter incurred, created, assumed or
guarantied:
(a) the principal of and premium (if any) in respect of indebtedness of
such Person for borrowed money;
(b) the principal of and premium (if any) in respect of all obligations of
such Person evidenced by notes, debentures, bonds or other similar instruments;
(c) all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto but excluding letters of
10
credit supporting the purchase of goods in the ordinary course of business and
expiring no more than six months from the date of issuance);
(d) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services (except Trade Payables), which purchase price is
due more than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services;
(e) all Capitalized Lease Obligations of such Person;
(f) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of the Company, any Preferred Stock (other than the
Existing Preferred Stock) (but excluding, in each case, any accrued dividends);
(g) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be the
lesser of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Persons;
(h) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and
(i) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the liability, assuming the occurrence of the contingency giving rise
to the obligation, of any contingent obligations at such date. For purposes of
clarification, Indebtedness shall not include undrawn commitments on credit
facilities.
INDENTURE means the Existing Indenture as supplemented hereby or, if
further amended or supplemented as herein provided, as so amended or
supplemented.
INITIAL NOTES means the 12% Senior Subordinated Notes due 2008 Series A,
originally issued under the Existing Indenture on or about the date thereof and
reissued on the date hereof to conform to the terms of this Indenture.
INITIAL PURCHASER means BT Securities Corporation.
INTEREST PAYMENT DATE means each date on which payment of interest is due
in respect of the Notes in accordance with the terms thereof and shall be May 1
and November 1 in each year, commencing May 1 1997.
INTEREST RATE AGREEMENT means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge
11
agreement or other similar agreement or arrangement as to which such Person is
party or a beneficiary.
Investcorp means INVESTCORP S.A., a company organized under the laws of
Luxembourg and as of the date hereof having an address at 37 rue Notre Dame,
Luxembourg.
Investment in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person) or other extension
of credit (including by way of guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
Instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and Section 9.04, (i) Investment shall include the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of any Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
Issue Date means the date on which the Notes were originally issued.
Lien means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
Management Agreement means the Management Services Agreement dated as of
October 30, 1996, between Investcorp International, Inc. and the Operating
Company, as amended from time to time.
Management Group means the senior management of the Company and/or the
Operating Company.
Maturity, when used with respect to any Note, means the date on which the
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity or by declaration of acceleration, call for
redemption or otherwise.
Net Available Cash from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred (including legal, accounting and investment banking fees and any
relocation expenses incurred as a result of an Asset Disposition), and all
Federal, state, provincial, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all
12
payments made on any Indebtedness which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be repaid out of the proceeds from such Asset
Disposition, .(iii) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition and (iv) appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
assets disposed of in such Asset Disposition and retained (including by way of
indemnification obligations) by the Company or any Restricted Subsidiary after
such Asset Disposition.
NET CASH PROCEEDS, with respect to any issuance or sale of Capital Stock
or disposition of any Investment by the Company or any Subsidiary, means the
cash proceeds of such issuance, sale or disposition net of attorneys' fees,
accountants' fees, underwriters or placement agents' fees, discounts or
disposition of any commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance, sale or disposition and net of taxes
paid or payable as a result thereof.
NOTES has the meaning specified in the Recitals hereto and includes all
Notes outstanding on the date of this supplemental Indenture.
NOTES CUSTODIAN means the custodian with respect to the Global Note (as
appointed by the Depository), or any successor entity thereto and shall
initially be the Trustee.
NOTE REGISTER and NOTE REGISTRAR have the respective meanings specified in
Section 2.06.
OFFICERS' CERTIFICATE means a certificate signed by the Chairman of the
Board, a Vice Chairman, the President or a Vice President and by the Treasurer,
an Assistant Treasurer, the Chief Financial Officer, the Clerk or an Assistant
Clerk of the Company, and delivered to the Trustee.
OPERATING COMPANY means Carter.
OPINION OF COUNSEL means an opinion in writing signed by legal counsel
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company, the Operating Company or the Trustee.
OUTSTANDING, when used with reference to Notes, means, as of the date of
determination, all Notes authenticated and delivered by the Trustee under this
Indenture, except:
(a) Notes theretofore canceled by the Trustee or delivered to the Trustee
for cancellation;
(b) Notes, or portions thereof for the payment or redemption of which
funds in the necessary amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the Company) or shall have been set
aside and segregated in trust by the Company and distribution of such funds has
not been prohibited by Article 11, provided that if such Notes
13
are to be redeemed, notice of such redemption shall have been given pursuant to
this Indenture or provision satisfactory to the Trustee shall have been made for
giving such notice; and
(c) Notes in exchange for or in lieu of which other Notes shall have been
authenticated and delivered pursuant to the terms of Section 2.07 unless proof
satisfactory to the Trustee is presented that any such Notes are held by bona
fide holders in due course;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company, any other obligor on the Notes or any Subsidiary of the Company
shall be deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that the Trustee
knows to be so owned shall be so disregarded. Notes so owned that have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Notes and that the pledgee is not the Company or any other obligor on the
Notes or a Subsidiary of the Company.
Permitted Holders means Investcorp, its Affiliates, members of the
Management Group, the international investors who are initial holders of the
Capital Stock of the Company and any Person acting in the capacity of an
underwriter in connection with a public or private offering of the Capital Stock
of the Company or the Operating Company.
Permitted Investment means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary, the Company or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel, entertainment, relocation and similar
advances that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of the Company or such Restricted Subsidiary; (vii) loans or
advances to employees (or guarantees of third party loans to employees) in an
aggregate amount not to exceed $5,000,000, at any time outstanding; (viii)
stock, obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; or (ix) securities received in
connection with an Asset Disposition.
Permitted Liens means (i) Liens securing Senior Indebtedness, Indebtedness
incurred pursuant to the Senior Credit Facility, or Indebtedness of a Subsidiary
of the Company permitted
14
to be Incurred under this Indenture; (ii) Liens for taxes, assessments or other
governmental charges not yet delinquent or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect thereto
are maintained on the books of the Company or such Restricted Subsidiary, as the
case may be, in accordance with GAAP; (iii) carriers', warehousemen's,
mechanics', landlords', materialments, repairments or other like Liens arising
in the ordinary course of business in respect of obligations that are not yet
due or that are bonded or that are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are maintained
on the books of the Company or such Restricted Subsidiary, as the case may be,
in accordance with GAAP; (iv) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security legislation; (v)
deposits to secure the performance of bids, tenders, trade or government
contracts (other than for borrowed money), leases, licenses, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business; (vi) easements
(including reciprocal easement agreements), rights-of-way, building, zoning and
similar restrictions, utility agreements, covenants, reservations, restrictions,
encroachments, changes, and other similar encumbrances or title defects
incurred, or leases or subleases granted to others, in the ordinary course of
business, which do not in the aggregate materially detract from the aggregate
value of the properties of the Company and its Subsidiaries on the properties
subject thereto, taken as a whole; (vii) Liens pursuant to the Senior Credit
Documents, Liens in connection with industrial revenue bonds, Liens securing the
Bank Indebtedness and bankers' Liens arising by operation of law; (viii) Liens
on property of the Company or any of its Restricted Subsidiaries created solely
for the purpose of securing Indebtedness permitted by clause (b)(iv) of Section
9.06 or incurred in connection with Indebtedness permitted by clause (b)(vii)
thereof PROVIDED, HOWEVER that, in the case of liens described in such clause
(b)(iv), no such Lien shall extend to or cover other property of the Company or
such Restricted Subsidiary other than the respective property so acquired, and
the principal amount of Indebtedness secured by any such Lien shall at no time
exceed the original purchase price of such property; (ix) Liens existing on the
date of this Indenture; (x) Liens on goods (and the proceeds thereof) and
documents of title and the property covered thereby securing Indebtedness in
respect of commercial letters of credit; (xi) (A) mortgages, liens, security
interests, restrictions, encumbrances or any other matters of record that have
been placed by any developer, landlord or other third party on property over
which the Company or any Restricted Subsidiary of the Company has easement
rights or on any real property leased by the Company on the Issue Date and
subordination or similar agreements relating thereto and (B) any condemnation or
eminent domain proceedings affecting any real property; (xii) leases or
subleases to third parties; (xiii) Liens in connection with workmen's
compensation obligations and general liability exposure of the Company and its
Restricted Subsidiaries; (xiv) Liens securing Indebtedness Incurred under
clauses (a) or (b)(v) of Section 9.06; PROVIDED, HOWEVER, that such Indebtedness
is not subordinate or junior in ranking to the Notes; and (xv) Liens securing
Indebtedness of any Subsidiary of the Company to the Company or the Operating
Company.
PERSON means a corporation, an association, a partnership, a joint
venture, an organization, a trust, an individual or a government or any agency
or political subdivision thereof.
15
PREFERRED STOCK, as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
PRINCIPAL OFFICE OF THE TRUSTEE means the principal office of the Trustee
at which at any particular time its corporate trust business shall be
administered.
PUBLIC OFFERING means an underwritten primary public offering of common
stock (or other Voting Stock) of the Company or the Operating Company pursuant
to an effective registration statement (other than a registration statement on
Form S-4, S-8 or any successor or similar forms) filed under the Security Act of
1933, as amended.
REDEMPTION DATE, when used with respect to any Note to be redeemed, means
the date fixed for such redemption by or pursuant to this Indenture.
REFINANCING INDEBTEDNESS means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances," and "refinanced" shall have
a correlative meaning) any Indebtedness existing on the date of this Indenture
or Incurred in compliance with this Indenture (including Indebtedness of the
Company that refinances Indebtedness of any Restricted Subsidiary (to the extent
permitted in this Indenture) and Indebtedness of any Restricted Subsidiary that
refinances Indebtedness of another Restricted Subsidiary) including Indebtedness
that refinances Refinancing Indebtedness; provided, however, that (i) except in
the case of any refunding, refinancing, replacement, renewal, repayment or
extension of any Bank Indebtedness, the Refinancing Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the Indebtedness being
refinanced, (ii) except in the case of any refunding, refinancing, replacement,
renewal, repayment or extension of any Bank Indebtedness, the Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being refinanced and (iii) such Refinancing Indebtedness is Incurred in an
aggregate principal amount (or if issued with original issue discount, an
aggregate issue price) that is equal to or less than the sum of (A) the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being refinanced,
(B) in the case of revolving credit Indebtedness, the unused commitment
thereunder, plus (C) fees, underwriting discounts and other costs and expenses
incurred in connection with such Refinancing Indebtedness; provided, further,
however, that Refinancing Indebtedness shall not include (A) Indebtedness of a
Restricted Subsidiary that refinances Indebtedness of the Company; or (B)
Indebtedness of the Company or a Restricted Subsidiary that refinances
.Indebtedness of an Unrestricted Subsidiary.
REGISTERED EXCHANGE OFFER shall have the meaning set forth in the Exchange
and Registration Rights Agreement.
REGULAR RECORD DATE, for the interest payable on any Interest Payment
Date, means the April 15 or October 15 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
16
RELATED BUSINESS means those businesses in which the Company or any of its
Subsidiaries are engaged on the date of this Indenture, or that are related
thereto.
REPRESENTATIVE means the trustee, agent or representative (if any) for any
issue of Senior Indebtedness.
RESPONSIBLE OFFICER means any officer in the Corporate Trust Department of
the Trustee.
RESTRICTED SECURITIES Legend means the legend set forth in Section 2.06
hereof.
RESTRICTED SUBSIDIARY means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
SALE/LEASEBACK TRANSACTION means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
SENIOR CREDIT DOCUMENTS means, collectively, the Senior Credit Facility,
the notes issued pursuant thereto and the Guarantees thereof, and the Security
Agreements, the Mortgages and the Pledge Agreements (each as defined in the
Senior Credit Facility).
SENIOR CREDIT FACILITY means the credit facilities under the Credit
Agreement dated as of October 30, 1996, among the Operating Company, Chase
Manhattan Bank, as Administrative Agent for the lenders and the financial
institutions which are parties thereto from time to time, including all
obligations of the Company, the Operating Company and its Subsidiaries to be
incurred thereunder and any related notes, collateral documents, letter of
credit applications and guaranties, and any increases, renewals, extensions,
refundings, deferrals, restructurings, amendments, modifications, replacements
or refinancings of any of the foregoing (whether provided by the original
Administrative Agent, collateral agent and lenders under such Credit Agreement
or another Administrative Agent, collateral agent or other lenders and whether
or not provided under the original Credit Agreement).
SENIOR INDEBTEDNESS means, whether outstanding on the date of this
Indenture or thereafter issued, (i) all obligations consisting of the Bank
Indebtedness; (ii) all obligations consisting of the principal of and premium,
if any, and accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company regardless of whether post-filing interest is allowed in such
proceeding) in respect of (A) indebtedness of the Company for money borrowed and
(B) indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which the Company is responsible or liable; (iii)
all Capitalized Lease Obligations of the Company; (iv) all obligations of the
Company (A) for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (B) under Hedging Obligations
entered into in respect of any obligations described in clauses (i), (ii), and
(iii) or (C) the deferred purchase price of newly acquired property, or the
price of construction or improvement of any property, in each case used in the
ordinary course of business of the Company and its Subsidiaries, whether such
indebtedness is owed to the seller or Person carrying out such construction or
improvement or to
17
any third party; (v) all obligations of other persons of the type referred to in
clauses (ii), (iii) and (iv) and all dividends of other persons for the payment
of which, in either case, the Company is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including Guarantees of such
obligations and dividends; and (vi) all obligations of the Company consisting of
modifications, renewals, extensions, replacements and refundings of any
obligations described in clauses (i), (ii), (iii), (iv) or (v); unless, in each
case in the instrument creating or evidencing the same or pursuant to which the
same is outstanding, it is provided that such obligations are not superior in
right of payment to the Notes; PROVIDED, HOWEVER, that Senior Indebtedness shall
not include (1) any obligation of the Company to any Subsidiary, (2) any
liability for Federal, state, local or other taxes owed or owing by the Company,
(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
the Company which is subordinate or junior to any other Indebtedness, Guarantee
or obligation of the Company or (5) any Indebtedness that is incurred in
violation of this Indenture. If any Designated Senior Indebtedness is
disallowed, avoided or subordinated pursuant to the provisions of Section 548 of
Title 11 of the United States Code or any applicable state fraudulent conveyance
law, such Designated Senior Indebtedness nevertheless shall constitute Senior
Indebtedness.
SENIOR LENDER means the Person or Persons to whom the Company is obligated
under any Senior Indebtedness on any date.
SENIOR SUBORDINATED INDEBTEDNESS means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes or is not subordinated by its terms to any
Indebtedness or other obligation of the Company that is not Senior Indebtedness.
SIGNIFICANT SUBSIDIARY means, on any date, any Restricted Subsidiary of
the Company that would be a "Significant Subsidiary" of the Company within the
meaning of Rule 1-02 under Regulation S-X promulgated by the Commission.
SPECIAL RECORD DATE, for the payment of any Defaulted Interest, means a
date fixed by the Trustee pursuant to Section 2.11.
STATED MATURITY means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
SUBORDINATED OBLIGATION means any Indebtedness of the Company (whether
outstanding on the date of this Indenture or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
SUBSIDIARY, with respect to any Person, means any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital
18
Stock or other interests (including partnership interests) 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 (i) such Person or (ii) one or more Subsidiaries of
such Person.
TEMPORARY CASH INVESTMENTS, means any of the following: (i) any investment
in direct obligations of the United States of American or any agency or
instrumentality thereof or obligations Guaranteed by the United States of
America or any agency or instrumentality thereof or in a money market mutual
fund registered under the Investment Company Act of 1940, the principal of which
is invested solely in such direct or Guaranteed obligations; (ii) investments in
time deposit accounts, certificates of deposit and Money market deposits
maturing within 180 days of the date of acquisition thereof; bankers'
acceptances with maturities of 180 days or less and overnight bank deposits, in
each case with or issued by a bank or trust company that is organized under the
laws of the United States of America, any state thereof or any foreign country
recognized by the United States of America having capital, surplus and undivided
profits aggregating in excess of $300,000,000 (or the foreign currency
equivalent thereof); (iii) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) or
(ii) above entered into with a bank meeting the qualifications described in
clause (ii) above; and (iv) investments in commercial paper, maturing not more
than six months after the date of acquisition, issued by any Lender (as defined
under the Senior Credit Facility) or the parent corporation of any Lender, and
commercial paper with a rating at the time as of which any investment therein is
made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1"
(or higher) according to Standard and Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
TIA means the Trust Indenture Act of 1939 (15 U.S.C. 77aaa-77bbbb) as in
effect on the date of this Indenture.
TRADE PAYABLES means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
TRANSFER RESTRICTED NOTES means Notes that bear or are required to bear
the Restricted Securities Legend set forth in Section 2.06 hereof.
TRUSTEE means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
provisions of Article Five, and thereafter "Trustee" shall mean such successor
Trustee.
UNRESTRICTED SUBSIDIARY means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary if(i) such Subsidiary or any of its
Subsidiaries does not own any Capital Stock or Indebtedness of or own or hold
any Lien on
19
any property of the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated and (ii) either (A) the
Subsidiary to be 56 designated has total consolidated assets of $l,000 or less
or (B) if such Subsidiary has consolidated assets greater than $1,000, then such
designation would be permitted under Section 9.04. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation (x) the
Company could incur $1.00 of additional Indebtedness under Section 9.06(a) and
(y) no Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
U.S. Government Obligations means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the hill faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
Voting Stock of a corporation means all classes of capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
Wholly Owned Subsidiary means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors qualifying shares) is owned by
the Company or another Wholly Owned Subsidiary.
SECTION 1.02. Compliance Certificate and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any of the provisions of this Indenture, the Company shall furnish
to the Trustee (a) an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with and (b) an Opinion of Counsel stating that, in
the opinion of such counsel, all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents specifically is required by any provision
of this Indenture relating to such particular application or request no addition
certificate or opinion shall be requested by the Trustee.
SECTION 1.03. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by or
coverd by an opinion of any specified Person, it is not necessary that all such
matters be certified by or covered by the opinion of only one such Person, or
that they be so certified or covered by only one document, but one such Person
may certify or give an opinion with respect to some matters and one or more
other such Persons as to other matters, and any such Person may certi~ or give
an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of or
representations by counsel, unless such officer
20
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of or representations by an officer or officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows that the certificate or
opinion or representations with respect to such matters are erroneous and
provided that the Person issuing the certificate or opinion or representation is
authorized to issue the certificate or opinion or representation on behalf of
the Person in respect of which such certificate or opinion or representation is
issued.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.04. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing;
and except as herein otherwise expressly provided such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is expressly required by this Indenture, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) herein sometimes are referred to as the "Act" of the Holders signing
such instrument or Instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company if made in the
manner provided in this Section 1.04.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof
where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate also shall constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument
or writing, or the authority of the Person executing the same, also may be
proved in any other reasonable manner that the Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or Act of the Holder of any Note shall bind every future Holder of the same
Note and the Holder of every Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such Note.
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SECTION 1.05. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver,
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder or the Company shall be sufficient for every
purpose hereunder if in writing and sent to the Trustee at State Street Bank and
Trust Company, Two International Place, 4th Floor, Boston, MA 02110, Attention
of: Corporate Trustee Department (the Carter Holdings, Inc. 12% Senior
Subordinated Notes due 2008), or such other address or telecopier number as is
set forth in a notice theretofore given by the Trustee to the Holders and the
Company, or
(b) the Company by the Trustee or any Holder shall be sufficient for every
purpose hereunder if in writing and sent to the Company by personal delivery,
overnight courier or first-class mail, postage prepaid, return receipt
requested, care of Gibson, Dunn & Crutcher LLP, 200 Park Avenue, New York, New
York 10166-0193, or by telecopier at (212) 351-4035, in each case addressed to
the attention of Charles K. Marquis, Esq. with a copy to INVESTCORP
International Inc. at 280 Park Avenue, 37th Floor West, New York, New York
10017, or by telecopier (212) 983-7073, in each case addressed to the attention
of Christopher J. O'Brien or his designee, or at such other address or
telecopier number, or to such other Person's attention, as is set forth in a
notice theretofore given by the Company to the Trustee and the Holders.
SECTION 1.06. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event or report to
Holders, such notice or report shall be deemed to have been given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, return receipt requested, to each Holder affected thereby, at
his address as it appears in the Note Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such notice
or report. In any case where notice to Holders is to be given, neither the
failure to send such notice, nor any defect in any notice, to any particular
Holder shall affect the sufficiency of such notice with respect to other
Holders.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
If by reason of the suspension of regular mail service or by reason of any
other cause it shall be impracticable to give such notice by mail, such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
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SECTION 1.07. Effect of Headings and Table of Contents.
The table of contents and the titles and headings of the Articles and
Sections of this Indenture have been inserted for convenience of reference
only and are not to be considered a part hereof and in no way shall modify or
restrict any of the terms or provisions hereof
SECTION 1.08. Successors and Assigns.
All the covenants and agreements of the Company in this Indenture shall
bind its successors and assigns whether so expressed or not.
SECTION 1.09. Separability Clause.
If any provision of this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not be affected or impaired thereby.
SECTION 1.10. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall give
any Person any benefit or any legal or equitable right, remedy or claim under
this Indenture, other than the parties hereto (and except for holders of Senior
Indebtedness, who shall be third party beneficiaries of this Indenture), any
paying agent, any Note Registrar and their successors hereunder and the Holders
of Notes.
SECTION 1.11. GOVERNING LAW; JURISDICTION.
THIS INDENTURE AND EACH NOTE SHALL BE DEEMED TO BE CONTRACTS MADE UNDER
THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SUCH STATE. Any claim arising under this Indenture
shall be brought in a state or Federal court in the City of New York, State of
New York, and the Company, the Trustee and any Holders of Notes issued pursuant
to this Indenture hereby consent to the exercise of the jurisdiction by any such
court.
SECTION 1.12. Execution in Counterparts.
This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts together shall constitute but
one and the same instrument.
SECTION 1.13. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Change of
Control Payment Date or the Stated Maturity of any Note shall not be a Business
Day, then (notwithstanding any other provision of this Indenture or the Notes)
payment of principal of or premium, if any, or interest on any Note due on such
date need not be made or effected on such date but may be made or effected on
the next succeeding Business Day with the same force and
23
effect as if made on the Interest Payment Date, Redemption Date or Change of
Control Payment Date or at the Stated Maturity, provided that no interest shall
accrue with respect to the payment of principal, premium, if any, or interest
that is due on such Interest Payment Date, Redemption Date, Change of Control
Payment Date or Stated Maturity, as the case may be, from such date until such
next succeeding Business Day.
SECTION 1.14. Incorporation by Reference of Trust Indenture Act
This Indenture is subject to the mandatory provisions of the TIA, which
are incorporated by reference in and made a part of this Indenture. If any
provision of this Indenture limits, qualifies or conflicts with another
provision which is required to be included in this Indenture by the TIA, the
required provision shall control. The following TIA terms have the following
meanings:
"Commission" means the SEC.
"indenture securities" means the Notes.
"indenture security bolder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meanings assigned to them by such definitions.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.
The Initial Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A, which is hereby incorporated in and
expressly made a part of this Indenture. Any Exchange Notes and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit B,
which is incorporated in and expressly made a part of this Indenture. The Notes
may have notations, legends or endorsements required by law, stock exchange
rule, agreements to which the Company is subject, if any, or usage (provided
that any such notation, legend or endorsement is in a form acceptable to the
Company). Each Note shall be dated the date of its authentication. The terms of
the Notes set forth in Exhibit A and B are part of the terms of this Indenture.
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(a) Global Notes. Initial Notes offered and sold to "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act)
("QIBs") in accordance with Rule 144A under the Securities Act ("Rule 144A")
shall be issued initially in the form of a single permanent Global Note in
definitive, registered form without interest coupons with the legend set
forth in footnote 1 to Exhibit A hereto (the "Restricted Global Note"), which
shall be deposited on behalf of the Initial Purchaser with the Trustee, as
custodian for the Depository, and registered in the name of the Depository or a
nominee of the Depository, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount of the
Restricted Global Note may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as Notes Custodian, and the
Depository or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.01(b) shall apply only to Global
Notes deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.01(b), authenticate and deliver initially one or more Global Notes
that (i) shall be registered In the name of the Depository for such Global Note
or Global Notes or the nominee of such Depository and (ii) shall be held by the
Trustee as custodian for the Depository. After the issuance of Exchange Notes
under a Registered Exchange offer, the Trustee shall have no duty to hold any
Global Note as custodian for the Depository or any other Note registered in the
name of the Depository or a nominee of the Depository.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository or by the Trustee as the custodian of the
Depository or under such Global Note, and the Depository may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the absolute
owner of such Global Note for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depository or impair, as between
the Depository and its Agent Members, the operation of customary practices of
such Depository governing the exercise of the rights of a holder of a beneficial
interest in any Global Note.
(c) Certificated Notes. Except as otherwise provided herein, owners of
beneficial interests in Global Notes will not be entitled to receive physical
delivery of certificated Notes. Purchasers of Initial Notes who are not QIBs
(referred to herein as the "Non-Global Purchasers") will receive certificated
Initial Notes bearing the Restricted Securities Legend set forth in Exhibit A
hereto ("Restricted Certificated Notes"); provided, however, that upon transfer
of such restricted Certificated Notes to a QIB or in accordance with Regulation
S, such Restricted Certificated Notes will, unless the relevant Global Note has
previously been exchanged, be exchanged for an interest in a Global Note
pursuant to the provisions of Section 2.06 hereof Certificated Notes will
include the Restricted Securities Legend set forth in Exhibit A unless removed
in accordance with this Section 2.01(c) or Section 2.06(g) hereof
25
Upon the consummation of a Registered Exchange Offer with respect to the
Initial Notes pursuant to which Holders of Initial Notes are offered Exchange
Notes in exchange for their Initial Notes, all requirements pertaining to such
Initial Notes that Initial Notes issued to certain Holders be issued in global
form will cease to apply and certificated Initial Notes with the Restricted
Securities Legend set forth in Exhibit A hereto will be available to Holders of
such Initial Notes that do not exchange their Initial Notes, and Exchange Notes
in certificated form will be available to Holders that exchange such Initial
Notes in such Registered Exchange Offer.
SECTION 2.02. Execution and Authentication.
Two Officers shall sign the Notes for the Company by manual or facsimile
signature. The Company's seal shall be impressed, affixed, imprinted or
reproduced on the Notes and may be in facsimile form.
If an Officer whose signature is on a Note no longer holds that office at
the time the Trustee authenticates the Note, the Note shall be valid
nevertheless.
A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
The Trustee shall authenticate and deliver (I) Initial Notes for original
issue in an aggregate principal amount of $20,000,000, and (2) Exchange Notes
for issue only in a Registered Exchange Offer, pursuant to the Exchange and
Registration Rights Agreement, for Initial Notes for a like principal amount of
initial Notes exchanged pursuant thereto, in each case upon a written order of
the Company signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Clerk of the Company. Such order shall specify the
amount of the Notes to be authenticated, the date on which the original issue of
Notes is to be authenticated and whether the Notes are to be Initial Notes or
Exchange Notes. The aggregate principal amount of Notes outstanding at any time
may not exceed $20,000,000 except as provided in Section 2.07.
The Trustee may appoint an authenticating agent reasonably acceptable to
the Company to authenticate the Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Notes whenever the Trustee
may do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. An authenticating agent has the same
rights as any Registrar, Paying Agent or agent for service of notices and
demands.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange (the "Registrar") and an
office or agency where Notes may be presented for payment (the "Paying Agent").
The Registrar shall keep a register of the Notes and of their transfer and
exchange. The Company may have one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any additional paying
agent.
26
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 5.07. The
Company or any of its Wholly Owned Subsidiaries that is a Domestic Subsidiary
may act as Registrar, co-registrar or transfer agent. None of the Company or
any of its Subsidiaries may act as Paying Agent.
The Company initially appoints the Trustee as Registrar and Paying Agent
in connection with the Notes.
The Company initially appoints The Depository Trust Company to act as
Depository with respect to the Global Notes.
SECTION 2.04. Paying Agent to Hold Money in Trust.
On or prior to each due date of the principal and interest on any Note,
the Company shall deposit with the Paying Agent a sum sufficient to pay such
principal and interest when so becoming due. The Company shall require each
Paying Agent (other than the Trustee) to agree in writing that the Paying Agent
shall hold in trust for the benefit of Holders or the Trustee all money held by
the Paying Agent for the payment of principal of or interest on the Notes and
shall notify the Trustee of any default by the Company in making any such
payment. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed by the Paying
Agent. Upon complying with this Section, the Paying Agent shall have no further
liability for the money delivered to the Trustee.
SECTION 2.05. Noteholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee, in writing at least five Business Days before each interest payment
date and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of Holders.
SECTION 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Definitive Notes. When Definitive Notes are
presented to the Registrar or a co-registrar with a request:
(x) to register the transfer of such Definitive Notes; or
(y) to exchange such Definitive Notes for an equal principal amount of
Definitive Notes of other authorized denominations,
27
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Notes surrendered for transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the
Registrar or co-registrar, duly executed by the Holder thereof or
his attorney duly authorized in writing; and
(ii) in the case of Transfer Restricted Notes that are Definitive Notes,
are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act or pursuant to
clause (A), (B) or (C) below, and are accompanied by the following
additional information and documents, as applicable:
(A) if such Transfer Restricted Notes are being delivered to the
Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to
that effect (in substantially the form set forth in Exhibit C
hereto); or
(B) if such Transfer Restricted Notes are being transferred to the
Company or to a "qualified institutional buyer" (as defined in
Rule 144A) in accordance with Rule 144A, a certification to
that effect (in substantially the form set forth in Exhibit C
hereto); or
(C) if such Transfer Restricted Notes are being transferred (x)
pursuant to an exemption from registration in accordance with
Rule 144 or Regulation S; or (y) to an institutional
"accredited investor" within the meaning of Rule 501(a)(l),
(2), (3) or (7) under the Securities Act that is acquiring the
Notes for its own account, or for the account of such an
institutional accredited investor, in each case in a minimum
principal amount of the Notes of $250,000 for investment
purposes and not with a view to, or for offer or sale in
connection with, any distribution in violation of the
Securities Act; or (z) in reliance on another exemption from
the registration requirements of the Securities Act: (i) a
certification to that effect (in substantially the form set
forth in Exhibit C hereto), (ii) in the case of clause (y), a
signed letter substantially in the form of Exhibit D hereto
and (iii) in the case of clause (z), if the Company or
Registrar so requests, an Opinion of Counsel reasonably
acceptable to the Company and to the Registrar to the effect
that such transfer is in compliance with the Securities Act.
(b) Restrictions on Transfer of a Definitive Note for a Beneficial
Interest in a Global Note. A Definitive Note may not be exchanged for a
beneficial interest in a Global Note except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive Note,
duly endorsed or accompanied by appropriate instruments of transfer, in form
satisfactory to the Trustee, together with:
28
(i) if such Definitive Note is a Transfer Restricted Note,
certification, substantially in the form set forth in Exhibit C
hereto, that such Definitive Note is being transferred to a
"qualified institutional buyer (as defined in Rule 1 44A) in
accordance with Rule 144A; and
(ii) whether or not such Definitive Note is a Transfer Restricted Note,
written instructions directing the Trustee to make, or to direct the
Notes Custodian to make, an adjustment on its books and records with
respect to such Global Note to reflect an increase in the aggregate
principal amount of the Notes represented by the Global Note,
then the Trustee shall cancel such Definitive Note and cause, or direct the
Notes Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Notes Custodian, the
aggregate principal amount of Notes represented by the Global Note to be
increased accordingly. If no Global Notes are then outstanding, the Company
shall issue and the Trustee shall authenticate, upon written order of the
Company in the form of an Officers' Certificate, a new Global Note in the
appropriate principal arnount.
(c) Transfer and Exchange of Global Notes. The transfer and exchange of
Global Notes or beneficial interests therein shall be effected through the
Depository, in accordance with this Indenture (including applicable restrictions
on transfer set forth herein, if any) and the procedures of the Depository
therefor.
(d) Transfer of a Beneficial Interest in a Global Note for a Definitive
Note. (i) Any person having a beneficial interest in a Global Note that is being
transferred or exchanged pursuant to an effective registration statement under
the Securities Act or pursuant to clause (A), (B) or (C) below may upon request,
and if accompanied by the information specified below, exchange such beneficial
interest for a Definitive Note of the same aggregate principal amount. Upon
receipt by the Trustee of written instructions or such other form of
Instructions as is customary for the Depository from the Depository or its
nominee on behalf of any Person having a beneficial interest in a Global Note
and upon receipt by the Trustee of a written order or such other form of
instructions as is customary for the Depository or the Person designated by the
Depository as having such a beneficial interest in a Transfer Restricted Note
only, the following additional information and documents (all of which may be
submitted by facsimile):
(A) if such beneficial interest is being transferred to the Person
designated by the Depository as being the owner of a
beneficial interest in a Global Note, a certification from
such Person to that effect (in substantially the form set
forth in Exhibit C hereto); or
(B) if such beneficial interest is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act, a certification to that effect (in
substantially the form set forth in Exhibit C hereto); or
29
(C) if such beneficial interest is being transferred (x) pursuant
to an exemption from registration in accordance with Rule 144
or Regulation S under the Securities Act; or (y) to an
institutional "accredited investor" within the meaning of Rule
501(a)(l), (2), (3) or (7) under the Securities Act that is
acquiring the Notes for its own account, or for the account of
such an institutional accredited investor, in each case in a
minimum principal amount of the Notes qf $250,000 for
investment purposes and not with a view to, or for offer or
sale in connection with, any distribution in violation of the
Securities Act; or (z) in reliance on another exemption from
the registration requirements of the Securities Act: (i) a
certification to that effect from the transferee or transferor
(in substantially the form set forth in Exhibit C hereto),
(ii) in the case of clause (y), a signed letter substantially
in the form of Exhibit D hereto and (iii) in the case of
clause (z), if the Company or Registrar so requests, an
Opinion of Counsel from the transferee or transferor
reasonably acceptable to the Company and to the Registrar to
the effect that such transfer is in compliance with the
Securities Act
then the Trustee or the Notes Custodian, at the direction of the Trustee, will
cause, in accordance with the standing instructions and procedures existing
between the Depository and the Notes Custodian, the aggregate principal amount
of the Global Note to be reduced on its books and records and, following such
reduction, the Company will execute and the Trustee will authenticate and
deliver to the transferee a Definitive Note.
(i) Definitive Notes issued in exchange for a beneficial interest in a
Global Note pursuant to this Section 2.06(d) shall be registered in
such names and in such authorized denominations as the Depository,
pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee, The Trustee shall deliver
such Definitive Notes to the Persons in whose names such Notes are
so registered in accordance with the instructions of the Depository.
(e) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding
any other provisions of this Indenture (other than the provisions set forth in
Section 2.06(t)), a Global Note may not be transferred as a whole except by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository.
(f) Authentication of Definitive Notes in Absence of Depository. It at any
time:
(i) the Depository for the Notes notifies the Company that the
Depository is unwilling or unable to continue as Depositdry for the
Global Notes and a successor Depository for the Global Notes is not
appointed by the Company within 90 days after delivery of such
notice; or
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(ii) the Company, in its sole discretion, notifies the Trustee in writing
that they elect to cause the issuance of Definitive Notes under this
Indenture,
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Notes to
the Persons designated by the Company, will authenticate and deliver Definitive
Notes, in an aggregate principal amount equal to the principal amount of Global
Notes, in exchange for such Global Notes.
(g) Legend. (i) Except as permitted by the following paragraph (ii), each
certificate evidencing the Global Notes and the Definitive Notes (and all Notes
issued in exchange therefor or substitution thereof) shall bear a legend in
substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF WITHIN
THE UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE
MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT
IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM
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PRINCIPAL AMOUNT OF THE NOTES OF $250,000, FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION
IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER PURSUANT TO CLAUSE (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND IN THE CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE
OF TRANSFER (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE.
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
(i) Upon any sale or transfer of a Transfer Restricted Note (including
any Transfer Restricted Note represented by a Global Note) pursuant
to Rule 144 under the Securities Act or an effective registration
statement under the Securities Act:
(A) in the case of any Transfer Restricted Note that is a
Definitive Note, the Registrar shall permit the Holder thereof
to exchange such Transfer Restricted Note for a Definitive
Note that does not bear the legend set forth above and rescind
any restriction on the transfer of such Transfer Restricted
Note; and
(B) any such Transfer Restricted Note represented by a Global Note
shall not be subject to the provisions set forth in clause (i)
of this Section 2.06(g) (such sales or transfers being subject
only to the provisions of Section 2.06(c) hereof); provided,
however, that with respect to any request for an exchange of a
Transfer Restricted Note that is represented by a Global Note
for a Definitive Note that does not bear a legend, which
request is made in reliance upon Rule 144, the Holder thereof
shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certification to be
substantially in the form set forth in Exhibit C hereto).
(h) Cancellation and/or Adjustment of Global Note. At such time as all
beneficial interests in a Global Note have either been exchanged for Definitive
Notes, redeemed, repurchased or canceled, such Global Note shall be returned to
the Depository for cancellation or retained and canceled by the Trustee. At any
time prior to such cancellation, if any beneficial interest in a Global Note is
exchanged for Definitive Notes, redeemed, repurchased or canceled, the principal
amount of Notes represented by such Global Note shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the Notes Custodian for such Global Note) with respect to such Global Note, by
the Trustee or the Notes Custodian, to reflect such reduction.
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(i) Obligations with Respect to Transfers and Exchanges of Notes.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Definitive Notes
and Global Notes at the Registrar's or co-registrar's request.
(ii) No service charge shall be made to a Holder for any registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar
governmental charge payable in connection therewith.
(iii) The Registrar or co-registrar shall not be required to register the
transfer of or exchange of (a) any Definitive Note selected for
redemption in whole or in part pursuant to Article 10, except the
unredeemed portion of any Definitive Note being redeemed in part, or
(b) any Note for a period beginning 15 Business Days before the
mailing of a notice of an offer to repurchase or redeem Notes or 15
Business Days before an interest payment dated.
(iv) Prior to the due presentation for registration of transfer of any
Note, the Company, the Trustee, the Paying Agent, the Registrar or
any co-registrar may deem and treat the Person in whose name a
Note is registered as the absolute owner of such Note for the
purpose of receiving payment of principal of and interest on such
Note and for all other purposes whatsoever, whether or not such Note
is overdue, and none of the Company, the Trustee, the Paying Agent,
the Registrar or any co-registrar shall be affected by notice to the
contrary.
(v) All Notes issued upon any transfer or exchange pursuant to the terms
of this Indenture shall evidence the same debt and shall be entitled
to the same benefits under this Indenture as the Notes surrendered
upon such transfer or exchange.
(j) No Obligation of the Trustee. (i) The Trustee shall have no
responsibility or obligation to any beneficial owner of a Global Note, a member
of or a participant in the Depository or other Person with respect to the
accuracy of the records of the Depository or its nominee or of any participant
or member thereof with respect to any ownership interest in the Notes or with
respect to the delivery to any participant, member, beneficial owner or other
Person (other than the Depository) of any notice (including any notice of
redemption) or the payment of any amount, under or with respect to such Notes.
All notices and communications to be given to the Holders and all payments to be
made to Holders under the Notes shall be given or made only to or upon the order
of the registered Holders (which shall be the Depository or its nominee in the
case of a Global Note). The rights of beneficial owners In any Global Note in
global form shall be exercised only through the Depository subject to the
applicable rules and procedures of the Depository. The Trustee may rely and
shall be fully protected in relying upon information furnished by the
Depository with respect to its members, participants and any beneficial owners.
(i) The Trustee shall have no obligation or duty to monitor, determine
or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to
any transfer of any interest in any Note
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(including without limitation any transfers between or among
Depository participants, members or beneficial owners in any Global
Note) other than to require delivery of such certificates and other
documentation or evidence as are expressly required by, and to do so
if and when expressly required by, the terms of this Indenture, and
to examine the same to determine substantial compliance as to form
with the express requirements hereof
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Registrar or if the Holder of a
Note claims that the Note has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Note if the
requirements of Section 8-405 (or a successor provision) of the Uniform
Commercial Code are met, such that the Holder (i) satisfies the Company or the
Trustee within a reasonable time after he has notice of such loss, destruction
or wrongful taking and the Registrar does not register a transfer prior to
receiving such notification, (ii) so requests the Company or the Trustee prior
to the Note being acquired by a bona fide purchaser and (iii) satisfies any
other reasonable requirements of the Trustee. If required by the Trustee or the
Company, such Holder shall furnish an indemnity bond sufficient in the judgment
of the Trustee to protect the Company, the Trustee, the Paying Agent, the
Registrar and any co-registrar from any loss that any of them may suffer if a
Note is replaced. The Company and the Trustee may charge the Holder for their
expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all Notes authenticated by the Trustee
except for those canceled by it, those delivered to it for cancellation and
those described in this Section as not outstanding. A Note does not cease to be
outstanding because the Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with this
Indenture, on a redemption date or maturity date money sufficient to pay all
principal and interest payable on that date with respect to the Notes (or
portions thereof) to be redeemed or maturing, as the case may be, and the Paying
Agent is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture, then on and after that date such
Notes (or portions thereof) cease to be outstanding and interest on them ceases
to accrue.
SECTION 2.09. Temporary Notes.
Until Definitive Notes are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of
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Definitive Notes but may have variations that the Company considers appropriate
for temporary Notes. Without unreasonable delay, the Company shall prepare and
the Trustee shall authenticate Definitive Notes and deliver them in exchange for
temporary Notes.
SECTION 2.10. Cancellation.
The Company at any time may deliver Notes to the Trustee for cancellation.
The Registrar and the Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel and destroy (subject to the record
retention requirements of the Exchange Act) all Notes surrendered for
registration of transfer, exchange, payment or cancellation unless the Company
directs the Trustee to deliver canceled Notes to the Company. The Company may
not issue new Notes to replace Notes it has redeemed, paid or delivered to the
Trustee for cancellation. The Trustee shall not authenticate Notes in place of
canceled Notes other than pursuant to the terms of this Indenture.
SECTION 2.11. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, the Company
shall pay the defaulted interest (plus interest on such defaulted interest to
the extent lawful) in any lawtul manner. The Company may pay the defaulted
interest to the persons who are Holders on a subsequent special record date. The
Company shall fix or cause to be fixed any such special record date and payment
date to the reasonable satisfaction of the Trustee and shall promptly mail to
each Holder a notice that states the special record date, the payment date and
the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP Number.
The Company in issuing the Notes may use "CUSIP" numbers (if then
generally in use) and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided, however, that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Notes, and any such redemption shall not be affected by
any defect in or omission of such numbers.
ARTICLE THREE
SATISFACTION AND DISCHARGE
SECTION 3.01. Discharge of Liability and Notes Defeasance.
(a) When (i) the Company delivers to the Trustee all Outstanding Notes
(other than Notes replaced pursuant to Section 2.07) for cancellation or (ii)
all Outstanding Notes either (A) have become due and payable, whether at
Maturity or as a result of the mailing of a notice of redemption pursuant to
Article 10 hereof or (B) will become due and payable at their Stated Maturity
within one year, and the Company irrevocably deposits with the Trustee funds or
U.S.
35
Government Obligations on which payment of principal, premium (if any) and
interest when due will be sufficient to pay at Maturity or upon redemption all
Outstanding Notes, including interest thereon to Maturity or such redemption
date (other than Notes replaced pursuant to Section 2.07), and if in either case
the Company pays all other sums payable hereunder by the Company, then this
Indenture shall, subject to Section 3.01(c), cease to be of further effect. The
Trustee shall acknowledge satisfaction and discharge of this Indenture on demand
of the Company accompanied by an Officers Certificate and an Opinion of Counsel
and at the cost and expense of the Company.
(b) Subject to Sections 3.01(c) and 3.02, the Company at any time may
terminate (I) all its obligations under the Notes and this Indenture ("legal
defeasance option") or (ii) its obligations under Sections 7.01, 9.03, 9.04,
9.05, 9.06, 9.07, 9.08, 9.09, 9.10, 9.11, 9.12, 9.13, 9.14, and 9.15 and the
operation of Section 4.01(c), (d), (e), (f), (g) (with respect to Subsidiaries
of the Company only) and (h) (with respect to Subsidiaries of the Company only)
("covenant defeasance option"). The Company may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the Notes
may not be accelerated because of an Event of Default. If the Company exercises
its covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in Section 4.01(c), (d), (e), (f), (g)
(with respect to Subsidiaries of the Company only) and (h) (with respect to
Subsidiaries of the Company only).
Upon satisfaction of the conditions set forth herein and upon request of
the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's obligations
in Sections 2.06, 2.07, 3.04, 3.05, 3.06, 5.07, 5.09, 5.10 and 9.02 shall
survive until the Notes have been paid in full.
SECTION 3.02. Conditions to Defeasance.
The Company may exercise its legal defeasance option or its covenant
defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money or
U.S. Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to Maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing their opinion that the
payments of principal and interest when due and without reinvestment on the
deposited U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all the Outstanding Notes
to Maturity or redemption, as the case may be;
36
(3) 123 days pass after the deposit is made and during the 123-day period
no Default specified in Section 4.01(g) or (h) with respect to the Company
occurs which is continuing at the end of the period;
(4) the deposit and payment does not constitute a default under any other
material agreement binding on the Company and is not prohibited by the terms of
any Senior Indebtedness or Article 11;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated Investment company under the Investment Company Act of
1940.
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling, or (ii) since the date of this Indenture there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such 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
defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the Holders
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; and
(8) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent to the defeasance
and discharge of the Notes as contemplated by this Article 3 have been complied
with.
Before or after a deposit, the Company may make arrangements satisfactory
to the Trustee for the redemption of the Notes at a future date in accordance
with Article 10.
SECTION 3.03. Application or Trust Funds.
Subject to the provisions of Section 2.04, all funds deposited with the
Trustee pursuant to Sections 3.01 or 3.02 shall be held in trust and applied by
it, in accordance with the provisions of the Notes and this Indenture, to the
payment, either directly or through any paying agent as the Trustee may
determine, to the Persons entitled thereto, of the principal, premium, if any,
and interest for whose payment such funds have been deposited with the Trustee.
SECTION 3.04. Repayment to Company.
The Trustee and the paying agent shall promptly turn over to the Company
upon request any excess money or Notes held by them at any time.
37
Subject to the applicable abandoned property law, the Trustee and the
paying agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years, and,
thereafter, Holders entitled to the money must look to the Company for payment
as general creditors.
SECTION 3.05. Indemnity for Government Obligations.
The Company shall pay and shall indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against deposited U.S. Government
Obligations or the principal and interest received on such U.S. Government
Obligations.
SECTION 3.06. Reinstatement.
If the Trustee or paying agent is unable to apply any money or U.S.
Government Obligations in accordance with this Article 3 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to this Article 3 until
such time as the Trustee or paying agent is permitted to apply all such money or
U.S. Government Obligations in accordance with this Article 3; provided,
however, that, if the Company has made any payment of interest on or principal
of any Notes because of the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Notes to receive such payment
from the money or U.S. Government Obligations held by the Trustee or the paying
agent.
ARTICLE FOUR
REMEDIES
SECTION 4.01. Events of Default.
"Event of Default," wherever used herein, means any one or more 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 or 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 on any Note when such interest
becomes due and payable, and continuance of such default for a period of 30
days;
(b) default in the payment of the principal of or premium, if any, on any
Note at Maturity;
(c) default in the deposit of any payment when due pursuant to the
provisions of Section 9.08 or 10.06;
(d) failure on the part of the Company duly to observe or perform any
other of the covenants or agreements on the part of the Company set forth in the
Notes or in this Indenture
38
which continues for a period of 60 days after the date on which there has been
given, by registered or certified mail, to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the Notes at the time
Outstanding or by the Trustee, a written notice specifying such failure and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder;
(e) the rendering of a final judgment for the payment of money in an
amount in excess of $20,000,000 (after giving effect to any applicable insurance
and bonds) against the Company and/or any Significant Subsidiary, (i) which
judgment continues undischarged, and is not waived or stayed, for a period of 60
days after the date on which the right to final appeal has expired and (ii)
which default continues for a period of 30 days after the date on which there
has been given, by registered or certified mail, to the Company and the Trustee
by the Holders of at least 25% in aggregate principal amount of the Notes at the
time Outstanding or by the Trustee, a written notice specifying the failure
described in clause (i) and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder;
(f) Indebtedness of the Company or any Significant Subsidiary is not paid
within any applicable grace period after final maturity or the acceleration by
the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $20,000,000 or its foreign currency
equivalent at the time;
(g) the Company or any Significant Subsidiary, pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief against it in an
involuntary case or proceeding;
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property; or
(D) makes a general assignment for the benefit of its creditors;
or
(E) admits in writing its inability to pay its debts generally as
they become due;
(h) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case or proceeding;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of their respective
properties; or
(C) orders the liquidation of the Company or any Significant
Subsidiary,
39
and, in each case, such order or decree remains unstayed, undismissed,
undischarged or unbonded and in effect for 60 days; or
(i) the Company fails to comply with Article 7,
SECTION 4.02. Acceleration of Maturity: Rescission and Annulment.
If an Event of Default occurs under clause (g) or (h) with respect to the
Company of Section 4.01, then the principal of and premium, if any, and the
accrued interest on all the Notes shall become due and payable immediately. If
any other Event of Default occurs and is continuing, then, and in every such
case, the Holders of not less than 25% in aggregate principal amount of the
Notes then Outstanding or by the Trustee, by notice in writing to the Company
and to the Trustee, may declare the principal amount of all the Notes to be due
and payable, and upon any such declaration such principal amount shall become
due and payable upon receipt by the Company and the Trustee of such written
notice given hereunder.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for the payment of the amount due has been obtained
by the Trustee as hereinafter provided in this Article Four, the Holders of a
majority in aggregate principal amount of the Outstanding Notes, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if all Events of Default, other than the nonpayment of the
principal of Notes that have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 4.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 4.03. Collection of Indebtedness and Suits for Enforcement by the
Trustee.
The Trustee, in its own name and as trustee of an express trust, at the
request of the Holders of a majority in aggregate principal amount of the
Outstanding Notes, will institute a judicial proceeding for the collection of
the sums so due and unpaid, will prosecute such proceeding to judgment or final
decree and will enforce against the Company or any other obligor on the Notes
and collect the money adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor on the Notes,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee at the
request of the Holders of a majority in aggregate principal amount of the
Outstanding Notes will proceed to protect and enforce its rights and the rights
of the Holders by such judicial proceedings as such Holders shall request to
protect and enforce such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
40
SECTION 4.04. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor on the Notes or
the property ofthe Company or of such other obligor or their creditors, the
Trustee, irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the payment
of overdue principal or interest, at the request of a majority in aggregate
principal amount of the Outstanding Notes, by intervention in such proceedings
or otherwise:
(a) will file and prove a claim for the whole amount of principal,
premium, if any, and interest owing and unpaid in respect of the Notes and file
such other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceedings; and
(b) will collect and receive any funds or other property payable or
deliverable on any such claims and distribute the same;
and any Custodian or similar official in any such judicial proceeding
hereby is authorized by each Holder to make such payments to the Trustee and, in
the event that such payments shall be made directly to the Holders, to pay to
the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 5.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.
SECTION 4.05. Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment, after provision for the
payment of the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, shall be for the ratable benefit of the
Holders of the Notes in respect of which such judgment has been recovered.
SECTION 4.06. Application of Funds Collected.
Any funds collected by the Trustee pursuant to this Article Four shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such
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funds on account of principal, premium, if any, or interest, upon presentation
of the Notes and the notation thereon of the payment if only partially paid and
upon surrender thereof fully paid:
First: to the payment of all amounts due the Trustee under Section 5.07;
Second: subject to Article II hereof to the payment of the amounts then
due and unpaid for principal of and premium, if any, and interest on the Notes
in respect of which or for the benefit of which such funds have been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Notes for principal, premium, if any, and interest,
respectively; and
Third. the balance, if any, to the Company.
SECTION 4.07. Limitation on Suits.
No Holder of a Note shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(a) such Holder previously has given to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of not less than 25% in aggregate principal amount of the
Outstanding Notes shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity shall have failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in aggregate
principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have
any right in any manner whatever by virtue of or by availing of any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holder,
or to obtain or seek to obtain priority or preference over any other Holder or
to enforce any right under this Indenture, except in the manner herein provided
and for the equal and ratable benefit of all the Holders.
SECTION 4.08. Unconditional Right of Holders to Receive Principal, Premium and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and
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premium, if any, and (subject to Section 2.08) interest on such Note at
Maturity, or on the applicable Interest Payment Date, as the case may be, as
provided in this Indenture (or, in the case of redemption or repurchase in
conformity with Section 9.08, on the Redemption Date or the Change of Control
Payment Date, respectively), and to institute suit for the enforcement of any
such payment and such rights shall not be impaired or affected without the
consent of such Holder.
SECTION 4.09. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 4.10. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the Trustee or the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy, to the extent permitted by law, shall be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 4.11. Delay or Omission Not Waiver.
No delay or omission on the part of the Trustee or of any Holder of any
Note to exercise any right or power accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
Four or by law to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by or at the direction of the
Holders.
SECTION 4.12. Control by Holders.
The Holders of a majority in aggregate principal amount of the Outstanding
Notes shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture or, subject to Section
7.01, that the Trustee determines is unduly prejudicial to the rights of other
Securityholders or would involve the Trustee in personal liability; provided,
however, that the Trustee may take any other action deemed proper by the Trustee
that is not inconsistent with such direction.
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SECTION 4.13. Waiver of Past Defaults.
The Holders of a majority in aggregate principal amount of the Outstanding
Notes on behalf of the Holders of all of the Notes may waive any past default
hereunder and its consequences except a default
(a) in the payment of the principal or premium, if any, or interest on
any Note, or
(b) in respect of a covenant or provision hereof that under Article Eight
cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 4.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by his
acceptance thereof shall be deemed to have agreed, that any court in its
discretion may require, as a condition to initiating or maintaining any suit for
the enforcement of any right or remedy under this Indenture or any suit against
the Trustee for any action taken, suffered or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit and that such court in its discretion may assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section 4.14 shall not apply to
any suit instituted by the Trustee, to any suit instituted by any Holder or
group of Holders holding in the aggregate more than 25% in principal amount of
the Outstanding Notes or to any suit instituted by any Holder pursuant to
Section 4.07 hereof for the enforcement of the payment of the principal of or
premium, if any, or interest on any Note on or alter the Stated Maturity, or on
the applicable Interest Payment Date, as the case may be, as provided in this
Indenture (or, in the case of redemption or repurchase, on or after the
Redemption Date or Change of Control Payment Date).
SECTION 4.15. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it lawfully may do so) that it
will not at any time insist upon, plead or in any manner whatsoever claim or
take the benefit or advantage of any stay or extension law wherever enacted, now
or at any time hereafter in force, that may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it lawfully
may do so) hereby expressly waives all benefit or advantage of any such law and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee or the Holders, but will suffer and permit the
execution of every such power as though no such law had been enacted.
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ARTICLE FIVE
THE TRUSTEE
SECTION 5.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusive]y rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own wiliflil misconduct, except
that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 4.12.
(d) Every provision of this Indenture that in anyway relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section 5.01 and to
the provisions of the TIA.
(e) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur financial liability in the performance of
any of its duties hereunder or in
45
the exercise of any of its rights or powers, if it shall have reasonable grounds
to believe that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
SECTION 5.02. Rights of Trustee Subiect to Section 5.01.
(a) The Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; provided however, that the Trustee's conduct does not constitute
willful misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the Notes
shall be full and complete authorization and protection from liability in
respect to any action taken, omitted or suffered by it hereunder in good faith
and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, debenture,
note or other paper or document unless requested in writing to do so by the
Holders of not less than a majority in principal amount of the Notes at the time
outstanding, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney, during reasonable business hours and subject
to executing a confidentiality undertaking in customary form with respect to
confidential and/or proprietary information of the Company; provided, however,
that if the payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such expense or liability as a
condition to so proceeding.
(g) The Trustee shall not be deemed to have knowledge of any default or
fact the occurrence of which requires the Trustee to take any action (other than
a payment default hereunder) unless a Trust Officer knows of such default or
fact.
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SECTION 5.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and may otherwise deal with the Company or its Affiliates
with the same rights it would have if it were not Trustee. Any Paying Agent,
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Trustee must comply with Sections 5.10 and 5.11.
SECTION 5.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes, and it shall
not be responsible for any statement of the Company in this Indenture or in any
document issued in connection with the sale of the securities or in the Notes
other than the Trustee's certificate of authentication.
SECTION 5.05. Notice of Defaults.
If a Default Occurs and is continuing and if it is known to a Trust
Officer of the Trustee, the Trustee shall mail to each Holder notice of the
Default no later than the date that is the earlier of 90 days alter such default
occurs or 30 days alter it is known to a Trust Officer or written notice is
received by the Trustee. Except in the case of a Default in payment of principal
of or interest on any Note (including payments pursuant to the mandatory
redemption provisions of such Note, if any), the Trustee may withhold the notice
if and so long as a committee of its Trust Officers in good faith determines
that withholding the notice is in the interests of Holders.
SECTION 5.06. Reports by Trustee to Holders.
As promptly as practicable after each May 15 beginning with the May 15
following the date of this Indenture, but only upon the Occurrence within the
previous 12 months of any events specified in TIA ss. 313(a), the Trustee shall
mail to each Holder a brief report dated as of May 15 that complies with TIA ss.
313(b).
A copy of each report at the time of its mailing to Holders shall be filed
with the Commission and each stock exchange (if any) on which the Notes are
listed. The Company agrees to notify promptly the Trustee whenever the Notes
become listed on any stock exchange and of any delisting thereof
SECTION 5.07. Compensation and Indemnity.
The Company shall pay to the Trustee, Paying Agent and Registrar from time
to time reasonable compensation for its services. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred or made by it, including costs of collection, in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances of the
Trustee's agents, counsel, accountants and expens. The Company shall indemnify
the Trustee, Paying Agent,
47
Registrar, and each of their officers, directors, agents and employees (each in
their respective capacities), for and hold each of them harmless against any
and all loss, liability or expense (including attorneys' fees) incurred by them
without negligence or bad faith on their part in connection with the
administration of this trust and the performance of their duties hereunder. The
Trustee, Paying Agent and Registrar shall notify the Company of any claim for
which they may seek indemnity promptly upon obtaining actual knowledge thereof;
provided that any failure so to notitfy the Company shall not relieve the
Company of its indemnity obligations hereunder except to the extent the Company
shall have been adversely affected thereby. The Company shall defend the claim
and the indemnified party shall provide reasonable cooperation at the Company's
expense in the defense. Such indemnified parties may have separate counsel and
the Company shall pay the fees and expenses of such counsel; provided that the
Company shall not be required to pay such fees and expenses if it assumes such
indemnified parties' defense and, in such indemnified parties' reasonable
judgment, there is no conflict of interest between the Company and such parties
in connection with such defense. The Company need not pay for any settlement
made without its written consent. The Company need not reimburse any expense or
indemnify against any loss, liability or expense incurred by an indemnified
party through such party's own wiliftil misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section 5.07, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Notes.
The Company's payment obligations pursuant to this Section shall survive
the discharge of this Indenture. When the Trustee, Paying Agent or Registrar
incurs expenses after the occurrence of a Default specified in Section 4.01(g)
and (h) with respect to the Company, the expenses are intended to constitute
expenses of administration under the Bankruptcy Law.
SECTION 5.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in writing.
The holders of a majority in principal amount of the Notes may remove the
Trustee by so notifying the Company and the Trustee and may appoint a successor
Trustee with the consent of the Company, which shall not be unreasonably
withheld. The Company shall remove the Trustee if
(1) the Trustee fails to comply with Section 5.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of a
majority in principal amount of the Notes and such Holders do not reasonably
promptly appoint a successor Trustee, or if a vacancy exists in the office of
Trustee for any reason (the Trustee in such event
48
being referred to herein as the retiring Trustee), the Company shall promptly
appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to the Holders. The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee, subject to the lien provided for in Section 5.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 5.10, any Holder may petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section
5.06, the Company's obligations under Section 5.07 shall continue for the
benefit of the retiring Trustee.
SECTION 5.09. Successor Trustee bv Merger.
If the Trustee consolidates with, merges or converts into, or transfers
all, or substantially all its corporate trust business or assets (including the
trust created by this Indenture) to, another corporation or banking association,
the resulting, surviving or transferee corporation without any flirther act
shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion or
consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Notes shall have been authenticated but not delivered, any
such successor to the Trustee may adopt the certificate of authentication of any
predecessor trustee, and deliver such Notes so authenticated; and in case at
that time any of the Notes shall not have been authenticated, any successor to
the Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor to the Trustee; and in all such cases
such certificates shall have the frill force which it is anywhere in the Notes
or in this Indenture provided that the certificate of the Trustee shall have.
SECTION 5.10. Eligibility: Disqualification.
The Trustee shall at all times satisfy the requirements of TIA ss. 310(a).
The Trustee shall have a combined capital and surplus of at least $100,000,000
asset forth in its most recent published annual report of condition. The Trustee
shall comply with TIA ss. 310(b); provided, however, that there shall be
excluded from the operation of TIA ss. 3 1 0(b)( 1) any indenture or indentures
under which other securities or certificates of interest or participation in
other securities of the Company are outstanding if the requirements for such
exclusion set forth in TIA 3 10(b)(1) are met.
49
SECTION 5.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated.
ARTICLE SIX
HOLDERS' LISTS AND REPORTS BY THE COMPANY
SECTION 6.01. Company to Furnish Trustee Names and Addresses of Holders.
If the Trustee shall not be the Note Registrar, the Company will furnish
or cause to be furnished to the Trustee:
(a) semi-annually, not more than five days after each Regular Record Date,
a list, in such form as the Trustee reasonably may require, of the names and
addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may request in writing, within 30
days after receipt by the Company of any such request, a list of similar form
and content as of a date not more than five days prior to the time such
information is furnished.
SECTION 6.02. Preservation of Information.
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 6.01 or received by the
Trustee in its capacity as Note Registrar. The Trustee may destroy any list
furnished to it as provided in Section 6.01 upon receipt of a new list so
furnished.
ARTICLE SEVEN
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 7.01. Company May Not Consolidate, Etc. on Certain Terms.
The Company shall not consolidate with or merge into any other corporation
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, unless:
(a) the corporation formed by such consolidation or into which the Company
is merged or the Person which acquires by conveyance or transfer, or which
leases, the properties and assets of the Company substantially as an entirety
(the "Successor Corporation") shall be a corporation organized and existing
under the laws of the United States, one of the States thereof or the District
of Columbia and expressly shall assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, the
due and punctual payment of the principal of and premium, if any, and interest
on all Notes and the performance of every covenant of this Indenture on the part
of the Company to be performed or observed;
50
(b) immediately after giving effect to such transaction no Event of
Default, and no event that, after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing;
(c) immediately after giving effect to such transaction, the Successor
Company would be able to incur an additional $1.00 of Indebtedness pursuant to
Section 9.06(a);
(d) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount which is not less than
the Consojidated Net Worth of the Company immediately prior to such transaction;
and
(e) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture comply with this Article
Seven and that all conditions precedent herein provided for relating to such
transaction have been met.
Notwithstanding the foregoing clauses (b), (c) and (d), (1) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (2) the Company may merge with an
Affiliate incorporated for the purpose of reincorporating the Company in another
jurisdiction to realize tax or other benefits.
SECTION 7.02. Successor Corporation Substituted.
Upon any consolidation or merger by the Company with or into any other
corporation or any conveyance, transfer or lease of the properties and assets of
the Company substantially as an entirety to any Person in accordance with
Section 7.01, the successor corporation formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of; the Company under this Indenture with the same effect as if such
successor corporation had been named as the Company herein, and thereafter,
except in the case of a lease to another Person, the predecessor corporation
shall be relieved of all obligations and covenants under this Indenture and the
Notes.
ARTICLE EIGHT
SUPPLEMENTAL INDENTURES
SECTION 8.01. Supplemental Indentures Without Consent of Holders.
The Company and the Trustee may amend this Indenture or the Notes without
notice to or consent of any Holder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 7;
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(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes; provided, however, that the uncertificated Notes are
registered form for purposes of Section 163(f) of the Code or in a manner such
that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article II that would limit or terminate the
benefits available to any holder of Senior Indebtedness (or Representatives
thereof) under Article 11;
(5) to add to the covenants of the Company for the benefit of the Holders
or to surrender any right or power herein conferred upon the Company;
(6) to comply with any requirements of the Commission in connection with
qualif'ing this Indenture under the TIA;
(7) to make any change that does not adversely affect the rights of any
Holder; or
(8) to provide for the issuance and authorization of the Exchange Notes.
An amendment under this Section may not make any change that adversely
affects the rights under Article 11 of any holder of Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness (or any group or
representative thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company shall
mail to the Holders a notice briefly describing such amendment. The failure to
give such notice to all Securityholders, or any defect therein, shall not impair
or affect the validity of an amendment under this Section 8.01.
SECTION 8.02. Supplemental Indentures With Consent or Holders.
With the consent of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Notes, by Act of the Holders delivered to
the Company and the Trustee, the Company, when authorized by a majority of its
entire Board of Directors, and the Trustee from time to time and at any time may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provision to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Note
affected thereby:
(a) change the Stated Maturity of the principal of or the Interest Payment
Date with respect to any payment of interest on, any Note, or reduce the rate or
extend the time of payment of interest thereon, or reduce the principal amount
thereof or premium, if any, thereon, or impair the right to institute suit for
the payment on or after the Stated Maturity thereof (or, in the case of
redemption or repurchase in conformity with Section 9.08, on or after the
Redemption Date or Change of Control Payment Date), or change the place of
payment where, or the coin or currency in which, the principal of or premium, if
any, or interest on any Note is payable;
52
(b) reduce the percentage in principal amount of the Outstanding Notes the
consent of whose Holders is required for any waiver (or compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences) provided for in this Indenture;
(c) modify any of the provisions of this Section .8.02 or Section 4.13;
(d) modify any of the Events of Default enumerated in Section 4.01; or
(e) modify any of the provisions ofsection 9.08 or Article Ten in a manner
adverse to the Holders.
It shall not be necessary for any Act of Holders under this Section 8.02
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 8.03. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article Eight or the modification
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture that affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 8.04. Effect of Supplemental Indentures.
Upon execution of any supplemental indenture under this Article Eight,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Notes theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 8.05. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article Eight may, and shall, if required by the
Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and a
majority of the entire Board of Directors of the Company, to any such
supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for the Outstanding
Notes.
53
ARTICLE NINE
COVENANTS
SECTION 9.01. Payment of Principal, Premium, if any, and Interest.
The Company will duly and punctually pay the principal of and premium, if
any, and interest on each of the Notes in accordance with the terms of the Notes
and this Indenture.
SECTION 9.02. Maintenance of Office or Agency.
The Company will maintain in New York, New York, an office or agency where
Notes may be presented for payment, redemption or repurchase, where Notes may be
surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company will give prompt written notice to the Trustee of the
location, and of any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Principal Office of
the Trustee and the Company hereby appoints the Trustee as its agent to receive
all such presentations, surrenders, notices and demands.
The Company from time to time also may designate one or more other offices
or agencies (in or outside of the above location) where the Notes may be
presented or surrendered for such purposes and from time to time may rescind
such designation; provided, however, that no such designation or rescission
shall relieve the Company of its obligation to maintain an office or agency in
New York, New York, for the payment of the Notes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
SECTION 9.03. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in this Article Nine, other than any such
covenant or condition contained in Sections 9.01, 9.02 or 9.08, if before the
time for such compliance the Holders of at least a majority in principal amount
of the Notes at the time Outstanding shall, by Act of such Holders, either waive
such compliance in such instance or generally waive compliance with such
covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect.
SECTION 9.04. Limitation on Restricted Payments.
(a) The Company shall not and shall not permit any Restricted Subsidiary,
directly or indirectly, to (i) declare or pay any dividend or make any
distribution on or in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving
54
the Company) except dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and except dividends or distributions
payable to the Company, the Operating Company, or another Restricted Subsidiary
(and, if the Operating Company or such Restricted Subsidiary is not wholly
owned, to its other shareholders on a pro rata basis), (ii) repurchase, redeem,
retire or otherwise acquire for value any Capital Stock of the Company or a
Restricted Subsidiary held by persons other than the Company, the Operating
Company, or another Restricted Subsidiary, (iii) purchase, repurchase, redeem,
defease or otherwise acquire or retire for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition), or (iv) make any Investment (other than a
Permitted Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement, payment or
Investment being herein referred to as a "Restricted Payment") if at the time
the Company or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company could not Incur at least $1.00 of additional
Indebtedness under Section 9.06(a); or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a resolution of the Board of
Directors) declared or made subsequent to the Issue Date would exceed the
sum of
(A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the beginning of the
fiscal quarter during which the Notes are originally issued to the
end of the most recent fiscal quarter ending prior to the date of
such Restricted Payment for which consolidated income statements of
the Company are available (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company
from capital contributions with respect to, or the issue or sale of
the Company's Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company or an employee stock ownership plan or
other trust established by the Company or any of its Subsidiaries);
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary)
subsequent to the Issue Date of any Indebtedness of the Company or
its Restricted Subsidiaries convertible into or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company
55
(less the amount of any cash or other property distributed by the
Company or any Restricted Subsidiary upon such conversion or
exchange); and
(D) without duplication, the sum of (x) the aggregate amount
returned in cash on or with respect to Investments (other than
Permitted Investments) made subsequent to the Issue Date whether
through interest payments, principal payments, dividends or other
distributions or payments, (y) the Net Cash Proceeds received by the
Company or any Restricted Subsidiary from the disposition of all or
any portion of such Investments (other than to a Subsidiary of the
Company) and (z) upon redesignation of an Unrestricted Subsidiary as
a Restricted Subsidiary, the fair market value of such Subsidiary;
provided however, that with respect to all Investments made in any
Unrestricted Subsidiary or joint venture the sum of clauses (x), (y)
and (z) above with respect to such Investments shall not exceed the
aggregate amount of all such Investments made subsequent to the date
hereof in such Unrestricted Subsidiary
(b) The provisions of Section 9.04(a) shall not prohibit:
(i) any purchase or redemption of Capital Stock of the Company or
any Subsidiary or Subordinated Obligations made out of a substantially
concurrent capital contribution to, or by exchange for, or out of the
proceeds of the substantially concurrent sale of Capital Stock of the
Company or any Subsidiary (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or other trust established by the Company or any of its
Subsidiaries); provided. however, that (A) such capital contribution,
purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments and (B) the Net Cash Proceeds from such capital
contribution or sale applied in the manner set forth in this clause (i)
shall be excluded from clause (3)(B) of Section 9.04(a);
(ii) any purchase or redemption of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of Indebtedness of the Company or any Restricted Security which is
permitted to be Incurred pursuant to Section 9.06; provided. however, that
such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from
Net Available Cash; provided. however, that such purchase or redemption
shall be excluded in the calculation of the amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with Section 9.04(a); provided, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments;
(v) payments by the Company or any Subsidiary to members of
management of the Company or any Subsidiary under the management incentive
and equity
56
participation plans as a result of and upon the Acquisition; provided,
however, that such payments shall be excluded in the calculation of the
amount of Restricted Payments;
(vi) payment of dividends, other distributions or other amounts by
any Subsidiary to any Restricted Subsidiary, the Operating Company or the
Company;
(vii) payments by the Company to repurchase Capital Stock of the
Company owned by former employees of the Company or its Subsidiaries or
their assigns, estates and heirs; provided, however, that the aggregate
amount paid by the Company pursuant to this clause (vii) shall not, in the
aggregate, exceed $5,000,000 per fiscal year of the Company, up to a
maximum aggregate amount of $15,000,000 during the term of this Indenture,
plus any amounts received by the Company as a result of resale of such
repurchased shares of Capital Stock; provided, further, however, that such
payments shall be included in the calculation of the amount of Restricted
Payments;
(viii) payments which would otherwise be Restricted Payments in an
aggregate amount not to exceed $5,000,000; provided, however, that such
payments shall be included in the calculation of the amount of Restricted
Payments; or
(ix) after December 1,1998, Investments in Unrestricted Subsidiaries
or joint ventures in an amount not to exceed $5,000,000 at any time
outstanding; provided, however, that such Investments shall be included in
the calculation of the amount of Restricted Payments.
SECTION 9.05. Limitation on Restrictions on Distributions from Restricted
Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends or make any other distributions on its Capital Stock or pay any
Indebtedness or other obligations owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its property or assets to the
Company, except:
(1) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Date of this Indenture;
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by the Company or designated as a Restricted
Subsidiary (other than Indebtedness Incurred as consideration in, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary or was
acquired by the Company) and outstanding on such date;
57
(3) any encumbrance or restriction pursuant to an agreement
effecting a refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (1) or (2) of this Section 9.05 or this clause (3)
or contained in any amendment, supplement or other modification to an
agreement referred to in clause (1) or (2) of this Section 9.05 or this
clause (3); PROVIDED, HOWEVER, that the encumbrances and restrictions
contained in any such refinancing agreement or amendment, supplement or
other modification are not materially less favorable to the Holders than
encumbrances and restrictions contained in such agreements;
(4) in the case of clause (iii), any encumbrance or restriction (A)
that restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease, license or
similar contract, (B) by virtue of any transfer of agreement to transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by this
Indenture or (C) contained in security agreements or mortgages securing
Indebtedness of a Restricted Subsidiary to the extent such encumbrance or
restrictions restrict the transfer of the property subject to such
security agreements or mortgages;
(5) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; and
(6) any encumbrance or restriction which is not more restrictive
than any such encumbrance or restriction in place as of the Date of this
Indenture; including any such restriction or encumbrance imposed in
connection with the Incurrence of Refinancing Indebtedness provided that
such Refinancing Indebtedness shall not prohibit either the Operating
Company's ability to redeem the Existing Preferred Stock at its Stated
Maturity or the Company's ability to repay the Notes at their Stated
Maturity.
SECTION 9.06 Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, Incur any Indebtedness; PROVIDED, HOWEVER, that the Company or any
Restricted Subsidiary may Incur Indebtedness if on the date thereof the
Consolidated Coverage Ratio would be greater than 1.75:1.00 if such Indebtedness
is Incurred on or prior to September 30, 1998, and 2.00:1.00 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding Section 9.06(a), the Company and its Restricted
Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness under the Senior Credit Facility (as the same may
be amended from time to time) and any Refinancing Indebtedness with
respect thereto in each case in an aggregate principal amount which, when
added to all other Indebtedness Incurred pursuant to this clause (i) and
then outstanding, shall not exceed $100,000,000 less the sum of all
repayments thereon made with the Net Cash Proceeds from Asset
58
Dispositions (to the extent, in the case of repayment of revolving credit
Indebtedness, that the corresponding commitments have been permanently
reduced); provided, however, that any Refinancing Indebtedness with
respect to Indebtedness Incurred pursuant to this clause (i) shall not be
subject to the limitations contained in clauses (i) and (ii) of the
definition of Refinancing Indebtedness;
(ii) Indebtedness (A) of the Company to any Restricted Subsidiary
and (B) of any Restricted Subsidiary to the Company, the Operating Company
or any other Restricted Subsidiary;
(iii) Indebtedness represented by the Notes, any Indebtedness (other
than the Indebtedness described in clauses (i) and (ii) above) outstanding
on the date of this Indenture, including Indebtedness represented by the
Carter Subordinated Debt up to an aggregate principal amount of
$l25,000,000, and any Refinancing Indebtedness Incurred in respect of any
Indebtedness described in this clause (iii) or paragraph (a) of this
Section 9.06; provided that Refinancing Indebtedness with respect to the
Carter Subordinated Debt shall not be subject to the limitations contained
in clause (iii) of the definition of Refinancing Indebtedness as long as
the aggregate principal amount of the Carter Subordinated Debt and such
Refinancing Indebtedness does not exceed $125,000,000;
(iv) Indebtedness of the Company or its Restricted Subsidiaries in
respect of (A) industrial revenue bonds or other similar governmental and
municipal bonds and (B) the deferred purchase price of newly acquired
property of the Company and its Restricted Subsidiaries, or the price of
construction or improvement of any property of the Company or its
Subsidiaries, in each case used in the ordinary course of business of the
Company and its Subsidiaries, including Capitalized Lease Obligations,
whether such Indebtedness is owed to the seller or Person carrying out
such construction or improvement or to a third party (provided such
financing is entered into within 180 days of the acquisition or conclusion
of such construction or improvement of such property) in an amount (based
on the remaining balance of the obligations therefor on the books of the
Company and its Restricted Subsidiaries) which in the case of the
preceding clauses (A) and (B) shall not exceed $15,000,000 in the
aggregate at any time outstanding;
(v) Indebtedness of the Company or any of its Restricted
Subsidiaries (which may comprise Bank Indebtedness) in an aggregate
principal amount at any time outstanding not in excess of $20,000,000;
(vi) Indebtedness in an aggregate principal amount at any time
outstanding not in excess of $7,500,000 in respect of letters of credit
(other than letters of credit issued under the Senior Credit Facility);
(vii) (A) Indebtedness assumed in connection with acquisitions
permitted under the Senior Credit Facility or any Refinancing Indebtedness
in respect thereof (so long as such
59
Indebtedness was not incurred in anticipation of such acquisitions), (B)
Indebtedness of newly acquired Subsidiaries acquired in such acquisitions
(so long as such Indebtedness was not incurred in anticipation of such
acquisitions) and (C) Indebtedness owed to the seller in any acquisition
permitted under the Senior Credit Facility or any Refinancing Indebtedness
in respect thereof constituting part of the purchase price thereof, all in
an aggregate principal amount at any time outstanding not in excess of
$7,500,000;
(viii) Indebtedness represented by Guarantees of Indebtedness
incurred pursuant to clause (i), (iii), (iv) or (v) above;
(ix) Indebtedness incurred in connection with the repurchase of
shares of the Capital Stock of the Company or the Operating Company as
permitted by Section 9.04(b)(vii);
(x) Refinancing Indebtedness with respect to Indebtedness permitted
pursuant to clauses (iv), (vii) or (ix) of this paragraph (b) (provided
that such Refinancing Indebtedness shall be included in determining the
aggregate amount of Indebtedness for purposes of the monetary limitations
contained in such clauses); and
(xi) Hedging Obligations designed to protect the Company or its
Subsidiaries from fluctuations in interest or exchange rates.
(c) Notwithstanding any other provision of this Section 9.06, the Company
shall not Incur any Indebtedness (i) pursuant to Section 9.06(b) if the proceeds
thereof are used, directly or indirectly, to repay, prepay, redeem, defease,
retire, refund or refinance any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Notes to at least the same extent as
such Subordinated Obligations or (ii) pursuant to Section 9.06(a) or 9.06(b) if
such Indebtedness is subordinate or junior in right of payment to any Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness.
(d) Notwithstanding any other provision of this Section 9.06, the maximum
amount of Indebtedness that the Company or any Restricted Subsidiary may Incur
pursuant to any provision of this Section shall not be deemed to be exceeded
solely as a result of fluctuations in the exchange rates of currencies. For
purposes of determining the outstanding principal amount of any particular
Indebtedness Incurred pursuant to this Section 9.06, (1) Indebtedness Incurred
pursuant to the Senior Credit Facility prior to or on the Date of this Indenture
shall be treated as Incurred pursuant to Section 9.06(b)(i), (2) Indebtedness
permitted by this Section 9.06 need not be permitted solely by reference to one
provision permitting such Indebtedness but may be permitted in part by one such
provision and in part by one or more other provisions of this Section permitting
such Indebtedness and (3) in the event that Indebtedness or any portion thereof
meets the criteria of more than one of the types of Indebtedness described in
this Section 9.06, the Company, in its sole discretion, shall classify such
Indebtedness and only be required to include the amount of such Indebtedness in
one of such clauses.
60
SECTION 9.07. Limitation on Transactions with Affiliates
(a) After the Date of this Indenture, the Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction (including, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of the Company (an
"Affiliate Transaction") on terms (i) that are less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's-length dealings with a Person
who is not such an Affiliate and (ii) that, in the event such Affiliate
Transaction involves an aggregate amount in excess of $750,000, are not in
writing and have not been approved by a majority of the members of the board of
Directors having no personal stake in such Affiliate Transaction. In addition,
any transaction involving aggregate payments or other transfers by the Company
and its restricted Subsidiaries in excess of $3,500,000, shall also require an
opinion from an independent investment banking firm or appraiser that is
nationally recognized, as appropriate, to the effect that such transaction is
fair to the Company or such Restricted Subsidiary from a financial point of
view.
(b) The provisions of Section 9.07(a) shall not apply to (i) any Permitted
Investment or Restricted Payment permitted to be made or paid pursuant to
Section 9.04, (ii) the performance of the Company's or any Subsidiary's
obligations under any employment contract, collective bargaining agreement,
employee benefit plan, related trust agreement or any other similar arrangement
heretofore or hereafter entered into in the ordinary course of business, (iii)
payment of compensation to employees, officers, directors or consultants in the
ordinary course of business, (iv) maintenance in the ordinary course of business
(and payments required thereby) of benefit programs or arrangements for
employees, officers or directors, including vacation plans, health and life
insurance plans, deferred compensation plans, directors' and officers'
indemnification agreements, arrangements, and insurance and retirement or
savings plans and similar plans, (v) any transaction between the Company and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries, (vi) beginning
November 1, 1999, the payment of certain fees under the Management Agreement or
any amendment or supplement thereto, to the extent that such payment shall not
exceed an aggregate amount of $l,350,000 during any 12-month period, (vii)
payments made by the Operating Company to the Company to reimburse the Company
for costs, fees and expenses incident to a registration of any of the capital
stock the Company for a primary offering under the Securities Act of 1933, as
amended; or (viii) payments of principal and interest on the Notes.
SECTION 9.08. Change of Control.
(a) Upon a Change of Control, each Holder shall have the right to require
that the Company repurchase all or any part of such Holder's Notes at a purchase
price in cash equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase (subject to the right of
Holders of record on a record date to receive interest due on the relevant
interest payment date), in accordance with the terms contemplated in Section
9.08(b); provided, however, that notwithstanding the occurrence of a Change of
Control, the Company shall not be obligated to purchase the Notes pursuant to
this Section 9.08 in the event that it has
61
exercised its right to redeem all the Notes under Article 10 hereof and such
redemption is permitted by the terms of the Bank Indebtedness (or the requisite
number of lenders thereof has consented thereto). In the event that at the time
of such Change of Control the terms of the Senior Indebtedness restrict or
prohibit the repurchase of Notes pursuant to this Section 9.08, then prior to
the mailing of the notice to Holders provided for in this Section 9.08 below but
in any event within 30 days following any Change of Control, the Company shall
(i) repay in full all Bank Indebtedness or offer to repay in full all Bank
Indebtedness and repay the Bank Indebtedness of each lender who has accepted
such offer or (ii) obtain the requisite consent under the agreements governing
the Bank Indebtedness to permit the repurchase of the Notes as provided for in
Section 9.08.
(b) Within 30 days following any Change of Control (except as provided in
the provision to the first sentence of Section 9.08(a)), the Company shall mail
a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder has
the right to require the Company to purchase such Holder's Notes at a purchase
price in cash equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase (subject to the right of
Holders of record on a record date to receive interest due on the relevant
interest payment date);
(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed and not more than 90 days
after the Change of Control); and
(4) the instructions determined by the Company, consistent with this
Section 9.08, that a Holder must follow in order to have its Notes purchased.
(c) Holders electing to have a Note purchased shall be required to
surrender the Note, with an appropriate form duly completed, to the Company at
the address specified in the notice at least three Business Days prior to the
purchase date. Holders shall be entitled to withdraw their election if the
Trustee receives not later than one Business Day prior to the purchase date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note which was delivered for purchase by the
Holder and a statement that such Holder is withdrawing his election to have such
Note purchased.
(d) On the purchase date, all Notes purchased by the Company under this
Section 9.08 shall be delivered to the Trustee for cancellation, and the Company
shall pay the purchase price plus accrued and unpaid interest, if any, to the
purchase date to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
Section 9.08. To the extent that the provisions of
62
any securities laws or regulations conflict with provisions of this Section
9.08, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 9.08 by virtue thereof
SECTION 9.09. Compliance Certificate.
The Company shall deliver to the Trustee within 120 days after the end of
each fiscal year of the Company an Officers' Certificate complying with Section
314(a)(4) of the TIA and stating that a review of its activities and the
activities of its Subsidiaries during the preceding fiscal year has been made
under the supervision of the signing Officers with a view to determining whether
the Company has kept, observed, performed and fulfilled its obligations under
this Indenture and further stating, as to each Officer signing such certificate,
whether or not the signer knows of any failure by the Company or any Subsidiary
of the Company to comply with any conditions or covenants in this Indenture,
and, if such signer does know of such a failure to comply, the certificate
shall describe such failure with particularity and describe what actions, if
any, the Company proposes to take with respect to such failure.
SECTION 9.10. Further Instruments and Acts.
Upon request of the Trustee, the Company shall execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
SECTION 9.11. Limitation on Liens.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, create or permit to exist any Lien on any of its
property or assets (including Capital Stock), whether owned on the date of this
Indenture or thereafter acquired, securing any obligation other than Permitted
Liens unless the obligations due under the Indenture and the Notes are secured,
on an equal and ratable basis (or on a senior basis, in the case of indebtedness
subordinated in right of payment to the Notes) with the obligations so secured.
SECTION 9.12. Limitation on Lines of Business.
The Company shall not, and shall not permit any Restricted Subsidiary to,
engage in any business, other than a Related Business.
SECTION 9.13. Reports by the Company.
If the Company or the Operating Company shall be subject to the
requirement to file annual or other reports with the Commission or with any
Notes exchange, if any, on which the Notes are listed, it shall:
(a) file with the Trustee, within 15 days after the Company or the
Operating Company is required to file the same with the Commission or with any
Notes exchange on which the Notes are listed, copies of such annual reports and
of such information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission or any such exchange from time to time by
rules and regulations may prescribe) that the Company or the
64
Operating Company shall be required to file with the Commission pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended,
or such exchange; and
(b) file with the Trustee, in accordance with the rules and regulations
prescribed from time to time by the Commission or by any securities exchange on
which the Notes are listed, such additional information, documents and reports
as it shall file with the Commission or such securities exchange with respect to
compliance by the Company or the Operating Company with the conditions and
covenants of this Indenture as may be required from time to time by such rules
and regulations.
SECTION 9.14. Limitation on Sales of Assets and Subsidiary Stock.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, make any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration (including by way of relief from, or by any
other Person assuming sole responsibility for, any liabilities, contingent or
otherwise) at the time of such Asset Disposition at least equal to the fair
market value of the shares and assets subject to such Asset Disposition, and
(ii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as the
case may be): (A) first, to the extent the Company or such Restricted Subsidiary
elects (or is required by the terms of any Senior Indebtedness or any
Indebtedness of any Subsidiary), to prepay, repay or purchase Senior
Indebtedness or other Indebtedness of the Company or any Subsidiary (in each
case other than Indebtedness owed to the Company or an Affiliate of the Company)
within 12 months after the later of the date of such Asset Disposition or the
receipt of such Net Available Cash; (B) second, to the extent of the balance of
Net Available Cash after application in accordance with clause (A), to the
extent the Company or such Restricted Subsidiary elects, to reinvest in
Additional Assets (including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the Company or another
Restricted Subsidiary) within 12 months from the later of the date of such Asset
Disposition or the receipt of such Net Available Cash; (C) Third, if not
prohibited by any Indebtedness of the Company or any Subsidiary (including any
limitations or the Operating Company's ability to distribute funds to the
Company) and to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to purchase
Notes pursuant and subject to the conditions of this Indenture to the Holders at
a purchase price of 100% of the principal amount thereof, plus accrued and
unpaid interest to the purchase date; and (D) fourth, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A), (B) and (C), to any application not prohibited by this Indenture. The
Company and the Restricted Subsidiaries shall not be required to apply any Net
Available Cash in accordance with Section 9.14 except to the extent that the
aggregate Net Available Cash from all Asset Dispositions that is not applied in
accordance with this Section 9.14 exceeds $5,000,000.
(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to Section 9.14(a)(ii)(C), the Company shall be required to
purchase Notes tendered pursuant to an offer by the Company for the Notes (the
"Offer") at a purchase price of 100% of their principal amount plus accrued and
unpaid interest to the Purchase Date in accordance with the
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procedures (including prorating in the event of oversubscription) set forth in
Section 9.14(c). If the aggregate purchase price of Notes tendered pursuant to
the Offer is less than the Net Available Cash allotted to the purchase of the
Notes, the Company shall apply the remaining Net Available Cash in accordance
with Section 9.14(a)(ii)(D). The Company shall not be required to make an offer
for Notes pursuant to this Section 9.14 if the Net Available Cash available
therefor (after application of the proceeds as provided in clauses (A) and (B)
of Section 9.14(a)(ii)) is less than $5,000,000 for any particular Asset
Disposition (which lesser amounts shall be carried forward for purposes of
determining whether an Offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition).
(c) (1) Promptly, and in any event within 10 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, a written notice
stating that the Holder may elect to have his Notes purchased by the Company
either in whole or in part (subject to prorationing as hereinafter described in
the event the Offer is oversubscribed) in integral multiples of $1,000 of
principal amount, at the applicable purchase price. The notice shall specify' a
purchase date not less than 30 days nor more than 60 days after the date of such
notice (the "Purchase Date) and shall contain such information concerning the
business of the Company which the Company in good faith believes will enable
such Holders to make an informed decision (which at a minimum shall include (i)
the most recently filed Annual Report on Form 10-K (including audited
consolidated financial statements) of either the Company or the Operating
Company, the most recent subsequently filed Quarterly Report on Form 10-Q and
any Current Report on Form 8-K of either the Company or the Operating Company
filed subsequent to such Quarterly Report, other than Current Reports describing
Asset Dispositions otherwise described in the offering materials (or
corresponding successor reports), (ii) a description of material developments in
the Company's business subsequent to the date of the latest of such reports, and
(iii) if material, appropriate pro forma financial information) and all
instructions and materials necessary to tender Notes pursuant to the Offer,
together with the address referred to in clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided above, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the
"Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the
compliance of such allocation with the provisions of Section 9.14(a). On such
date, the Company shall also irrevocably deposit with the Trustee or with a
Paying Agent in Temporary Cash Investments an amount equal to the Offer
Amount to be held for payment in accordance with the provisions of this
Section. Upon the expiration of the period for which the Offer remains open
(the "Offer Period"), the Company shall deliver to the Trustee for
cancellation the Notes or portions thereof which have been properly tendered
to and are to be accepted by the Company. From funds on hand and available
for such purpose, the Trustee (or the Paying Agent, if not the Trustee)
shall, on the Purchase Date, mail or deliver payment to each tendering Holder
in the amount of the purchase price. In the event that the aggregate purchase
price of the Notes delivered by the Company to the Trustee is less than the
Offer Amount, the Trustee shall deliver the excess to the Company immediately
after the expiration of the Offer Period for application in accordance with
this Section 9.14.
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(3) Holders electing to have a Note purchased shall be required to
surrender the Note, with an appropriate form duly completed, to the Company at
the address specified in the notice at least three Business Days prior to the
Purchase Date. Holders shall be entitled to withdraw their election if the
Trustee receives not later than one Business Day prior to the Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Note which was delivered by the Holder for
purchase and a statement that such Holder is withdrawing his election to have
such Note purchased. If at the expiration of the Offer Period the aggregate
principal amount of Notes surrendered by the Holders exceeds the Offer Amount,
the Company shall select the Notes to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so that only Notes
in denominations of $1,000, or integral multiples thereof, shall be purchased).
Holders whose Notes are purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered.
(4) At the time the Company delivers Notes to the Trustee which are to be
accepted for purchase, the Company shall also deliver an Officers' Certificate
stating that such Notes are to be accepted by the Company pursuant to and in
accordance with the terms of this Section 9.14; as well as an Opinion of Counsel
to the effect that all of the requirements of this Section 9.14 have been
satisfied. A Note shall be deemed to have been accepted for purchase at the time
the Trustee, directly or through an agent, mails or delivers payment therefor to
the surrendering Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
Section 9.14. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 9.14, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 9.14 by virtue
thereof.
SECTION 9.15. Offer to Redeem Upon Redemption of the Existing Preferred Stock.
If either (i) the Operating Company redeems the Existing Preferred Stock
or (ii) the Company sells the Existing Preferred Stock, in either case prior to
its Stated Maturity, the Company shall either (i) exercise its legal or covenant
defeasance option by complying with the applicable provisions of Section 3.02
(other than the termination of the waiting period specified in Section 3.02(3))
or (ii) initiate the redemption of the Notes pursuant to Section 10.02 within 60
days of the completion of such transaction.
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ARTICLE TEN
REDEMPTION OF NOTES
SECTION 10.01. Applicability of Article.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article Ten.
SECTION 10.02. Optional Redemption.
Subject to the restrictions specified in the form of Note, the Notes may
be redeemed as a whole at any time or in part from time to time, at the
redemption prices and as otherwise specified in such form of Note for
redemptions, together with all accrued interest to the Redemption Date.
SECTION 10.03. Election to Redeem.
The election by the Company to redeem Notes pursuant to Section 10.02
shall be evidenced by a resolution adopted by a majority of the entire Board of
Directors of the Company.
SECTION 10.04. Selection by Company of Notes to be Redeemed.
(a) The particular Notes to be redeemed pursuant to Section 10.02, if less
than all the Outstanding Notes are to be redeemed pursuant thereto, shall be
selected by the Company not more than 60 days nor less than 45 days prior to the
Redemption Date unless a shorter period is acceptable to the Trustee, from the
Outstanding Notes not previously called for redemption and, subject to Section
10.04(c) hereof, shall be redeemed pro rata among the Holders in the proportion
that the aggregate amount of Notes held by a Holder bears to the aggregate
amount of Notes Outstanding, provided Notes shall be selected for redemption in
denomination of $1,000 or integral multiples thereof.
(b) The Company promptly shall notify the Trustee in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
(c) For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Notes shall relate, in
the case of any Note redeemed or to be redeemed only in part, to the portion of
the principal amount of such Note that has been or is to be redeemed.
SECTION 10.05. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 or more than 60 days prior to the Redemption Date, to
each Holder of Notes to be redeemed, at his address appearing in the Note
Register.
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All notices of redemption shall state:
(a) the Redemption Date;
(b) the redemption price;
(c) if less than all the Outstanding Notes are to be redeemed, the
identification (and, in the case of partial redemption, the principal amounts)
of the particular Notes to be redeemed;
(d) that on the Redemption Date the redemption price will become due and
payable upon each such Note to be redeemed and that interest thereon will cease
to accrue on and after such date;
(e) the place or places where such Notes are to be surrendered for payment
of the redemption price;
(f) the CUSIP number, if any, printed on the Notes being redeemed; and
(g) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 10.06. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee
or with the paying agent funds sufficient to pay the redemption price of, and
(except if the Redemption Date shall be an Interest Payment Date) accrued
interest on, all the Notes that are to be redeemed on that date.
SECTION 10.07. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes so to be
redeemed shall become due and payable on the Redemption Date, at the redemption
price therein specified, and from and after such date (unless the Company shall
default in the payment of the redemption price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with such notice, such Note shall be paid by the Company at the
redemption price, together with all accrued interest to the Redemption Date;
provided, however, that installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders of such Notes
registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 2.08.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and premium, if any, shall, until paid,
bear interest from the Redemption Date at the applicable rate specified in
Section 2.03.
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SECTION 10.08. Notes Redeemed in Part.
Any Note that is to be redeemed only in part shall be surrendered at an
office or agency of the Company designated for that purpose pursuant to Section
9.02 (with, if the Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing), and the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Note, at the expense of the Company, a new Note or
Notes, of any authorized denomination requested by such Holder, in an aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal amount of the Note so surrendered.
ARTICLE ELEVEN
SUBORDINATION
SECTION 11.01. Agreement of Subordination.
The Company covenants and agrees, and each Holder of Notes by his
acceptance thereof likewise covenants and agrees, that all Notes shall be issued
subject to the provisions of this Article Eleven; and each Person holding any
Note, whether upon original issue or exchange or upon transfer or assignment
thereof, accepts and agrees to be bound by such provisions.
The payment of the principal of and premium, if any, interest and any
other amount due on all Notes, to the extent and in the manner hereinafter set
forth, shall be subordinated and subject in right of payment to the prior
payment in full in cash of all Senior Indebtedness (including interest accruing
after the filing of a petition by or against the Company under any Bankruptcy
Law, whether or not allowed as a claim), whether outstanding at the date hereof
or hereafter incurred.
SECTION 11.02. Payments to Holders of Notes.
In the event and during the continuation of any default in the payment of
principal of, premium, if any, or interest on or any other payment due under the
Senior Credit Facility, then, unless and until such default shall have been
cured or waived, no payment or distribution shall be made by or on behalf of the
Company with respect to the principal of or premium, if any, interest or any
other payment due on or with respect to the Notes.
In the event and during the continuation of any default (other than a
default of any payment due) with respect to the Senior Credit Facility
permitting the Senior Lenders thereunder to accelerate the maturity thereof,
then, unless and until such default shall have been cured or waived, no payment
or distribution shall be made by or on behalf of the Company with respect to the
principal of or premium, if any, interest or any other payment due on or with
respect to the Notes, if written notice of such default shall have been given to
the Trustee and the Company by the Bank Agent, during the period commencing on
the date on which such notice is received by the Company and the Trustee and
ending on the earlier to occur of (a) the 179th day thereafter or (b) the day on
which such default is cured or waived; provided, however, that this sentence
shall
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not prohibit any payment of any installment of principal of or premium, if any,
interest or any other payment due on the Notes for more than 179 days in any
365-day period and provided, further, that no default that once formed the basis
for any such notice by the Bank Agent shall form the basis of any subsequent
notice under this paragraph. For purposes of the preceding sentence, "default"
shall mean any default or failure to observe or perform any provision of the
Senior Credit Facility, after the giving of notice, the expiration of any grace
periods, or both, so that the Senior Lenders are entitled to accelerate the
maturity thereof.
Upon any payment by the Company, or distribution of assets or securities
of the Company of any kind or character, whether in cash, property or
securities, to creditors upon any dissolution, winding-up, total or partial
liquidation or reorganization of the Company or its property, whether voluntary
or involuntary, or any assignment for the benefit of creditors or any marshaling
of assets and liabilities, or in bankruptcy, insolvency, receivership or other
proceedings, all amounts due or to become due upon all Senior Indebtedness first
shall be paid in full in cash, or payment thereof provided for in cash in
accordance with its terms, before any payment is made on account of the
principal of or premium, if any, interest or any other amount due on or with
respect to the Notes; and upon any such dissolution, winding-up, liquidation,
reorganization, assignment, marshaling or proceedings:
(a) the Senior Lenders shall be entitled to receive payment in full in
cash and cash equivalents of all Senior Indebtedness before the Holders of the
Notes and the Trustee shall be entitled to receive any payment of principal or
premium, if any, or interest on or other amounts payable with respect to the
Notes; and
(b) any payment by the Company, or distribution of assets or securities of
the Company of any kind or character, whether in cash, property or securities,
to which the Holders of the Notes or the Trustee would be entitled except for
the provisions of this Article Eleven, shall be paid by the Company or by any
custodian, agent or other Person making such payment or distribution, or by any
Holder, the Trustee, any paying agent or any depository if received by it,
directly to the Senior Lenders or their representative or representatives, or
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any such Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all such Senior
Indebtedness in full in cash or cash equivalents, after giving effect to any
concurrent payment or distribution to or for the Senior Lenders.
In the event that, notwithstanding the foregoing, any payment by or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities, prohibited by the foregoing, shall be
received by the Trustee or the Holders before all such Senior Indebtedness is
paid in full in cash, such payment or distribution shall be held in trust for
the benefit of and shall be paid over or delivered to the Senior Lenders or
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instrument evidencing any such Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of all such Senior Indebtedness remaining unpaid to
the extent necessary to pay all such Senior Indebtedness in full in cash or cash
equivalents in
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accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the benefit of the Senior Lenders.
The consolidation of the Company with or the merger of the Company into
another corporation, or the liquidation or dissolution of the Company following
the conveyance or transfer of its property or assets as an entirety or
substantially as an entirety to another corporation, upon the terms and
conditions provided for in Article Seven, shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 11.02
if such other corporation, as a part of such consolidation, merger, conveyance
or transfer, shall comply with the conditions stated in Article Seven. Nothing
in this Section 11.02 shall apply to claims of or payments to the Trustee
pursuant to Section 5.07.
The Senior Lenders, at any time and from time to time, without the consent
of or notice to the Holders, without incurring responsibility to the Holders and
without impairing or releasing the obligations of the Holders hereunder to the
Senior Lenders, may: (a) change the manner, place or terms of payment or change
or extend the time of payment of, or renew or alter, the Senior Indebtedness, or
otherwise amend in any manner Senior Indebtedness or any instrument evidencing
the same or any agreement under which the Senior Indebtedness is outstanding;
(b) sell, exchange, release or otherwise deal with any property pledged,
mortgaged or otherwise securing the Senior Indebtedness; (c) release any Person
liable in any manner for the collection or payment of the Senior Indebtedness;
and (d) exercise or refrain from exercising any rights against the Company or
any other Person.
For purposes of this Article Eleven, "payments" of or with respect to the
Notes includes any payment, redemption, acquisition, deposit, segregation,
retirement, sinking hand payment and defeasance of or with respect to the Notes,
but does not include the delivery of Outstanding or previously redeemed Notes in
satisfaction of all or any part of any sinking fund payment.
SECTION 11.03. Subordination or Notes.
Subject to the payment in full in cash of all Senior Indebtedness at the
time outstanding, the Holders shall be subrogated to the rights of the Senior
Lenders to receive payments or distributions of cash, property or securities of
the Company applicable to the Senior Indebtedness until the principal of and
premium, if any, and interest on the Notes shall be paid in full; and, for the
purposes of such subrogation, no payments or distributions to the Senior Lenders
of any cash, property or securities to which the Holders of the Notes or the
Trustee would be entitled except for the provisions of this Article Eleven, and
no payment over pursuant to the provisions of this Article Eleven to or for the
benefit of the Senior Lenders by the Holders or the Trustee, shall, as between
the Company, its creditors other than the Senior Lenders and the Holders, be
deemed to be a payment by the Company to or on account of such Senior
Indebtedness. It is understood that the provisions of this Article Eleven are
and are intended solely for the purpose of defining the relative rights of the
Holders on the one hand and the Senior Lenders on the other hand.
Nothing contained in this Article Eleven or elsewhere in this Indenture
(except to the extent contemplated by Section 4.02) or in the Notes is intended
to or shall impair, as between the Company, its creditors other than the Senior
Lenders and the Holders, the obligation of the
72
Company, which is absolute and unconditional, to pay to the Holders the
principal of and premium, if any, and interest on the Notes as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the Holders and creditors of the Company
other than the Senior Lenders, nor shall anything herein (except to the extent
contemplated by Section 4.02) or therein prevent the Trustee or the Holder of
any Note from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
Eleven of the Senior Lenders in respect of cash, property or securities of the
Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets or securities of the Company
referred to in this Article Eleven, the Trustee, subject to the provisions of
Section 5.01, and the Holders shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such dissolution,
winding-up, liquidation, reorganization, assignment, marshaling or proceedings
are pending, or a certificate of any Custodian, agent or other Person making
such payment or distribution, delivered to the Trustee or to the Holders, for
the purpose of ascertaining the Persons entitled to participate in such payment
or distribution, the Senior Lenders and the holders of other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
Eleven.
SECTION 11.04. Authorization by Holders of Notes.
Each Holder of a Note by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination provided in this Article Eleven and
appoints the Trustee his attorney-in-fact for any and all such purposes
including, without limitation in the event of any dissolution, winding-up,
liquidation, marshaling of assets and liabilities or reorganization of the
Company (whether in bankruptcy, insolvency, receivership, reorganization or
similar proceedings or upon an assignment for the benefit of creditors or
otherwise) tending towards liquidation of the business and assets of the
Company, the filing of a claim for the unpaid principal balance of and premium,
if any, and accrued interest on and other obligations with respect to the Notes
in the form required in those proceedings.
SECTION 11.05 Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company that would prohibit the making of any payment or
distribution to or by the Trustee in respect of the Notes pursuant to the
provisions of this Article Eleven. Notwithstanding the provisions of this
Article Eleven or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any fact that would prohibit the
making of any payment or distribution to or by the Trustee in respect of the
Notes pursuant to the provisions of this Article Eleven, unless and until a
Responsible Officer shall have received written notice thereof at the Principal
Office of the Trustee from the Company or a Senior Lender or from any trustee
for Senior Indebtedness; and prior to the receipt of any such written notice the
Trustee, subject to the provisions of Section 5.01, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for
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in this Section 11.05 within one Business Day prior to the date upon which by
the terms hereof any funds may become payable for any purpose (including without
limitation the payment of the principal of or premium, if any, or interest on
any Note), then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such funds and to apply
the same to the purpose for which they were received and shall not be affected
by any notice to the contrary that may be received by it within one Business Day
prior to such date.
The Trustee, subject to the provisions of Section 5.01, shall be entitled
to rely on the delivery to it of a written notice by a Person representing
himself to be a Senior Lender (or a trustee or agent on behalf of a Senior
Lender) to establish that such notice has been given by a Senior Lender or a
trustee or agent on behalf of any such Senior Lender. In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any Person as a Senior Lender to participate in any payment or
distribution pursuant to this Article Eleven, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
fact pertinent to the rights of such Person under this Article Eleven, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment or distribution.
SECTION 11.06. Trustee's Relation to Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article Eleven in respect of any Senior Indebtedness at any
time held by it, to the same extent as any other Senior Lender, and no provision
of this Indenture shall deprive the Trustee of any of its rights as such Senior
Lender.
With respect to the Senior Lenders, the Trustee undertakes to perform or
to observe only such covenants and obligations as are specifically set forth in
this Article Eleven, and no implied covenant or obligation with respect to the
Senior Lenders shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the Senior Lenders.
Whenever a distribution is to be made or a notice given to Senior Lenders,
the distribution may be made and the notice given to their representative(s).
SECTION 11.07. No Impairment of Subordination.
No right of any present or future Senior Lender to enforce subordination
as herein provided at any time in any way shall be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such Senior Lender, or by any noncompliance by the
Company with the terms, provisions and covenants of this Indenture, regardless
of any knowledge thereof which any such Senior Lender may have or otherwise be
charged with.
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SECTION 11.08. Article Eleven Not to Prevent Events of Default.
The failure to make a payment on account of principal, premium, if any,
interest or any other amount due hereunder or on the Notes by reason of any
provision in this Article Eleven shall not be construed as preventing the
occurrence of an Event of Default under Section 4.01 but the remedies in respect
thereof are limited as set forth in Article Four and any amounts realized
through the exercise of such remedies shall be subject to the provisions of this
Article Eleven.
SECTION 11.09. Continuing Effect.
The foregoing provisions constitute a continuing offer to all Persons who
become, or continue to be, Senior Lenders; and such provisions are made for the
benefit of the Senior Lenders, and such Senior Lenders are hereby made obligees
hereunder the same as if their names were written herein as such, and they
and/or each of them may proceed to enforce such provisions and need not prove
reliance thereon.
SECTION 11.10. Individual Rights of Senior Lenders.
A Senior Lender in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Subsidiary or Affiliate of the Company with the same rights as if it were not a
Senior Lender.
SECTION 11.11. Article Applicable to Paying Agents and Depositaries.
In case at any time any paying agent or depositary other than the Trustee
shall have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such paying agent
or depositary within its meaning as fully for all intents and purposes as if
such paying agent or depositary were named in this Article in addition to or in
place of the Trustee; provided, however, that Section 11.06 shall not apply to
the Company if it acts as paying agent.
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The Trustee hereby accepts the trusts in Indenture declared and provided,
upon the terms and conditions hereinabove set forth.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly signed, and their respective corporate seals, if any, to be hereunto
affixed and attested, all as of the date first written above.
CARTER HOLDINGS, INC.
By: /s/
------------------------------------
Name: Frederick J. Rowan II
Title: President
Attest:
By: /s/
------------------------------------
Name: David A. Brown
Title: Clerk
STATE STREET BANK AND TRUST COMPANY
By: /s/
------------------------------------
Name:
Title:
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EXHIBIT A
[FORM OF FACE OF INITIAL SECURITY]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.(1)
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT'), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF WITHIN THE
UNITED STATES TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS IN THE ABSENCE
OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY
WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO
THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED
- ----------
(1) This paragraph should only be added if the Note is issued in global form.
1
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION
2 UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN
THE MEANING OF RULE 50l(A)(l), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF
THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR
FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S OR THE
TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (F)
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND IN THE CASE OF THE FOREGOING
CLAUSE (E), A CERTIFICATE OF TRANSFER (THE FORM OF WHICH CAN BE OBTAINED FROM
THE TRUSTEE) IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
CARTER HOLDINGS, INC.
12% Senior Subordinated Note Due October 1, 2008
No. ____ CUSIP No.
$_____
AS STATED IN THE INDENTURE, THE RIGHTS OF THE HOLDER HEREOF ARE SUBJECT TO
SUBORDINATION IN CERTAIN EVENTS TO ALL SENIOR INDEBTEDNESS (AS DEFINED IN THE
INDENTURE REFERRED TO HEREIN) OF THE COMPANY
Carter Holdings, Inc., a Massachusetts corporation (the "Company", which
term includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to _______________________, or
registered assigns, the principal sum of US $____________ on October 1 2008, and
to pay interest thereon at the rate of 12% per annum from the date this Note was
originally issued under the Indenture or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, as the case may be,
until Maturity. Interest shall be computed for such period on the basis of the
actual number of days elapsed in a 360-day year. Interest at such rate shall be
payable in arrears on each May 1 and November 1, commencing May 1,1997 and at
Maturity. Interest shall be payable at the rate of 14% per annum on any overdue
principal and on any overdue interest, to the extent that the payment of such
interest shall be legally enforceable. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date, will be paid, as
provided in the
2
Indenture, to the Person in whose name this Note is registered at the close of
business on the Regular Record Date for such interest, which shall be the April
15 and October 15, as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided for on any
Interest Payment Date forthwith will cease to be payable to the Holder on such
Regular Record Date by virtue of his having been such Holder and shall be paid
to the Person in whose name this Note is registered at the close of business on
a Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice of which shall be given to Holders not less than ten days
prior to such Special Record Date, or be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Notes may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in the Indenture. Payment of the principal
of and premium, if any, and interest on this Note will be made at the office or
agency of the Company maintained for such purpose in New York, New York, in such
coin or currency of the United States of America as at the time of payment is
legal tender for the payment of public and private debts; provided, however,
that at the option of the Company payment may be made by check mailed to the
Person entitled thereto at his address appearing on the Note Register.
Notwithstanding the foregoing, the principal of and premium, if any, and
interest on this Note (other than the final payment of principal) at the option
of the Holder hereof shall be made directly to such Holder, by wire transfer of
immediately available hands, without presentment, to the address designated by
such Holder in writing. Before selling or otherwise transferring this Note, such
Holder will make a notation hereon of the aggregate amount of all payments of
principal theretofore made, and of the date to which interest has been paid.
Reference is made to the further provisions of this Note set forth on the
reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth on this front side of this Note.
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS THEREOF.
This Note shall not be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been manually signed by the
Trustee as provided in the Indenture.
Capitalized terms used herein that are not defined herein but that are
defined in the Indenture are used as therein defined.
3
IN WITNESS WHEREOF, Carter Holdings, Inc. has caused this instrument to be
duly executed under its corporate seal.
CARTER HOLDINGS, INC.
By:
------------------------------------
Name: Frederick J. Rowan II
Title: President
Attest:
By:
------------------------------------
Name: David A Brown
Title: Clerk
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
STATE STREET BANK AND TRUST
COMPANY, as Trustee,
certifies that this is one
of the Notes referred
to in the Indenture
By:
-----------------------
Authorized Signatory
4
(REVERSE OF NOTE)
This Note is one of a duly authorized issue of Notes of the Company,
designated as its 12% Senior Subordinated Notes due October 1, 2008 (the
"Notes"), limited in aggregate principal amount to not more than $20,000,000 and
to be issued under an Indenture dated as of March 25, 1997, amending and
restating the indenture dated as of October 30, 1996 (the "Indenture"), from the
Company to STATE STREET BANK AND TRUST COMPANY (the "Trustee", which term
includes any successor Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a description of
the rights, limitations of rights, obligations, duties and immunities thereunder
of the Trustee, the Company and the Holders of Notes and of the terms upon which
the Notes are, and are to be, authenticated and delivered.
Subject to the terms of Article Ten and Eleven of the Indenture, the Notes
are subject to redemption at any time or from time to time, upon not less than
30 days' nor more than 60 days' notice, as a whole or in part, at the election
of the Company, at the following optional redemption prices (expressed as a
percentage of principal amount redeemed), if redeemed during the period
beginning on the respective date indicated below and ending on the day before
the next date indicated, plus accrued and unpaid interest thereon to the date of
such redemption on the amount redeemed
Date Optional Redemption Price
---- -------------------------
December 31, 1996 109.0%
October 1,1999 107.0%
October 1, 2000 105.0%
October 1, 2001 103.0%
October 1,2002 101.0%
October 1, 2003 and thereafter 100.0%
Interest that is due and payable on or prior to any such Redemption Date
will be payable to the Holders of such Notes of record at the close of business
on the relevant Record Date referred to on the face hereof; all as provided in
the Indenture.
In the event of redemption of this Note in part only, a new Note or Notes
for the unredeemed portion hereof will be issued in the name of the Holder
hereof upon the cancellation hereof.
The Indenture further provides that, upon the occurrence of a Change of
Control, the Company shall notify the Trustee in writing and shall promptly
make an offer to purchase, on the last day of the next fiscal quarter of the
Company commencing after the Change of Control Date (the "Change of Control
Payment Date"), all Notes then Outstanding at a purchase price
5
equal to 101% of the principal amount of such Note together with accrued
interest to and including the Change of Control Payment Date.
If an Event of Default, as defined in the Indenture, shall have occurred
and be continuing, the principal of all Notes may be declared, and upon such
declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions provided in the Indenture.
So long as any Senior Indebtedness is outstanding or the Company shall
have any outstanding obligation thereunder, the Company may not amend or modify
in certain respects any of the subordination provisions contained in the
Indenture as against any Senior Lender who has not consented thereto.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in aggregate
principal amount of the Notes at the time Outstanding, evidenced as in the
Indenture provided, to execute supplemental indentures adding any provision to
or changing in any manner or eliminating any provision of the Indenture or of
any supplemental indenture or modifying in any manner the rights of the Holders
of the Notes; provided that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Note affected thereby, (a) change the
Stated Maturity of the principal of, or Interest Payment Date with respect to
any payment of interest on, any Note, or reduce the rate or extend the time of
payment of interest thereon, or reduce the principal amount thereof or premium,
if any, thereon, or impair the right to institute suit for the payment on or
after the Stated Maturity thereof or Interest Payment Date therefor, as the case
may be (or, in the case of redemption or repurchase, on or after the Redemption
Date or Change of Control Payment Date), or change the place of payment where,
or the coin or currency in which, the principal, premium, if any, or interest is
payable, (b) reduce the aforesaid percentage in principal amount of the
Outstanding Notes the consent of whose Holders is required to waive compliance
with certain provisions of the Indenture or certain defaults thereunder or to
consent to any such supplemental indenture or (c) modify certain sections of
the Indenture or the Events of Default thereunder. The Indenture also provides
that, prior to any declaration accelerating the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
Outstanding on behalf of the Holders of all of the Notes may waive any past
default or Event of Default under the Indenture and its consequences except a
default in the payment of the principal of or premium, if any, or interest on
any of the Notes and certain other defaults. Any such consent or waiver by the
Holder of this Note (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such Holder and upon all future Holders of this Note
and any Note that may be issued in exchange or substitution herefor,
irrespective of whether or not any notation thereof is made upon this Note or
such other Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture (except to the extent contemplated by Section 4.02 of the
Indenture) shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Note at the place, at the times, at the rate and in the coin or
currency herein prescribed.
6
The Notes are issuable only in registered form (pursuant to Regulation ss.
5f 103-1 of the Federal Income Tax Regulations) without coupons in denominations
of $1,000 and any integral multiple thereof and maybe transferred only by
surrender of this Note and the reissuance by the Company of this Note to the
transferee or the issuance by the Company of a new Note or new Notes to the
transferee or transferees. At the office or agency of the Company maintained for
such purpose and in the manner and subject to the limitations provided in the
Indenture, Notes may be exchanged for a like aggregate principal amount of Notes
of other authorized denominations.
Upon due presentment for registration of transfer of this Note at the
office or agency of the Company maintained for such purpose, a new Note or Notes
of authorized denominations for an equal aggregate principal amount will be
issued to the transferee in exchange herefor, subject to the limitations
provided in the Indenture, without charge except for any tax or other
governmental charge imposed in connection therewith.
The Company, the Trustee, any paying agent, and any Note Registrar may
deem and treat the Person in whose name this Note is registered as the absolute
owner of this Note (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon made by anyone
other than the Company or any Note Registrar), for the purpose of receiving
payment hereof and for all other purposes, and none of the Company, the Trustee,
any paying agent or any Note Registrar shall be affected by any notice to the
contrary. No payments made to or upon the order of such registered Holder, to
the extent of the sum or sums paid, shall satisfy and discharge liability for
amounts payable on this Note.
The rate of interest payable hereon shall in no event exceed the maximum
rate permissible under applicable law. If interest would otherwise be payable to
the Holder hereof in excess of the maximum lawful amount, the interest payable
shall be reduced to the maximum amount permitted under applicable law; and if
the Holder shall ever receive anything of value deemed interest by applicable
law in excess of the maximum lawful amount, an amount equal to any excessive
interest shall be applied to the reduction of the principal hereof and not to
payment of interest, or if such excessive interest exceeds the unpaid balance of
principal hereon, such excess shall be refunded to the Company.
7
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint _____________________________________________ agent to
transfer this Note on the books of the Company. The agent may substitute another
to act for him.
Date: ________________________ Your Signature _______________________________
Signature
Guarantee: ____________________________________________________________________
(Signature must be guaranteed by a participant in a recognized
signature guarantee medallion program)
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Note.
1
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant
to Section 9.08 or 9.14 of the Indenture, check the box:
_
|_|
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 9.08 or 9.14 of the Indenture, state the amount:
$___________________
Date: _____________________________ Your Signature:__________________________
(Sign exactly as your name appears on the
other side of the Note)
Signature
Guarantee: ____________________________________________________________________
(Signature must be guaranteed by a participant in a recognized
signature guarantee medallion program)
1
EXHIBIT B
[FORM OF FACE OF EXCHANGE SECURITY]
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), AND
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.(2)
CARTER HOLDINGS, INC.
12% Senior Subordinated Note Due October 1, 2008
No. _____ CUSIP No.
$__________
AS STATED IN THE INDENTURE, THE RIGHTS OF THE HOLDER HEREOF ARE SUBJECT TO
SUBORDINATION IN CERTAIN EVENTS TO ALL SENIOR INDEBTEDNESS (AS DEFINED IN THE
INDENTURE REFERRED TO HEREIN) OF THE COMPANY
Carter Holdings, Inc., a Massachusetts corporation (the "Company", which
term includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to _______________________, or
registered assigns, the principal sum of US $___________ on October 1,2008, and
to pay interest thereon at the rate of 12% per annum from the date this Note was
originally issued under the Indenture or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, as the case may be,
until Maturity. Interest shall be computed for such period on the basis of the
actual number of days elapsed in a 360-day year. Interest at such rate shall be
payable in arrears on each May 1 and
- ----------
(2) This paragraph should only be added if the Note is issued in Global form.
1
November 1 commencing May 1, 1997 and at Maturity. Interest shall be payable at
the rate of 14% per annum on any overdue principal and on any overdue interest,
to the extent that the payment of such interest shall be legally enforceable.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date, will be paid, as provided in the Indenture, to the Person
in whose name this Note is registered at the close of business on the Regular
Record Date for such interest, which shall be the April 15 and October 15, as
the case may be, next preceding such Interest Payment Date. Any such interest
not so punctually paid or duly provided for on any Interest Payment Date
forthwith will cease to be payable to the Holder on such Regular Record Date by
virtue of his having been such Holder and shall be paid to the Person in whose
name this Note is registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest to be fixed by the Trustee, notice of
which shall be given to Holders not less than ten days prior to such Special
Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the Notes
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in the Indenture. Payment of the principal of and premium,
if any, and interest on this Note will be made at the office or agency of the
Company maintained for such purpose in New York, New York, in such coin or
currency of the United States of America as at the time of payment is legal
tender for the payment of public and private debts; provided, however, that at
the option of the Company payment may be made by check mailed to the Person
entitled thereto at his address appearing on the Note Register. Notwithstanding
the foregoing, the principal of and premium, if any, and interest on this Note
(other than the final payment of principal) at the option of the Holder hereof
shall be made directly to such Holder, by wire transfer of immediately available
hands, without presentment, to the address designated by such Holder in writing.
Before selling or otherwise transferring this Note, such Holder will make a
notation hereon of the aggregate amount of all payments of principal theretofore
made, and of the date to which interest has been paid.
Reference is made to the further provisions of this Note set forth on the
reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth on this front side of this Note.
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS THEREOF.
This Note shall not be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been manually signed by the
Trustee as provided in the Indenture.
Capitalized terms used herein that are not defined herein but that are
defined in the Indenture are used as therein defined.
2
IN WITNESS WHEREOF, Carter Holdings, Inc. has caused this instrument to be
duly executed under its corporate seal.
CARTER HOLDINGS, INC.
By:
-----------------------------------
Name: Frederick J. Rowan II
Title: President
Attest:
By:
-----------------------------------
Name: David A. Brown
Title: Clerk
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
STATE STREET BANK AND TRUST
COMPANY, as Trustee,
certifies that this is one of the Notes
referred to in the Indenture
By:
--------------------------
Authorized Signatory
3
(REVERSE OF NOTE)
This Note is one of a duly authorized issue of Notes of the Company,
designated as its 12% Senior Subordinated Notes due October 1, 2008 (the
"Notes"), limited in aggregate principal amount to not more than $20,000,000 and
to be issued under an Indenture dated as of March 25, 1997, amending and
restating the indenture dated as of October 30, 1996 (the "Indenture"), from the
Company to STATE STREET BANK AND TRUST COMPANY (the "Trustee", which term
includes any successor Trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a description of
the rights, limitations of rights, obligations, duties and immunities thereunder
of the Trustee, the Company and the Holders of Notes and of the terms upon which
the Notes are, and are to be, authenticated and delivered.
Subject to the terms of Article Ten and Eleven of the Indenture, the Notes
are subject to redemption at any time or from time to time, upon not less than
30 days' nor more than 60 days' notice, as a whole or in part, at the election
of the Company, at the following optional redemption prices (expressed as a
percentage of principal amount redeemed), if redeemed during the period
beginning on the respective date indicated below and ending on the day before
the next date indicated, plus accrued and unpaid interest thereon to the date of
such redemption on the amount redeemed:
Date Optional Redemption Price
---- -------------------------
December 31, 1996 109.0%
October 1, 1999 107.0%
October 1 2000 105.0%
October 1 2001 103.0%
October 1,2002 101.0%
October 1, 2003 and thereafter 100.0%
Interest that is due and payable on or prior to any such Redemption Date
will be payable to the Holders of such Notes of record at the close of business
on the relevant Record Date referred to on the face hereof, all as provided in
the Indenture.
In the event of redemption of this Note in part only, a new Note or Notes
for the unredeemed portion hereof will be issued in the name of the Holder
hereof upon the cancellation hereof.
The Indenture further provides that, upon the occurrence of a Change of
Control, the Company shall notify the Trustee in writing and shall promptly make
an offer to purchase, on the last day of the next fiscal quarter of the Company
commencing after the Change of Control Date (the "Change of Control Payment
Date"), all Notes then Outstanding at a purchase price equal to
4
101% of the principal amount of such Note together with accrued interest to and
including the Change of Control Payment Date.
If an Event of Default, as defined in the Indenture, shall have occurred
and be continuing, the principal of all Notes may be declared, and upon such
declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions provided in the Indenture.
So long as any Senior Indebtedness is outstanding or the Company shall
have any outstanding obligation thereunder, the Company may not amend or modify
in certain respects any of the subordination provisions contained in the
Indenture as against any Senior Lender who has not consented thereto.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in aggregate
principal amount of the Notes at the time Outstanding, evidenced as in the
Indenture provided, to execute supplemental indentures adding any provision to
or changing in any manner or eliminating any provision of the Indenture or of
any supplemental indenture or modifying in any manner the rights of the Holders
of the Notes; provided that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Note affected thereby, (a) change the
Stated Maturity of the principal of, or Interest Payment Date with respect to
any payment of interest on, any Note, or reduce the rate or extend the time of
payment of interest thereon, or reduce the principal amount thereof or premium,
if any, thereon, or impair the right to institute suit for the payment on or
after the Stated Maturity thereof or Interest Payment Date therefor, as the case
may be (or, in the case of redemption or repurchase, on or after the Redemption
Date or Change of Control Payment Date), or change the place of payment where,
or the coin or currency in which, the principal, premium, if any, or interest is
payable, (b) reduce the aforesaid percentage in principal amount of the
Outstanding Notes the consent of whose Holders is required to waive compliance
with certain provisions of the Indenture or certain defaults thereunder or to
consent to any such supplemental indenture or (c) modify certain sections of the
Indenture or the Events of Default thereunder. The Indenture also provides that,
prior to any declaration accelerating the maturity of the Notes, the Holders of
a majority in aggregate principal amount of the Notes at the time Outstanding on
behalf of the Holders of all of the Notes may waive any past default or Event of
Default under the Indenture and its consequences except a default in the payment
of the principal of or premium, if any, or interest on any of the Notes and
certain other defaults. Any such consent or waiver by the Holder of this Note
(unless revoked as provided in the Indenture) shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and any Note that may
be issued in exchange or substitution herefor, irrespective of whether or not
any notation thereof is made upon this Note or such other Note.
No reference herein to the Indenture and no provision of this Note or of
the Indenture (except to the extent contemplated by Section 4.02 of the
Indenture) shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Note at the place, at the times, at the rate and in the coin or
currency herein prescribed.
5
The Notes are issuable only in registered form pursuant to Regulation ss.
5f 103-] of the Federal Income Tax Regulations) without coupons in denominations
of $1,000 and any integral multiple thereof and may be transferred only by
surrender of this Note and the reissuance by the Company of this Note to the
transferee or the issuance by the Company of a new Note or new Notes to the
transferee or transferees. At the office or agency of the Company maintained for
such purpose and in the manner and subject to the limitations provided in the
Indenture, Notes may be exchanged for a like aggregate principal amount of Notes
of other authorized denominations.
Upon due presentment for registration of transfer of this Note at the
office or agency of the Company maintained for such purpose, a new Note or Notes
of authorized denominations for an equal aggregate principal amount will be
issued to the transferee in exchange herefor, subject to the limitations
provided in the Indenture, without charge except for any tax or other
governmental charge imposed in connection therewith.
The Company, the Trustee, any paying agent, and any Note Registrar may
deem and treat the Person in whose name this Note is registered as the absolute
owner of this Note (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon made by anyone
other than the Company or any Note Registrar), for the purpose of receiving
payment hereof and for all other purposes, and none of the Company, the Trustee,
any paying agent or any Note Registrar shall be affected by any notice to the
contrary. All payments made to or upon the order of such registered Holder, to
the extent of the sum or sums paid, shall satisfy and discharge liability for
amounts payable on this Note.
The rate of interest payable hereon shall in no event exceed the maximum
rate permissible under applicable law. If interest would otherwise be payable to
the Holder hereof in excess of the maximum lawful amount, the interest payable
shall be reduced to the maximum amount permitted under applicable law; and if
the Holder shall ever receive anything of value deemed interest by applicable
law in excess of the maximum lawful amount, an amount equal to any excessive
interest shall be applied to the reduction of the principal hereof and not to
payment of interest, or if such excessive interest exceeds the unpaid balance of
principal hereon, such excess shall be refunded to the Company.
6
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint _____________________________________________ agent to
transfer this Note on the books of the Company. The agent may substitute another
to act for him.
Date: __________________________ Your Signature______________________________
Signature Guarantee: ___________________________________________________________
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Note.
1
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant
to Section 9.08 or 9.14 of the Indenture, check the box:
_
|_|
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 9.08 or 9.14 of the Indenture, state the amount:
$________________
Date: ________________________ Your Signature:_________________________________
(Sign exactly as your name appears on the other
side of the Note)
Signature Guarantee: ___________________________________________________________
(Signature must be guaranteed by a participant in a
recognized signature guarantee medallion program)
1
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON TRANSFER
OR EXCHANGE OF TRANSFER RESTRICTED NOTES
This certificate relates to $_________ principal amount of Notes held in (check
applicable space) book-entry or ____ definitive form by the undersigned.
The undersigned (check one box below):
|_| has requested the Trustee by written order to deliver in exchange for its
beneficial interest in the Global Note held by the Depository a Note or
Notes in definitive, registered form of authorized denominations and an
aggregate principal amount equal to its beneficial interest in such Global
Note (or the portion thereof indicated above);
|_| has requested the Trustee by written order to exchange or register the
transfer of a Note or Notes.
In connection with any transfer or exchange of any of such Notes occurring prior
to the date that is two years after the later of the date of original issuance
of such Notes and the last date, if any, on which such Notes were owned by the
Company or any Affiliate of the Company, the undersigned confirms that such
Notes are being:
CHECK ONE BOX BELOW:
(1) |_| acquired for the undersigned's own account, without transfer
(in satisfaction of Section 2.06(a)(ii)(A) or Section 2.
06(d)(i)(A) of the Indenture); or
(2) |_| transferred to the Company; or
(3) |_| transferred pursuant to and in compliance with Rule 144A under
the Securities Act of 1933, as amended; or
(4) |_| transferred pursuant to and in compliance with Regulation S
under the Securities Act of 1933, as amended; or
(5) |_| transferred to an institutional "accredited investor" (as
defined in Rule 501(a)(l), (2), (3) or (7) under the
Securities Act of 1933, as amended) that has furnished to the
Trustee a signed letter containing certain representations and
agreements (the form of which letter appears as Exhibit D to
the Indenture); or
(6) |_| transferred pursuant to another available exemption from the
registration requirements of the Securities Act of 1933, as
amended.
1
Unless one of the boxes is checked, the Trustee will refuse to register
any of the Notes evidenced by this certificate in the name of any person other
than the registered holder thereof, provided, however, that if box (6) is
checked, the Trustee or the Company may require, prior to registering any such
transfer of the Notes, in their sole discretion, such legal opinion,
certifications and other information as the Trustee or Company has reasonably
requested to confirm that such transfer is being made pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act of 1933, as amended, such as the exemption provided by Rule 144
under such Act.
------------------------------------
Signature
Signature Guarantee:
- ------------------------------- ------------------------------------
Signature
Signature must be guaranteed by a participant
in a signature guarantee medallion program
- ------------------------------------------------------------------------------
2
EXHIBIT D
TRANSFER LETTER OF REPRESENTATION
State Street Bank and Trust Company
Two International Plaza, 4th Floor
Boston, MA 20110
Carter Holdings, Inc.
1590 Adamson Parkway, Suite 400
Morrow, GA 30260
Dear Sirs:
This certificate is delivered to request a transfer of $_____________
principal amount of the 12% Senior Subordinated Notes due 2008 (the "Notes") of
Carter Holdings, Inc. (the "Company").
Upon transfer, the Notes would be registered in the name of the new
beneficial owner as follows:
Name: _____________________________________________
Address: _____________________________________________
Taxpayer ID Number: _____________________________________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule 501
(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the
"Securities Act")) purchasing for our own account or for the account of such an
institutional "accredited investor," and we are acquiring the Notes not with a
view to, or for offer or sale in connection with, any distribution in violation
of the Securities Act. We have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risk of our
investment in the Notes and invest in or purchase securities similar to the
Notes in the normal course of our business. We and any accounts for which we are
acting are each able to bear the economic risk of our or its Investments.
2. We understand that the Notes have not been registered under the
Securities Act and unless so registered, may not be sold except as permitted in
the following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing Notes to offer, sell or otherwise transfer
such Notes prior to the date which is two years after the later of the date of
original issue and the last date on which the Company or any affiliate of the
Company was the owner of such Notes (or any predecessor thereto) (the "Resale
Restriction Termination Date") only (a) to the Company, (b) pursuant to a
registration statement which has been declared
effective under the Securities Act, (c) in a transaction complying with the
requirements of Rule 144A under the Securities Act, to a person we reasonably
believe is a qualified institutional buyer under Rule 144A (a "QIB") that
purchases for its own account or for the account of a QIB and to whom notice is
given that the transfer is being made in reliance on Rule 144A, (d) pursuant to
offers and sales that occur outside the United States within the meaning of
Regulation S under the Securities Act, (e) to an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is purchasing for its own account or for the account of such
an institutional "accredited investor," in each case in a minimum principal
amount of Notes of $250,000 or (f) pursuant to any other available exemption
from the registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
or the property of such investor account or accounts be at all times within our
or their control and in compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Notes is
proposed to be made pursuant to clause (e) above prior to the Resale Restriction
Termination Date, the transferor shall deliver a letter from the transferee
substantially in the form of this letter to the Company and the Trustee, which
shall provide, among other things, that the transferee is an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act and that it is acquiring such Notes for investment
purposes and not for distribution in violation of the Securities Act. Each
purchaser acknowledges that the Company and the Trustee reserve the right prior
to any offer, sale or other transfer prior to the Resale Termination Date of the
Notes pursuant to clause (f) above to require the delivery of an opinion of
counsel, certifications and/or other information satisfactory to the Company and
the Trustee.
TRANSFEREE:
--------------------------------
By:
---------------------------------------
2
EXHIBIT 4.3
LETTER OF TRANSMITTAL
CARTER HOLDINGS, INC.
OFFER FOR ALL OUTSTANDING
12% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
12% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
BY HAND/OVERNIGHT EXPRESS/MAIL/OVERNIGHT DELIVERY
(INSURED OR REGISTERED RECOMMENDED)
State Street Bank and Trust Company, N.A.
Corporate Trust Division
Two International Place--4th Floor
Boston, MA 02110
Via Facsimile:
(617) 664-5290
Attn: Kellie Mullen
For Information Call:
(617) 664-5587
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE DELIVERY.
The undersigned acknowledges that he or she has received the Prospectus,
dated , 1998 (the "Prospectus"), of Carter Holdings, Inc. a
Massachusetts corporation, and this Letter of Transmittal (this "Letter"),
which together constitute the Company's offer (the "Exchange Offer") to
exchange an aggregate principal amount at maturity of up to $20,000,000 of
12% Series B Senior Subordinated Notes Due 2008 (the "New Notes") of the
Company for a like principal amount at maturity of the issued and outstanding
12% Senior Subordinated Notes Due 2008 (the "Old Notes") of the Company from
the holders thereof.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount at maturity equal to that of the
surrendered Old Note. Interest on the New Notes will accrue from the last
interest payment date on which interest was paid on the Old Notes surrendered in
exchange therefor or, if no interest has been paid on the Old Notes, from the
date of original issue of the Old Notes. Holders of Old Notes accepted for
exchange will be deemed to have waived the right to receive any other payments
or accrued interest on the Old Notes. The Company reserves the right, at any
time or from time to time, to extend the Exchange Offer at its discretion, in
which event the term "Expiration Date" shall mean the latest time and date to
which the Exchange Offer is extended. The Company shall notify holders of the
Old Notes of any extension by means of a press release or other public
announcement prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Holders of Old
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a
"Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. (See
Instruction 1.) Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount at maturity of
Old Notes should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF OLD NOTES 1 2 3
AGGREGATE
PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AT
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE AT MATURITY OF MATURITY
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OLD NOTE(S) TENDERED**
Total
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to
have tendered ALL of the Old Notes represented by the Old Notes indicated
in column 2. (See Instruction 2.) Old Notes tendered hereby must be in
denominations of principal amount at maturity of $1,000 and any integral
multiple thereof. (See Instruction 1.)
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:..............................................
Account Number:................................. Transaction Code Number:..........................
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s):............................................
Window Ticket Number (if any):..............................................
Date of Execution of Notice of Guaranteed Delivery:.........................
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number:................................. Transaction Code Number:..........................
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:.......................................................................
Address:....................................................................
....................................................................
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount at
maturity of Old Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the holder of such Old Notes nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the holder of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") that the New Notes issued in exchange for the Old Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangements with any person to participate in the distribution of such New
Notes. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE
INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be issued in the name of and sent to someone other than the person
or persons whose signature(s) appear(s) on this Letter above, or if Old Notes
delivered by book-entry transfer which are not accepted for exchange are to be
returned by credit to an account maintained at the Book-Entry Transfer Facility
other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s).........................................................................
................................................................................
(PLEASE TYPE OR PRINT)
Address:........................................................................
................................................................................
(INCLUDING ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
/ / Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below
............................................................................
(BOOK-ENTRY TRANSFER FACILITY ACCOUNT
NUMBER, IF APPLICABLE)
SPECIAL DELIVERY
INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such person or persons at an
address other than shown in the box entitled "Description of Old Notes" on this
Letter above.
Mail: New Notes and/or Old Notes to:
Name(s).........................................................................
................................................................................
(PLEASE TYPE OR PRINT)
Address:........................................................................
................................................................................
(INCLUDING ZIP CODE)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Dated ..............................................................., 1998
X ............................ X ..........................., 1998
X ............................ X ..........................., 1998
SIGNATURE(S) OF OWNER DATE
Area Code and Telephone Number: ...........................................
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. (See Instruction 3.)
NAME(S): .......................................................................
................................................................................
(PLEASE TYPE OR PRINT)
CAPACITY: ......................................................................
................................................................................
ADDRESSS: ......................................................................
................................................................................
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by a
participant in a recognized signature guarantee medallion program:
................................................................................
(AUTHORIZED SIGNATURE)
................................................................................
(TITLE)
................................................................................
(NAME AND FIRM)
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE
12% SERIES B SENIOR SUBORDINATED NOTES DUE 2008 IN EXCHANGE FOR THE
12% SENIOR SUBORDINATED NOTES DUE 2008 OF CARTER HOLDINGS, INC.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES. This
Letter is to be completed by noteholders either if certificates are to be
forwarded herewith or if tenders are to be made pursuant to the procedures for
delivery by book-entry transfer set forth in "The Exchange Offer--Book-Entry
Transfer" section of the Prospectus. Certificates for all physically tendered
Old Notes, or Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed Letter (or manually signed facsimile hereof) and any
other documents required by this Letter, must be received by the Exchange Agent
at the address set forth herein on or prior to the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Old Notes tendered hereby must be in denominations of principal amount of
maturity of $1,000 and any integral multiple thereof.
Noteholders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution
(as defined in Instruction 3 below), (ii) prior to the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter (or facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Notes and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within five New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered Old Notes, or
a Book-Entry Confirmation, and any other documents required by the Letter will
be deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Notes, in proper form for transfer,
or Book-Entry Confirmation, as the case may be, and all other documents required
by this Letter, are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be made
sufficiently in advance of the Expiration Date to permit the delivery to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
See "The Exchange Offer" section in the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If less than all of the Old Notes evidenced by a submitted
certificate are to be tendered, the tendering holder(s) should fill in the
aggregate principal amount at maturity of Old Notes to be tendered in the box
above entitled "Description of Old Notes-- Principal Amount at Maturity
Tendered." A reissued certificate representing the balance of nontendered Old
Notes will be sent to such tendering holder, unless otherwise provided in the
appropriate box on this Letter, promptly after the Expiration Date. All of the
Old Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
3. SIGNATURES ON THIS LETTER; POWERS OF ATTORNEY AND ENDORSEMENTS; GUARANTEE
OF SIGNATURES. If this Letter is signed by the registered holder of the Old
Notes tendered hereby, the signature must correspond exactly with the name as
written on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate powers of attorney are required. If, however, the New Notes are to be
issued, or any untendered Old Notes are to be reissued, to a person other than
the registered holder, then endorsements of any certificates transmitted hereby
or separate powers of attorney are required. Signatures on such certificate(s)
must be guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names on the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or powers of attorney are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Old Notes or signatures on powers of
attorney required by this Instruction 3 must be guaranteed by a firm which is a
participant in a recognized signature guarantee medallion program ("Eligible
Institutions").
Signatures on this Letter need not be guaranteed by an Eligible Institution,
provided the Old Notes are tendered (i) by a registered holder of Old Notes
(which term, for purposes of the Exchange Offer, includes any participant in the
Book-Entry Transfer Facility system whose name appears on a security position
listing as the holder of such Old Notes) who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on this
Letter, or (ii) for the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Old
Notes should indicate in the applicable box the name and address to which New
Notes issued pursuant to the Exchange Offer and/or substitute certificates
evidencing Old Notes not exchanged are to be issued or sent, if different from
the name or address of the person signing this letter. In the case of issuance
in a different name, the employer identification or social security number of
the person named must also be indicated. Noteholders tendering Old Notes by
book-entry transfer may request that Old Notes not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such noteholder may
designate hereon. If no such instructions are given, such Old Notes not
exchanged will be returned to the name and address of the person signing this
Letter.
5. TAX IDENTIFICATION NUMBER. Federal income tax law generally requires
that a tendering holder whose Old Notes are accepted for exchange must provide
the Company (as payor) with such holder's correct Taxpayer Identification Number
("TIN") on Substitute Form W-9 below, which in the case of a tendering holder
who is an individual, is his or her social security number. If the Company is
not provided with the current TIN or an adequate basis for an exemption, such
tendering holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, delivery to such tendering holder of New Notes may be
subject to backup withholding in an amount equal to 31% of all reportable
payments made after the exchange. If withholding results in an overpayment of
taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the "Substitute Form W-9" set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends, or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must provide the Company a completed Form W-8,
Certificate of Foreign Status. These forms may be obtained from the Exchange
Agent. If the Old Notes are in more than one name or are not in the name of the
actual owner, such holder should consult the W-9 Guidelines for information on
which TIN to report. If such holder does not have a TIN, such holder should
consult the W-9 Guidelines for instructions on applying for a TIN, check the box
in Part 2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order pursuant to the
Exchange Offer. If however, New Notes and/or substitute Old Notes not exchanged
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason other
than the transfer of Old Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
7. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
8. NO CONDITIONAL TRANSFERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Old Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter, may be directed to the Exchange Agent, at the
address and telephone number indicated above.
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: CARTER HOLDINGS, INC.
PART 1-- PLEASE
PROVIDE YOUR
TIN
TIN: _____________________
IN THE BOX AT
RIGHT AND Social Security Number or
CERTIFY BY
SIGNING AND
DATING BELOW.
Employer Identification
Number
PART 2--TIN Applied For / /
CERTIFICATION:
SUBSTITUTE
UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
FORM W-9
(1) the number shown on this form is my correct
Taxpayer Identification
Department of the Treasury
Number (or I am waiting for a number to be issued
to me).
Internal Revenue Service
(2) I am not subject to backup withholding either
because:
(a) I am exempt from backup withholding, or
Payor's Request for Taxpayer
(b) I have not been notified by the Internal
Revenue Service (the "IRS") Identification
Number
that I am subject to backup withholding as a
result of a failure to ("TIN") and
Certification
report all interest or dividends, or
(c) the IRS has notified me that I am no longer
subject to backup withholding, and
(3) any other information provided on this form is
true and correct.
SIGNATURE _______________________________ DATE __
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup
withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2
OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administrative Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide the number.
SIGNATURE ______________________________ DATE ______________________________
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
- --------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3)
designated ward, minor, or
incompetent person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust account The actual owner(1)
that is not a legal or
valid trust under State
law
8. Sole proprietorship The owner(4)
account
- --------------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------------------------------------
9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or
trustee unless the legal
entity itself is not
designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held The partnership
in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a State or
local government, school
district, or prison) that
receives agricultural
program payments
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the valid trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempt from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency, or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A dealer in securities or commodities registered in the U.S. or a possession
of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE FORM W-9 TO AVOID POSSIBLE ERRONEOUS
BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045 and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION, CONTACT
YOUR TAX CONSULTANT OR
THE INTERNAL REVENUE SERVICE
Exhibit 5.1
[LETTERHEAD OF GIBSON, DUNN & CRUTCHER LLP]
, 1998
(212) 351-4000 C 97723-00010
Carter Holdings, Inc.
1590 Adamson Parkway,
Suite 400
Morrow, Georgia 30260
Re: 12% Series B Senior Subordinated Notes Due 2008
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-4 (the "Registration Statement") of Carter Holdings, Inc., a Massachusetts
corporation (the "Company"), which the Company has filed with the Securities
and Exchange Commission (the "Commission") in connection with the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of up to $20,000,000 aggregate principal amount of the Company's 12%
Series B Senior Subordinated Notes due 2008 (the "Exchange Notes"). The
Exchange Notes are to be issued in exchange for an equal aggregate principal
amount of the Company's outstanding 12% Senior Subordinated Notes due 2008
(the "Original Notes") pursuant to the Exchange and Registration Rights
Agreement dated as of March 25, 1997 between the Company and BT Securities
Corporation. The Exchange Notes are to be issued by the Company pursuant to
the terms of an Indenture (the "Indenture") dated as of March 25, 1997
between the Company and State Street Bank and Trust Company, as Trustee (the
"Trustee").
We have examined the proceedings taken or proposed to be taken by
the Company in connection with the issuance of the Exchange Notes. In
arriving at the following opinion, we have relied, among other things, upon
our examination of such corporate records of the Company and such
certificates of public officials and of officers of the Company as we have
deemed appropriate for purposes of rendering this opinion. We have assumed
with your permission that the terms of the Original Notes and the Exchange
Notes have been established in accordance with the terms of the Indenture,
and that their issuance and sale (i) did not and will not violate any
applicable law or result in a default under or breach of any agreement or
instrument binding upon the Company and (ii) complied and will comply with
any requirement or restriction imposed by any court or governmental body
having jurisdiction over the
Company. In addition, we have assumed that the Indenture has been duly
authorized, executed and delivered by the Trustee and constitutes the legal,
valid and binding agreement of the Trustee.
Based upon the foregoing examination and assumptions and in reliance
thereon, and subject to the completion prior to the issuance of the Exchange
Notes of such proceedings now contemplated by the Company, and subject to the
issuance by the Commission of an order declaring the Registration Statement
effective, it is our opinion that the Exchange Notes, when issued in
accordance with the terms of the Indenture, duly executed by the Company,
duly authenticated by the Trustee, and issued and delivered against exchange
of the Original Notes in accordance with the terms set forth in the
prospectus that forms a part of the Registration Statement, will constitute
valid and binding obligations of the Company.
Our opinion is subject to: (i) the effect of applicable bankruptcy,
reorganization, insolvency, moratorium, arrangement and other laws affecting
creditors' rights, including, without limitation, the effect of statutory or
other laws regarding fraudulent conveyances, fraudulent transfers and
preferential transfers; and (ii) the limitations imposed by general
principles of equity (regardless of whether such enforceability is considered
in a proceeding at law or in equity).
This opinion is limited to the effect of the present state of the
laws of the United States of America and the State of New York. The opinions
expressed herein are based upon the law and circumstances as they are in
effect or exist on the date hereof, and we assume no obligation to revise or
supplement this letter in the event of future changes in the law or
interpretation thereof with respect to circumstances or events that may occur
subsequent to the date hereof. We are expressing no opinion as to the effect
of the laws of any other jurisdiction.
We consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under
the caption "Legal Matters" in the Registration Statement and the prospectus
which forms a part thereof. In giving this consent, we do not admit that we
are within the category of persons whose consent is required under Section 7
of the Securities Act or the Rules and Regulations of the Commission
promulgated thereunder.
Very truly yours,
Gibson, Dunn & Crutcher LLP
GIBSON DUNN & CRUTCHER LLP
Exhibit 5.2
[Letterhead of Testa, Hurwitz & Thibeault, LLP]
June __, 1998
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Re: Carter Holdings, Inc.
Ladies and Gentlemen:
We have acted as special Massachusetts counsel for Carter Holdings,
Inc., a Massachusetts corporation (the "Company"), in connection with the
offer to exchange the Company's outstanding $20,000,000 12% Senior
Subordinated Notes due 2008 for 12% Series B Senior Subordinated Notes
due 2006 ("New Notes") pursuant to an exchange offer registered with the
Securities and Exchange Commission ("SEC"). Capitalized terms used herein and
not otherwise defined shall have their respective meanings as set forth in
the Registration Statement on Form S-4, File No. 333-51447, of the Company
filed with the SEC (the "Registration Statement"). We are furnishing you this
opinion on which you may rely solely for purposes of rendering your opinion,
as counsel to the Company, in connection with the filing of the Registration
Statement.
In connection with this opinion, we have examined originals, or copies
identified to our satisfaction, of the Registration Statement and certain
corporate records of the Company.
As to all questions of fact material to our opinion, we have assumed the
completeness and accuracy of, and have relied solely upon, the
representations, warranties and statements of the Company contained in the
Registration Statement, and upon certificates and corporate records obtained
from and representations made by officers of the Company and public
officials, and have undertaken no independent verification of such facts. In
our examination of the foregoing documents, we have assumed the
genuineness of all signatures and the legal capacity of all natural persons
executing all documents examined by us, the authenticity and completeness of
all documents submitted to us as originals, the conformity to original
documents of documents submitted to us as copies or facsimiles and the
authenticity and completeness of the originals of such latter documents.
Gibson, Dunn & Crutcher, LLP
June __, 1998
Page 2
In rendering the opinion expressed in paragraph 1 below with respect to
the legal existence and good standing of the Company in Massachusetts, we
have relied solely upon a certificate received from the Secretary of the
Commonwealth of Massachusetts.
Our opinions expressed herein are limited to the current laws of the
Commonwealth of Massachusetts, and we do not express herein any opinion with
respect to, or with respect to any matter subject to, any other law.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation validly existing and in corporate
good standing under the laws of the Commonwealth of Massachusetts.
2. The Company has the power and authority to execute and deliver
and to perform its obligations under the New Notes and has taken all
requisite corporate action to authorize, execute and deliver the New Notes.
3. The New Notes have been duly authorized by the Company.
This letter is furnished by us as special Massachusetts counsel for the
Company solely in connection with the transaction described above. We consent
to the filing of this opinion as an exhibit to the Registration Statement. In
giving this consent, we do not admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the Rules and Regulations of the SEC promulgated
thereunder.
Very truly yours
TESTA, HURWITZ & THIBEAULT, LLP
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of April 1,
1998 (the "Effective Date"), between The William Carter Company, a Massachusetts
corporation (the "Company"), and Michael D. Casey ("Executive"). Certain
capitalized terms that are used in this Agreement are defined in paragraph 11.
The parties agree as follows:
1. Employment. The Company agrees to employ Executive, and Executive
hereby accepts employment with the Company, upon the terms and
conditions set forth in the Agreement for the period beginning on the
Effective Date and ending as provided in paragraph 4 (the "Employment
Period").
2. Position and Duties.
--------------------
a) During the Employment Period, Executive shall serve as Chief
Financial Officer of the Company and shall have the normal
duties, responsibilities and authority of such office, subject to
any limitations imposed by the bylaws of the Company and to the
power of the board of directors and senior officers of the
Company to expand or limit such duties, responsibilities and
authority and to override actions of Executive.
b) Executive shall report to the Chief Executive Officer of the
Company and Executive shall devote his best efforts and his full
business time and attention (except for permitted vacation
periods and reasonable periods of illness or other incapacity) to
the business and affairs of the Company. Executive shall perform
his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
c) Executive's principal office and place of employment shall be at
the Company's Principal Executive Offices.
3. Compensation.
-------------
a) Base Salary. Executive's base salary shall be $200,000.00 per
annum
b) Annual Cash Bonus Plan. Executive shall be a participant in the
Company's Annual Cash Bonus Plan and be eligible for an annual
award under such plan at a maximum award level equal to no less
than sixty-five percent (65%) of Executive's average Base Salary
in effect during the calendar year for which the award is made.
c) Vacation. Executive shall be entitled to three (3) weeks paid
vacation annually.
d) Fringe Benefits. Executive shall receive such fringe benefits as
are made available to executive level employees of the Company
together with a monthly car allowance of $600.00 and such other
benefits, payments or allowances as the Company's board of
directors (or an appropriate committee of the board) may from
time to time made available to Executive (collectively, the
"Fringe Benefits"). Without prejudice to Executive's rights under
this Agreement, the Company reserves the right (i) to modify the
terms of any benefit plan that is generally made available to
executive level employees of the Company and in which Executive
participates so long as such changes affect all plan participants
equally (or in proportion to their respective interests), and
(ii) to make reasonable changes in the Fringe Benefits at the
direction of the Company's board of directors, so long as the
Fringe Benefits available to Executive after giving effect to
such change are not materially different from those being
provided prior to such change.
e) Business Expenses. The Company shall reimburse Executive for all
reasonable and necessary expenses incurred by him in connection
with the performance of his duties and responsibilities pursuant
to this Agreement which are consistent with the Company's
policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the
Company's reasonable requirements with respect to reporting and
documentation of such expenses.
4. Term and Termination.
---------------------
a) The Employment Period shall initially extend until March 31,
1999, but shall be extended for an additional one-year period on
each Anniversary Date unless either the Company or Executive
gives
2
the other written notice at least sixty (60) days prior to such
Anniversary Date of its or his intention not to further extend
the term of this Agreement; provided that (i) the Employment
Period shall terminate prior to such date upon Executive's
resignation, Retirement or death and (ii) the Employment Period
may be terminated by the Company at any time prior to such date
for Cause, Executive's Disability or Without Cause.
b) Any termination of Executive's employment by the Company pursuant
to clause 4(a)(ii) above, and any termination of Executive's
employment by Executive pursuant to clause 4(a)(i) above, shall
be communicated by written Termination Notice given to the other
party hereto; provided, that in the case of Executive's death, a
Termination Notice shall be deemed to have been given as of the
date of his death; and provided, further, that, in the case of a
termination for Cause, there shall also have been delivered to
Executive the written findings by the Company's Chief Executive
Officer as provided in the definition of Cause. For purposes of
this Agreement, a "Termination Notice" shall mean a notice which
shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so
indicated.
c) "Termination Date" means (i) if this Agreement is terminated for
Disability, 30 days after Termination Notice is given (provided
that Executive shall not have returned to the performance of his
duties on a full-time basis during such 30-day period), (ii) if
Executive resigns or takes Retirement, the date specified in
Executive's Termination Notice (or if no Termination Notice is
given, the date upon which such termination is effective), (iii)
if Executive dies, on the last day of the month next succeeding
the month during which Executive's death occurs, and (iv) if
Executive's employment is terminated for any other reason, the
date on which a Termination Notice is given.
5. Severance Compensation.
-----------------------
a) General. If Executive resigns, terminates employment by his death
or Retirement or is
3
terminated for Cause, the Company will pay Executive his Base
Salary in effect at the time the Termination Notice is given (or
deemed given) through the Termination Date and the Company shall
not have any further obligations to Executive under this
Agreement. Without prejudice to any accrued and vested rights
Executive may have under the Annual Cash Bonus Plan, the
Retirement Savings Plan or the Severance Pay Plan and except as
otherwise required by law, all of Executive's rights to the
Fringe Benefits from the Company will cease as of the Termination
Date.
b) Disability. During any period that Executive fails to perform his
duties as a result of incapacity due to mental illness or
physical illness or injury, he shall continue to receive his full
Base Salary and the Fringe Benefits until the Company terminates
his employment for Disability. Thereafter, he will be entitled to
major medical health insurance coverage under the Company's
employee group health insurance (or substantially similar health
insurance) for a period of two (2) years or until Executive
obtains employment with another employer that makes health
insurance available to its employees and Executive is eligible to
be covered under such insurance, whichever occurs first, and
shall be entitled to receive disability benefits in accordance
with the disability income insurance plan or plans maintained by
the Company covering Executive at the Termination Date. Without
prejudice to any accrued and vested rights Executive may have
under the Annual Cash Bonus Plan or the Retirement Savings Plan
and except as otherwise required by law or this Section 5(b), all
of Executive's rights to the Fringe Benefits from the Company
will cease as of the Termination Date.
c) Without Cause. If Executive is involuntarily terminated by the
Company Without Cause, (i) Executive shall be entitled to
continue to receive his full Base Salary, as in effect on the
Termination Date, through the reminder of the Employment Period
(as in effect immediately prior to the delivery of the
Termination Notice and without regard to the automatic extension
provisions of paragraph 4(a) hereof) so long as Executive has not
breached the provisions of paragraphs 6, 7 or 8. The amounts
payable pursuant to this paragraph 5(c) in respect of Base
4
Salary may be payable, at Executive's discretion, in one lump sum
payment within 30 days following the Termination Date equal to
the present value (determined using a discount rate equal to the
"prime" rate of interest charged by Chase Manhattan Bank in New
York plus two (2) percentage points) of the payments otherwise
payable pursuant to this paragraph 5(c) and (ii) notwithstanding
any provision in the Annual Cash Bonus Plan to the contrary,
Executive shall become fully vested and have a nonforfeitable
interest in the benefits which he has accrued under the Annual
Cash Bonus Plan as of the Termination Date and he shall be given
full credit under the Plan for the benefit that he would have
accrued for the plan year during which the Termination Date
occurs (which determination may take into account whether Company
performance goals established by the plan or its administrator
for such year have been met, but which may not take into account
whether personal performance goals established for Executive by
the plan or its administrator have been met) as if he were
employed by the Company on the last day of such plan year. The
amounts payable in respect of accrued benefits under the Annual
Cash Bonus Plan shall be payable at the time provided for in, and
in accordance with the provision of, the Annual Cash Bonus Plan.
This paragraph 5(c) sets forth Executive's exclusive remedy for a
termination of his employment Without Cause and Executive shall
have no other right or remedy against the Company in connection
therewith.
d) Executive's right to receive payments under this Agreement shall
not decrease the amount of, or otherwise adversely affect, any
other benefits payable to Executive under any plan, agreement or
arrangement relating to employee benefits provided by the Company
(or an Affiliated Corporation); provide, however, that the
amounts payable to Executive under paragraph 5 (c)(i) shall be
reduced by the amount of any severance compensation payable to
Executive under the Company's Severance Pay Plan.
e) Executive shall not be required to mitigate the amount of any
payment provided for in this paragraph 5 by seeking other
employment or otherwise, nor shall the amount of any payment or
benefit provided for in this paragraph 5 be
5
reduced by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive's
receipt of, or right to receive, any retirement or other benefits
after the date of termination of employment or otherwise (except
as otherwise provided in this paragraph 5).
6. Confidential Information. Executive acknowledges that the non-public
information obtained by him while employed by the Company concerning
the business or affairs of the Company or any Subsidiary of the
Company("Confidential Information") are the property of the Company or
such Subsidiary. For purposes of this Agreement, the term
"Confidential Information" does not include information that Executive
can demonstrate (a) was in Executive's possession prior to his initial
employment with the Company, provided that such information is not
known by Executive to be subject to another confidentiality agreement
with, or other obligation of secrecy to, the Company or another
party,(b) is generally available to the public and became generally
available to the public other than as a result of a disclosure in
violation of this Agreement or (c) became available to Executive on a
non-confidential basis from a third party, provided that such third
party is not known by Executive to be bound by a confidentiality
agreement with, or other obligation of secrecy to, the Company or
another party or is otherwise prohibited from providing such
information to Executive by a contractual, legal or fiduciary
obligation. Executive agrees that he will not disclose Confidential
Information to any person (other that employees of the Company or any
of its Subsidiaries or any other person expressly authorized by the
Company's Chief Executive Officer to receive Confidential Information)
or use for his own account any Confidential Information without prior
written consent of the Company's Chief Executive Officer. Executive
shall deliver to the Company at the Termination of the Employment
Period, or at any other time the Company's Chief Executive Officer may
request in writing, all memoranda, notes, plans, records, reports,
computer tapes and software and other documents and data (and copies
thereof) containing Confidential Information or Work Product which he
may then possess or have under his control.
7. Work Product. Executive agrees that all inventions,innovations,
improvements, developments, methods, designs, analyses, reports and
all similar or related
6
information which relate to the Company's or any of its Subsidiaries'
actual or anticipated business, research and development or existing
or future products or services and which are conceived, developed or
made by Executive while employed with the Company ("Work Product")
belong to the Company or such Subsidiary. Upon the written request of
the Company's Chief Executive Officer, Executive will promptly
disclose such Work Product to the Company's Chief Executive Officer
and perform all actions reasonably requested by the Company's Chief
Executive Officer (whether during or after the Employment Period) to
establish and confirm such ownership.
8. Noncompete, Non-Solicitation
----------------------------
a) Executive acknowledges that in the course of his employment with
the Company he will become familiar with the trade secrets and
other confidential information of the Company and its
Subsidiaries and that his services will be of special, unique and
extraordinary value to the Company. Therefore, Executive agrees
that, during the Employment Period and for one year thereafter
(or six months thereafter, if Executive's employment is
terminated Without Cause (the "Noncompete Period"), he shall not
directly or indirectly own, manage, control, participate in,
consult with, render services for, or in any manner engage in any
business competing with the businesses of the Company or any of
its Subsidiaries which (i) exist on the date of the termination
of Executive's employment or (ii) are commenced during the
Noncompete Period (but, for purposes of this clause (ii) only if
the Company or such Subsidiary had determined prior to the
Termination Date to determine the feasibility of entering into
such business), within the United States and any other
geographical area in which the Company or any of its Subsidiaries
engage in such businesses. Nothing herein shall prohibit
Executive from being a passive owner of not more than 2% of the
outstanding stock of any class of a corporation which is publicly
traded, so long as Executive has no active participation in the
business of such corporation.
b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce
any employee of the Company or any of its Subsidiaries to leave
the
7
employ of such person, ,or in any way interfere with the
employment relationship between the Company or any of its
Subsidiaries and any employee thereof, (ii) hire any person who
was an employee of the Company or any of its Subsidiaries at any
time during the Employment Period (other than individuals who
have not been employed by the Company or any of its Subsidiaries
for a period of at least six months prior to employment by
Executive directly or indirectly through another entity), or
(iii) induce or attempt to induce any customer, supplier,
licensee or other person having a business relationship with the
Company or any of its Subsidiaries to cease doing business with
the Company or such Subsidiary, or interfere materially with the
relationship between any such customer, supplier, licensee or
other person having a business relationship with the Company or
any of its Subsidiaries.
c) If, at the time of enforcement of this paragraph 8, a court shall
hold that the duration, scope or area restrictions stated herein
are unreasonable under circumstances then existing, the parties
agree that the maximum duration, scope or area reasonable under
such circumstances shall be substituted for the stated duration,
scope or area and the court shall be allowed to revise the
restrictions contained herein to cover the maximum period, scope
and area permitted by law.
d) In the event of the breach or a threatened breach by Executive of
any of the provisions of this paragraph 8, the Company, in
addition and supplementary to other rights and remedies existing
in its favor, may apply to any court of law or equity of
competent jurisdiction for specific performance or injunctive or
other relief in order to enforce or prevent any violations of the
provisions hereof (without posting a bond or other security).
9. Incapacity. Without prejudice to Executive's rights under this
Agreement, if at any time during the term of this Agreement Executive
is absent from his duties with the Company for 30 consecutive days as
a result of incapacity due to mental illness or physical illness or
injury, the Company's board of directors or Chief Executive Officer
may appoint an interim Chief Financial Officer or assume extended
management responsibilities for the duration of Executive's absence.
Unless Executive's
8
employment has been terminated previously under this Agreement,
Executive shall be permitted to resume performance of his duties and
responsibilities under this Agreement upon regaining the capacity to
do so.
10. Executive Representations. Executive hereby represents and warrants to
the Company that (a) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach,
violate or cause a default under any contract, agreement, instrument,
order, judgment or decree to which Executive is a party or by which he
is bound, (b) Executive in not a party to or bound by any employment
agreement, noncompete agreement or confidentiality agreement with any
other person or entity with which this Agreement would conflict or
constitute a breach thereof and (c) upon the execution and delivery of
this Agreement by the Company, this Agreement shall be the valid and
binding obligation of Executive, enforceable against Executive in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
affecting the enforceability of contractual obligations and creditor's
rights generally and to federal and state constitutional proscriptions
and by the application of equitable principles by courts of competent
jurisdiction, sitting at law or in equity.
11. Certain Defined Terms. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Affiliated Corporation" means any corporation that is a member of the
"affiliated group" (as defined in Section 1504 of the Code) of which
the Company is a member.
"Anniversary Date" means any or a specific anniversary of the
Effective Date, as the context requires.
"Base Salary" is defined in paragraph 3(a).
"Cause" means (a) conviction of Executive for a felony, or the entry
by Executive of a plea of guilty or nolo contendere to a felony, (b) a
willful and material breach by Executive of paragraph 6, 7 or 8 of the
Agreement, (c) the commission of an act of fraud involving dishonesty
for personal gain which is materially injurious to the Company, (d)
the willful and continued refusal by Executive to substantially
9
perform his duties with the Company (other than any such refusal
resulting from his incapacity due to mental illness or physical
illness or injury), after a demand for substantial performance is
delivered to Executive by the Company's Chief Executive Officer where
such demand specifically identifies the manner in which the Company's
Chief Executive Officer believes that Executive has refused to
substantially perform his duties and the passage of a reasonable
period of time for Executive to comply with such demand or (e) the
willful engaging by Executive in gross misconduct materially and
demonstrably injurious to the Company or its Subsidiaries. For
purposes of this paragraph, no act or failure to act on Executive's
part shall be considered "willful" unless done, or omitted to be done,
by Executive not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company or its
Subsidiaries. Notwithstanding the foregoing, with respect to
termination for Cause arising out of conduct described in clause (b),
(c), (d) or (e) above, Executive may not be terminated for Cause
unless there shall have been delivered to Executive a written finding
by the Company's board of directors or Chief Executive Officer finding
that in the good faith opinion of the Board of Directors or the
Company's Chief Executive Officer, Executive had engaged in conduct
described above in clause (b), (c), (d) or (e) of the first sentence
of this paragraph and specifying the particulars thereof in detail.
Such a finding by the Company's board of directors or Chief Executive
Officer is a prerequisite to a termination for cause pursuant to
clauses (b), (c), (d) or (e) above, provided, however, such a finding
may be challenged, by appropriate judicial process, on the merits
(i.e., that Cause did not exist) or on the basis that the Board's or
Chief Executive Officer's finding was not made in good faith (provided
that proof that cause for termination existed shall be a complete
defense to any showing that the Board's or Chief Executive Officer's
findings were not made in good faith).
"Code" means the Internal Revenue Code of 1986, as amended.
"Disability" means Executive shall have been absent from his duties
with the Company for 26 consecutive weeks as a result of incapacity
due to mental illness or physical illness or injury, and he shall not
have returned to the full-time performance of his duties within 30
days after written notice of termination of this Agreement is given by
the Company's board of directors or Chief Executive Officer.
10
"Fringe Benefits" is defined in paragraph 3(d).
"Good Reason" means, unless Executive shall have consented in writing
thereto, any of the following:
a) except as provided in paragraph 9, a material reduction
in Executive's title, duties, responsibilities or status, as
compared to such title, duties, responsibilities or status
on the Effective Date;
b) the assignment to Executive of a material amount of
different or additional duties that are significantly
inconsistent with Executive's office on the Effective Date;
or
c) any material breach of this Agreement by the Company;
provided, however, that Executive shall not have the right to
terminate his employment for "Good Reason" unless he shall have given
thirty (30) days prior written notice to the Chief Executive Officer
of the Company in which Executive sets forth in reasonable detail the
circumstances that Executive believes constitute "Good Reason"
pursuant to the preceding clauses (a) through (c) and the Company
shall not have remedied the matter within said thirty (30) day period;
and provided, further, however that the fact that the Company does or
does not so remedy said matter shall not be deemed an admission by the
Company that such circumstances constitute "Good Reason".
"Remaining Term" is defined in paragraph 5(c).
"Retirement" means termination of Executive's employment in accordance
with the Company's normal retirement policy generally applicable to
its salaried employees (or, at Executive's election, at any time after
attaining age 60 or at any earlier time upon the occurrence of any
event entitling Executive to receive disability benefits under any
long-term disability policy maintained by the Company that covers
Executive) or in accordance with any other retirement arrangement
established with Executive's consent with respect to Executive.
"Retirement Savings Plan" means the Company's Defined Contribution
401(k) savings plan in effect as of the Effective Date, as the same is
amended from time to time.
11
"Severance Pay Plan" means the Company's Severance Pay Plan for Exempt
Employees, in effect as of the Effective Date, as the same is amended
from time to time.
"Subsidiary" means with respect to any corporation, another
corporation of which the securities having a majority of the voting
power in electing directors are, at the time of determination, owned
by the first corporation, directly or through one of more
Subsidiaries.
"Termination Date" is defined in paragraph 4(c).
"Termination Notice" is defined in paragraph 4(b).
"Without Cause" means an involuntary termination of Executive's
employment by the Company other than for Cause or due to Executive's
death or Disability or a termination of employment by Executive for
Good Reason.
12. Survival. Paragraphs 6, 7 and 8 shall survive and continue in full
force in accordance with their terms notwithstanding any termination
of the Employment Period.
13. Expenses. The Company shall pay all of Executive's expenses (including
reasonable attorneys' fees and expenses) paid by Executive in
connection with the negotiation and preparation of this Agreement and
all related documents. In the event Executive prevails in any
arbitration or litigation arising out of his termination of employment
or his seeking to obtain or enforce any right or benefit provided by
this Agreement or by any other plan or arrangement maintained by the
Company under which he is or may be entitled to receive benefits, the
Company shall pay all reasonable legal fees and related expenses
(including the costs of experts, evidence and counsel and other such
expenses included in connection with any litigation or appeal)
incurred by Executive in such an arbitration or litigation. The
Company further agrees to pay prejudgment interest on any money
judgement against the Company obtained by Executive in any arbitration
or litigation against it to enforce such right calculated at the Prime
Rate as reported in the Wall Street Journal in effect from time to
time from the date it is determined that payment to him should have
been made under this Agreement.
12
14. Notices. Any notice provided in this Agreement shall be in writing and
shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below
indicated:
Notices to Executive:
---------------------
Michael D. Casey
27 Windy Ridge
Trumbull, CT 06611
Notices to the Company:
c/o The William Carter Company
1590 Adamson Parkway
Morrow, Georgia 30260
Attn: Frederick J. Rowan, II
Chairman & Chief Executive Officer
or such other address or to the attention of such other person as the
recipient party shall have specified by prior written notice to the
sending party. Any notice under this Agreement will be deemed to have
been given when so delivered or on the second business day after being
deposited for delivery with the United Sates Postal Service.
15. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of the Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable
law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other
jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
16. Complete Agreement. This Agreement, those documents expressly referred
to herein and other documents of even date herewith embody the
complete agreement and understanding among the parties and supersede
and preempt any prior understandings, agreements or representations by
or among the parties, written or oral, which may
13
have related to the subject matter hereof in any way, including,
without limitation, the Prior Agreement.
17. Counterparts. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
18. Successors and Assigns. This Agreement is intended to bind and insure
to the benefit of and be enforceable by Executive, the Company and
their respective heirs, successors and assigns, except that no party
may assign him or its rights or delegate his or its obligations
hereunder without prior written consent of the other parties to this
Agreement.
19. Choice of Law. This Agreement will be governed by and construed in
accordance with the domestic laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdiction) that
would cause the application of any jurisdiction other than the state
of New York.
20. Amendment and Waiver. The provision of this Agreement may be amended
or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing
the provisions of this Agreement shall affect the validity, binding
effect or enforceability of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
THE WILLIAM CARTER COMPANY
By:
-----------------------------------
Frederick J. Rowan, II
Chairman & Chief Executive Officer
-----------------------------------
Michael D. Casey
EXHIBIT 12
CARTER HOLDINGS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
THE COMPANY PREDECESSOR
---------------------------------------------------------------- ---------------------------------------
THREE MONTHS ENDED OCTOBER 30, 1996 DECEMBER 31, 1995 FISCAL YEAR
------------------------------ FISCAL YEAR (INCEPTION) THROUGH THROUGH --------------------
APRIL 4, 1998 MARCH 29, 1997 1997 DECEMBER 28, 1996 OCTOBER 29, 1996 1995 1994
------------- --------------- ----------- ------------------- ----------------- --------- ---------
Earnings:
Income (loss)
before income
taxes and
extraordinary
item............ $ (3,872) $ (3,671) $ 2,845 $ 51 $ 1,507 $ 13,254 $ 12,388
Add, Fixed
charges,
below........... 6,265 5,849 24,944 3,781 10,709 11,592 9,663
------------- ------- ----------- ------ ------- --------- ---------
Earnings, as
defined(A)...... $ 2,393 $ 2,178 $ 27,789 $ 3,832 $ 12,216 $ 24,846 $ 22,051
------------- ------- ----------- ------ ------- --------- ---------
------------- ------- ----------- ------ ------- --------- ---------
Fixed Charges:
Interest expense,
including
amortization of
deferred debt
issuance
costs........... $ 5,132 $ 4,681 $ 20,246 $ 3,065 $ 7,075 $ 7,849 $ 6,445
Portion of rental
expense
representing
interest........ 1,133 1,168 4,698 716 3,634 3,743 3,218
------------- ------- ----------- ------ ------- --------- ---------
Fixed charges, as
defined(B)...... $ 6,265 $ 5,849 $ 24,944 $ 3,781 $ 10,709 $ 11,592 $ 9,663
------------- ------- ----------- ------ ------- --------- ---------
------------- ------- ----------- ------ ------- --------- ---------
Ratio of Earnings to
Fixed Charges
(A/B)............. -- -- 1.1x 1.0x 1.1x 2.1x 2.3x
------------- ------- ----------- ------ ------- --------- ---------
------------- ------- ----------- ------ ------- --------- ---------
1993
---------
Earnings:
Income (loss)
before income
taxes and
extraordinary
item............ $ 6,830
Add, Fixed
charges,
below........... 8,594
---------
Earnings, as
defined(A)...... $ 15,424
---------
---------
Fixed Charges:
Interest expense,
including
amortization of
deferred debt
issuance
costs........... $ 5,957
Portion of rental
expense
representing
interest........ 2,637
---------
Fixed charges, as
defined(B)...... $ 8,594
---------
---------
Ratio of Earnings to
Fixed Charges
(A/B)............. 1.8x
---------
---------
- -- Note: Earnings were insufficient to cover fixed charges by approximately $3.9
million and $3.7 million for the three-month periods ended April 4,
1998 and March 29, 1997, respectively.
Exhibit 16
PRICE WATERHOUSE LLP [LOGO]
June 16, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
Carter Holdings, Inc.
We have read the "Change in Accountants" paragraph, located on page 26 of
Carter Holdings, Inc. Form S-4 dated June 16, 1998 and are in agreement
with the statements contained therein.
Yours very truly,
/s/ Price Waterhouse LLP
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Carter Holdings, Inc. of our
report dated February 16, 1996 relating to the financial statements of The
William Carter Company, which appears in such Prospectus. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Stamford, Connecticut
June 16, 1998
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No.333-51447) of our reports, which include an explanatory paragraph
regarding the October 30, 1996 acquisition of The William Carter Company,
dated March 27, 1998, on our audits of the consolidated financial statements
and the financial statement schedule of Carter Holdings, Inc. and its
subsidiaries. We also consent to the inclusion in this registration statement
on Form S-4 (File No.333-51447) of our report, which includes an explanatory
paragraph regarding the October 30, 1996 change in controlling ownership,
dated February 20, 1997, on our audit of the consolidated financial
statements of The William Carter Company and its subsidiaries. We also
consent to the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Stamford, Connecticut
June 16, 1998
5
1,000
3-MOS 3-MOS
JAN-02-1999 JAN-03-1998
JAN-04-1998 DEC-29-1996
APR-04-1998 MAR-29-1997
5,126 0
0 0
29,212 0
2,354 0
102,589 0
151,762 0
65,180 0
13,188 0
344,703 0
54,375 0
184,700 0
0 0
58,740 0
0 0
(2,869) 0
344,703 0
85,144 75,201
85,144 75,201
54,509 47,809
54,509 47,809
0 0
0 0
5,132 4,681
(3,872) (3,671)
(1,900) (1,795)
(1,972) (1,876)
0 0
0 0
0 0
(1,972) (1,876)
0 0
0 0
