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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended January 2, 2010
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32891
Hanesbrands Inc.
(Exact name of registrant as specified in its charter)
| Maryland (State of incorporation) 1000 East Hanes Mill Road Winston-Salem, North Carolina (Address of principal executive office) |
20-3552316 (I.R.S. employer identification no.) 27105 (Zip code) |
(336) 519-8080
(Registrant’s telephone number including area code)
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share and related
Preferred Stock Purchase Rights
Common Stock, par value $0.01 per share and related
Preferred Stock Purchase Rights
Name of each exchange on which registered:
New York Stock Exchange
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.
Yes o No þ
Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference into Part III of this Form
10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of July 2, 2009, the aggregate market value of the registrant’s common stock held by
non-affiliates was approximately $1,387,889,493 (based on the closing price of the common stock of
$14.72 per share on that date, as reported on the New York Stock Exchange and, for purposes of this
computation only, the assumption that all of the registrant’s directors and executive officers are
affiliates and that beneficial holders of 5% or more of the outstanding common stock are not
affiliates).
As
of February 1, 2010, there were 95,399,708 shares of the registrant’s common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference to portions of the registrant’s
proxy statement for its 2010 annual meeting of stockholders.
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Trademarks, Trade Names and Service Marks
We own or have rights to use the trademarks, service marks and trade names that we use in
conjunction with the operation of our business. Some of the more important trademarks that we own
or have rights to use that appear in this Annual Report on Form 10-K include the Hanes, Champion,
C9 by Champion, Playtex, Bali, L’eggs, Just My Size, barely there, Wonderbra, Stedman, Outer
Banks, Zorba, Rinbros and Duofold marks, which may be registered in the United States and other
jurisdictions. We do not own any trademark, trade name or service mark of any other company
appearing in this Annual Report on Form 10-K.
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
(the “Exchange Act”). Forward-looking statements include all statements that do not relate solely
to historical or current facts, and can generally be identified by the use of words such as “may,”
“believe,” “will,” “expect,” “project,” “estimate,” “intend,” “anticipate,” “plan,” “continue” or
similar expressions. In particular, information appearing under “Business,” “Risk Factors” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes
forward-looking statements. Forward-looking statements inherently involve many risks and
uncertainties that could cause actual results to differ materially from those projected in these
statements. Where, in any forward-looking statement, we express an expectation or belief as to
future results or events, such expectation or belief is based on the current plans and expectations
of our management and expressed in good faith and believed to have a reasonable basis, but there
can be no assurance that the expectation or belief will result or be achieved or accomplished. The
following include some but not all of the factors that could cause actual results or events to
differ materially from those anticipated:
| • | our ability to successfully manage social, political, economic, legal and other conditions affecting our supply chain, such as disruption of markets, changes in import and export laws, currency restrictions and currency exchange rate fluctuations; |
| • | the impact of dramatic changes in the volatile market price of cotton and increases in prices of other materials used in our products; |
| • | the impact of natural disasters; |
| • | the impact of increases in prices of oil-related materials and other costs such as energy and utility costs; |
| • | our ability to effectively manage our inventory and reduce inventory reserves; |
| • | our ability to continue to effectively distribute our products through our distribution network as we continue to consolidate our distribution network; |
| • | our ability to optimize our global supply chain; |
| • | current economic conditions; |
| • | consumer spending levels; |
| • | the risk of inflation or deflation; |
| • | financial difficulties experienced by, or loss of or reduction in sales to, any of our top customers or groups of customers; |
| • | gains and losses in the shelf space that our customers devote to our products; |
| • | the highly competitive and evolving nature of the industry in which we compete; |
| • | our ability to keep pace with changing consumer preferences; |
| • | our debt and debt service requirements that restrict our operating and financial flexibility and impose interest and financing costs; |
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| • | the financial ratios that our debt instruments require us to maintain; |
| • | future financial performance, including availability, terms and deployment of capital; |
| • | our ability to comply with environmental and occupational health and safety laws and regulations; |
| • | costs and adverse publicity from violations of labor or environmental laws by us or our suppliers; |
| • | our ability to attract and retain key personnel; |
| • | new litigation or developments in existing litigation; and |
| • | possible terrorist attacks and ongoing military action in the Middle East and other parts of the world. |
There may be other factors that may cause our actual results to differ materially from the
forward-looking statements. Our actual results, performance or achievements could differ materially
from those expressed in, or implied by, the forward-looking statements. We can give no assurances
that any of the events anticipated by the forward-looking statements will occur or, if any of them
does, what impact they will have on our results of operations and financial condition. You should
carefully read the factors described in the “Risk Factors” section of this Annual Report on Form
10-K for a description of certain risks that could, among other things, cause our actual results to
differ from these forward-looking statements.
All forward-looking statements speak only as of the date of this Annual Report on Form 10-K
and are expressly qualified in their entirety by the cautionary statements included in this Annual
Report on Form 10-K. We undertake no obligation to update or revise forward-looking statements that
may be made to reflect events or circumstances that arise after the date made or to reflect the
occurrence of unanticipated events, other than as required by law.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the
Securities and Exchange Commission (the “SEC”). You can inspect, read and copy these reports, proxy
statements and other information at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. You can obtain information regarding the operation of the SEC’s Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site at
www.sec.gov that makes available reports, proxy statements and other information regarding issuers
that file electronically.
We make available free of charge at www.hanesbrands.com (in the “Investors” section) copies of
materials we file with, or furnish to, the SEC. By referring to our Web site, www.hanesbrands.com,
we do not incorporate our Web site or its contents into this Annual Report on Form 10-K.
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PART I
| Item 1. | Business |
We are a consumer goods company with a portfolio of leading apparel brands, including Hanes,
Champion, Playtex, Bali, L’eggs, Just My Size, barely there, Wonderbra, Stedman, Outer Banks,
Zorba, Rinbros and Duofold. We design, manufacture, source and sell a broad range of apparel
essentials such as T-shirts, bras, panties, men’s underwear, kids’ underwear, casualwear,
activewear, socks and hosiery.
The apparel essentials sector of the apparel industry is characterized by frequently
replenished items, such as T-shirts, bras, panties, men’s underwear, kids’ underwear, socks and
hosiery. Growth and sales in the apparel essentials sector are not primarily driven by fashion, in
contrast to other areas of the broader apparel industry. We focus on the core attributes of
comfort, fit and value, while remaining current with regard to consumer trends. The majority of our
core styles continue from year to year, with variations only in color, fabric or design details.
Some products, however, such as intimate apparel, activewear and sheer hosiery, do have an emphasis
on style and innovation. We continue to invest in our largest and strongest brands to achieve our
long-term growth goals. In addition to designing and marketing apparel essentials, we have a long
history of operating a global supply chain that incorporates a mix of self-manufacturing,
third-party contractors and third-party sourcing.
Our fiscal year ends on the Saturday closest to December 31 and, until it was changed during
2006, ended on the Saturday closest to June 30. All references to “2009”, “2008” and “2007” relate
to the 52 week fiscal year ended on January 2, 2010, the 53 week fiscal year ended on January 3,
2009 and the 52 week fiscal year ended on December 29, 2007, respectively.
During the fourth quarter of 2009, as we sought to drive more outerwear sales through our retail
operations by expanding our Hanes and Champion offerings, we made the decision to change our
internal organizational structure so that our retail operations, previously included in our
Innerwear segment, would be a separate “Direct to Consumer” segment. As a result, our operations
are managed and reported in six operating segments, each of which is a reportable segment for
financial reporting purposes: Innerwear, Outerwear, Hosiery, Direct to Consumer, International and
Other. Certain other insignificant changes between segments have been reflected in the segment disclosures to conform to the current organizational structure.
The following table summarizes our operating segments by category:
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| Segment | Primary Products | Primary Brands | ||
Innerwear
|
Intimate apparel, such as bras,
panties and shapewear Men’s underwear and kids’ underwear Socks |
Hanes, Playtex, Bali,
barely there, Just My Size, Wonderbra Hanes, Polo Ralph Lauren* Hanes, Champion |
||
Outerwear
|
Activewear, such as performance | Champion, Duofold | ||
| T-shirts and shorts, fleece, sports bras and thermals | ||||
| Casualwear, such as T-shirts, fleece and sport shirts | Hanes, Just My Size, Outer Banks, Champion, Hanes Beefy-T | |||
Hosiery
|
Hosiery | L’eggs, Hanes, Donna Karan,* DKNY,* | ||
| Just My Size | ||||
Direct to Consumer
|
Activewear, men’s underwear, kids’ underwear, intimate apparel, socks, hosiery and casualwear | Bali, Hanes, Playtex, Champion, barely there, L’eggs, Just My Size | ||
International
|
Activewear, men’s underwear, kids’ underwear, intimate apparel, socks, hosiery and casualwear | Hanes, Champion, Wonderbra,** Playtex,** Stedman, Zorba, Rinbros, Kendall,* Sol y Oro, Bali, Ritmo, | ||
Other
|
Nonfinished products, primarily yarn | Not applicable |
| * | Brand used under a license agreement. | |
| ** | As a result of the February 2006 sale of the European branded apparel business of Sara Lee Corporation, or “Sara Lee,” we are not permitted to sell this brand in the member states of the European Union, or the “EU,” several other European countries and South Africa. |
Our brands have a strong heritage in the apparel essentials industry. According to The NPD
Group/Consumer Tracking Service, or “NPD,” our brands hold either the number one or number two U.S.
market position by sales value in most product categories in which we compete, for the 12 month
period ended December 31, 2009. In 2009, Hanes was number one for the sixth consecutive year as the
most preferred men’s apparel brand, women’s intimate apparel brand and children’s apparel brand of
consumers in Retailing Today magazine’s “Top Brands Study.” Additionally, we had five of the top
ten intimate apparel brands preferred by consumers in the Retailing Today study — Hanes, Playtex,
Bali, Just My Size and L’eggs. In 2008, the most recent year in which the survey was conducted,
Hanes was number one for the fifth consecutive year on the Women’s Wear Daily “Top 100 Brands
Survey” for apparel and accessory brands that women know best.
Our products are sold through multiple distribution channels. During 2009, approximately 45%
of our net sales were to mass merchants in the United States, 16% were to national chains and department stores in the United States, 11%
were in our International segment, 10% were in our Direct to Consumer segment in the United States, and 18% were to
other retail channels in the United States such as embellishers, specialty retailers and sporting goods stores. We have
strong, long-term relationships with our top customers, including relationships of more than ten
years with each of our top ten customers. The size and operational scale of the high-volume
retailers with which we do business require extensive category and product knowledge and
specialized services regarding the quantity, quality and planning of product orders. We have
organized multifunctional customer management teams, which has allowed us to form strategic
long-term relationships with these customers and efficiently focus resources on category, product
and service expertise. We also have customer-specific programs such as the C9 by Champion products
marketed and sold through Target stores and the recently expanded presence at Wal-Mart stores of
our Just My Size brand.
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Our ability to react to changing customer needs and industry trends is key to our success. Our
design, research and product development teams, in partnership with our marketing teams, drive our
efforts to bring innovations to market. We seek to leverage our insights into consumer demand in
the apparel essentials industry to develop new products within our existing lines and to modify our
existing core products in ways that make them more appealing, addressing changing customer needs
and industry trends. Examples of our recent innovations include:
| • | Hanes dyed V-neck underwear T-shirts in black, gray and navy colors (2009). |
| • | Champion 360° Max Support sports bra that controls movement in all directions, scientifically tested on athletes to deliver 360° support (2009). |
| • | Playtex 18 Hour Seamless Smoothing bra that features fused fabric to smooth sides and back (2009). |
| • | Bali Natural Uplift bras that feature advanced lift for the bust without adding size (2009). |
| • | Hanes No Ride Up panties, specially designed for a better fit that helps women stay “wedgie-free” (2008). |
| • | Hanes Lay Flat Collar T-shirts and Hanes No Ride Up boxer briefs, the brand’s latest innovation in product comfort and fit (2008). |
| • | Playtex 18 Hour Active Lifestyle bra that features active styling with wickable fabric (2008). |
| • | Bali Concealers bras, with revolutionary concealing petals for complete modesty (2008). |
| • | Hanes Concealing Petals bras (2008). |
| • | Hanes Comfortsoft T-shirt (2007). |
| • | Hanes All Over Comfort bras (2007). |
| • | Bali Passion for Comfort bras, designed to be the ultimate comfort bra, features a silky smooth lining for a luxurious feel against the body (2007). |
We have restructured our supply chain over the past three years to create more efficient
production clusters that utilize fewer, larger facilities and to balance our production capability
between the Western Hemisphere and Asia. We have closed plant locations, reduced our workforce and
relocated some of our manufacturing capacity to lower cost locations in Asia, Central America and
the Caribbean Basin. With our global supply chain infrastructure substantially in place, we are now
focused on optimizing our supply chain to further enhance efficiency, improve working capital and
asset turns and reduce costs. We are focused on optimizing the working capital needs of our supply
chain through several initiatives, such as supplier-managed inventory for raw materials and sourced
goods ownership relationships. We completed the construction of a textile production plant in
Nanjing, China which is our first company-owned textile facility in Asia. Production commenced in
the fourth quarter of 2009 and we expect to ramp up production over
the next 18 months. The Nanjing facility,
along with our other textile facilities and arrangements with outside contractors, enables us to
expand and leverage our production scale as we balance our supply chain across hemispheres to
support our production capacity. The consolidation of our distribution network is still in process
but will not result in any substantial charges in future periods. The distribution network
consolidation involves the implementation of new warehouse management systems and technology, and
opening of new distribution centers and new third-party logistics providers to replace parts of our
legacy distribution network.
Our Brands
Our portfolio of leading brands is designed to address the needs and wants of various consumer
segments across a broad range of apparel essentials products. Each of our brands has a particular
consumer positioning that distinguishes it from its competitors and guides its advertising and
product development. We discuss some of our most important brands in more detail below.
Hanes is the largest and most widely recognized brand in our portfolio. In 2009, Hanes was
number one for the sixth consecutive year as the most preferred men’s apparel brand, women’s
intimate apparel brand and children’s apparel brand of consumers in Retailing Today magazine’s “Top
Brands Study.” In 2008, the most recent year the survey was conducted, Hanes was number one for the
fifth consecutive year on the Women’s Wear Daily “Top 100 Brands Survey” for apparel and accessory
brands that women know best. The Hanes brand covers all of our product categories, including men’s
underwear, kids’ underwear, bras, panties, socks, T-shirts, fleece and sheer hosiery.
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Hanes stands for outstanding comfort, style and value. According to Millward Brown Market
Research, Hanes is found in 85% of the U.S. households that have purchased men’s or women’s
casual clothing or underwear in the 12-month period ended December 31, 2009.
Champion is our second-largest brand. Specializing in athletic and other performance apparel,
the Champion brand is designed for everyday athletes. We believe that Champion’s combination of
comfort, fit and style provides athletes with mobility, durability and up-to-date styles, all
product qualities that are important in the sale of athletic products. We also distribute C9 by
Champion products exclusively through Target stores.
Playtex, the third-largest brand within our portfolio, offers a line of bras, panties and
shapewear, including products that offer solutions for hard to fit figures. Bali is the
fourth-largest brand within our portfolio. Bali offers a range of bras, panties and shapewear sold
in the department store channel. Our brand portfolio also includes the following well-known brands:
L’eggs, Just My Size, barely there, Wonderbra, Outer Banks and Duofold. We entered into an
agreement with Wal-Mart in April 2009 that significantly expanded the presence of our Just My Size
brand. These brands serve to round out our product offerings, allowing us to give consumers a
variety of options to meet their diverse needs.
Our Segments
During the fourth quarter of 2009, as we sought to drive more outerwear sales through our retail
operations by expanding our Hanes and Champion offerings, we made the decision to change our
internal organizational structure so that our retail operations, previously included in our
Innerwear segment, would be a separate “Direct to Consumer” segment. As a result, our operations
are managed and reported in six operating segments, each of which is a reportable segment for
financial reporting purposes: Innerwear, Outerwear, Hosiery, Direct to Consumer, International and
Other. Certain other insignificant changes between segments have been reflected in the segment disclosures
to conform to the current organizational structure. These segments are organized principally by
product category, geographic location and distribution channel. Management of each segment is
responsible for the operations of these segments’ businesses but shares a common supply chain and
media and marketing platforms. For more information about our segments, see Note 20 to our
financial statements included in this Annual Report on Form 10-K.
Innerwear
The Innerwear segment focuses on core apparel essentials, and consists of products such as
women’s intimate apparel, men’s underwear, kids’ underwear, and socks, marketed under well-known
brands that are trusted by consumers. We are an intimate apparel category leader in the United
States with our Hanes, Playtex, Bali, barely there, Just My Size and Wonderbra brands. We are also
a leading manufacturer and marketer of men’s underwear and kids’ underwear under the Hanes and Polo
Ralph Lauren brand names. During 2009, net sales from our Innerwear segment were $1.8 billion,
representing approximately 47% of total net sales.
Outerwear
We are a leader in the casualwear and activewear markets through our Hanes, Champion , Just My
Size and Duofold brands, where we offer products such as T-shirts and fleece. Our casualwear lines
offer a range of quality, comfortable clothing for men, women and children marketed under the Hanes
and Just My Size brands. The Just My Size brand offers casual apparel designed exclusively to meet
the needs of plus-size women. In 2009, we entered into a multi-year agreement to provide a women’s
casualwear program with our Just My Size brand at Wal-Mart stores. In addition to activewear for
men and women, Champion provides uniforms for athletic programs and includes an apparel program, C9
by Champion, at Target stores. We also license our Champion name for collegiate apparel and
footwear. We also supply our T-shirts, sport shirts and fleece products, including brands such as
Hanes, Champion, Outer Banks and Hanes Beefy-T, to customers, primarily wholesalers, who then
resell to screen printers and embellishers. During 2009, net sales from our Outerwear segment were
$1.1 billion, representing approximately 27% of total net sales.
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Hosiery
We are the leading marketer of women’s sheer hosiery in the United States. We compete in the
hosiery market by striving to offer superior values and executing integrated marketing activities,
as well as focusing on the style of our hosiery products. We market hosiery products under our
L’eggs, Hanes and Just My Size brands. During 2009, net sales from our Hosiery segment were $186
million, representing approximately 5% of total net sales. We expect the trend of declining hosiery
sales to continue consistent with the overall decline in the industry and with shifts in consumer
preferences.
Direct to Consumer
Our Direct to Consumer operations include our value-based (“outlet”) stores and Internet
operations which sell products from our portfolio of leading brands. We sell our branded products
directly to consumers through our outlet stores, as well as our Web sites operating under the
Hanes, One Hanes Place, Just My Size and Champion names. Our Internet operations are supported by
our catalogs. As of January 2, 2010 and January 3, 2009, we had 228 and 213 outlet stores,
respectively. During 2009, net sales from our Direct to Consumer segment were $370 million,
representing approximately 10% of total net sales.
International
International includes products that span across the Innerwear, Outerwear and Hosiery
reportable segments and are primarily marketed under the Hanes, Champion, Wonderbra, Playtex,
Stedman, Zorba, Rinbros, Kendall, Sol y Oro, Bali and Ritmo brands. During 2009, net sales from our
International segment were $438 million, representing approximately 11% of total net sales and
included sales in Latin America, Asia, Canada, Europe and South America. Our largest international
markets are Canada, Japan, Mexico, Europe and Brazil, and we also have sales offices in India and
China.
Other
Our Other segment primarily consists of sales of yarn to third parties in the United States
and Latin America that maintain asset utilization at certain manufacturing facilities and are
intended to generate approximate break even margins. During 2009, net sales from our Other segment
were $13 million, representing less than 1% of total net sales. In October 2009, we completed the
sale of our yarn operations as a result of which we ceased making our own yarn and now source all
of our yarn requirements from large-scale yarn suppliers. As a result of the sale of our yarn
operations we will no longer have net sales in our Other segment in the future.
Design, Research and Product Development
At the core of our design, research and product development capabilities is a team of
approximately 300 professionals. We have combined our design, research and development teams into
an integrated group for all of our product categories. A facility located in Winston-Salem, North
Carolina, is the center of our research, technical design and product development efforts. We also
employ creative design and product development personnel in our design center in New York City. In
2009, 2008 and 2007, we spent approximately $46 million, $46 million and $45 million, respectively,
on design, research and product development, including the
development of new and improved products.
Customers
In 2009, approximately 89% of our net sales were to customers in the United States and
approximately 11% were to customers outside the United States. Domestically, almost 81% of our net
sales were wholesale sales to retailers, 11% were direct to consumers and 8% were wholesale sales
to third-party embellishers. We have well-established relationships with some of the largest
apparel retailers in the world. Our largest customers are Wal-Mart Stores, Inc., or “Wal-Mart,”
Target Corporation, or “Target,” and Kohl’s Corporation, or “Kohl’s,” accounting for 27%, 17% and
7%, respectively, of our total sales in 2009. As is common in the apparel essentials industry, we
generally do not have purchase agreements that obligate our customers to purchase our products.
However, all of our key customer relationships have been in place for
ten years or more. Wal-Mart, Target and Kohl’s are our only customers with sales that exceed 10% of
any individual segment’s sales. In
our Innerwear segment, Wal-Mart accounted for 40% of sales, Target
accounted for 16% of sales and Kohl’s accounted for 12% of sales
during 2009. In our Outerwear segment, Target accounted for
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34% of sales and Wal-Mart accounted for 19% of sales during 2009. In our Hosiery segment,
Wal-Mart accounted for 27% of sales during 2009 and Target accounted for 10% of sales during 2009.
Due to their size and operational scale, high-volume retailers such as Wal-Mart and Target
require extensive category and product knowledge and specialized services regarding the quantity,
quality and timing of product orders. We have organized multifunctional customer management teams,
which has allowed us to form strategic long-term relationships with these customers and efficiently
focus resources on category, product and service expertise. Smaller regional customers attracted to
our leading brands and quality products also represent an important component of our distribution.
Our organizational model provides for an efficient use of resources that delivers a high level of
category and channel expertise and services to these customers.
Sales
to the mass merchant channel in the United States accounted for approximately 45% of our net sales in 2009.
We sell all of our product categories in this channel primarily under our Hanes, Just My Size and
Playtex brands. Mass merchants feature high-volume, low-cost sales of basic apparel items along
with a diverse variety of consumer goods products, such as grocery and drug products and other hard
lines, and are characterized by large retailers, such as Wal-Mart. Wal-Mart, which accounted for
approximately 27% of our net sales in 2009, is our largest mass merchant customer.
Sales to the
national chains and department stores channel in the United States accounted for approximately 16% of
our net sales in 2009. These retailers target a higher-income consumer than mass merchants, focus
more of their sales on apparel items rather than other consumer goods such as grocery and drug
products, and are characterized by large retailers such as Kohl’s, JC Penney Company, Inc. and
Sears Holdings Corporation. We sell all of our product categories in this channel. Traditional
department stores target higher-income consumers and carry more high-end, fashion conscious
products than national chains or mass merchants and tend to operate in higher-income areas and
commercial centers. Traditional department stores are characterized by large retailers such as
Macy’s and Dillard’s, Inc. We sell products in our intimate apparel, hosiery and underwear
categories through department stores.
Sales
in our Direct to Consumer segment in the United States accounted for approximately 10% of our net sales in
2009. We sell our branded products directly to consumers through our 228 outlet stores, as well as
our Web sites operating under the Hanes, One Hanes Place, Just My Size and Champion names. Our
outlet stores are value-based, offering the consumer a savings of 25% to 40% off suggested retail
prices, and sell first-quality, excess, post-season, obsolete and slightly imperfect products. Our
Web sites, supported by our catalogs, address the growing direct to consumer channel that operates
in today’s 24/7 retail environment, and we have an active database of approximately four million
consumers receiving our catalogs and emails. Our Web sites continue to experience growth as more
consumers embrace this retail shopping channel.
Sales in our International segment represented approximately 11% of our net sales in 2009, and
included sales in Latin America, Asia, Canada, Europe and South America. Our largest international
markets are Canada, Japan, Mexico, Europe and Brazil, and we also have sales offices in India and
China. We operate in several locations in Latin America including Mexico, Argentina, Brazil and
Central America. From an export business perspective, we use distributors to service customers in
the Middle East and Asia, and have a limited presence in Latin America. The brands that are the
primary focus of the export business include Hanes and Champion socks, Champion activewear, Hanes
underwear and Bali, Playtex, Wonderbra and barely there intimate apparel. As discussed below under
“Intellectual Property,” we are not permitted to sell Wonderbra and Playtex branded products in the
member states of the EU, several other European countries, and South Africa. For more information about our sales on a geographic basis, see Note 21 to our financial statements.
Sales in other channels in the United States represented approximately 18% of our net sales in 2009. We sell
T-shirts, golf and sport shirts and fleece sweatshirts to third-party embellishers primarily under
our Hanes, Hanes Beefy-T and Outer Banks brands. Sales to third-party embellishers accounted for
approximately 7% of our net sales in 2009. We also sell a significant range of our underwear,
activewear and socks products under the Champion brand to wholesale clubs, such as Costco, and
sporting goods stores, such as The Sports Authority, Inc. We sell primarily legwear and underwear
products under the Hanes and L’eggs brands to food, drug and variety stores. We sell products that
span across our Innerwear, Outerwear and Hosiery segments to the U.S. military for sale to
servicemen and servicewomen.
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Inventory
Effective inventory management is a key component of our future success. Because our customers
generally do not purchase our products under long-term supply contracts, but rather on a purchase
order basis, effective inventory management requires close coordination with the customer base.
Through Kanban, a multi-initiative effort that determines production quantities, and in doing so,
facilitates just-in-time production and ordering systems, as well as inventory management, demand
prioritization and related initiatives, we seek to ensure that products are available to meet
customer demands while effectively managing inventory levels. We also employ various other types of
inventory management techniques that include collaborative forecasting and planning,
supplier-managed inventory, key event management and various forms of replenishment management
processes. Our supplier-managed inventory initiative is intended to shift raw material ownership
and management to our suppliers until consumption, freeing up cash and improving response time. We
have demand management planners in our customer management group who work closely with customers to
develop demand forecasts that are passed to the supply chain. We also have professionals within the
customer management group who coordinate daily with our larger customers to help ensure that our
customers’ planned inventory levels are in fact available at their individual retail outlets.
Additionally, within our supply chain organization we have dedicated professionals who translate
the demand forecast into our inventory strategy and specific production plans. These individuals
work closely with our customer management team to balance inventory investment/exposure with
customer service targets.
Seasonality and Other Factors
Our operating results are subject to some variability due to seasonality and other factors.
Generally, our diverse range of product offerings helps mitigate the impact of seasonal changes in
demand for certain items. Sales are typically higher in the last two quarters (July to December) of
each fiscal year. Socks, hosiery and fleece products generally have higher sales during this period
as a result of cooler weather, back-to-school shopping and holidays. Sales levels in any period are
also impacted by customers’ decisions to increase or decrease their inventory levels in response to
anticipated consumer demand. Our customers may cancel orders, change delivery schedules or change
the mix of products ordered with minimal notice to us. For example, we have experienced a shift in
timing by our largest retail customers of back-to-school programs between June and July the last
two years. Our results of operations are also impacted by fluctuations and volatility in the price
of cotton and oil-related materials and the timing of actual spending for our media, advertising
and promotion expenses. Media, advertising and promotion expenses may vary from period to period
during a fiscal year depending on the timing of our advertising campaigns for retail selling
seasons and product introductions.
Marketing
Our strategy is to bring consumer-driven innovation to market in a compelling way. Our
approach is to build targeted, effective multimedia advertising and marketing campaigns to increase
awareness of our key brands. Driving growth platforms across categories is a major element of our
strategy as it enables us to meet key consumer needs and leverage advertising dollars. We believe
that the strength of our consumer insights, our distinctive brand propositions and our focus on
integrated marketing give us a competitive advantage in the fragmented apparel marketplace.
In 2009, we launched a number of new advertising and marketing initiatives:
| • | We launched a new television advertising campaign in support of Hanes Comfort Fit socks for the family. |
| • | We announced that our Champion and Duofold brands have partnered with accomplished international mountaineer and motivational speaker Jamie Clarke to lead Expedition Hanesbrands, a Mount Everest expedition in 2010 designed to drive brand awareness and showcase our research and development innovation and textile science leadership. |
| • | In connection with our Expedition Hanesbrands initiative, Champion launched a new “What’s Your Everest” marketing campaign and online community to support people in reaching their personal aspirations and goals. |
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| • | Hanes became the Official Apparel Sponsor of Passionately Pink for the Cure, a fund-raising program created by Susan G. Komen for the Cure that inspires breast cancer advocacy and honors those affected by the disease. Hanes also offers a special “pink collection” of panties, bras, socks and graphic tees, and has created a campaign Web site, www.hanespink.com, that features interactive content to inspire people to make a difference in the breast cancer support community. |
| • | Champion was selected by US Lacrosse, the sport’s national governing body, as the “Official Performance Apparel of US Lacrosse” and Champion has the right to manufacture apparel with the US Lacrosse logo that will be sold to participating teams. In addition to the apparel partnership, the 2010 US Lacrosse National Convention, the largest lacrosse-specific educational and networking opportunity in the country, will be presented by Champion. |
We also continued some of our existing advertising and marketing initiatives:
| • | We continued our men’s underwear advertising featuring Michael Jordan, in support of Hanes Lay Flat Collar T-shirts and No Ride Up boxer briefs. |
| • | We continued our television advertising featuring Sarah Chalke in another “Look Who” advertising campaign in support of our Hanes No Ride Up panties. |
| • | We continued our alliance with The Walt Disney Company by opening Disney Design-a-Tee presented by Hanes, an innovative next-generation store for apparel souvenirs at the Walt Disney World Resort in Orlando, Florida, an interactive T-shirt design and printing store that enables Disney guests to enhance their magical Disney experience with a personalized custom-designed Hanes T-shirt printed while they wait. |
| • | We continued our “How You Play” national advertising campaign for Champion that we launched in 2007. The campaign includes print, out-of-home and online components and is designed to capture the everyday moments of fun and sport in a series of cool and hip lifestyle images. |
| • | We continued the “Live Beautifully” campaign for our Bali brand, launched in the Spring of 2007. The print, television and online advertising campaign features Bali bras and panties from its Passion for Comfort, Seductive Curves and Cotton Creations lines. |
| • | We continued our innovative and expressive advertising and marketing campaign called “Girl Talk,” launched in September 2007, in which confident, everyday women talk about their breasts, in support of our Playtex 18 Hour and Playtex Secrets product lines. |
Distribution
As of January 2, 2010, we distributed our products for the U.S. market from a total of 19
distribution centers. These facilities include 17 facilities located in the United States and two
facilities located outside the United States in regions where we manufacture our products. We
internally manage and operate 13 of these facilities, and we use third-party logistics providers
who operate the other six facilities on our behalf. International distribution operations use a
combination of third-party logistics providers, as well as owned and operated distribution
operations, to distribute goods to our various international markets.
We have reduced the number of distribution centers from the 48 that we maintained at the time
of the spin off to 33 as of January 2, 2010. The consolidation of our distribution network is
still in process but will not result in any substantial charges in future periods. The
distribution network consolidation involves the implementation of new warehouse management systems
and technology, and opening of new distribution centers and new third-party logistics providers to
replace parts of our legacy distribution network. In January 2009, we began shipping products from
a new 1.3 million square foot distribution center in Perris, California.
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Manufacturing and Sourcing
During 2009, approximately 70% of our finished goods sold were manufactured through a
combination of facilities we own and operate and facilities owned and operated by third-party
contractors who perform some of the steps in the manufacturing process for us, such as cutting
and/or sewing. We sourced the remainder of our finished goods from third-party manufacturers who
supply us with finished products based on our designs. We believe that our balanced approach to
product supply, which relies on a combination of owned, contracted and sourced manufacturing
located across different geographic regions, increases the efficiency of our operations, reduces
product costs and offers customers a reliable source of supply.
Finished Goods That Are Manufactured by Hanesbrands
The manufacturing process for the finished goods that we manufacture begins with raw materials
we obtain from suppliers. The principal raw materials in our product categories are cotton and
synthetics. Our costs for cotton yarn and cotton-based textiles vary based upon the fluctuating
cost of cotton, which is affected by, among other factors, weather, consumer demand, speculation on
the commodities market and the relative valuations and fluctuations of the currencies of producer
versus consumer countries and other factors that are generally unpredictable and beyond our
control. We employ a dollar cost averaging
strategy by entering into hedging contracts on cotton designed to protect us
from severe market fluctuations in the wholesale prices of cotton. In addition to cotton yarn and
cotton-based textiles, we use thread, narrow elastic and trim for product identification, buttons,
zippers, snaps and lace.
Fluctuations in crude oil or petroleum prices may also influence the prices of items used in
our business, such as chemicals, dyestuffs, polyester yarn and foam. Alternate sources of these
materials and services are readily available. Cotton and synthetic materials are typically spun
into yarn, which is then knitted into cotton, synthetic and blended fabrics. Although historically
we have spun a significant portion of the yarn and knit a significant portion of the fabrics we use
in our owned and operated facilities, in October 2009, we completed the sale of our yarn operations
as a result of which we ceased making our own yarn and now source all of our yarn requirements from
large-scale yarn suppliers. To a lesser extent, we purchase fabric from several domestic and
international suppliers in conjunction with scheduled production. These fabrics are cut and sewn
into finished products, either by us or by third-party contractors. Most of our cutting and sewing
operations are strategically located in Asia, Central America and the Caribbean Basin.
Rising fuel, energy and utility costs may have a significant impact on our manufacturing
costs. These costs may fluctuate due to a number of factors outside our control, including
government policy and regulation, foreign exchange rates and weather conditions.
We continued to consolidate our manufacturing facilities and currently operate 41
manufacturing facilities, down from 70 at the time of our spin off. In making decisions about the
location of manufacturing operations and third-party sources of supply, we consider a number of
factors, including labor, local operating costs, quality, regional infrastructure, applicable
quotas and duties, and freight costs. During the fourth quarter of 2009, we commenced production
at our textile production plant in Nanjing, China, our first company-owned textile production
facility in Asia. The Nanjing textile facility will enable us to expand and leverage our production
scale in Asia as we balance our supply chain across hemispheres, thereby diversifying our
production risks. During the fourth quarter of 2008, we commenced production at our 500,000 square
foot sock manufacturing facility in El Salvador. This facility, co-located with textile
manufacturing operations that we acquired in 2007, provides a manufacturing base in Central America
from which to leverage our production scale at a lower cost location. In October 2008, we acquired
a 370-employee embroidery and screen-print facility in Honduras. For the past eight years, these
operations have produced embroidered and screen-printed apparel for us. This acquisition better
positions us for long-term growth in these segments. During the second quarter of 2008, we added
three company-owned sewing plants in Southeast Asia — two in Vietnam and one in Thailand — giving
us four sewing plants in Asia.
Finished Goods That Are Manufactured by Third Parties
In addition to our manufacturing capabilities, we also source finished goods we design from
third-party
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manufacturers, also referred to as “turnkey products.” Many of these turnkey products are
sourced from international suppliers by our strategic sourcing hubs in Hong Kong and other
locations in Asia.
All contracted and sourced manufacturing must meet our high quality standards. Further, all
contractors and third-party manufacturers must be preaudited and adhere to our strict supplier and
business practices guidelines. These requirements provide strict standards covering hours of work,
age of workers, health and safety conditions and conformity with local laws and Hanesbrands’
standards. Each new supplier must be inspected and agree to comprehensive compliance terms prior to
performance of any production on our behalf. We audit compliance with these standards and maintain
strict compliance performance records. In addition to our audit procedures, we require certain of
our suppliers to be Worldwide Responsible Apparel Production, or “WRAP,” certified. WRAP is a
recognized apparel certification program that independently monitors and certifies compliance with
certain specified manufacturing standards that are intended to ensure that a given factory produces
sewn goods under lawful, humane, and ethical conditions. WRAP uses third-party, independent
certification firms and requires factory-by-factory certification.
Trade Regulation
We are exposed to certain risks of doing business outside of the United States. We import
goods from company-owned facilities in Asia, Central America, the Caribbean Basin and Mexico, and
from suppliers in those areas and in Europe, South America, Africa and the Middle East. These
import transactions are subject to customs, trade and other laws and regulations governing their
entry into the United States and to tariffs applicable to such merchandise.
In addition, much of the merchandise we import is subject to duty free entry into the United
States under various trade preferences and/or free trade agreements provided the goods meet certain
criteria and characteristics. Compliance with these specific requirements as well as all other
requirements is reviewed periodically by the United States Customs and Border Control and other
governmental agencies.
Finally, imported apparel merchandise may be subject to various restrictive trade actions
initiated by the United States government, domestic industry, labor or other parties under various
U.S. laws. Such actions could result in the U.S. government imposing quotas or additional tariffs
against apparel under special safeguard actions applicable to China, other safeguard actions
applicable to any country, or antidumping or countervailing duties applicable to specific products
from specific countries. Currently there are no such actions, additional, special or safeguard
duties or quotas imposed against products which we import. Our management evaluates the possible
impact of these and similar actions on our ability to import products from China and other
countries. If such safeguards or duties were to be imposed, we do not expect that these restraints
would have a material impact on us.
Moreover, our management monitors new developments and risks relating to duties, tariffs and
quotas. Changes in these areas have the potential to harm or, in some cases, benefit our business.
In response to the changing import environment management has chosen to continue its balanced
approach to manufacturing and sourcing. We attempt to limit our sourcing exposure through
geographic diversification with a mix of company-owned and contracted production, as well as shifts
of production among countries and contractors. We will continue to manage our supply chain from a
global perspective and adjust as needed to changes in the global production environment.
We also monitor a number of international security risks. We are a member of the Customs-Trade
Partnership Against Terrorism, or “C-TPAT,” a partnership between the government and private sector
initiated after the events of September 11, 2001 to improve supply chain and border security.
C-TPAT partners work with U.S. Customs and Border Protection to protect their supply chains from
concealment of terrorist weapons, including weapons of mass destruction. In exchange, U.S. Customs
and Border Protection provides reduced inspections at the port of arrival and expedited processing
at the border.
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Competition
The apparel essentials market is highly competitive and rapidly evolving. Competition
generally is based upon price, brand name recognition, product quality, selection, service and
purchasing convenience. Our businesses face competition today from other large corporations and
foreign manufacturers. Fruit of the Loom, Inc., a subsidiary of Berkshire Hathaway Inc., competes
with us across most of our segments through its own offerings and those of its Russell Corporation
and Vanity Fair Intimates offerings. Other competitors in our
Innerwear segment include Limited Brands, Inc.’s Victoria’s
Secret brand, Jockey International, Inc., Warnaco
Group Inc. and Maidenform Brands, Inc. Other competitors in our Outerwear
segment include various private label and controlled brands sold by
many of our customers,
Gildan Activewear, Inc. and Gap Inc. We also compete with many small manufacturers across all of our business
segments, including our International segment. Additionally, department stores and other retailers,
including many of our customers, market and sell apparel essentials products under private labels
that compete directly with our brands.
Our competitive strengths include our strong brands with leading market positions, our
high-volume, core essentials focus, our significant scale of operations, our global supply chain
and our strong customer relationships.
| • | Strong Brands with Leading Market Positions. According to NPD, our brands hold either the number one or number two U.S. market position by sales value in most product categories in which we compete, for the 12 month period ended December 31, 2009. According to NPD, our largest brand, Hanes, is the top-selling apparel brand in the United States by units sold, for the 12 month period ended December 31, 2009. |
| • | High-Volume, Core Essentials Focus. We sell high-volume, frequently replenished apparel essentials. The majority of our core styles continue from year to year, with variations only in color, fabric or design details, and are frequently replenished by consumers. We believe that our status as a high-volume seller of core apparel essentials creates a more stable and predictable revenue base and reduces our exposure to dramatic fashion shifts often observed in the general apparel industry. |
| • | Significant Scale of Operations. According to NPD, we are the largest seller of apparel essentials in the United States as measured by units sold for the 12 month period ended December 31, 2009. Most of our products are sold to large retailers that have high-volume demands. We believe that we are able to leverage our significant scale of operations to provide us with greater manufacturing efficiencies, purchasing power and product design, marketing and customer management resources than our smaller competitors. |
| • | Global Supply Chain. We have restructured our supply chain over the past three years to create more efficient production clusters that utilize fewer, larger facilities and to balance our production capability between the Western Hemisphere and Asia. With our global supply chain infrastructure substantially in place, we are now focused on optimizing our supply chain to further enhance efficiency, improve working capital and asset turns and reduce costs. |
| • | Strong Customer Relationships. We sell our products primarily through large, high-volume retailers, including mass merchants, department stores and national chains. We have strong, long-term relationships with our top customers, including relationships of more than ten years with each of our top ten customers. We have aligned significant parts of our organization with corresponding parts of our customers’ organizations. We also have entered into customer-specific programs such as the C9 by Champion products marketed and sold through Target stores and the recently expanded presence at Wal-Mart of our Just My Size brand. |
Intellectual Property
Overview
We market our products under hundreds of trademarks and service marks in the United States and
other countries around the world, the most widely recognized of which are Hanes, Champion, C9 by
Champion, Playtex, Bali, L’eggs, Just My Size, barely there, Wonderbra, Stedman, Outer Banks,
Zorba, Rinbros and Duofold. Some of our products are sold under trademarks that have been licensed
from third parties, such as Polo Ralph Lauren men’s underwear, and we also hold licenses from
various toy and media companies that give us the right to use certain of
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their proprietary characters, names and trademarks.
Some of our own trademarks are licensed to third parties, such as Champion for
athletic-oriented accessories. In the United States, the Playtex trademark is owned by Playtex
Marketing Corporation, of which we own a 50% interest and which grants to us a perpetual
royalty-free license to the Playtex trademark on and in connection with the sale of apparel in the
United States and Canada. The other 50% interest in Playtex Marketing Corporation is owned by
Playtex Products, Inc., an unrelated third-party, who has a perpetual royalty-free license to the
Playtex trademark on and in connection with the sale of non-apparel products in the United States.
Outside the United States and Canada, we own the Playtex trademark and perpetually license such
trademark to Playtex Products, Inc. for non-apparel products. In addition, as described below, as
part of Sara Lee’s sale in February 2006 of its European branded apparel business, an affiliate of
Sun Capital Partners, Inc., or “Sun Capital,” has an exclusive, perpetual, royalty-free license to
manufacture, sell and distribute apparel products under the Wonderbra and Playtex trademarks in the
member states of the EU, as well as several other European nations and South Africa. We also own a
number of copyrights. Our trademarks and copyrights are important to our marketing efforts and have
substantial value. We aggressively protect these trademarks and copyrights from infringement and
dilution through appropriate measures, including court actions and administrative proceedings.
Although the laws vary by jurisdiction, trademarks generally remain valid as long as they are
in use and/or their registrations are properly maintained. Most of the trademarks in our portfolio,
including our core brands, are covered by trademark registrations in the countries of the world in
which we do business, with registration periods generally ranging between seven and 10 years
depending on the country. Trademark registrations can be renewed indefinitely as long as the
trademarks are in use. We have an active program designed to ensure that our trademarks are
registered, renewed, protected and maintained. We plan to continue to use all of our core
trademarks and plan to renew the registrations for such trademarks for as long as we continue to
use them. Most of our copyrights are unregistered, although we have a sizable portfolio of
copyrighted lace designs that are the subject of a number of registrations at the U.S. Copyright
Office.
We place high importance on product innovation and design, and a number of these innovations
and designs are the subject of patents. However, we do not regard any segment of our business as
being dependent upon any single patent or group of related patents. In addition, we own proprietary
trade secrets, technology, and know how that we have not patented.
Shared Trademark Relationship with Sun Capital
In February 2006, Sara Lee sold its European branded apparel business to an affiliate of Sun
Capital. In connection with the sale, Sun Capital received an exclusive, perpetual, royalty-free
license to manufacture, sell and distribute apparel products under the Wonderbra and Playtex
trademarks in the member states of the EU, as well as Belarus, Bosnia-Herzegovina, Bulgaria,
Croatia, Macedonia, Moldova, Morocco, Norway, Romania, Russia, Serbia-Montenegro, South Africa,
Switzerland, Ukraine, Andorra, Albania, Channel Islands, Lichtenstein, Monaco, Gibraltar,
Guadeloupe, Martinique, Reunion and French Guyana, which we refer to as the “Covered Nations.” We
are not permitted to sell Wonderbra and Playtex branded products in the Covered Nations, and Sun
Capital is not permitted to sell Wonderbra and Playtex branded products outside of the Covered
Nations. In connection with the sale, we also have received an exclusive, perpetual royalty-free
license to sell DIM and UNNO branded products in Panama, Honduras, El Salvador, Costa Rica,
Nicaragua, Belize, Guatemala, Mexico, Puerto Rico, the United States, Canada and, for DIM products,
Japan. We are not permitted to sell DIM or UNNO branded apparel products outside of these countries
and Sun Capital is not permitted to sell DIM or UNNO branded apparel products inside these
countries. In addition, the rights to certain European-originated brands previously part of Sara
Lee’s branded apparel portfolio were transferred to Sun Capital and are not included in our brand
portfolio.
Licensing Relationship with Tupperware Corporation
In December 2005, Sara Lee sold its direct selling business, which markets cosmetics, skin
care products, toiletries and clothing in 18 countries, to Tupperware Corporation, or “Tupperware.”
In connection with the sale, Dart Industries Inc., or “Dart,” an affiliate of Tupperware, received
a three-year exclusive license agreement, which has been extended to March 31, 2010, to use the C
Logo, Champion U.S.A., Wonderbra, W by Wonderbra, The One and Only Wonderbra, Playtex, Just My Size
and Hanes trademarks for the manufacture and sale, under the applicable brands, of certain men’s
and women’s apparel in the Philippines, including underwear, socks, sportswear
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products, bras, panties and girdles. Dart also received a ten-year, royalty-free, exclusive
license to use the Girls’ Attitudes trademark for the manufacture and sale of certain toiletries,
cosmetics, intimate apparel, underwear, sportswear, watches, bags and towels in the Philippines.
The rights and obligations under these agreements were assigned to us as part of the spin off.
In connection with the sale of Sara Lee’s direct selling business, Tupperware also signed two
five-year distributorship agreements providing Tupperware with the right to distribute and sell,
through door-to-door and similar channels, Playtex, Champion, Rinbros, Aire, Wonderbra, Hanes and
Teens by Hanes apparel items in Mexico that we have discontinued and/or determined to be obsolete.
The agreements also provide Tupperware with the exclusive right for five years to distribute and
sell through such channels such apparel items sold by us in the ordinary course of business. The
agreements also grant a limited right to use such trademarks solely in connection with the
distribution and sale of those products in Mexico.
Under the terms of the agreements, we reserve the right to apply for, prosecute and maintain
trademark registrations in Mexico for those products covered by the distributorship agreement. The
rights and obligations under these agreements were assigned to us as part of the spin off.
Corporate Social Responsibility
We have a formal corporate social responsibility (“CSR”) program that consists of five core
initiatives: a global business practices ethics program for all employees worldwide; a facility
compliance program that seeks to ensure company and supplier plants meet our labor and social
compliance standards; a product safety program; a global environmental management system that seeks
to reduce the environmental impact of our operations; and a commitment to corporate philanthropy
which seeks to meet the “fundamental needs” of the communities in which we live and work. We
employ over 15 full-time CSR personnel across the world to manage our program.
In February 2008, we joined the Fair Labor Association and are currently undergoing the final
stages of the Fair Labor Association’s two-year implementation process for accreditation of our
internal global social compliance program. The Fair Labor Association works with industry, civil
society organizations and colleges and universities to protect workers’ rights and improve working
conditions in factories around the world. Participating companies in the Fair Labor Association
are required to fulfill 10 company obligations, including conducting internal monitoring of
facilities, submitting to independent monitoring audits and verification, and managing and
reporting information on their compliance efforts. The Fair Labor Association conducts unannounced
independent external monitoring audits of a sample of a participating company’s plants and
suppliers and publishes the results of those audits for the public to review.
We are committed to reducing our greenhouse gas footprint and our
contribution to global climate change. We have implemented a
comprehensive corporate energy policy. We manage this commitment by
reducing our energy consumption as much as possible, exploring better
supply chain management to reduce our use of energy-intensive
transportation, adopting cleaner technologies where possible and
actively tracking our energy metrics. We have partnered closely with
Energy Star, a joint program of the U.S. Environmental Protection
Agency and the U.S. Department of Energy that helps save money and
protect the environment through energy efficient products and
practices.
We also incorporate Leadership in Energy and Environmental Design, or “LEED”-based practices
into many remodeling and new construction projects for our facilities around the world. We earned
the U.S. Green Building Council’s sustainability certification for our Bentonville, Arkansas sales
office. We are also currently working on LEED certification of manufacturing facilities in El
Salvador, Vietnam and China and our distribution center in Perris, California. Sustainable
features of the Perris facility include reduction of energy usage through extensive use of natural
skylighting, motion-detection lighting, a design that does not require heating or air conditioning
for a comfortable working environment, reduction of water usage compared with typical warehouses of
its size through low-water bathroom fixtures and low-water landscaping, innovative site grading
techniques and use of locally produced concrete and steel and many other LEED concepts such as use
of paints, carpets and other materials with low volatile organic compound content, an
organic-focused pest control program that minimizes chemical pesticide use, location near public
transportation to reduce the parking lot size and reliance on automobile transportation, preferred
parking for low-emission and low-energy vehicles, and on-site bicycle storage and shower and
changing room facilities.
Our corporate philanthropic efforts are focused on meeting the “fundamental needs” of the
communities in which we live and work. Last year, we were again the largest corporate giver to our
local United Way in Forsyth County, North Carolina, with our corporate and employee gifts totaling
nearly $2 million. While we do not have company-owned operations in Haiti, we donated over $2.2
million in apparel to the relief effort, made a $25,000 cash donation to CARE, and donated food and
other staples directly to the employees of third-party contractors we
use in Port-au-Prince in early 2010.
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Environmental Matters
We have a well-developed environmental program that focuses heavily on energy use (in
particular the use of renewable energy), water use and treatment, and the use of chemicals that
comply with our restricted substances list. We are subject to various federal, state, local and
foreign laws and regulations that govern our activities, operations and products that may have
adverse environmental, health and safety effects, including laws and regulations relating to
generating emissions, water discharges, waste, product and packaging content and workplace safety.
Noncompliance with these laws and regulations may result in substantial monetary penalties and
criminal sanctions. We are aware of hazardous substances or petroleum releases at a few of our
facilities and are working with the relevant environmental authorities to investigate and address
such releases. We also have been identified as a “potentially responsible party” at a few waste
disposal sites undergoing investigation and cleanup under the federal Comprehensive Environmental
Response, Compensation and Liability Act (commonly known as Superfund) or state Superfund
equivalent programs. Where we have determined that a liability has been incurred and the amount of
the loss can reasonably be estimated, we have accrued amounts in our balance sheet for losses
related to these sites. Compliance with environmental laws and regulations and our remedial
environmental obligations historically have not had a material impact on our operations, and we are
not aware of any proposed regulations or remedial obligations that could trigger significant costs
or capital expenditures in order to comply.
Governmental Regulation
Finally, we are subject to U.S. federal, state and local laws and regulations that could
affect our business, including those promulgated under the Occupational Safety and Health Act, the
Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification
Act, the rules and regulations of the Consumer Products Safety Commission and various environmental
laws and regulations. While we have had a product safety program in place for many years focused
heavily on children’s products, we have reinforced our product safety team and technological
capabilities to ensure that we are fully in compliance with the new Consumer Products Safety
Improvement Act. Our international businesses are subject to similar laws and regulations in the
countries in which they operate. Our operations also are subject to various international trade
agreements and regulations. See “— Trade Regulation.” While we believe that we are in compliance
in all material respects with all applicable governmental regulations, current governmental
regulations may change or become more stringent or unforeseen events may occur, any of which could
have a material adverse effect on our financial position or results of operations.
Employees
As of January 2, 2010, we had approximately 47,400 employees, approximately 7,800 of whom were
located in the United States. Of the employees located in the United States, approximately 2,400
were full or part-time employees in our stores within our direct to consumer channel. As of January
2, 2010, in the United States, approximately 25 employees were covered by collective bargaining
agreements. Some of our international employees were also covered by collective bargaining
agreements. We believe our relationships with our employees are good.
| Item 1A. | Risk Factors |
This section describes circumstances or events that could have a negative effect on our
financial results or operations or that could change, for the worse, existing trends in our
businesses. The occurrence of one or more of the circumstances or events described below could have
a material adverse effect on our financial condition, results of operations and cash flows or on
the trading prices of our common stock. The risks and uncertainties described in this Annual Report
on Form 10-K are not the only ones facing us. Additional risks and uncertainties that currently are
not known to us or that we currently believe are immaterial also may adversely affect our
businesses and operations.
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Our supply chain relies on an extensive network of operations and any disruption to or adverse
impact on such operations may adversely affect our business, results of operations, financial
condition and cash flows.
We have an extensive global supply chain. A significant portion of our products are
manufactured in or sourced from locations in Asia, Central America, the Caribbean Basin and Mexico
and we are continuing to add new manufacturing capacity in Asia, Central America and the Caribbean
Basin. Potential events that may disrupt our supply chain operations include:
| • | political instability and acts of war or terrorism or other international events resulting in the disruption of trade; |
| • | other security risks; |
| • | disruptions in shipping and freight forwarding services; |
| • | increases in oil prices, which would increase the cost of shipping; |
| • | interruptions in the availability of basic services and infrastructure, including power shortages; |
| • | fluctuations in foreign currency exchange rates resulting in uncertainty as to future asset and liability values, cost of goods and results of operations that are denominated in foreign currencies; |
| • | extraordinary weather conditions or natural disasters, such as hurricanes, earthquakes, tsunamis, floods or fires; and |
| • | the occurrence of an epidemic, the spread of which may impact our ability to obtain products on a timely basis. |
Disruptions in our supply chain could negatively impact our business by interrupting
production, increasing our cost of sales, disrupting merchandise deliveries, delaying receipt of
products into the United States or preventing us from sourcing our products at all. Depending on
timing, these events could also result in lost sales, cancellation charges or excessive markdowns.
All of the foregoing can have an adverse effect on our business, results of operations, financial
condition and cash flows.
Significant fluctuations and volatility in the price of cotton and other raw materials we purchase
may have a material adverse effect on our business, results of operations, financial condition and
cash flows.
Cotton is the primary raw material used in the manufacturing of many of our products. While we
have sold our yarn operations, we are still exposed to fluctuations in the cost of cotton.
Increases in the cost of cotton can result in higher costs in the price we pay for yarn from our
large-scale yarn suppliers. Our costs for cotton yarn and cotton-based textiles vary based upon the
fluctuating cost of cotton, which is affected by weather, consumer demand, speculation on the
commodities market, the relative valuations and fluctuations of the currencies of producer versus
consumer countries and other factors that are generally unpredictable and beyond our control. While
we attempt to protect our business from the volatility of the market price of cotton through
employing a dollar cost
averaging strategy by entering into hedging contracts from time to time, our business can be adversely affected
by dramatic movements in cotton prices. The cotton prices reflected in our results were 55 cents
per pound in 2009 and 65 cents per pound in 2008. The ultimate effect of these pricing levels on
our earnings cannot be quantified, as the effect of movements in cotton prices on industry selling
prices are uncertain, but any dramatic increase in the price of cotton could have a material
adverse effect on our business, results of operations, financial condition and cash flows.
We are not always successful in our efforts to protect our business from the volatility of the
market price of cotton, and our business can be
adversely affected by dramatic movements in cotton prices. For example, we estimate that a change
of $0.01 per pound in cotton prices would affect our annual raw material costs by $3 million, at
current levels of production. The ultimate effect of this change on our earnings cannot be
quantified, as the effect of movements in cotton prices on industry selling prices are uncertain,
but any dramatic increase in the price of cotton would have a material adverse effect on our
business, results of operations, financial condition and cash flows.
In addition, oil-related commodity prices and the costs of other raw materials used in our
products, such as dyes and chemicals, and other costs, such as fuel, energy and utility costs, may
fluctuate due to a number of factors outside our control, including government policy and
regulation and weather conditions. For example, we estimate
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that a change of $10.00 per barrel in the price of oil would affect our freight costs by
approximately $3 million, at current levels of usage.
The loss of one or more of our suppliers of finished goods or raw materials may interrupt our
supplies and materially harm our business.
We purchase all of the raw materials used in our products and approximately 30% of the apparel
designed by us from a limited number of third-party suppliers and manufacturers. Our ability to
meet our customers’ needs depends on our ability to maintain an uninterrupted supply of raw
materials and finished products from our third-party suppliers and manufacturers. Our business,
financial condition or results of operations could be adversely affected if any of our principal
third-party suppliers or manufacturers experience financial difficulties that they are not able to
overcome resulting from the deterioration in worldwide economic conditions, reproduction problems,
lack of capacity or transportation disruptions. The magnitude of this risk depends upon the timing
of any interruptions, the materials or products that the third-party manufacturers provide and the
volume of production.
Our dependence on third parties for raw materials and finished products subjects us to the
risk of supplier failure and customer dissatisfaction with the quality of our products. Quality
failures by our third-party manufacturers or changes in their financial or business condition that
affect their production could disrupt our ability to supply quality products to our customers and
thereby materially harm our business.
If we fail to manage our inventory effectively, we may be required to establish additional
inventory reserves or we may not carry enough inventory to meet customer demands, causing us to
suffer lower margins or losses.
We are faced with the constant challenge of balancing our inventory with our ability to meet
marketplace needs. We continually monitor our inventory levels to best balance current supply and
demand with potential future demand that typically surges when consumers no longer postpone
purchases in our product categories, and we are continuing to implement strategies such as
supplier-managed inventory. Inventory reserves can result from the complexity of our supply chain,
a long manufacturing process and the seasonal nature of certain products. Increases in inventory
levels may also be needed to service our business as we continue to optimize our supply chain to
further enhance efficiency, improve working capital and asset turns and reduce costs. As a result,
we could be subject to high levels of obsolescence and excess stock. Based on discussions with our
customers and internally generated projections, we produce, purchase and/or store raw material and
finished goods inventory to meet our expected demand for delivery. However, we sell a large number
of our products to a small number of customers, and these customers generally are not required by
contract to purchase our goods. If, after producing and storing inventory in anticipation of
deliveries, demand is lower than expected, we may have to hold inventory for extended periods or
sell excess inventory at reduced prices, in some cases below our cost. There are inherent
uncertainties related to the recoverability of inventory, and it is possible that market factors
and other conditions underlying the valuation of inventory may change in the future and result in
further reserve requirements. Excess inventory charges can reduce gross margins or result in
operating losses, lowered plant and equipment utilization and lowered fixed operating cost
absorption, all of which could have a material adverse effect on our business, results of
operations, financial condition or cash flows.
Conversely, we also are exposed to lost business opportunities if we underestimate market
demand and produce too little inventory for any particular period. Because sales of our products
are generally not made under contract, if we do not carry enough inventory to satisfy our
customers’ demands for our products within an acceptable time frame, they may seek to fulfill their
demands from one or several of our competitors and may reduce the amount of business they do with
us. Any such action could have a material adverse effect on our business, results of operations,
financial condition and cash flows.
We may not be able to achieve the benefits we are seeking through optimizing our supply chain,
which could impair our ability to further enhance efficiency, improve working capital and asset
turns and reduce costs.
We have restructured our supply chain over the past three years to create more efficient
production clusters that utilize fewer, larger facilities and to balance our production capability
between the Western Hemisphere and Asia. We have closed plant locations, reduced our workforce and
relocated some of our manufacturing capacity to lower cost locations in Asia, Central America and
the Caribbean Basin and our global supply chain infrastructure is substantially in place, we are
now focused on optimizing our supply chain to further enhance efficiency, improve
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working capital and asset turns and reduce costs. If we are not able to optimize our supply
chain, we may not be successful at improving working capital and asset turns and reducing costs.
The consolidation of our distribution network is still in process but will not result in any
substantial charges in future periods. The distribution network consolidation involves the
implementation of new warehouse management systems and technology, and opening of new distribution
centers and new third-party logistics providers to replace parts of our legacy distribution
network.
Our business could be harmed if we are unable to deliver our products to the market due to problems
with our distribution network.
We distribute our products from facilities that we operate as well as facilities that are
operated by third-party logistics providers. These facilities include a combination of owned,
leased and contracted distribution centers. We have reduced the number of distribution centers
from the 48 that we maintained at the time of the spin off to 33 as of January 2, 2010. In January
2009, we began shipping products from a new 1.3 million square foot distribution center in Perris,
California. The consolidation of our distribution is still in process but will not result in any
substantial charges in future periods. The distribution network consolidation involves the
implementation of new warehouse management systems and technology, and opening of new distribution
centers and new third-party logistics providers to replace parts of our legacy distribution
network. Because substantially all of our products are distributed from a relatively small number
of locations, our operations could also be interrupted by extraordinary weather conditions or
natural disasters, such as hurricanes, earthquakes, tsunamis, floods or fires near our distribution
centers. We maintain business interruption insurance, but it may not adequately protect us from the
adverse effects that could be caused by significant disruptions to our distribution network. In
addition, our distribution network is dependent on the timely performance of services by third
parties, including the transportation of product to and from our distribution facilities. If we are
unable to successfully operate our distribution network, our business, results of operations,
financial condition and cash flows could be adversely affected.
Current economic conditions may adversely impact demand for our products, reduce access to credit
and cause our customers and others with which we do business to suffer financial hardship, all of
which could adversely impact our business, results of operations, financial condition and cash
flows.
Worldwide economic conditions have deteriorated significantly since mid-2008 in many countries
and regions, including the United States, and may remain depressed for the foreseeable future.
Although the majority of our products are replenishment in nature and tend to be purchased by
consumers on a planned, rather than on an impulse, basis, our sales are impacted by discretionary
spending by our customers. Discretionary spending is affected by many factors, including, among
others, general business conditions, interest rates, inflation, consumer debt levels, consumers’
uncertainty about financial conditions, the availability of consumer credit, currency exchange
rates, taxation, electricity power rates, gasoline prices, unemployment trends and other matters
that influence consumer confidence and spending. Many of these factors are outside of our control.
During the past several years, various retailers, including some of our largest customers, have
experienced significant difficulties, including restructurings, bankruptcies and liquidations, and
the inability of retailers to overcome these difficulties may increase due to worldwide economic
conditions. This could adversely affect us because our customers generally pay us after goods are
delivered. Adverse changes in a customer’s financial position could cause us to limit or
discontinue business with that customer, require us to assume more credit risk relating to that
customer’s future purchases or limit our ability to collect accounts receivable relating to
previous purchases by that customer. Our customers’ purchases of discretionary items, including
our products, could decline during periods when disposable income is lower, when prices increase in
response to rising costs, or in periods of actual or perceived unfavorable economic conditions.
Any of these occurrences could have a material adverse effect on our business, results of
operations, financial condition and cash flows.
Our product costs may also increase, and these increases may not be offset by comparable rises
in the income of consumers of our products. These consumers may choose to purchase fewer of our
products or lower-priced products of our competitors in response to higher prices for our products,
or may choose not to purchase our products at prices that reflect our price increases that become
effective from time to time. If any of these events occur, or if unfavorable economic conditions
continue to challenge the consumer environment, our business, results of operations, financial
condition and cash flows could be adversely affected.
In addition, economic conditions, including decreased access to credit, may result in
financial difficulties
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leading to restructurings, bankruptcies, liquidations and other unfavorable events for our
customers, suppliers of raw materials and finished goods, logistics and other service providers and
financial institutions which are counterparties to our credit facilities and derivatives
transactions. In addition, the inability of these third parties to overcome these difficulties may
increase. For example, several customers filed for bankruptcy during 2008 and 2009. If third
parties on which we rely for raw materials, finished goods or services are unable to overcome
difficulties resulting from the deterioration in worldwide economic conditions and provide us with
the materials and services we need, or if counterparties to our credit facilities or derivatives
transactions do not perform their obligations, our business, results of operations, financial
condition and cash flows could be adversely affected.
Due to the extensive nature of our foreign operations, fluctuations in foreign currency exchange
rates could negatively impact our results of operations.
We sell a majority of our products in transactions denominated in U.S. dollars; however, we
purchase many of our raw materials, pay a portion of our wages and make other payments in our
supply chain in foreign currencies. As a result, when the U.S. dollar weakens against any of these
currencies, our cost of sales could increase substantially. Outside the United States, we may pay
for materials or finished products in U.S. dollars, and in some cases a strengthening of the U.S.
dollar could effectively increase our costs where we use foreign currency to purchase the U.S.
dollars we need to make such payments. We use foreign exchange forward and option contracts to
hedge material exposure to adverse changes in foreign exchange rates. We are also exposed to gains
and losses resulting from the effect that fluctuations in foreign currency exchange rates have on
the reported results in our financial statements due to the translation of operating results and
financial position of our foreign subsidiaries.
We rely on a relatively small number of customers for a significant portion of our sales, and the
loss of or material reduction in sales to any of our top customers would have a material adverse
effect on our business, results of operations, financial condition and cash flows.
In 2009, our top ten customers accounted for 65% of our net sales and our top customers,
Wal-Mart and Target, accounted for 27% and 17% of our net sales, respectively. We expect that these
customers will continue to represent a significant portion of our net sales in the future. In
addition, our top customers are the largest market participants in our primary distribution
channels across all of our product lines. Any loss of or material reduction in sales to any of our
top ten customers, especially Wal-Mart and Target, would be difficult to recapture, and would have
a material adverse effect on our business, results of operations, financial condition and cash
flows.
Sales to our customers could be reduced if they devote less selling space to apparel products,
which could have a material adverse effect on our business, results of operations, financial
condition and cash flows.
Over time, some of our customers that sell a variety of goods may devote less selling space to
apparel products. If any of our customers devote less selling space to apparel products, our sales
to those customers could be reduced even if we maintain our share of their apparel business. Any
material reduction in sales resulting from reductions in apparel selling space could have a
material adverse effect on our business, results of operations, financial condition and cash flows.
Current market returns have had a negative impact on the return on plan assets for our pension and
other postemployment plans, which may require significant funding.
As widely reported, financial markets in the United States, Europe and Asia have been
experiencing extreme disruption since mid-2008. As a result of this disruption in the domestic and
international equity and bond markets, our pension plans and other postemployment plans had an
increase in asset values of approximately 8% during 2009 and had a decrease of 32% during 2008. We
are unable to predict the significant variations in asset values or the severity or duration of the
current disruptions in the financial markets and the adverse economic conditions in the United
States, Europe and Asia. The funded status of these plans, and the related cost reflected in our
financial statements, are affected by various factors that are subject to an inherent degree of
uncertainty, particularly in the current economic environment. Under the Pension Protection Act of
2006 (the “Pension Protection Act”), continued losses of asset values may necessitate increased
funding of the plans in the future to meet minimum federal government requirements. The continued
downward pressure on the asset values of these plans may require us to fund obligations earlier
than we had originally planned, which would have a negative impact on cash flows from operations.
We generally do not sell our products under contracts, and, as a result, our customers are
generally not contractually obligated to purchase our products, which causes some uncertainty as to
future sales and inventory levels.
We generally do not enter into purchase agreements that obligate our customers to purchase our
products, and as a result, most of our sales are made on a purchase order basis. If any of our
customers experiences a significant downturn in its business, or fails to remain committed to our
products or brands, the customer is generally under no contractual obligation to purchase our
products and, consequently, may reduce or discontinue purchases from us. In the past, such actions
have resulted in a decrease in sales and an increase in our inventory and have had an adverse
effect on our business, results of operations, financial condition and cash flows. If such actions
occur again in the future, our business, results of operations and financial condition will likely
be similarly affected.
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Our existing customers may require products on an exclusive basis, forms of economic support and
other changes that could be harmful to our business.
Customers increasingly may require us to provide them with some of our products on an
exclusive basis, which could cause an increase in the number of stock keeping units, or “SKUs,” we
must carry and, consequently, increase our inventory levels and working capital requirements.
Moreover, our customers may increasingly seek markdown allowances, incentives and other forms of
economic support which reduce our gross margins and affect our profitability. Our financial
performance is negatively affected by these pricing pressures when we are forced to reduce our
prices without being able to correspondingly reduce our production costs.
We operate in a highly competitive and rapidly evolving market, and our market share and results of
operations could be adversely affected if we fail to compete effectively in the future.
The apparel essentials market is highly competitive and evolving rapidly. Competition is
generally based upon price, brand name recognition, product quality, selection, service and
purchasing convenience. Our businesses face competition today from other large corporations and
foreign manufacturers. Fruit of the Loom, Inc., a subsidiary of Berkshire Hathaway Inc., competes
with us across most of our segments through its own offerings and those of its Russell Corporation
and Vanity Fair Intimates offerings. Other competitors in our
Innerwear segment include Limited Brands, Inc.’s Victoria’s
Secret brand, Jockey International, Inc., Warnaco
Group Inc. and Maidenform Brands, Inc. Other competitors in our Outerwear
segment include various private label and controlled brands sold by
many of our customers,
Gildan Activewear, Inc. and Gap Inc. We also compete with many small manufacturers across all of our business
segments, including our International segment. Additionally, department stores and other retailers,
including many of our customers, market and sell apparel essentials products under private labels
that compete directly with our brands. These customers may buy goods that are manufactured by
others, which represents a lost business opportunity for us, or they may sell private label
products manufactured by us, which have significantly lower gross margins than our branded
products. Increased competition may
result in a loss of or a reduction in shelf space and promotional support and reduced prices, in
each case decreasing our cash flows, operating margins and profitability. Our ability to remain
competitive in the areas of price, quality, brand recognition, research and product development,
manufacturing and distribution will, in large part, determine our future success. If we fail to
compete successfully, our market share, results of operations and financial condition will be
materially and adversely affected.
Sales of and demand for our products may decrease if we fail to keep pace with evolving consumer
preferences and trends, which could have an adverse effect on net sales and profitability.
Our success depends on our ability to anticipate and respond effectively to evolving consumer
preferences and trends and to translate these preferences and trends into marketable product
offerings. If we are unable to successfully anticipate, identify or react to changing styles or
trends or misjudge the market for our products, our sales may be lower than expected and we may be
faced with a significant amount of unsold finished goods inventory. In response, we may be forced
to increase our marketing promotions, provide markdown allowances to our customers or liquidate
excess merchandise, any of which could have a material adverse effect on our net sales and
profitability. Our brand image may also suffer if customers believe that we are no longer able to
offer innovative products, respond to consumer preferences or maintain the quality of our products.
Our substantial indebtedness subjects us to various restrictions and could decrease our
profitability and otherwise adversely affect our business.
We have a substantial amount of indebtedness. As described in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources,” our
indebtedness includes the $750 million term loan and $400 million revolving credit facility (the
“Revolving Loan Facility”) pursuant to our senior secured credit facility that we entered into in
2006 and amended and restated on December 10, 2009 (as amended and restated, the “2009 Senior
Secured Credit Facility”), our $500 million Floating Rate Senior Notes due 2014 (the “Floating Rate
Senior Notes”), our $500 million 8.000% Senior Notes due 2016 (the “8% Senior Notes”) and the $250
million accounts receivable securitization facility that we entered into on November 27, 2007 as
amended in December 2009 (the “Accounts Receivable Securitization Facility”). The 2009 Senior
Secured Credit Facility and the indentures governing the Floating Rate Senior Notes and the 8%
Senior Notes contain restrictions
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that affect, and in some cases significantly limit or prohibit, among other things, our
ability to borrow funds, pay dividends or make other distributions, make investments, engage in
transactions with affiliates, or create liens on our assets.
Our leverage also could put us at a competitive disadvantage compared to our competitors that
are less leveraged. These competitors could have greater financial flexibility to pursue strategic
acquisitions, secure additional financing for their operations by incurring additional debt, expend
capital to expand their manufacturing and production operations to lower-cost areas and apply
pricing pressure on us. In addition, because many of our customers rely on us to fulfill a
substantial portion of their apparel essentials demand, any concern these customers may have
regarding our financial condition may cause them to reduce the amount of products they purchase
from us. Our leverage could also impede our ability to withstand downturns in our industry or the
economy.
If we are unable to maintain financial ratios associated with our indebtedness, such failure could
cause the acceleration of the maturity of such indebtedness which would adversely affect our
business.
Covenants in the 2009 Senior Secured Credit Facility and the Accounts Receivable
Securitization Facility require us to maintain a minimum interest coverage ratio and a maximum
total debt to EBITDA (earnings before income taxes, depreciation expense and amortization), or
leverage ratio. The recent deterioration of worldwide economic conditions could impact our ability
to maintain the financial ratios contained in these agreements. If we fail to maintain these
financial ratios, that failure could result in a default that accelerates the maturity of the
indebtedness under such facilities, which could require that we repay such indebtedness in full,
together with accrued and unpaid interest, unless we are able to negotiate new financial ratios or
waivers of our current ratios with our lenders. Even if we are able to negotiate new financial
ratios or waivers of our current financial ratios, we may be required to pay fees or make other
concessions that may adversely impact our business. Any one of these options could result in
significantly higher interest expense in 2010 and beyond. For information regarding our compliance
with these covenants, see “Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Liquidity and Capital Resources — Trends and Uncertainties Affecting Liquidity.”
If we fail to meet our payment or other obligations, the lenders could foreclose on, and acquire
control of, substantially all of our assets.
The lenders under the 2009 Senior Secured Credit Facility have received a pledge of
substantially all of our existing and future direct and indirect subsidiaries, with certain
customary or agreed-upon exceptions for foreign subsidiaries and certain other subsidiaries.
Additionally, these lenders generally have a lien on substantially all of our assets and the assets
of our subsidiaries, with certain exceptions. The financial institutions that are party to the
Accounts Receivable Securitization Facility have a lien on certain of our domestic accounts
receivables. As a result of these pledges and liens, if we fail to meet our payment or other
obligations under the 2009 Senior Secured Credit Facility or the Accounts Receivable Securitization
Facility, the lenders under those facilities will be entitled to foreclose on substantially all of
our assets and, at their option, liquidate these assets.
Our indebtedness restricts our ability to obtain additional capital in the future.
The restrictions contained in the 2009 Senior Secured Credit Facility and in the indentures
governing the Floating Rate Senior Notes and the 8% Senior Notes could limit our ability to obtain
additional capital in the future to fund capital expenditures or acquisitions, meet our debt
payment obligations and capital commitments, fund any operating losses or future development of our
business affiliates, obtain lower borrowing costs that are available from secured lenders or engage
in advantageous transactions that monetize our assets, or conduct other necessary or prudent
corporate activities.
If we need to incur additional debt or issue equity in order to fund working capital and
capital expenditures or to make acquisitions and other investments, debt or equity financing may
not be available to us on acceptable terms or at all. If we are not able to obtain sufficient
financing, we may be unable to maintain or expand our business. If we raise funds through the
issuance of debt or equity, any debt securities or preferred stock issued will have rights,
preferences and privileges senior to those of holders of our common stock in the event of a
liquidation, and the terms of the debt securities may impose restrictions on our operations. If we
raise funds through the issuance of equity, the issuance would dilute the ownership interest of our
stockholders.
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To service our debt obligations, we may need to increase the portion of the income of our foreign
subsidiaries that is expected to be remitted to the United States, which could increase our income
tax expense.
The amount of the income of our foreign subsidiaries that we expect to remit to the United
States may significantly impact our U.S. federal income tax expense. We pay U.S. federal income
taxes on that portion of the income of our foreign subsidiaries that is expected to be remitted to
the United States and be taxable. In order to service our debt obligations, we may need to increase
the portion of the income of our foreign subsidiaries that we expect to remit to the United States,
which may significantly increase our income tax expense. Consequently, our income tax expense has
been, and will continue to be, impacted by our strategic initiative to make substantial capital
investments outside the United States.
Our balance sheet includes a significant amount of intangible assets and goodwill. A decline in the
estimated fair value of an intangible asset or of a business unit could result in an asset
impairment charge, which would be recorded as an operating expense in our Consolidated Statement of
Income.
Under current accounting standards, we estimate the fair value of acquired assets, including
intangible assets, and assumed liabilities arising from a business acquisition. The excess, if any,
of the cost of the acquired business over the fair value of net tangible assets acquired is
goodwill. The goodwill is then assigned to a business unit (“reporting unit”), are considering
whether the acquired business will be operated as a separate business unit or integrated into an
existing business unit.
As of January 2, 2010, we had approximately $136 million of trademarks and other identifiable
intangibles and $322 million of goodwill on our balance sheet. Our trademarks are subject to
amortization while goodwill is not required to be amortized under current accounting rules. The
combined amounts represent 14% of our total assets.
Goodwill must be tested for impairment at least annually. No impairment was identified as a
result of the testing conducted in 2009. The impairment test requires us to estimate the fair
value of our reporting units, primarily using discounted cash flow methodologies based on
projected revenues and cash flows that will be derived from a reporting unit. Intangible assets
that are being amortized must be tested for impairment whenever events or circumstances indicate
that their carrying value might not be recoverable.
The fair value of a reporting unit could decline if projected revenues or cash flows were to
be lower in the future due to effects of the global recession or other causes. If the carrying
value of intangible assets or of goodwill were to exceed its fair value, the asset would be written
down to its fair value, with the impairment loss recognized as a noncash charge in the Consolidated
Statement of Income. We have not had any impairment charges in the last three years. However,
changes in the future outlook of a reporting unit could result in an impairment loss, which could
have a material adverse effect on our results of operations and financial condition.
Unanticipated changes in our tax rates or exposure to additional income tax liabilities could
increase our income taxes and decrease our net income.
We are subject to income taxes in both the United States and numerous foreign jurisdictions.
Significant judgment is required in determining our worldwide provision for income taxes and, in
the ordinary course of business, there are many transactions and calculations for which the
ultimate tax determination is uncertain. Our effective tax rates could be adversely affected by
changes in the mix of earnings in countries with differing statutory tax rates, changes in the
valuation of deferred tax assets and liabilities, the resolution of issues arising from tax audits
with various tax authorities, changes in tax laws, adjustments to income taxes upon finalization of
various tax returns and other factors. Our tax determinations are regularly subject to audit by tax
authorities and developments in those audits could adversely affect our income tax provision.
Although we believe that our tax estimates are reasonable, any significant increase in our future
effective tax rates could adversely impact our net income for future periods.
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Our balance sheet includes a significant amount of deferred tax assets. We must generate
sufficient future taxable income to realize the deferred tax benefits.
As of January 2, 2010, we had approximately $492 million of net deferred tax assets on our balance
sheet which represents 15% of our total assets. Deferred tax assets relate to temporary differences
(differences between the assets and liabilities in the consolidated financial statements and the
assets and liabilities in the calculation of taxable income). The recognition of deferred tax
assets is reduced by a valuation allowance if it is more likely than not that the tax benefits
associated with the deferred tax benefits will not be realized. If we are unable to generate
sufficient future taxable income in certain jurisdictions, or if there is a significant change in
the actual effective tax rates or the time period within which the underlying temporary differences
become taxable or deductible, we could be required to increase the valuation allowances against our
deferred tax assets, which would cause an increase in our effective tax rate. A significant
increase in our effective tax rate could have a material adverse effect on our financial condition
or results of operations.
Any inadequacy, interruption, integration failure or security failure with respect to our
information technology could harm our ability to effectively operate our business.
Our ability to effectively manage and operate our business depends significantly on our
information technology systems. As part of our efforts to consolidate our operations, we also
expect to continue to incur costs associated with the integration of our information technology
systems across our company over the next several years. This process involves the consolidation or
possible replacement of technology platforms so that our business functions are served by fewer
platforms, and has resulted in operational inefficiencies and in some cases increased our costs. We
are subject to the risk that we will not be able to absorb the level of systems change, commit the
necessary resources or focus the management attention necessary for the implementation to succeed.
Many key strategic initiatives of major business functions, such as our supply chain and our
finance operations, depend on advanced capabilities enabled by the new systems and if we fail to
properly execute or if we miss critical deadlines in the implementation of this initiative, we
could experience serious disruption and harm to our business. The failure of these systems to
operate effectively, problems with transitioning to upgraded or replacement systems, difficulty in
integrating new systems or systems of acquired businesses or a breach in security of these systems
could adversely impact the operations of our business.
If we experience a data security breach and confidential customer information is disclosed, we may
be subject to penalties and experience negative publicity, which could affect our customer
relationships and have a material adverse effect on our business.
We and our customers could suffer harm if customer information were accessed by third parties
due to a security failure in our systems. The collection of data and processing of transactions
through our direct to consumer operations require us to receive and store a large amount of
personally identifiable data. This type of data is subject to legislation and regulation in various
jurisdictions. Data security breaches suffered by well-known companies and institutions have
attracted a substantial amount of media attention, prompting state and federal legislative
proposals addressing data privacy and security. If some of the current proposals are adopted, we
may be subject to more extensive requirements to protect the customer information that we process
in connection with the purchases of our products. We may become exposed to potential liabilities
with respect to the data that we collect, manage and process, and may incur legal costs if our
information security policies and procedures are not effective or if we are required to defend our
methods of collection, processing and storage of personal data. Future investigations, lawsuits or
adverse publicity relating to our methods of handling personal data could adversely affect our
business, results of operations, financial condition and cash flows due to the costs and negative
market reaction relating to such developments.
Compliance with environmental and other regulations could require significant expenditures.
We are subject to various federal, state, local and foreign laws and regulations that govern
our activities, operations and products that may have adverse environmental, health and safety
effects, including laws and regulations relating to generating emissions, water discharges, waste,
product and packaging content and workplace safety. Noncompliance with these laws and regulations
may result in substantial monetary penalties and criminal sanctions. Future events that could give
rise to manufacturing interruptions or environmental remediation include changes in existing laws
and regulations, the enactment of new laws and regulations, a release of hazardous
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substances on or from our properties or any associated offsite disposal location, or the
discovery of contamination from current or prior activities at any of our properties. While we are
not aware of any proposed regulations or remedial obligations that could trigger significant costs
or capital expenditures in order to comply, any such regulations or obligations could adversely
affect our business, results of operations, financial condition and cash flows.
International trade regulations may increase our costs or limit the amount of products that we can
import from suppliers in a particular country, which could have an adverse effect on our business.
Because a significant amount of our manufacturing and production operations are located, or
our products are sourced from, outside the United States, we are subject to international trade
regulations. The international trade regulations to which we are subject or may become subject
include tariffs, safeguards or quotas. These regulations could limit the countries in which we
produce or from which we source our products or significantly increase the cost of operating in or
obtaining materials originating from certain countries. Restrictions imposed by international trade
regulations can have a particular impact on our business when, after we have moved our operations
to a particular location, new unfavorable regulations are enacted in that area or favorable
regulations currently in effect are changed. The countries in which our products are manufactured
or into which they are imported may from time to time impose additional new regulations, or modify
existing regulations, including:
| • | additional duties, taxes, tariffs and other charges on imports, including retaliatory duties or other trade sanctions, which may or may not be based on WTO rules, and which would increase the cost of products produced in such countries; |
| • | limitations on the quantity of goods which may be imported into the United States from a particular country, including the imposition of further “safeguard” mechanisms by the U.S. government or governments in other jurisdictions, limiting our ability to import goods from particular countries, such as China; |
| • | changes in the classification of products that could result in higher duty rates than we have historically paid; |
| • | modification of the trading status of certain countries; |
| • | requirements as to where products are manufactured; |
| • | creation of export licensing requirements, imposition of restrictions on export quantities or specification of minimum export pricing; or |
| • | creation of other restrictions on imports. |
Adverse international trade regulations, including those listed above, would have a material
adverse effect on our business, results of operations, financial condition and cash flows.
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We had approximately 47,400 employees worldwide as of January 2, 2010, and our business operations
and financial performance could be adversely affected by changes in our relationship with our
employees or changes to U.S. or foreign employment regulations.
We had approximately 47,400 employees worldwide as of January 2, 2010. This means we have a
significant exposure to changes in domestic and foreign laws governing our relationships with our
employees, including wage and hour laws and regulations, fair labor standards, minimum wage
requirements, overtime pay, unemployment tax rates, workers’ compensation rates, citizenship
requirements and payroll taxes, which likely would have a direct impact on our operating costs.
Approximately 39,600 of those employees were outside of the United States. A significant increase
in minimum wage or overtime rates in countries where we have employees could have a significant
impact on our operating costs and may require that we relocate those operations or take other steps
to mitigate such increases, all of which may cause us to incur additional costs, expend resources
responding to such increases and lower our margins.
In addition, some of our employees are members of labor organizations or are covered by
collective bargaining agreements. If there were a significant increase in the number of our
employees who are members of labor organizations or become parties to collective bargaining
agreements, we would become vulnerable to a strike, work stoppage or other labor action by these
employees that could have an adverse effect on our business.
We may suffer negative publicity if we or our third-party manufacturers violate labor laws or
engage in practices that are viewed as unethical or illegal, which could cause a loss of business.
We cannot fully control the business and labor practices of our third-party manufacturers, the
majority of whom are located in Asia, Central America and the Caribbean Basin. If one of our own
manufacturing operations or one of our third-party manufacturers violates or is accused of
violating local or international labor laws or other applicable regulations, or engages in labor or
other practices that would be viewed in any market in which our products are sold as unethical, we
could suffer negative publicity, which could tarnish our brands’ image or result in a loss of
sales. In addition, if such negative publicity affected one of our customers, it could result in a
loss of business for us.
The success of our business is tied to the strength and reputation of our brands, including brands
that we license to other parties. If other parties take actions that weaken, harm the reputation of
or cause confusion with our brands, our business, and consequently our sales, results of operations
and cash flows, may be adversely affected.
We license some of our important trademarks to third parties. For example, we license Champion
to third parties for athletic-oriented accessories. Although we make concerted efforts to protect
our brands through quality control mechanisms and contractual obligations imposed on our licensees,
there is a risk that some licensees may not be in full compliance with those mechanisms and
obligations. In that event, or if a licensee engages in behavior with respect to the licensed marks
that would cause us reputational harm, we could experience a significant downturn in that brand’s
business, adversely affecting our sales and results of operations. Similarly, any misuse of the
Wonderbra or Playtex brands by Sun Capital could result in negative publicity and a loss of sales
for our products under these brands, any of which may have a material adverse effect on our
business, results of operations, financial condition or cash flows.
We design, manufacture, source and sell products under trademarks that are licensed from third
parties. If any licensor takes actions related to their trademarks that would cause their brands or
our company reputational harm, our business may be adversely affected.
We design, manufacture, source and sell a number of our products under trademarks that are
licensed from third parties such as our Polo Ralph Lauren men’s underwear. Because we do not
control the brands licensed to us, our licensors could make changes to their brands or business
models that could result in a significant downturn in a brand’s business, adversely affecting our
sales and results of operations. If any licensor engages in behavior with respect to the licensed
marks that would cause us reputational harm, or if any of the brands licensed to us violates the
trademark rights of another or are deemed to be invalid or unenforceable, we could experience a
significant downturn in that brand’s business, adversely affecting our sales and results of
operations, and we may be required to expend significant amounts on public relations, advertising
and, possibly, legal fees.
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We are prohibited from selling our Wonderbra and Playtex intimate apparel products in the EU, as
well as certain other countries in Europe and South Africa, and therefore are unable to take
advantage of business opportunities that may arise in such countries.
In February 2006, Sara Lee sold its European branded apparel business to Sun Capital. In
connection with the sale, Sun Capital received an exclusive, perpetual, royalty-free license to
manufacture, sell and distribute apparel products under the Wonderbra and Playtex trademarks in the
member states of the EU, as well as Russia, South Africa, Switzerland and certain other nations in
Europe. Due to the exclusive license, we are not permitted to sell Wonderbra and Playtex branded
products in these nations and Sun Capital is not permitted to sell Wonderbra and Playtex branded
products outside of these nations. Consequently, we will not be able to take advantage of business
opportunities that may arise relating to the sale of Wonderbra and Playtex products in these
nations. For more information on these sales restrictions see “Business — Intellectual Property.”
If we are unable to protect our intellectual property rights, our business may be adversely
affected.
Our trademarks and copyrights are important to our marketing efforts and have substantial
value. We aggressively protect these trademarks and copyrights from infringement and dilution
through appropriate measures, including court actions and administrative proceedings. We are
susceptible to others imitating our products and infringing our intellectual property rights.
Infringement or counterfeiting of our products could diminish the value of our brands or otherwise
adversely affect our business. Actions we have taken to establish and protect our intellectual
property rights may not be adequate to prevent imitation of our products by others or to prevent
others from seeking to invalidate our trademarks or block sales of our products as a violation of
the trademarks and intellectual property rights of others. In addition, unilateral actions in the
United States or other countries, such as changes to or the repeal of laws recognizing trademark or
other intellectual property rights, could have an impact on our ability to enforce those rights.
The value of our intellectual property could diminish if others assert rights in, or ownership
of, our trademarks and other intellectual property rights. We may be unable to successfully resolve
these types of conflicts to our satisfaction. In some cases, there may be trademark owners who have
prior rights to our trademarks because the laws of certain foreign countries may not protect
intellectual property rights to the same extent as do the laws of the United States. In other
cases, there may be holders who have prior rights to similar trademarks. We are from time to time
involved in opposition and cancelation proceedings with respect to some items of our intellectual
property.
Our business depends on our senior management team and other key personnel.
Our success depends upon the continued contributions of our senior management team and other
key personnel, some of whom have unique talents and experience and would be difficult to replace.
The loss or interruption of the services of a member of our senior management team or other key
personnel could have a material adverse effect on our business during the transitional period that
would be required for a successor to assume the responsibilities of the position. Our future
success will also depend on our ability to attract and retain key managers, sales people and
others. We may not be able to attract or retain these employees, which could adversely affect our
business.
Businesses that we may acquire may fail to perform to expectations, and we may be unable to
successfully integrate acquired businesses with our existing business.
From time to time, we may evaluate potential acquisition opportunities to support and
strengthen our business. We may not be able to realize all or a substantial portion of the
anticipated benefits of acquisitions that we may consummate. Newly acquired businesses may not
achieve expected results of operations, including expected levels of revenues, and may require
unanticipated costs and expenditures. Acquired businesses may also subject us to liabilities that
we were unable to discover in the course of our due diligence, and our rights to indemnification
from the sellers of such businesses, even if obtained, may not be sufficient to offset the relevant
liabilities. In addition, the integration of newly acquired businesses may be expensive and
time-consuming and may not be entirely successful. Integration of the acquired businesses may also
place additional pressures on our systems of internal control over financial reporting. If we are
unable to successfully integrate newly acquired businesses or if acquired businesses fail to
produce targeted results, it could have an adverse effect on our results of operations or financial
condition.
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If the IRS determines that our spin off from Sara Lee does not qualify as a “tax-free” distribution
or a “tax-free” reorganization, we may be subject to substantial liability.
Sara Lee has received a private letter ruling from the Internal Revenue Service, or the “IRS,”
to the effect that, among other things, the spin off qualifies as a tax-free distribution for U.S.
federal income tax purposes under Section 355 of the Internal Revenue Code of 1986, as amended, or
the “Internal Revenue Code,” and as part of a tax-free reorganization under Section 368(a)(1)(D) of
the Internal Revenue Code, and the transfer to us of assets and the assumption by us of liabilities
in connection with the spin off will not result in the recognition of any gain or loss for U.S.
federal income tax purposes to Sara Lee.
Although the private letter ruling relating to the qualification of the spin off under
Sections 355 and 368(a)(1)(D) of the Internal Revenue Code generally is binding on the IRS, the
continuing validity of the ruling is subject to the accuracy of factual representations and
assumptions made in connection with obtaining such private letter ruling. Also, as part of the
IRS’s general policy with respect to rulings on spin off transactions under Section 355 of the
Internal Revenue Code, the private letter ruling obtained by Sara Lee is based upon representations
by Sara Lee that certain conditions which are necessary to obtain tax-free treatment under Section
355 and Section 368(a)(1)(D) of the Internal Revenue Code have been satisfied, rather than a
determination by the IRS that these conditions have been satisfied. Any inaccuracy in these
representations could invalidate the ruling.
If the spin off does not qualify for tax-free treatment for U.S. federal income tax purposes,
then, in general, Sara Lee would be subject to tax as if it has sold the common stock of our
company in a taxable sale for its fair market value. Sara Lee’s stockholders would be subject to
tax as if they had received a taxable distribution equal to the fair market value of our common
stock that was distributed to them, taxed as a dividend (without reduction for any portion of a
Sara Lee’s stockholder’s basis in its shares of Sara Lee common stock) for U.S. federal income tax
purposes and possibly for purposes of state and local tax law, to the extent of a Sara Lee’s
stockholder’s pro rata share of Sara Lee’s current and accumulated earnings and profits (including
any arising from the taxable gain to Sara Lee with respect to the spin off). It is expected that
the amount of any such taxes to Sara Lee’s stockholders and to Sara Lee would be substantial.
Pursuant to a tax sharing agreement we entered into with Sara Lee in connection with the spin
off, we agreed to indemnify Sara Lee and its affiliates for any liability for taxes of Sara Lee
resulting from: (1) any action or failure to act by us or any of our affiliates following the
completion of the spin off that would be inconsistent with or prohibit the spin off from qualifying
as a tax-free transaction to Sara Lee and to Sara Lee’s stockholders under Sections 355 and
368(a)(1)(D) of the Internal Revenue Code, or (2) any action or failure to act by us or any of our
affiliates following the completion of the spin off that would be inconsistent with or cause to be
untrue any material, information, covenant or representation made in connection with the private
letter ruling obtained by Sara Lee from the IRS relating to, among other things, the qualification
of the spin off as a tax-free transaction described under Sections 355 and 368(a)(1)(D) of the
Internal Revenue Code. Our indemnification obligations to Sara Lee and its affiliates are not
limited in amount or subject to any cap. We expect that the amount of any such taxes to Sara Lee
would be substantial.
Anti-takeover provisions of our charter and bylaws, as well as Maryland law and our stockholder
rights agreement, may reduce the likelihood of any potential change of control or unsolicited
acquisition proposal that you might consider favorable.
Our charter permits our board of directors, without stockholder approval, to amend the charter
to increase or decrease the aggregate number of shares of stock or the number of shares of stock of
any class or series that we have the authority to issue. In addition, our board of directors may
classify or reclassify any unissued shares of common stock or preferred stock and may set the
preferences, conversion or other rights, voting powers and other terms of the classified or
reclassified shares. Our board of directors could establish a series of preferred stock that could
have the effect of delaying, deferring or preventing a transaction or a change in control that
might involve a premium price for our common stock or otherwise be in the best interest of our
stockholders. Under Maryland law, our board of directors also is permitted, without stockholder approval, to implement
a classified board structure at any time.
Our bylaws, which only can be amended by our board of directors, provide that nominations of
persons for election to our board of directors and the proposal of business to be considered at a
stockholders meeting may be
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made only
in the notice of the meeting, by or at the direction of our board of directors or by
a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures of our bylaws. Also, under
Maryland law, business combinations between us and an interested stockholder or an affiliate of an
interested stockholder, including mergers, consolidations, share exchanges or, in circumstances
specified in the statute, asset transfers or issuances or reclassifications of equity securities,
are prohibited for five years after the most recent date on which the interested stockholder
becomes an interested stockholder. An interested stockholder includes any person who beneficially
owns 10% or more of the voting power of our shares or any affiliate or associate of ours who, at
any time within the two-year period prior to the date in question, was the beneficial owner of 10%
or more of the voting power of our stock. A person is not an interested stockholder under the
statute if our board of directors approved in advance the transaction by which he otherwise would
have become an interested stockholder. However, in approving a transaction, our board of directors
may provide that its approval is subject to compliance, at or after the time of approval, with any
terms and conditions determined by our board. After the five-year prohibition, any business
combination between us and an interested stockholder generally must be recommended by our board of
directors and approved by two supermajority votes or our common stockholders must receive a minimum
price, as defined under Maryland law, for their shares. The statute permits various exemptions from
its provisions, including business combinations that are exempted by our board of directors prior
to the time that the interested stockholder becomes an interested stockholder.
In addition, we have adopted a stockholder rights agreement which provides that in the event
of an acquisition of or tender offer for 15% of our outstanding common stock, our stockholders,
other than the acquirer, shall be granted rights to purchase our common stock at a certain price.
The stockholder rights agreement could make it more difficult for a third-party to acquire our
common stock without the approval of our board of directors.
These and other provisions of Maryland law or our charter and bylaws could have the effect of
delaying, deferring or preventing a transaction or a change in control that might involve a premium
price for our common stock or otherwise be considered favorably by our stockholders.
| Item 1B. | Unresolved Staff Comments |
Not applicable.
| Item 1C. | Executive Officers of the Registrant |
The chart below lists our executive officers and is followed by biographic information about
them. No family relationship exists between any of our directors or executive officers.
| Name | Age | Positions | ||||
Richard A. Noll
|
52 | Chairman of the Board of Directors and Chief Executive Officer | ||||
Gerald W. Evans Jr.
|
50 | President, International Business and Global Supply Chain | ||||
William J. Nictakis
|
49 | President, Chief Commercial Officer | ||||
Joia M. Johnson
|
49 | Executive Vice President, General Counsel and Corporate Secretary | ||||
Kevin W. Oliver
|
52 | Executive Vice President, Human Resources | ||||
E. Lee Wyatt Jr.
|
57 | Executive Vice President, Chief Financial Officer | ||||
Richard A. Noll has served as Chairman of the Board of Directors since January 2009, as our
Chief Executive Officer since April 2006 and as a director since our formation in September 2005.
From December 2002 until the completion of the spin off in September 2006, he also served as a
Senior Vice President of Sara Lee. From July 2005 to April 2006, Mr. Noll served as President and
Chief Operating Officer of Sara Lee Branded Apparel. Mr. Noll served as Chief Executive Officer of
Sara Lee Bakery Group from July 2003 to July 2005 and as the Chief Operating Officer of Sara Lee
Bakery Group from July 2002 to July 2003. From July 2001 to July 2002, Mr. Noll was Chief Executive
Officer of Sara Lee Legwear, Sara Lee Direct and Sara Lee Mexico. Mr. Noll joined Sara Lee in 1992
and held a number of management positions with increasing responsibilities while employed by Sara
Lee.
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Gerald W. Evans Jr. has served as our President, International Business and Global Supply
Chain since February 2009. From February 2008 until February 2009, he served as our President,
Global Supply Chain and Asia Business Development. From the completion of the spin off in
September 2006 until February 2008, he served as Executive Vice President, Chief Supply Chain
Officer. From July 2005 until the completion of the spin off, Mr. Evans served as a Vice President
of Sara Lee and as Chief Supply Chain Officer of Sara Lee Branded Apparel. Mr. Evans served as
President and Chief Executive Officer of Sara Lee Sportswear and Underwear from March 2003 until
June 2005 and as President and Chief Executive Officer of Sara Lee Sportswear from March 1999 to
February 2003.
William J. Nictakis has served as our President, Chief Commercial Officer since November 2007.
From June 2003 until November 2007, Mr. Nictakis served as President of the Sara Lee Bakery Group.
From May 1999 through June 2003, Mr. Nictakis was Vice President, Sales, of Frito-Lay, Inc., a
subsidiary of PepsiCo, Inc. that manufactures, markets, sells and distributes branded snacks.
Joia M. Johnson has served as our Executive Vice President, General Counsel and Corporate
Secretary since January 2007. From May 2000 until January 2007, Ms. Johnson served as Executive
Vice President, General Counsel and Secretary of RARE Hospitality International, Inc., an owner,
operator and franchisor of national chain restaurants.
Kevin W. Oliver has served as our Executive Vice President, Human Resources since the
completion of the spin off in September 2006. From January 2006 until the completion of the spin
off, Mr. Oliver served as a Vice President of Sara Lee and as Senior Vice President, Human
Resources of Sara Lee Branded Apparel. From February 2005 to December 2005, Mr. Oliver served as
Senior Vice President, Human Resources for Sara Lee Food and Beverage and from August 2001 to
January 2005 as Vice President, Human Resources for the Sara Lee Bakery Group.
E. Lee Wyatt Jr. has served as our Executive Vice President, Chief Financial Officer since the
completion of the spin off in September 2006. From September 2005 until the completion of the spin
off, Mr. Wyatt served as a Vice President of Sara Lee and as Chief Financial Officer of Sara Lee
Branded Apparel. Prior to joining Sara Lee, Mr. Wyatt was Executive Vice President, Chief Financial
Officer and Treasurer of Sonic Automotive, Inc. from April 2003 to September 2005, and Vice
President of Administration and Chief Financial Officer of Sealy Corporation from September 1998 to
February 2003.
| Item 2. Properties | ||
We own and lease properties supporting our administrative, manufacturing, distribution and
direct outlet activities. We own our approximately 470,000 square-foot headquarters located in
Winston-Salem, North Carolina, which houses our various sales, marketing and corporate business
functions. Research and development as well as certain product-design functions also are located in
Winston-Salem, while other design functions are located in New York City. Our products are
manufactured through a combination of facilities we own and operate and facilities owned and
operated by third-party contractors who perform some of the steps in the manufacturing process for
us, such as cutting and/or sewing. We source the remainder of our finished goods from third-party
manufacturers who supply us with finished products based on our designs.
As of January 2, 2010, we owned and leased properties in 23 countries, including 41
manufacturing facilities and 19 distribution centers, as well as office facilities. The leases for
these properties expire between 2010 and 2019, with the exception of some seasonal warehouses that
we lease on a month-by-month basis. For more information about our capital lease obligations, see
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Future
Contractual Obligations and Commitments.”
As of January 2, 2010, we also operated 228 direct outlet stores in 40 states, most of which
are leased under five-year, renewable lease agreements. We believe that our facilities, as well as
equipment, are in good condition and meet our current business needs.
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The following table summarizes our properties by country as of January 2, 2010:
| Owned | Leased | |||||||||||
| Properties by Country (1) | Square Feet | Square Feet | Total | |||||||||
United States |
7,552,597 | 5,467,635 | 13,020,232 | |||||||||
Non-U.S. facilities: |
||||||||||||
El Salvador |
1,094,170 | 277,487 | 1,371,657 | |||||||||
Honduras |
356,279 | 974,376 | 1,330,655 | |||||||||
China |
1,070,912 | 43,740 | 1,114,652 | |||||||||
Dominican Republic |
746,484 | 175,661 | 922,145 | |||||||||
Mexico |
185,152 | 347,730 | 532,882 | |||||||||
Canada |
289,480 | 126,777 | 416,257 | |||||||||
Vietnam |
111,385 | 202,361 | 313,746 | |||||||||
Costa Rica |
303,419 | — | 303,419 | |||||||||
Thailand |
277,733 | 24,992 | 302,725 | |||||||||
Belgium |
— | 165,428 | 165,428 | |||||||||
Brazil |
— | 164,548 | 164,548 | |||||||||
Argentina |
87,279 | 7,301 | 94,580 | |||||||||
10 other countries |
— | 77,426 | 77,426 | |||||||||
Total non-U.S. facilities |
4,522,293 | 2,587,827 | 7,110,120 | |||||||||
Totals |
12,074,890 | 8,055,462 | 20,130,352 | |||||||||
| (1) | Excludes vacant land. |
The following table summarizes the properties primarily used by our segments as of January 2,
2010:
| Owned | Leased | |||||||||||
| Properties by Segment (1) | Square Feet | Square Feet | Total | |||||||||
Innerwear |
4,627,196 | 3,557,336 | 8,184,532 | |||||||||
Outerwear |
2,744,663 | 1,398,907 | 4,143,570 | |||||||||
Hosiery |
1,138,082 | 39,000 | 1,177,082 | |||||||||
Direct to Consumer |
— | 1,727,303 | 1,727,303 | |||||||||
International |
452,014 | 900,283 | 1,352,297 | |||||||||
Other (2) |
— | — | — | |||||||||
Totals |
8,961,955 | 7,622,829 | 16,584,784 | |||||||||
| (1) | Excludes vacant land, facilities under construction, facilities no longer in operation intended for disposal, sourcing offices not associated with a particular segment, and office buildings housing corporate functions. | |
| (2) | Our Other segment is comprised primarily of sales of yarn to third parties in the United States and Latin America that maintain asset utilization at certain manufacturing facilities used by one or more of our other segments. No facilities are used primarily by our Other segment. |
| Item 3. Legal Proceedings | ||
Although we are subject to various claims and legal actions that occur from time to time in
the ordinary course of our business, we are not party to any pending legal proceedings that we
believe could have a material adverse effect on our business, results of operations, financial
condition or cash flows.
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| Item 4. Submission of Matters to a Vote of Security Holders | ||
No matters were submitted to a vote of stockholders during the quarter ended January 2, 2010.
PART II
| Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | ||
Market for our Common Stock
Our common stock currently is traded on the New York Stock Exchange, or the “NYSE,” under the
symbol “HBI.” A “when-issued” trading market for our common stock on the NYSE began on August 16,
2006, and “regular way” trading of our common stock began on September 6, 2006. Prior to August 16,
2006, there was no public market for our common stock. Each share of our common stock has attached
to it one preferred stock purchase right. These rights initially will be transferable with and only
with the transfer of the underlying share of common stock. We have not made any unregistered sales
of our equity securities.
The following table sets forth the high and low sales prices for our common stock for the
indicated periods:
| High | Low | |||||||
2008 |
||||||||
Quarter ended March 29, 2008 |
$ | 30.40 | $ | 21.47 | ||||
Quarter ended June 28, 2008 |
$ | 37.73 | $ | 27.45 | ||||
Quarter ended September 27, 2008 |
$ | 29.00 | $ | 21.38 | ||||
Quarter ended January 3, 2009 |
$ | 22.77 | $ | 8.54 | ||||
2009 |
||||||||
Quarter ended April 4, 2009 |
$ | 13.66 | $ | 5.14 | ||||
Quarter ended July 4, 2009 |
$ | 19.07 | $ | 10.76 | ||||
Quarter ended October 3, 2009 |
$ | 22.96 | $ | 13.07 | ||||
Quarter ended January 2, 2010 |
$ | 26.61 | $ | 21.02 | ||||
Holders of Record
On
February 1, 2010, there were 43,529 holders of record of our common stock. Because
many of the shares of our common stock are held by brokers and other institutions on behalf of
stockholders, we are unable to determine the exact number of beneficial stockholders represented by
these record holders, but we believe that there were approximately
86,000 beneficial owners of our
common stock as of February 1, 2010.
Dividends
We currently do not pay regular dividends on our outstanding stock. The declaration of any
future dividends and, if declared, the amount of any such dividends, will be subject to our actual
future earnings, capital requirements, regulatory restrictions, debt covenants, other contractual
restrictions and to the discretion of our board of directors. Our board of directors may take into
account such matters as general business conditions, our financial condition and results of
operations, our capital requirements, our prospects and such other factors as our board of
directors may deem relevant.
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Issuer Purchases of Equity Securities
There were no purchases by Hanesbrands during the quarter or year ended January 2, 2010 of
equity securities that are registered under Section 12 of the Exchange Act.
Performance Graph
The following graph compares the cumulative total stockholder return on our common stock with
the comparable cumulative return of the S&P MidCap 400 Index and the S&P 1500 Apparel, Accessories
& Luxury Goods Index. The graph assumes that $100 was invested in our common stock and each index
on August 11, 2006, the effective date of the registration of our common stock under Section 12 of
the Exchange Act, although a “when-issued” trading market for our common stock did not begin until
August 16, 2006, and “regular way” trading did not begin until September 6, 2006. The stock price
performance on the following graph is not necessarily indicative of future stock price performance.
COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN
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Equity Compensation Plan Information
The following table provides information about our equity compensation plans as of January 2,
2010.
| Number of Securities to | Weighted Average | |||||||||||
| be Issued Upon Exercise | Exercise Price of | Number of Securities | ||||||||||
| of Outstanding Options, | Outstanding Options, | Remaining Available for | ||||||||||
| Plan Category | Warrants and Rights | Warrants and Rights | Future Issuance (1) | |||||||||
Equity compensation
plans approved by
security holders |
7,987,847 | $ | 21.73 | 4,535,888 | ||||||||
Equity compensation
plans not approved
by security holders |
— | — | — | |||||||||
Total |
7,987,847 | $ | 21.73 | 4,535,888 | ||||||||
| (1) | The amount appearing under “Number of securities remaining available for future issuance under equity compensation plans” includes 2,456,864 shares available under the Hanesbrands Inc. Omnibus Incentive Plan of 2006 and 2,079,024 shares available under the Hanesbrands Inc. Employee Stock Purchase Plan of 2006. |
| Item 6. | Selected Financial Data |
The following table presents our selected historical financial data. The statement of income
data for the years ended January 2, 2010, January 3, 2009 and December 29, 2007 and the balance
sheet data as of January 2, 2010 and January 3, 2009 have been derived from our audited
consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The
statement of income data for the six-month period ended December 30, 2006 and the years ended July
1, 2006 and July 2, 2005 and the balance sheet data as of December 29, 2007, December 30, 2006,
July 1, 2006 and July 2, 2005 has been derived from our financial statements not included in this
Annual Report on Form 10-K.
In October 2006, our Board of Directors approved a change in our fiscal year end from the
Saturday closest to June 30 to the Saturday closest to December 31. As a result of this change, the
table below includes presentation of the transition period beginning on July 2, 2006 and ending on
December 30, 2006.
Our historical financial data for periods prior to our spin off from Sara Lee on September 5,
2006 is not necessarily indicative of our future performance or what our financial position and
results of operations would have been if we had operated as a separate, stand alone entity during
all of the periods shown. The data should be read in conjunction with our historical financial
statements and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included elsewhere in this Annual Report on Form 10-K.
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| Six Months | ||||||||||||||||||||||||
| Years Ended | Ended | Years Ended | ||||||||||||||||||||||
| January 2, | January 3, | December 29, | December 30, | July 1, | July 2, | |||||||||||||||||||
| 2010 | 2009 | 2007 | 2006 | 2006 | 2005 | |||||||||||||||||||
| (amounts in thousands, except per share data) | ||||||||||||||||||||||||
Statement of Income Data: |
||||||||||||||||||||||||
Net sales |
$ | 3,891,275 | $ | 4,248,770 | $ | 4,474,537 | $ | 2,250,473 | $ | 4,472,832 | $ | 4,683,683 | ||||||||||||
Cost of sales |
2,626,001 | 2,871,420 | 3,033,627 | 1,530,119 | 2,987,500 | 3,223,571 | ||||||||||||||||||
Gross profit |
1,265,274 | 1,377,350 | 1,440,910 | 720,354 | 1,485,332 | 1,460,112 | ||||||||||||||||||
Selling, general and
administrative expenses |
940,530 | 1,009,607 | 1,040,754 | 547,469 | 1,051,833 | 1,053,654 | ||||||||||||||||||
Gain on curtailment of
postretirement benefits |
— | — | (32,144 | ) | (28,467 | ) | — | — | ||||||||||||||||
Restructuring |
53,888 | 50,263 | 43,731 | 11,278 | (101 | ) | 46,978 | |||||||||||||||||
Operating profit |
270,856 | 317,480 | 388,569 | 190,074 | 433,600 | 359,480 | ||||||||||||||||||
Other expense (income) |
49,301 | (634 | ) | 5,235 | 7,401 | — | — | |||||||||||||||||
Interest expense, net |
163,279 | 155,077 | 199,208 | 70,753 | 17,280 | 13,964 | ||||||||||||||||||
Income before income tax
expense |
58,276 | 163,037 | 184,126 | 111,920 | 416,320 | 345,516 | ||||||||||||||||||
Income tax expense |
6,993 | 35,868 | 57,999 | 37,781 | 93,827 | 127,007 | ||||||||||||||||||
Net income |
$ | 51,283 | $ | 127,169 | $ | 126,127 | $ | 74,139 | $ | 322,493 | $ | 218,509 | ||||||||||||
Earnings per share — basic(1) |
$ | 0.54 | $ | 1.35 | $ | 1.31 | $ | 0.77 | $ | 3.35 | $ | 2.27 | ||||||||||||
Earnings per share — diluted(2) |
$ | 0.54 | $ | 1.34 | $ | 1.30 | $ | 0.77 | $ | 3.35 | $ | 2.27 | ||||||||||||
Weighted average shares — basic(1) |
95,158 | 94,171 | 95,936 | 96,309 | 96,306 | 96,306 | ||||||||||||||||||
Weighted average shares —
diluted(2) |
95,668 | 95,164 | 96,741 | 96,620 | 96,306 | 96,306 | ||||||||||||||||||
| January 2, | January 3, | December 29, | December 30, | July 1, | July 2, | |||||||||||||||||||
| 2010 | 2009 | 2007 | 2006 | 2006 | 2005 | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 38,943 | $ | 67,342 | $ | 174,236 | $ | 155,973 | $ | 298,252 | $ | 1,080,799 | ||||||||||||
Total assets |
3,326,564 | 3,534,049 | 3,439,483 | 3,435,620 | 4,903,886 | 4,257,307 | ||||||||||||||||||
Noncurrent liabilities: |
||||||||||||||||||||||||
Long-term debt |
1,727,547 | 2,130,907 | 2,315,250 | 2,484,000 | — | — | ||||||||||||||||||
Other noncurrent liabilities |
385,323 | 469,703 | 146,347 | 271,168 | 49,987 | 53,559 | ||||||||||||||||||
Total noncurrent liabilities |
2,112,870 | 2,600,610 | 2,461,597 | 2,755,168 | 49,987 | 53,559 | ||||||||||||||||||
Total stockholders’ or parent
companies’ equity |
334,719 | 185,155 | 288,904 | 69,271 | 3,229,134 | 2,602,362 | ||||||||||||||||||
| (1) | Prior to the spin off on September 5, 2006, the number of shares used to compute basic and diluted earnings per share is 96,306, which was the number of shares of our common stock outstanding on September 5, 2006. | |
| (2) | Subsequent to the spin off on September 5, 2006, the number of shares used to compute diluted earnings per share is based on the number of shares of our common stock outstanding, plus the potential dilution that could occur if restricted stock units and options granted under our equity-based compensation arrangements were exercised or converted into common stock. |
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| Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
This management’s discussion and analysis of financial condition and results of operations, or
MD&A, contains forward-looking statements that involve risks and uncertainties. Please see
“Forward-Looking Statements” and “Risk Factors” in this Annual Report on Form 10-K for a discussion
of the uncertainties, risks and assumptions associated with these statements. This discussion
should be read in conjunction with our historical financial statements and related notes thereto
and the other disclosures contained elsewhere in this Annual Report on Form 10-K. The results of
operations for the periods reflected herein are not necessarily indicative of results that may be
expected for future periods, and our actual results may differ materially from those discussed in
the forward-looking statements as a result of various factors, including but not limited to those
listed under “Risk Factors” in this Annual Report on Form 10-K and included elsewhere in this
Annual Report on Form 10-K.
MD&A is a supplement to our financial statements and notes thereto included elsewhere in
this Annual Report on Form 10-K, and is provided to enhance your understanding of our results of
operations and financial condition. Our MD&A is organized as follows:
| • | Overview. This section provides a general description of our company and operating segments, business and industry trends, our key business strategies, our consolidation and globalization strategy, and background information on other matters discussed in this MD&A. |
| • | Components of Net Sales and Expenses. This section provides an overview of the components of our net sales and expense that are key to an understanding of our results of operations. |
| • | 2009 Highlights. This section discusses some of the highlights of our performance and activities during 2009. |
| • | Consolidated Results of Operations and Operating Results by Business Segment. These sections provide our analysis and outlook for the significant line items on our statements of income, as well as other information that we deem meaningful to an understanding of our results of operations on both a consolidated basis and a business segment basis. |
| • | Liquidity and Capital Resources. This section provides an analysis of trends and uncertainties affecting liquidity, cash requirements for our business, sources and uses of our cash and our financing arrangements. |
| • | Critical Accounting Policies and Estimates. This section discusses the accounting policies that we consider important to the evaluation and reporting of our financial condition and results of operations, and whose application requires significant judgments or a complex estimation process. |
| • | Recently Issued Accounting Pronouncements. This section provides a summary of the most recent authoritative accounting pronouncements that we will be required to adopt in a future period. |
Overview
Our Company
We are a consumer goods company with a portfolio of leading apparel brands, including Hanes,
Champion, Playtex, Bali, L’eggs, Just My Size, barely there, Wonderbra, Stedman, Outer Banks,
Zorba, Rinbros and Duofold. We design, manufacture, source and sell a broad range of apparel
essentials such as T-shirts, bras, panties, men’s underwear, kids’ underwear, casualwear,
activewear, socks and hosiery.
According
to NPD, our brands hold either the number one or number two U.S. market position by
sales value in most product categories in which we compete, for the
12 month period ended December 31, 2009. In 2009, Hanes was number one for the sixth consecutive year as the most preferred men’s
apparel brand, women’s intimate apparel brand and children’s apparel brand of consumers in
Retailing Today magazine’s “Top Brands Study.” Additionally, we had five of the top ten intimate
apparel brands preferred by consumers in the Retailing Today study — Hanes, Playtex, Bali, Just My
Size and L’eggs. In 2008, the most recent year in which the survey was conducted, Hanes was number
one for the fifth consecutive year on the Women’s Wear Daily “Top 100 Brands Survey” for apparel
and accessory brands that women know best.
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Our distribution channels include direct to consumer sales at our outlet stores, national
chains and department stores and warehouse clubs, mass-merchandise outlets and international sales.
During 2009, approximately 45% of our net sales were to mass
merchants in the United States, 16% were to national chains
and department stores in the United States, 11% were in our International segment, 10% were in our Direct to Consumer
segment in the United States, and 18% were to other retail channels in the United States such as embellishers, specialty retailers and
sporting goods stores.
During the fourth quarter of 2009, as we sought to drive more outerwear sales through our retail
operations by expanding our Hanes and Champion offerings, we made the decision to change our
internal organizational structure so that our retail operations, previously included in our
Innerwear segment, would be a separate “Direct to Consumer” segment. As a result, our operations
are managed and reported in six operating segments, each of which is a reportable segment for
financial reporting purposes: Innerwear, Outerwear, Hosiery, Direct to Consumer, International and
Other. Certain other insignificant changes between segments have been reflected in the segment
disclosures to conform to the current organizational structure.These segments are organized
principally by product category, geographic location and distribution channel. Management of each
segment is responsible for the operations of these segments’ businesses but shares a common supply
chain and media and marketing platforms.
| • | Innerwear. The Innerwear segment focuses on core apparel essentials, and consists of products such as women’s intimate apparel, men’s underwear, kids’ underwear, and socks, marketed under well-known brands that are trusted by consumers. We are an intimate apparel category leader in the United States with our Hanes, Playtex, Bali, barely there, Just My Size and Wonderbra brands. We are also a leading manufacturer and marketer of men’s underwear and kids’ underwear under the Hanes and Polo Ralph Lauren brand names. During 2009, net sales from our Innerwear segment were $1.8 billion, representing approximately 47% of total net sales. |
| • | Outerwear. We are a leader in the casualwear and activewear markets through our Hanes, Champion, Just My Size and Duofold brands, where we offer products such as T-shirts and fleece. Our casualwear lines offer a range of quality, comfortable clothing for men, women and children marketed under the Hanes and Just My Size brands. The Just My Size brand offers casual apparel designed exclusively to meet the needs of plus-size women. In 2009, we entered into a multi-year agreement to provide a women’s casualwear program with our Just My Size brand at Wal-Mart stores. In addition to activewear for men and women, Champion provides uniforms for athletic programs and includes an apparel program, C9 by Champion, at Target stores. We also license our Champion name for collegiate apparel and footwear. We also supply our T-shirts, sport shirts and fleece products, including brands such as Hanes, Champion, Outer Banks and Hanes Beefy-T, to customers, primarily wholesalers, who then resell to screen printers and embellishers. During 2009, net sales from our Outerwear segment were $1.1 billion, representing approximately 27% of total net sales. |
| • | Hosiery. We are the leading marketer of women’s sheer hosiery in the United States. We compete in the hosiery market by striving to offer superior values and executing integrated marketing activities, as well as focusing on the style of our hosiery products. We market hosiery products under our L’eggs, Hanes and Just My Size brands. During 2009, net sales from our Hosiery segment were $186 million, representing approximately 5% of total net sales. We expect the trend of declining hosiery sales to continue consistent with the overall decline in the industry and with shifts in consumer preferences. |
| • | Direct to Consumer. Our Direct to Consumer operations include our value-based (“outlet”) stores and Internet operations which sell products from our portfolio of leading brands. We sell our branded products directly to consumers through our outlet stores as well as our Web sites operating under the Hanes, One Hanes Place, Just My Size and Champion names. Our Internet operations are supported by our catalogs. As of January 2, 2010 and January 3, 2009, we had 228 and 213 outlet stores, respectively. During 2009, net sales from our Direct to Consumer segment were $370 million, representing approximately 10% of total net sales. |
| • | International. International includes products that span across the Innerwear, Outerwear and Hosiery reportable segments and are primarily marketed under the Hanes, Champion, Wonderbra, Playtex, Stedman, Zorba, Rinbros, Kendall, Sol y Oro, Bali and Ritmo brands. During 2009, net sales from our International segment were $438 million, representing approximately 11% of total net sales and included sales in Latin America, Asia, Canada, Europe and South America. Our largest international markets are Canada, Japan, Mexico, Europe and Brazil, and we also have sales offices in India and China. |
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| • | Other. Our Other segment primarily consists of sales of yarn to third parties in the United States and Latin America that maintain asset utilization at certain manufacturing facilities and are intended to generate approximate break even margins. During 2009, net sales from our Other segment were $13 million, representing less than 1% of total net sales. In October 2009, we completed the sale of our yarn operations as a result of which we ceased making our own yarn and now source all of our yarn requirements from large-scale yarn suppliers. As a result of the sale of our yarn operations we will no longer have net sales in our Other segment in the future. |
Business and Industry Trends
We are operating in an uncertain and volatile economic environment, which could have
unanticipated adverse effects on our business. The current retail environment has been impacted by
recent volatility in the financial markets and by uncertain economic conditions. Increases in food
and fuel prices, changes in the credit and housing markets leading to the current financial and
credit crisis, actual and potential job losses among many sectors of the economy, significant
declines in the stock market resulting in large losses to consumer retirement and investment
accounts, and uncertainty regarding future federal tax and economic policies have all added to
declines in consumer confidence and curtailed retail spending.
During 2009, we did not see a sustained rebound in consumer spending but rather mixed results.
We also experienced substantial pressure on profitability due to the economic climate, increased
pension costs and increased costs associated with implementing our price increase which became
effective in February 2009, including repackaging costs.
The apparel essentials market is highly competitive and evolving rapidly. Competition is
generally based upon price, brand name recognition, product quality, selection, service and
purchasing convenience. The majority of our core styles continue from year to year, with variations
only in color, fabric or design details. Some products, however, such as intimate apparel,
activewear and sheer hosiery, do have an emphasis on style and innovation. Our businesses face
competition today from other large corporations and foreign manufacturers, as well as smaller
companies, department stores, specialty stores and other retailers that market and sell apparel
essentials products under private labels that compete directly with our brands.
Our top ten customers accounted for 65% of our net sales and our top customer, Wal-Mart,
accounted for over $1 billion of our sales in 2009. Our largest customers in 2009 were Wal-Mart,
Target and Kohl’s, which accounted for 27%, 17% and 7% of total sales, respectively. The growth in
retailers can create pricing pressures as our customers grow larger and seek to have greater
concessions in their purchase of our products, while they can be increasingly demanding that we
provide them with some of our products on an exclusive basis. To counteract these effects, it has
become increasingly important to leverage our national brands through investment in our largest and
strongest brands as our customers strive to maximize their performance especially in today’s
challenging economic environment. In addition, during the past several years, various retailers,
including some of our largest customers, have experienced significant difficulties, including
restructurings, bankruptcies and liquidations, and the ability of retailers to overcome these
difficulties may increase due to the recent deterioration of worldwide economic conditions.
Anticipating changes in and managing our operations in response to consumer preferences
remains an important element of our business. In recent years, we have experienced changes in our
net sales, revenues and cash flows in accordance with changes in consumer preferences and trends.
For example, we expect the trend of declining hosiery sales to continue consistent with the overall
decline in the industry and with shifts in consumer preferences. Hosiery products continue to be
more adversely impacted than other apparel categories by reduced consumer discretionary spending,
which contributes to weaker sales and lowering of inventory levels by retailers. The Hosiery
segment only comprised 5% of our net sales in 2009 however, and as a result, the decline in the
Hosiery segment has not had a significant impact on our net sales, revenues or cash flows.
Generally, we manage the Hosiery segment for cash, placing an emphasis on reducing our cost
structure and managing cash efficiently.
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2010 Outlook
We have secured significant shelf-space and distribution gains, starting primarily in 2010.
Program gains significantly outnumber program losses, and we expect the net space gains to generate
approximately 5% incremental sales growth in 2010, independent of a consumer spending rebound. If
consumer spending does rebound, we have potential for additional upside in sales growth. By segment, two-thirds of the increases are expected in our Innerwear segment
and most of the remainder in our Outerwear segment. However, both our Direct to Consumer and
International segments should also see mid-single-digit growth in 2010.
Specifically for our Innerwear segment, the bulk of the gains are in men’s underwear and
intimate apparel. The new programs in men’s underwear have already begun to ship, with the new
intimate apparel program starting to ship in the second quarter of 2010. The remaining growth in
the Innerwear segment in the back half of the year will be driven by replenishment of these new
programs.
For the Outerwear segment, growth will be driven by the expansion of our Just My Size brand in
the first half as a result of a multi-year agreement we entered into with Wal-Mart in April 2009
that significantly expanded the presence of our Just My Size brand. In the second half of 2010, Champion has confirmed
space and distribution gains in fleece, performance apparel and sports bras across a broad set of
accounts.
Our projected sales growth, combined with our cost savings, should drive greater operating
profit growth in 2010. To support this growth, we have increased our production capacity. Our Nanjing
textile facility started production in the fourth quarter of 2009 and is right on plan. We also
secured additional capacity with outside contractors. The earthquake
in Haiti caused some short-term disruption and incremental costs in
early 2010,
however we do not believe it will have a material impact on net sales.
Our Key Business Strategies
Sell more, spend less and generate cash are our broad strategies to build our brands, reduce
our costs and generate cash.
Sell More
Through our “sell more” strategy, we seek to drive profitable growth by consistently offering
consumers brands they love and trust and products with unsurpassed value. Key initiatives we are
employing to implement this strategy include:
| • | Build big, strong brands in big core categories with innovative key items. Our ability to react to changing customer needs and industry trends is key to our success. Our design, research and product development teams, in partnership with our marketing teams, drive our efforts to bring innovations to market. We seek to leverage our insights into consumer demand in the apparel essentials industry to develop new products within our existing lines and to modify our existing core products in ways that make them more appealing, addressing changing customer needs and industry trends. We also support our key brands with targeted, effective advertising and marketing campaigns. |
| • | Foster strategic partnerships with key retailers via “team selling.” We foster relationships with key retailers by applying our extensive category and product knowledge, leveraging our use of multi-functional customer management teams and developing new customer-specific programs such as C9 by Champion for Target and the recently expanded presence at Wal-Mart of our Just My Size brand. Our goal is to strengthen and deepen our existing strategic relationships with retailers and develop new strategic relationships. |
| • | Use Kanban concepts to have the right products available in the right quantities at the right time. Through Kanban, a multi-initiative effort that determines production quantities, and in doing so, facilitates just-in-time production and ordering systems, we seek to ensure that products are available to meet customer demands while effectively managing inventory levels. |
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Spend Less
Through our “spend less” strategy, we seek to become an integrated organization that leverages
its size and global reach to reduce costs, improve flexibility and provide a high level of service.
Key initiatives we are employing to implement this strategy include:
| • | Optimizing our global supply chain to improve our cost-competitiveness and operating flexibility. We have restructured our supply chain over the past three years to create more efficient production clusters that utilize fewer, larger facilities and to balance our production capability between the Western Hemisphere and Asia. We have closed plant locations, reduced our workforce and relocated some of our manufacturing capacity to lower cost locations in Asia, Central America and the Caribbean Basin. With our global supply chain infrastructure substantially in place, we are now focused on optimizing our supply chain to further enhance efficiency, improve working capital and asset turns and reduce costs. The consolidation of our distribution network is still in process but will not result in any substantial charges in future periods. The distribution network consolidation involves the implementation of new warehouse management systems and technology, and opening of new distribution centers and new third-party logistics providers to replace parts of our legacy distribution network. |
| • | Leverage our global purchasing and manufacturing scale. Historically, we have had a decentralized operating structure with many distinct operating units. We are in the process of consolidating purchasing, manufacturing and sourcing across all of our product categories in the United States. We believe that these initiatives will streamline our operations, improve our inventory management, reduce costs and standardize processes. |
Generate Cash
Through our “generate cash” strategy, we seek to effectively generate and invest cash at or
above our weighted average cost of capital to provide superior returns for both our equity and debt
investors. Key initiatives we are employing to implement this strategy include:
| • | Optimizing our capital structure to take advantage of our business model’s strong and consistent cash flows. Maintaining appropriate debt leverage and utilizing excess cash to, for example, pay down debt, invest in our own stock and selectively pursue strategic acquisitions are keys to building a stronger business and generating additional value for investors. In 2009, we completed a growth-focused debt refinancing that enables us to simultaneously reduce leverage and consider acquisition opportunities. |
| • | Continuing to improve turns for accounts receivables, inventory, accounts payable and fixed assets. Our ability to generate cash is enhanced through more efficient management of accounts receivables, inventory, accounts payable and fixed assets through several initiatives, such as supplier-managed inventory for raw materials, sourced goods ownership relationships and other efforts. |
Consolidation and Globalization Strategy
We have restructured our supply chain over the past three years to create more efficient
production clusters that utilize fewer, larger facilities and to balance our production capability
between the Western Hemisphere and Asia. We have closed plant locations, reduced our workforce and
relocated some of our manufacturing capacity to lower cost locations in Asia, Central America and
the Caribbean Basin. With our global supply chain infrastructure substantially in place, we are now
focused on optimizing our supply chain to further enhance efficiency, improve working capital and
asset turns and reduce costs. We are focused on optimizing the working capital needs of our supply
chain through several initiatives, such as supplier-managed inventory for raw materials and sourced
goods ownership relationships. We completed the construction of a textile production plant in
Nanjing, China which is our first company-owned textile facility in Asia. Production commenced in
the fourth quarter of 2009 and we expect to ramp up production over
the next 18 months. The Nanjing facility,
along with our other textile facilities and arrangements with outside contractors, enables us to
expand and leverage our production scale as we balance our supply chain across hemispheres to
support our production capacity. The consolidation of our distribution network is still in process
but will not result in any substantial charges in future periods. The distribution network
consolidation involves the
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implementation of new warehouse management systems and technology, and opening of new
distribution centers and new third-party logistics providers to replace parts of our legacy
distribution network.
During 2009, we ceased making our own yarn and now source all of our yarn requirements from
large-scale yarn suppliers. We entered into an agreement with Parkdale America, LLC (“Parkdale
America”) under which we agreed to sell or lease assets related to operations at our four yarn
manufacturing facilities to Parkdale America. The transaction closed in October 2009 and resulted
in Parkdale America operating three of the four facilities. We approved an action to close the
fourth yarn manufacturing facility, as well as a yarn warehouse and a cotton warehouse, all located
in the United States, which will result in the elimination of approximately 175 positions. We also
entered into a yarn purchase agreement with Parkdale America and Parkdale Mills, LLC (together
with Parkdale America, “Parkdale”). Under this agreement, which has an initial term of six years,
Parkdale will produce and sell to us a substantial amount of our Western Hemisphere yarn
requirements. During the first two years of the term, Parkdale will also produce and sell to us a
substantial amount of the yarn requirements of our Nanjing, China textile facility.
In addition to the actions discussed above, during 2009 we approved actions to close seven
manufacturing facilities and three distribution centers in the Dominican Republic, the United
States, Costa Rica, Honduras, Puerto Rico and Canada which will result in the elimination of an
aggregate of approximately 3,925 positions in those countries and El Salvador. The production
capacity represented by the manufacturing facilities has been relocated to lower cost locations in
Asia, Central America and the Caribbean Basin. The distribution capacity has been relocated to our
West Coast distribution facility in California in order to expand capacity for goods we source from
Asia. In addition, approximately 300 management and administrative positions were eliminated, with
the majority of these positions based in the United States. We also have recognized accelerated
depreciation with respect to owned or leased assets associated with manufacturing facilities and
distribution centers which closed during 2009 or we anticipate closing in the next year as part of
our consolidation and globalization strategy.
As a result of the restructuring actions taken since our becoming an independent company on
September 5, 2006, our cost structure has been reduced and efficiencies improved, generating
savings of $78 million during 2009. In addition to the savings generated from restructuring
actions, we benefited from $21 million in savings related to other cost reduction initiatives
during 2009.
As a result of our consolidation and globalization strategy, we expected to incur
approximately $250 million in restructuring and related charges over the three year period
following the spin off from Sara Lee on September 5, 2006, of which approximately half was expected
to be noncash. Through this three year period, we have recognized approximately $278 million in
restructuring and related charges related to this strategy, of which approximately half have been
noncash. Of the amounts recognized, approximately $103 million related to employee termination and
other benefits, approximately $96 million related to accelerated depreciation of buildings and
equipment for facilities that have been or will be closed, approximately $30 million related to
noncancelable lease and other contractual obligations, approximately $23 million related to
write-offs of stranded raw materials and work in process inventory determined not to be salvageable
or cost-effective to relocate, approximately $17 million related to impairments of fixed assets and
approximately $9 million related to other exit costs such as equipment moving costs. Accelerated
depreciation related to our manufacturing facilities and distribution centers that have been or
will be closed is reflected in the “Cost of sales” and “Selling, general and administrative
expenses” lines of the Consolidated Statements of Income. The write-offs of stranded raw materials
and work in process inventory are reflected in the “Cost of sales” line of the Consolidated
Statements of Income.
Seasonality and Other Factors
Our operating results are subject to some variability due to seasonality and other factors.
Generally, our diverse range of product offerings helps mitigate the impact of seasonal changes in
demand for certain items. Sales are typically higher in the last two quarters (July to December) of
each fiscal year. Socks, hosiery and fleece products generally have higher sales during this period
as a result of cooler weather, back-to-school shopping and holidays. Sales levels in any period are
also impacted by customers’ decisions to increase or decrease their inventory levels in response to
anticipated consumer demand. Our customers may cancel orders, change delivery schedules or change
the mix of products ordered with minimal notice to us. For example, we have experienced a shift in
timing by our largest retail customers of back-to-school programs between June and July the last
two years. Our results of operations are also impacted by fluctuations and volatility in the price
of cotton and oil-related materials and the
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timing of actual spending for our media, advertising and promotion expenses. Media,
advertising and promotion expenses may vary from period to period during a fiscal year depending on
the timing of our advertising campaigns for retail selling seasons and product introductions.
Although the majority of our products are replenishment in nature and tend to be purchased by
consumers on a planned, rather than on an impulse, basis, our sales are impacted by discretionary
spending by our customers. Discretionary spending is affected by many factors, including, among
others, general business conditions, interest rates, inflation, consumer debt levels, the
availability of consumer credit, currency exchange rates, taxation, electricity power rates,
gasoline prices, unemployment trends and other matters that influence consumer confidence and
spending. Many of these factors are outside of our control. Our customers’ purchases of
discretionary items, including our products, could decline during periods when disposable income is
lower, when prices increase in response to rising costs, or in periods of actual or perceived
unfavorable economic conditions. These consumers may choose to purchase fewer of our products or to
purchase lower-priced products of our competitors in response to higher prices for our products, or
may choose not to purchase our products at prices that reflect our price increases that become
effective from time to time.
Inflation and Changing Prices
Inflation can have a long-term impact on us because increasing costs of materials and labor
may impact our ability to maintain satisfactory margins. For example, a significant portion of our
products are manufactured in other countries and declines in the value of the U.S. dollar may
result in higher manufacturing costs. Similarly, the cost of the materials that are used in our
manufacturing process, such as oil-related commodity prices and other raw materials, such as dyes
and chemicals, and other costs, such as fuel, energy and utility costs, can fluctuate as a result
of inflation and other factors. In addition, inflation often is accompanied by higher interest
rates, which could have a negative impact on spending, in which case our margins could decrease.
Moreover, increases in inflation may not be matched by rises in income, which also could have a
negative impact on spending. If we incur increased costs that we are unable to recoup, or if
consumer spending continues to decrease generally, our business, results of operations, financial
condition and cash flows may be adversely affected. In an effort to mitigate the impact of
incremental costs on our operating results, we raised domestic prices effective February 2009. We
implemented an average gross price increase of four percent in our domestic product categories. The
range of price increases varied by individual product category.
Although we have sold our yarn operations, we are still exposed to fluctuations in the cost of
cotton. Increases in the cost of cotton can result in higher costs in the price we pay for yarn
from our large-scale yarn suppliers. Our costs for cotton yarn and cotton-based textiles vary
based upon the fluctuating cost of cotton, which is affected by weather, consumer demand,
speculation on the commodities market, the relative valuations and fluctuations of the currencies
of producer versus consumer countries and other factors that are generally unpredictable and beyond
our control. While we do employ a dollar cost averaging strategy by entering into hedging
contracts from time to time in an
attempt to protect our business from the volatility of the market price of cotton, our business can
be affected by dramatic movements in cotton prices, although cotton represents only 6% of our cost
of sales. The cotton prices reflected in our results were 55 cents per pound in 2009 and 65 cents
per pound in 2008. Costs incurred for materials and labor are capitalized into inventory and impact
our results as the inventory is sold.
Components of Net Sales and Expenses
Net sales
We generate net sales by selling apparel essentials such as T-shirts, bras, panties, men’s
underwear, kids’ underwear, socks, hosiery, casualwear and activewear. Our net sales are recognized
net of discounts, coupons, rebates, volume-based incentives and cooperative advertising costs. We
recognize revenue when (i) there is persuasive evidence of an arrangement, (ii) the sales price is
fixed or determinable, (iii) title and the risks of ownership have been transferred to the customer
and (iv) collection of the receivable is reasonably assured, which occurs primarily upon shipment.
Net sales include an estimate for returns and allowances based upon historical return experience.
We also offer a variety of sales incentives to resellers and consumers that are recorded as
reductions to net sales. Royalty income from license agreements with manufacturers of other
consumer products that incorporate our brands is also included in net sales.
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Cost of sales
Our cost of sales includes the cost of manufacturing finished goods, which consists of
labor, raw materials such as cotton and petroleum-based products and overhead costs such as
depreciation on owned facilities and equipment. Our cost of sales also includes finished goods
sourced from third-party manufacturers that supply us with products based on our designs as well as
charges for slow moving or obsolete inventories. Rebates, discounts and other cash consideration
received from a vendor related to inventory purchases are reflected in cost of sales when the
related inventory item is sold. Our costs of sales do not include shipping costs, comprised of
payments to third party shippers, or handling costs, comprised of warehousing costs in our
distribution facilities, and thus our gross margins may not be comparable to those of other
entities that include such costs in cost of sales.
Selling, general and administrative expenses
Our selling, general and administrative expenses include selling, advertising, costs of
shipping, handling and distribution to our customers, research and development, rent on leased
facilities, depreciation on owned facilities and equipment and other general and administrative
expenses. Selling, general and administrative expenses also include management payroll, benefits,
travel, information systems, accounting, insurance and legal expenses.
Restructuring
We have from time to time closed facilities and reduced headcount, including in
connection with previously announced restructuring and business transformation plans. We refer to
these activities as restructuring actions. When we decide to close facilities or reduce headcount,
we take estimated charges for such restructuring, including charges for exited non-cancelable
leases and other contractual obligations, as well as severance and benefits. If the actual charge
is different from the original estimate, an adjustment is recognized in the period such change in
estimate is identified.
Other expense (income)
Our other expense (income) include charges such as losses on early extinguishment of debt,
costs to amend and restate our credit facilities and charges related to the termination of certain
interest rate hedging arrangements.
Interest expense, net
Our interest expense is net of interest income. Interest income is the return we earned
on our cash and cash equivalents. Our cash and cash equivalents are invested in highly liquid
investments with original maturities of three months or less.
Income tax expense
Our effective income tax rate fluctuates from period to period and can be materially impacted
by, among other things:
| • | changes in the mix of our earnings from the various jurisdictions in which we operate; |
| • | the tax characteristics of our earnings; |
| • | the timing and amount of earnings of foreign subsidiaries that we repatriate to the United States, which may increase our tax expense and taxes paid; and |
| • | the timing and results of any reviews of our income tax filing positions in the jurisdictions in which we transact business. |
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Highlights from the year ended January 2, 2010
| • | Total net sales in 2009 were $3.89 billion, compared with $4.25 billion in 2008. |
| • | Operating profit was $271 million in 2009 compared with $317 million in 2008. |
| • | Diluted earnings per share were $0.54 in 2009, compared with $1.34 in 2008. |
| • | During 2009, we approved actions to close eight manufacturing facilities, three distribution centers and two warehouses in the Dominican Republic, the United States, Costa Rica, Honduras, Puerto Rico and Canada and eliminate an aggregate of approximately 4,100 positions in those countries and El Salvador. In addition, approximately 300 management and administrative positions were eliminated, with the majority of these positions based in the United States. In addition, we completed several such actions in 2009 that were approved in 2008. |
| • | We completed the construction of a textile production plant in Nanjing, China which is our first company-owned textile facility in Asia. Production commenced in the fourth quarter of 2009 and we expect to ramp up production over the next 18 months. The Nanjing facility, along with our other textile facilities and arrangements with outside contractors, enables us to expand and leverage our production scale as we balance our supply chain across hemispheres to support our production capacity. |
| • | In October 2009, we completed the sale of our yarn operations to Parkdale America as a result of which we ceased making our own yarn and now source all of our yarn requirements from large-scale yarn suppliers. We also entered into a yarn purchase agreement with Parkdale. Under this agreement, which has an initial term of six years, Parkdale will produce and sell to us a substantial amount of our Western Hemisphere yarn requirements. During the first two years of the term, Parkdale will also produce and sell to us a substantial amount of the yarn requirements of our Nanjing, China textile facility. |
| • | Gross capital expenditures were $127 million in 2009 as we continued to build out our textile and sewing network in Asia, Central America and the Caribbean Basin and were lower by $60 million compared to 2008. |
| • | In December 2009, we completed a growth-focused debt refinancing that enables us to simultaneously reduce leverage and consider acquisition opportunities. The refinancing gives us more flexibility in our use of excess cash flow, allows continued debt reduction, and provides a stable long-term capital structure with extended debt maturities at rates slightly lower than previous effective rates. The refinancing consisted of the sale of our $500 million 8% Senior Notes and the concurrent amendment and restatement of our 2006 Senior Secured Credit Facility to provide for the $1.15 billion 2009 Senior Secured Credit Facility. The proceeds from the sale of the 8% Senior Notes, together with the proceeds from borrowings under the 2009 Senior Secured Credit Facility, were used to refinance borrowings under the 2006 Senior Secured Credit Facility, to repay all borrowings under our existing second lien credit facility and to pay fees and expenses relating to these transactions. |
| • | During 2009, we reduced debt by $284 million through the use of cash flows generated from operations which was primarily from the reduction of inventory by $249 million. |
| • | We ended 2009 with $307 million of borrowing availability under our $400 million Revolving Loan Facility, $91 million of borrowing availability under our Accounts Receivable Securitization Facility, $39 million in cash and cash equivalents and $35 million of borrowing availability under our international loan facilities. |
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Consolidated Results of Operations — Year Ended January 2, 2010 (“2009”) Compared with Year Ended
January 3, 2009 (“2008”)
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 3,891,275 | $ | 4,248,770 | $ | (357,495 | ) | (8.4 | )% | |||||||
Cost of sales |
2,626,001 | 2,871,420 | (245,419 | ) | (8.5 | ) | ||||||||||
Gross profit |
1,265,274 | 1,377,350 | (112,076 | ) | (8.1 | ) | ||||||||||
Selling, general and administrative expenses |
940,530 | 1,009,607 | (69,077 | ) | (6.8 | ) | ||||||||||
Restructuring |
53,888 | 50,263 | 3,625 | 7.2 | ||||||||||||
Operating profit |
270,856 | 317,480 | (46,624 | ) | (14.7 | ) | ||||||||||
Other expense (income) |
49,301 | (634 | ) | 49,935 | NM | |||||||||||
Interest expense, net |
163,279 | 155,077 | 8,202 | 5.3 | ||||||||||||
Income before income tax expense |
58,276 | 163,037 | (104,761 | ) | (64.3 | ) | ||||||||||
Income tax expense |
6,993 | 35,868 | (28,875 | ) | (80.5 | ) | ||||||||||
Net income |
$ | 51,283 | $ | 127,169 | $ | (75,886 | ) | (59.7 | )% | |||||||
Net Sales
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 3,891,275 | $ | 4,248,770 | $ | (357,495 | ) | (8.4 | )% | |||||||
Consolidated net sales were lower by $357 million or 8% in 2009 compared to 2008. Net sales
were lower by $303 million or 7% in 2009 compared to 2008 after excluding the impact of the
53rd week in 2008. In 2009, we did not see a sustained rebound in consumer spending in
our categories but rather mixed results. Overall retail sales for apparel continued to decline
during 2009 at most of our larger customers as the continuing recession constrained consumer
spending. Our sales incentives were higher in 2009 compared to 2008 as we made significant
investments, especially in back-to-school and holiday programs and promotions, in this recessionary
environment to support retailers and position ourselves for future sales opportunities. We also
made significant investments with key retailers to obtain incremental shelf space for 2010 and
beyond.
Innerwear, Outerwear, Hosiery and International segment net sales were lower by $114 million
(6%), $144 million (12%), $32 million (15%) and $58 million (12%), respectively, in 2009 compared
to 2008. Our Direct to Consumer segment sales were flat in 2009 compared to 2008. Our Other
segment net sales were lower, as expected, by $9 million in 2009 compared to 2008. As a result of
the sale of our yarn operations we will no longer have net sales in our Other segment in the
future.
Innerwear segment net sales were lower (6%) in 2009 compared to 2008, primarily due to lower
net sales of intimate apparel (12%) and socks (10%) as a result of continued weak sales at retail
in this difficult economic environment, partially offset by higher net sales of male underwear
(4%). Innerwear segment net sales were lower by $87 million or 5% in 2009 compared to 2008 after
excluding the impact of the 53rd week in 2008.
Outerwear segment net sales were lower (12%) in 2009 compared to 2008, primarily due to the
lower casualwear net sales (24%) in the wholesale channel, which has been highly price competitive
especially in this recessionary environment, and lower casualwear net sales (19%) in the retail
channel. The lower casualwear net sales in both channels were partially offset by higher net sales
(4%) of our Champion brand activewear. The results for the first half of 2009 were negatively
impacted by losses of seasonal programs in the retail casualwear channel. Outerwear segment net
sales were lower by $130 million or 11% in 2009 compared to 2008 after excluding the impact of the
53rd week in 2008.
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Hosiery segment net sales were lower (15%) in 2009 compared to 2008. The net sales decline
rate has steadily improved over the most recent three consecutive quarters. Hosiery products in
all channels continue to be more adversely impacted than other apparel categories by reduced
consumer discretionary spending. Hosiery segment net sales were lower by $28 million or 13% in 2009
compared to 2008 after excluding the impact of the 53rd week in 2008.
Direct to Consumer segment net sales were flat in 2009 compared to 2008 primarily due to
higher net sales in our outlet stores attributable to new store openings offset by lower comparable
store sales driven by lower traffic. The higher net sales in our outlet stores were partially
offset by lower net sales related to our Internet operations. Direct to Consumer segment net sales
were higher by $7 million or 2% in 2009 compared to 2008 after excluding the impact of the
53rd week in 2008.
International segment net sales were lower (12%) in 2009 compared to 2008, primarily
attributable to an unfavorable impact of $22 million related to foreign currency exchange rates and
weak demand globally primarily in Europe, Japan and Canada, which are experiencing recessionary
environments similar to that in the United States. International segment net sales declined by 7%
in 2009 compared to 2008 after excluding the impact of foreign exchange rates on currency.
International segment net sales were lower by $56 million or 11% in 2009 compared to 2008 after
excluding the impact of the 53rd week in 2008.
Gross Profit
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Gross profit |
$ | 1,265,274 | $ | 1,377,350 | $ | (112,076 | ) | (8.1 | )% | |||||||
Our gross profit was lower by $112 million in 2009 compared to 2008. Gross profit as a percent
of net sales remained flat at 32.5% in 2009 compared to 32.4% in 2008.
Gross profit was lower due to lower sales volume of $167 million, higher sales incentives of
$52 million and unfavorable product sales mix of $45 million. Our sales incentives were higher as
we made significant investments, especially in back-to-school and holiday programs and promotions,
in this recessionary environment to support retailers and position ourselves for future sales
opportunities. We also made significant investments in the fourth quarter of 2009 of approximately
$13 million with key retailers to obtain incremental shelf space for 2010 and beyond. Other factors
contributing to lower gross profit were higher other manufacturing costs of $33 million primarily
related to lower volume partially offset by cost reductions at our manufacturing facilities, higher
production costs of $14 million related to higher energy and oil-related costs, including freight
costs, higher cost of finished goods sourced from third party manufacturers of $10 million
primarily resulting from foreign exchange transaction losses, other vendor price increases of $9
million and an $8 million unfavorable impact related to foreign currency exchange rates. The
unfavorable impact of foreign currency exchange rates in our International segment was primarily
due to the strengthening of the U.S. dollar compared to the Mexican peso, Canadian dollar, Euro and
Brazilian real partially offset by the strengthening of the Japanese yen compared to the U.S.
dollar during 2009 compared to 2008. Duty refunds were lower by $19 million in 2009 compared to
2008 as a result of the final passage of the Dominican Republic-Central America-United States Free
Trade Agreement in Costa Rica which allowed us to recover in 2008 $15 million of duties previously
paid. In addition, we incurred $8 million of favorable cost recognition in 2008 that did not
reoccur in 2009 related to the capitalization of certain inventory supplies.
Our gross profit was positively impacted by higher product pricing of $123 million before
increased sales incentives, savings from our prior restructuring actions of $45 million, lower
on-going excess and obsolete inventory costs of $30 million and lower cotton costs of $26 million.
The higher product pricing was due to the implementation of an average gross price increase of four
percent in our domestic product categories in February 2009. The range of price increases varied by
individual product category. The lower excess and obsolete inventory costs in 2009 are
attributable to both our continuous evaluation of inventory levels and simplification of our
product category offerings. We realized these benefits by driving down obsolete inventory levels
through aggressive
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management and promotions.
The cotton prices reflected in our results were 55 cents per pound in 2009 as compared to 65
cents in 2008. Energy and oil-related costs were higher in 2009 due to a spike in oil-related
commodity prices during the summer of 2008 which impacted our cost of sales in 2009.
We incurred lower one-time restructuring related write-offs of $15 million in 2009 compared to
2008 for stranded raw materials and work in process inventory determined not to be salvageable or
cost-effective to relocate. In addition, accelerated depreciation was lower by $15 million in 2009
compared to 2008.
Selling, General and Administrative Expenses
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Selling, general and administrative expenses |
$ | 940,530 | $ | 1,009,607 | $ | (69,077 | ) | (6.8 | )% | |||||||
Our selling, general and administrative expenses were $69 million lower in 2009 compared to
2008. Our continued focus on cost reductions resulted in lower expenses related to savings of $33
million from our prior restructuring actions for compensation and related benefits, lower
technology expenses of $21 million, lower distribution expenses of $16 million, lower bad debt
expense of $7 million primarily due to a customer bankruptcy in 2008, lower selling and other
marketing related expenses of $5 million, lower consulting related expenses of $3 million and lower
non-media related media, advertising and promotion (“MAP”) expenses of $2 million. The lower
distribution expenses were primarily attributable to lower sales volume that reduced our labor,
postage and freight expenses and lower rework expenses in our distribution centers. In addition, in
October 2009, we recognized an $8 million gain related to the sale of our yarn operations to
Parkdale America.
Our media related MAP expenses were $24 million lower in 2009 compared to 2008. While we chose
to reduce our spending earlier in 2009, we made significant investments in the fourth quarter of
2009 to support retailers and position ourselves for future sales opportunities. MAP expenses may
vary from period to period during a fiscal year depending on the timing of our advertising
campaigns for retail selling seasons and product introductions.
Our pension and stock compensation expenses, which are noncash, were higher by $33 million and
$6 million, respectively, in 2009 compared to 2008. The higher pension expense is primarily due to
the lower funded status of our pension plans at the end of 2008, which resulted from a decline in
the fair value of plan assets due to the stock market’s performance during 2008 and a higher
discount rate at the end of 2008.
We also incurred higher expenses of $4 million in 2009 compared to 2008 as a result of opening
retail stores. We opened 17 retail stores during 2009. In addition, we incurred higher accelerated
depreciation of $3 million and higher other expenses of $2 million related to amending the terms of
all outstanding stock options granted under the Hanesbrands Inc. Omnibus Incentive Plan (the
“Omnibus Incentive Plan”) of 2006 that had an original term of five or seven years to the tenth
anniversary of the original grant date. Changes due to foreign currency exchange rates, which are
included in the impact of the changes discussed above, resulted in lower selling, general and
administrative expenses of $6 million in 2009 compared to 2008.
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Restructuring
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Restructuring |
$ | 53,888 | $ | 50,263 | $ | 3,625 | 7.2 | % | ||||||||
During 2009, we ceased making our own yarn and now source all of our yarn requirements from
large-scale yarn suppliers. We entered into an agreement with Parkdale America under which we
agreed to sell or lease assets related to operations at our four yarn manufacturing facilities to
Parkdale America. The transaction closed in October 2009 and resulted in Parkdale America
operating three of the four facilities. We approved an action to close the fourth yarn
manufacturing facility, as well as a yarn warehouse and a cotton warehouse, all located in the
United States, which will result in the elimination of approximately 175 positions. We also
entered into a yarn purchase agreement with Parkdale. Under this agreement, which has an initial
term of six years, Parkdale will produce and sell to us a substantial amount of our Western
Hemisphere yarn requirements. During the first two years of the term, Parkdale will also produce
and sell to us a substantial amount of the yarn requirements of our Nanjing, China textile
facility.
In addition to the actions discussed above, during 2009 we approved actions to close seven
manufacturing facilities and three distribution centers in the Dominican Republic, the United
States, Costa Rica, Honduras, Puerto Rico and Canada which will result in the elimination of an
aggregate of approximately 3,925 positions in those countries and El Salvador. The production
capacity represented by the manufacturing facilities will be relocated to lower cost locations in
Asia, Central America and the Caribbean Basin. The distribution capacity has been relocated to our
West Coast distribution facility in California in order to expand capacity for goods we source from
Asia. In addition, approximately 300 management and administrative positions were eliminated, with
the majority of these positions based in the United States.
During 2009, we recorded charges related to employee termination and other benefits of $24
million recognized in accordance with benefit plans previously communicated to the affected
employee group, charges related to contract obligations of $14 million, other exit costs of $8
million related to moving equipment and inventory from closed facilities and fixed asset impairment
charges of $8 million.
In 2009 and 2008, we recorded one-time write-offs of $4 million and $19 million, respectively,
of stranded raw materials and work in process inventory related to the closure of manufacturing
facilities and recorded in the “Cost of sales” line. The raw materials and work in process
inventory was determined not to be salvageable or cost-effective to relocate. In addition, in
connection with our consolidation and globalization strategy, we recognized noncash charges of $9
million and $24 million 2009 and 2008, respectively, in the “Cost of sales” line and a noncash
charge of $3 million in 2009 in the “Selling, general and administrative expenses” line related to
accelerated depreciation of buildings and equipment for facilities that have been closed or will be
closed.
These actions were a continuation of our consolidation and globalization strategy, and are
expected to result in benefits of moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and consolidating production capacity. These
approved actions represent the substantial completion of the consolidation and globalization of our
supply chain.
During 2008, we incurred $50 million in restructuring charges which primarily related to
employee termination and other benefits and charges related to exiting supply contracts associated
with plant closures approved during that period.
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Operating Profit
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Operating profit |
$ | 270,856 | $ | 317,480 | $ | (46,624 | ) | (14.7 | )% | |||||||
Operating profit was lower in 2009 compared to 2008 as a result of lower gross profit of $112
million and higher restructuring and related charges of $4 million, partially offset by lower
selling, general and administrative expenses of $69 million. Changes in foreign currency exchange
rates had an unfavorable impact on operating profit of $1 million in 2009 compared to 2008.
Operating profit was $41 million lower in 2009 compared to 2008 excluding the impact of the
53rd week in 2008.
Other Expense (Income)
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Other expense (income) |
$ | 49,301 | $ | (634 | ) | $ | 49,935 | NM | ||||||||
In December 2009, we completed the sale of our 8% Senior Notes and concurrently amended and
restated the 2006 Senior Secured Credit Facility to provide for the 2009 Senior Secured Credit
Facility. The proceeds from the sale of the 8% Senior Notes, together with the proceeds from
borrowings under the 2009 Senior Secured Credit Facility, were used to refinance borrowings under
the 2006 Senior Secured Credit Facility, to repay all borrowings under our $450 million second
lien credit facility that we entered into in 2006 (the “Second Lien Credit Facility”), and to
pay fees and expenses relating to these transactions.
In connection with these transactions in December 2009, we recognized a loss on early
extinguishment of debt of $17 million related to unamortized debt issuance costs and fees paid in
connection with the execution of the 2009 Senior Secured Credit Facility and the issuance of the 8%
Senior Notes. In addition, in December 2009, we recognized a loss of $26 million related to
certain interest rate hedging arrangements which were terminated as a result of the refinancing of
our outstanding borrowings under the 2006 Senior Secured Credit Facility and repayment of the
outstanding borrowings under the Second Lien Credit Facility.
In September 2009 we incurred a $2 million loss on early extinguishment of debt related to
unamortized debt issuance costs resulting from the prepayment of $140 million of principal under
the 2006 Senior Secured Credit Facility.
In March 2009, we incurred costs of $4 million to amend the 2006 Senior Secured Credit
Facility and the Accounts Receivable Securitization Facility.
During 2008, we recognized a gain of $2 million related to the repurchase of $6 million of the
Floating Rate Senior Notes for $4 million. This gain was partially offset by a $1 million loss on
early extinguishment of debt related to unamortized debt issuance costs on the 2006 Senior Secured
Credit Facility for the prepayment of $125 million of principal in 2008.
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Interest Expense, Net
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Interest expense, net |
$ | 163,279 | $ | 155,077 | $ | 8,202 | 5.3 | % | ||||||||
Interest expense, net was higher by $8 million in 2009 compared to 2008. The amendments
of the 2006 Senior Secured Credit Facility and Accounts Receivable Securitization Facility in March
2009 increased our interest-rate margin by 300 basis points and 325 basis points, respectively,
which increased interest expense in 2009 compared to 2008 by $31 million. The execution of the
2009 Senior Secured Credit Facility and the issuance of the 8% Senior Notes in December 2009
increased interest expense in 2009 compared to 2008 by $3 million.
These increases in interest expense were partially offset by a lower London Interbank Offered
Rate, or “LIBOR,” and lower outstanding debt balances that reduced interest expense by a combined
$23 million. In addition, interest expense, net was lower by $3 million in 2009 due to the impact
of the 53rd week in 2008. Our weighted average interest rate on our outstanding debt
was 6.86% during 2009 compared to 6.09% in 2008.
Income Tax Expense
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Income tax expense |
$ | 6,993 | $ | 35,868 | $ | (28,875 | ) | (80.5 | )% | |||||||
Our annual effective income tax rate was 12.0% in 2009 compared to 22.0% in 2008. Our domestic
earnings were lower in 2009 as a result of higher restructuring and related charges and the debt
refinancing costs. The lower effective income tax rate is attributable primarily to a higher
proportion of our earnings attributed to foreign subsidiaries which are taxed at rates lower than
the U.S. statutory rate. Also, we recognized net tax benefits of
$12 million due to updated assessments of previously accrued
amounts. Our annual effective tax rate reflected our strategic initiative to make
substantial capital investments outside the United States in our global supply chain in 2009.
Net Income
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net income |
$ | 51,283 | $ | 127,169 | $ | (75,886 | ) | (59.7 | )% | |||||||
Net income for 2009 was lower than 2008 primarily due to higher other expenses of $50 million,
lower operating profit of $47 million and higher interest expense of $8 million, partially offset
by lower income tax expense of $29 million. Net income was $73 million lower in 2009 compared to
2008 after excluding the impact of the 53rd week in 2008.
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Operating Results by Business Segment — Year Ended January 2, 2010 (“2009”) Compared with Year
Ended January 3, 2009 (“2008”)
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales: |
||||||||||||||||
Innerwear |
$ | 1,833,616 | $ | 1,947,167 | $ | (113,551 | ) | (5.8 | )% | |||||||
Outerwear |
1,051,735 | 1,196,155 | (144,420 | ) | (12.1 | ) | ||||||||||
Hosiery |
185,710 | 217,391 | (31,681 | ) | (14.6 | ) | ||||||||||
Direct to Consumer |
369,739 | 370,163 | (424 | ) | (0.1 | ) | ||||||||||
International |
437,804 | 496,170 | (58,366 | ) | (11.8 | ) | ||||||||||
Other |
12,671 | 21,724 | (9,053 | ) | (41.7 | ) | ||||||||||
Total net sales |
$ | 3,891,275 | $ | 4,248,770 | $ | (357,495 | ) | (8.4 | )% | |||||||
Segment operating profit (loss): |
||||||||||||||||
Innerwear |
$ | 234,352 | $ | 223,420 | $ | 10,932 | 4.9 | % | ||||||||
Outerwear |
53,050 | 66,149 | (13,099 | ) | (19.8 | ) | ||||||||||
Hosiery |
61,070 | 68,696 | (7,626 | ) | (11.1 | ) | ||||||||||
Direct to Consumer |
37,178 | 44,541 | (7,363 | ) | (16.5 | ) | ||||||||||
International |
44,688 | 64,349 | (19,661 | ) | (30.6 | ) | ||||||||||
Other |
(2,164 | ) | 328 | (2,492 | ) | NM | ||||||||||
Total segment operating profit |
428,174 | 467,483 | (39,309 | ) | (8.4 | ) | ||||||||||
Items not included in segment operating
profit: |
||||||||||||||||
General corporate expenses |
(75,127 | ) | (45,177 | ) | 29,950 | 66.3 | ||||||||||
Amortization of trademarks and other
intangibles |
(12,443 | ) | (12,019 | ) | 424 | 3.5 | ||||||||||
Restructuring |
(53,888 | ) | (50,263 | ) | 3,625 | 7.2 | ||||||||||
Inventory write-off included in cost of sales |
(4,135 | ) | (18,696 | ) | (14,561 | ) | (77.9 | ) | ||||||||
Accelerated depreciation included in cost of
sales |
(8,641 | ) | (23,862 | ) | (15,221 | ) | (63.8 | ) | ||||||||
Accelerated depreciation included in selling, general and administrative expenses |
(3,084 | ) | 14 | 3,098 | NM | |||||||||||
Total operating profit |
270,856 | 317,480 | (46,624 | ) | (14.7 | ) | ||||||||||
Other (expense) income |
(49,301 | ) | 634 | 49,935 | NM | |||||||||||
Interest expense, net |
(163,279 | ) | (155,077 | ) | 8,202 | 5.3 | ||||||||||
Income before income tax expense |
$ | 58,276 | $ | 163,037 | $ | (104,761 | ) | (64.3 | )% | |||||||
Innerwear
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 1,833,616 | $ | 1,947,167 | $ | (113,551 | ) | (5.8 | )% | |||||||
Segment operating profit |
234,352 | 223,420 | 10,932 | 4.9 | ||||||||||||
Overall net sales in the Innerwear segment were lower by $114 million or 6% in 2009 compared
to 2008 as the recessionary environment continued to constrain consumer spending. Total intimate
apparel net sales were $110 million lower in 2009 compared to 2008 and represents 97% of the total
segment net sales decline. We believe our lower net sales in our Hanes brand of $47 million, our
Playtex brand of $34 million and our smaller brands (barely there, Just My Size and Wonderbra) of
$27 million and $6 million lower private label net sales were primarily attributable to weaker
sales at retail as a result of lower consumer spending during the year. These declines were
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partially offset by an increase of $5 million of our Bali brand intimate apparel net sales in
2009 compared to 2008.
Total male underwear net sales were $27 million higher in 2009 compared to 2008 which reflect
higher net sales in our Hanes brand of $26 million. The higher Hanes brand male underwear sales
reflect growth in key segments of this category such as crewneck and V-neck T-shirts and boxer
briefs and product innovations like the Comfort Fit waistbands. Lower net sales in our socks
product category of $28 million in 2009 compared to 2008 reflect a decline in Hanes and Champion
brand net sales in our men’s and kids’ product category. Innerwear segment net sales were lower by
$87 million or 5% in 2009 compared to 2008 after excluding the impact of the 53rd week
in 2008.
The Innerwear segment gross profit was lower by $51 million in 2009 compared to 2008. The
lower gross profit was due to lower sales volume of $62 million, higher sales incentives of $38
million due to investments made with retailers, unfavorable product sales mix of $21 million, lower
duty refunds of $17 million, higher other manufacturing costs of $14 million, higher production
costs of $8 million related to higher energy and oil-related costs, including freight costs and
other vendor price increases of $7 million. Additionally, favorable cost recognition of $8 million
occurred in 2008 that did not reoccur in 2009 related to the capitalization of certain inventory
supplies. These higher costs were partially offset by higher product pricing of $69 million before
increased sales incentives, savings from our prior restructuring actions of $23 million, lower
on-going excess and obsolete inventory costs of $23 million and lower cotton costs of $10 million.
As a percent of segment net sales, gross profit in the Innerwear segment was 32.3% in 2009
compared to 33.0% in 2008, decreasing as a result of the items described above.
The higher Innerwear segment operating profit in 2009 compared to 2008 was primarily
attributable to lower media related MAP expenses of $25 million, savings of $18 million from prior
restructuring actions primarily for compensation and related benefits, lower technology expenses of
$11 million, lower bad debt expense of $5 million primarily due to a customer bankruptcy in 2008
and lower distribution expenses of $2 million, which partially offset lower gross profit.
A significant portion of the selling, general and administrative expenses in each segment is
an allocation of our consolidated selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are charged directly to such segment. The
allocation methodology for the consolidated selling, general and administrative expenses for 2009
is consistent with 2008. Our consolidated selling, general and administrative expenses before
segment allocations was $69 million lower in 2009 compared to 2008.
Outerwear
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 1,051,735 | $ | 1,196,155 | $ | (144,420 | ) | (12.1 | )% | |||||||
Segment operating profit |
53,050 | 66,149 | (13,099 | ) | (19.8 | ) | ||||||||||
Net sales in the Outerwear segment were lower by $144 million or 12% in 2009 compared to 2008,
primarily as a result of lower casualwear net sales in our wholesale and retail channels of $93
million and $63 million, respectively. The wholesale channel has been significantly impacted by
lower consumer spending with our customers in this channel and highly price competitive especially
in this recessionary environment. The lower retail casualwear net sales reflect an $89 million
impact due to the losses of seasonal programs not renewed for 2009 that only impacted the first
half of 2009 partially offset by additional net sales and royalty income resulting from an
exclusive long-term agreement entered into with Wal-Mart in April 2009 that significantly expanded
the presence of our Just My Size brand in all Wal-Mart stores. In addition, total activewear
product category net sales were $13 million higher. Our Champion brand activewear sales, which
continue to benefit from our marketing investment in the brand, were higher by $18 million.
Outerwear segment net sales were lower by $130 million or 11% in 2009 compared to 2008 after
excluding the impact of the 53rd week in 2008.
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The Outerwear segment gross profit was lower by $39 million in 2009 compared to 2008. The
lower gross profit is due to lower sales volume of $47 million, unfavorable product sales mix of
$20 million, higher other manufacturing costs of $15 million, higher sales incentives of $8 million
due to investments made with retailers, higher production costs of $6 million related to higher
energy and oil-related costs, including freight costs, and other vendor price increases of $2
million. These higher costs were partially offset by savings of $22 million from our prior
restructuring actions, lower cotton costs of $16 million, higher product pricing of $16 million
before increased sales incentives and lower on-going excess and obsolete inventory costs of $5
million.
As a percent of segment net sales, gross profit in the Outerwear segment was 21.9% in 2009
compared to 22.5% in 2008, declining as a result of the items described above.
The lower Outerwear segment operating profit in 2009 compared to 2008 was primarily
attributable to lower gross profit and higher media related MAP expenses of $5 million partially
offset by lower distribution expenses of $11 million, savings of $10 million from our prior
restructuring actions, lower technology expenses of $7 million, lower non-media related MAP
expenses of $3 million and lower bad debt expense of $2 million primarily due to a customer
bankruptcy in 2008.
A significant portion of the selling, general and administrative expenses in each segment is
an allocation of our consolidated selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are charged directly to such segment. The
allocation methodology for the consolidated selling, general and administrative expenses for 2009
is consistent with 2008. Our consolidated selling, general and administrative expenses before
segment allocations was $69 million lower in 2009 compared to 2008.
Hosiery
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 185,710 | $ | 217,391 | $ | (31,681 | ) | (14.6 | )% | |||||||
Segment operating profit |
61,070 | 68,696 | (7,626 | ) | (11.1 | ) | ||||||||||
Net sales in the Hosiery segment declined by $32 million or 15%, which was primarily due
to lower sales of our L’eggs brand to mass retailers and food and drug stores and our Hanes brand
to national chains and department stores. The net sales decline rate has improved over the most
recent three consecutive quarters. Hosiery products continue to be more adversely impacted than
other apparel categories by reduced consumer discretionary spending, which contributes to weaker
retail sales and lowering of inventory levels by retailers. We expect the trend of declining
hosiery sales to continue consistent with the overall decline in the industry and with shifts in
consumer preferences. Generally, we manage the Hosiery segment for cash, placing an emphasis on
reducing our cost structure and managing cash efficiently. Hosiery segment net sales were lower by
$28 million or 13% in 2009 compared to 2008 after excluding the impact of the 53rd week
in 2008.
The Hosiery segment gross profit was lower by $16 million in 2009 compared to 2008. The lower
gross profit for 2009 compared to 2008 was the result of lower sales volume of $23 million and
higher other manufacturing costs of $4 million, partially offset by higher product pricing of $12
million. As a percent of segment net sales, gross profit in the Hosiery segment was 49.8% in 2009
and in 2008.
The lower Hosiery segment operating profit in 2009 compared to 2008 is primarily attributable
to lower gross profit, partially offset by lower distribution expenses of $3 million, savings of $2
million from our prior restructuring actions and lower technology expenses of $2 million.
A significant portion of the selling, general and administrative expenses in each segment is
an allocation of our consolidated selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are charged directly to such segment. The
allocation methodology for the consolidated selling, general and administrative expenses for 2009
is consistent with 2008. Our consolidated selling, general and administrative expenses before
segment allocations was $69 million lower in 2009 compared to 2008.
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Direct to Consumer
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 369,739 | $ | 370,163 | $ | (424 | ) | (0.1 | )% | |||||||
Segment operating profit |
37,178 | 44,541 | (7,363 | ) | (16.5 | ) | ||||||||||
Direct to Consumer segment net sales were flat in 2009 compared to 2008 primarily due to
higher net sales in our outlet stores of $1 million attributable to new store openings offset by
lower comparable store sales (3%) driven by lower traffic. The higher net sales in our outlet
stores were partially offset by lower net sales of $1 million related to our Internet operations.
Direct to Consumer segment net sales were higher by $7 million or 2% in 2009 compared to 2008 after
excluding the impact of the 53rd week in 2008. |
||||||||||||||||
The Direct to Consumer segment gross profit was higher by $5 million in 2009 compared to 2008.
The higher gross profit is due to higher product pricing of $13 million and lower on-going excess
and obsolete inventory costs of $2 million, partially offset by lower sales volume of $7 million
and unfavorable product sales mix of $4 million. |
||||||||||||||||
As a percent of segment net sales, gross profit in the Direct to Consumer segment was 62.4% in
2009 compared to 61.1% in 2008, increasing as a result of the items described above. |
||||||||||||||||
The lower Direct to Consumer segment operating profit in 2009 compared to 2008 was primarily
attributable to higher non-media related MAP expenses of $6 million and higher expenses of $4
million as a result of opening 17 retail stores during 2009, partially offset by higher gross
profit. |
||||||||||||||||
A significant portion of the selling, general and administrative expenses in each segment is
an allocation of our consolidated selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are charged directly to such segment. The
allocation methodology for the consolidated selling, general and administrative expenses for 2009
is consistent with 2008. Our consolidated selling, general and administrative expenses before
segment allocations was $69 million lower in 2009 compared to 2008. |
||||||||||||||||
International |
||||||||||||||||
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 437,804 | $ | 496,170 | $ | (58,366 | ) | (11.8 | )% | |||||||
Segment operating profit |
44,688 | 64,349 | (19,661 | ) | (30.6 | ) | ||||||||||
Overall net sales in the International segment were lower by $58 million or 12% in 2009
compared to 2008 primarily attributable to an unfavorable impact of $22 million related to foreign
currency exchange rates and weak demand globally primarily in Europe, Japan and Canada, which are
experiencing recessionary environments similar to that in the United States. International segment
net sales declined by 7% in 2009 compared to 2008 after excluding the impact of foreign exchange
rates on currency. The unfavorable impact of foreign currency exchange rates in our International
segment was primarily due to the strengthening of the U.S. dollar compared to the Mexican peso,
Canadian dollar, Euro and Brazilian real partially offset by the strengthening of the Japanese yen
compared to the U.S. dollar during 2009 compared to 2008.
During 2009, we experienced lower net sales, in each case excluding the impact of foreign
currency exchange rates but including the impact of the 53rd week, in our casualwear
business in Europe of $25 million, in our male underwear and activewear businesses in Japan of $13
million, in our casualwear business in Puerto Rico of $7 million resulting from moving the
distribution capacity to the United States and in our socks and intimate apparel business in Canada
of $11 million. Lower segment net sales were partially offset by higher sales in our intimate
55
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apparel and male underwear businesses in Mexico of $12 million and in our male underwear
business in Brazil of $4 million. International segment net sales were lower by $56 million or 11%
in 2009 compared to 2008 after excluding the impact of the 53rd week in 2008.
The International segment gross profit was lower by $38 million in 2009 compared to 2008. The
lower gross profit was a result of lower sales volume of $17 million, higher cost of finished goods
sourced from third party manufacturers of $12 million primarily resulting from foreign exchange
transaction losses, unfavorable product sales mix of $7 million, an unfavorable impact related to foreign currency exchange rates of $8 million
and higher sales incentives of $4 million due to investments made with retailers, partially offset by higher product pricing of $11 million.
As a percent of segment net sales, gross profit in the International segment was 36.7% in 2009
compared to 2008 at 40.1%, declining as a result of the items described above.
The lower International segment operating profit in 2009 compared to 2008 is primarily
attributable to the lower gross profit, partially offset by lower media related MAP expenses of $5
million, lower selling and other marketing related expenses of $5 million, lower non-media related
MAP expenses of $3 million, lower distribution expenses of $2 million and savings of $2 million
from our prior restructuring actions. The changes in foreign currency exchange rates, which are
included in the impact on gross profit above, had an unfavorable impact on segment operating profit
of $1 million in 2009 compared to 2008.
Other
| Years Ended | ||||||||||||||||
| January 2, | January 3, | Higher | Percent | |||||||||||||
| 2010 | 2009 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 12,671 | $ | 21,724 | $ | (9,053 | ) | (41.7 | )% | |||||||
Segment operating profit (loss) |
(2,164 | ) | 328 | (2,492 | ) | NM | ||||||||||
Sales in our Other segment primarily consist of sales of yarn to third parties which are
intended to maintain asset utilization at certain manufacturing facilities and generate approximate
break even margins. In October 2009, we completed the sale of our yarn operations as a result of
which we ceased making our own yarn and now source all of our yarn requirements from large-scale
yarn suppliers. As a result of the sale of our yarn operations we will no longer have net sales in
our Other segment in the future.
General Corporate Expenses
General corporate expenses were $30 million higher in 2009 compared to 2008 primarily due to
higher pension expense of $33 million, $8 million of higher foreign exchange transaction losses and
higher other expenses of $2 million related to amending the terms of all outstanding stock options
granted under the Omnibus Incentive Plan that had an original term of five or seven years to the
tenth anniversary of the original grant date, partially offset by higher gains on sales of assets
of $2 million. In addition, in October 2009, we recognized an $8 million gain related to the sale
of our yarn operations to Parkdale America.
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Consolidated Results of Operations — Year Ended January 3, 2009 (“2008”) Compared with Year Ended
December 29, 2007 (“2007”)
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 4,248,770 | $ | 4,474,537 | $ | (225,767 | ) | (5.0 | )% | |||||||
Cost of sales |
2,871,420 | 3,033,627 | (162,207 | ) | (5.3 | ) | ||||||||||
Gross profit |
1,377,350 | 1,440,910 | (63,560 | ) | (4.4 | ) | ||||||||||
Selling, general and administrative expenses |
1,009,607 | 1,040,754 | (31,147 | ) | (3.0 | ) | ||||||||||
Gain on curtailment of postretirement benefits |
— | (32,144 | ) | (32,144 | ) | NM | ||||||||||
Restructuring |
50,263 | 43,731 | 6,532 | 14.9 | ||||||||||||
Operating profit |
317,480 | 388,569 | (71,089 | ) | (18.3 | ) | ||||||||||
Other expense (income) |
(634 | ) | 5,235 | (5,869 | ) | (112.1 | ) | |||||||||
Interest expense, net |
155,077 | 199,208 | (44,131 | ) | (22.2 | ) | ||||||||||
Income before income tax expense |
163,037 | 184,126 | (21,089 | ) | (11.5 | ) | ||||||||||
Income tax expense |
35,868 | 57,999 | (22,131 | ) | (38.2 | ) | ||||||||||
Net income |
$ | 127,169 | $ | 126,127 | $ | 1,042 | 0.8 | % | ||||||||
Net Sales
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 4,248,770 | $ | 4,474,537 | $ | (225,767 | ) | (5.0 | )% | |||||||
Consolidated net sales were lower by $226 million or 5% in 2008 compared to 2007 primarily due
to weak sales at retail, which reflect a difficult economic and retail environment in which the
ultimate consumers of our products have been significantly limiting their discretionary spending
and visiting retail stores less frequently. The economic recession continued to impact consumer
spending, resulting in one of the worst holiday shopping seasons in 40 years as retail sales fell
for the sixth straight month in December. Our Innerwear, Outerwear, Hosiery and Other segment net
sales were lower by $153 million (7%), $60 million (5%), $34 million (14%) and $35 million (62%),
respectively, and were partially offset by higher net sales in our Direct to Consumer segment and
International segment of $10 million (3%) and $48 million (11%), respectively. Although the
majority of our products are replenishment in nature and tend to be purchased by consumers on a
planned, rather than on an impulse, basis, weakness in the retail environment can impact our
results in the short-term, as it did in 2008. The total impact of the 53rd week in
2008, which is included in the amounts above, was a $54 million increase in sales.
The lower net sales in our Innerwear segment were primarily due to a decline in the intimate
apparel, socks and male underwear product categories. Total intimate
apparel net sales were $115
million lower in 2008 compared to 2007. We experienced lower intimate apparel sales in our Hanes
brand of $52 million, our smaller brands (barely there, Just My Size and Wonderbra) of $45 million
and our private label brands of $6 million which we believe was primarily attributable to weaker
sales at retail as noted above. In 2008 compared to 2007, our Playtex brand intimate apparel net
sales were higher by $2 million and our Bali brand intimate apparel net sales were lower by $13
million. Net sales in our male underwear product category were $11 million lower, which includes
the impact of exiting a license arrangement for a boys’ character underwear program in early 2008
that lowered sales by $15 million. In addition, total socks net sales were lower in 2008 compared
to 2007 by $33 million.
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In our Outerwear segment, net sales of our Champion brand activewear were $26 million higher
in 2008 compared to 2007, and were offset by lower net sales of our casualwear product categories
of $82 million. Net sales in our Hosiery segment declined substantially more than the long-term
trend primarily due to lower sales of the Hanes brand to national chains and department stores and
our L’eggs brand to mass retailers and food and drug stores in 2008 compared to 2007. We expect the
trend of declining hosiery sales to continue consistent with the overall decline in the industry
and with shifts in consumer preferences.
The lower net sales discussed above were partially offset by higher net sales in our Direct to
Consumer segment and International segment. The higher net sales in our Direct to Consumer segment
were primarily attributable to higher net sales in our Internet operations. The higher net sales in
our International segment were driven by a favorable impact of $22 million related to foreign
currency exchange rates and by the growth in our casualwear businesses in Europe and Asia. The
favorable impact of foreign currency exchange rates was primarily due to the strengthening of the
Japanese yen, Euro and Brazilian real.
The decline in net sales for our Other segment was primarily due to the continued
vertical integration of a yarn and fabric operation acquisition from 2006 with less focus on sales
of nonfinished fabric and yarn to third parties.
Gross Profit
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Gross profit |
$ | 1,377,350 | $ | 1,440,910 | $ | (63,560 | ) | (4.4 | )% | |||||||
As a percent of net sales, our gross profit percentage was 32.4% in 2008 compared to 32.2% in
2007. While the gross profit percentage was higher, gross profit dollars were lower due to lower
sales volume of $85 million, unfavorable product sales mix of $35 million, higher cotton costs of
$30 million, higher production costs of $20 million related to higher energy and oil related costs
including freight costs and other vendor price increases of $12 million. The cotton prices
reflected in our results were 65 cents per pound in 2008 as compared to 56 cents per pound in 2007.
Energy and oil related costs were higher due to a spike in oil related commodity prices during the
summer of 2008. In addition,
in connection with the consolidation and globalization of our supply chain, we incurred one-time
restructuring related write-offs of stranded raw materials and work in process inventory determined
not to be salvageable or cost-effective to relocate of $19 million in 2008, which were offset by
lower accelerated depreciation of $13 million.
These higher expenses were primarily offset by savings from our cost reduction initiatives and
prior restructuring actions of $41 million, lower other manufacturing overhead costs of $24 million
primarily related to better volumes earlier in the year, lower on-going excess and obsolete
inventory costs of $14 million, lower sales incentives of $11 million, $10 million of lower duty
costs primarily related to higher refunds of $9 million, a $9 million favorable impact related to
foreign currency exchange rates, $8 million of favorable one-time out of period cost recognition
related to the capitalization of certain inventory supplies to be on a consistent basis across all
business lines, $4 million of lower start-up and shut down costs associated with our consolidation
and globalization of our supply chain and higher product sales pricing of $3 million. Our duty
refunds were higher in 2008 primarily due to the final passage of the Dominican Republic-Central
America-United States Free Trade Agreement in Costa Rica as a result of which we can, on a one-time
basis, recover duties paid since January 1, 2004 totaling approximately $15 million. The lower
excess and obsolete inventory costs in 2008 are attributable to both our continuous evaluation of
inventory levels and simplification of our product category offerings since the spin off. We
realized the benefits of driving down obsolete inventory levels through aggressive management and
promotions and realized the benefits from decreases in style counts ranging from 7% to 30% in our
various product category offerings. The quality of our inventory remained good with obsolete
inventory down 23% from the prior year. The favorable foreign currency exchange rate impact in our
International segment was primarily due to the strengthening of the Japanese yen, Euro and
Brazilian real.
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Table of Contents
Selling, General and Administrative Expenses
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Selling, general and administrative expenses |
$ | 1,009,607 | $ | 1,040,754 | $ | (31,147 | ) | (3.0 | )% | |||||||
Our selling, general and administrative expenses were $31 million lower in 2008 compared to
2007. Our cost reduction efforts resulted in lower expenses in 2008 compared to 2007 related to
savings of $21 million from our prior restructuring actions for compensation and related benefits,
lower consulting expenses related to various areas of $5 million, lower non-media related MAP
expenses of $3 million, lower accelerated depreciation of $3 million, lower postretirement
healthcare and life insurance expense of $2 million and lower stock compensation expense of $2
million. |
||||||||||||||||
Our media related MAP expenses were $11 million lower in 2008 as compared to 2007. While our
spending for media related MAP was down in 2008, it was the second highest spending level in our
history. We supported our key brands with targeted, effective advertising and marketing campaigns
such as the launch of Hanes No Ride Up panties and marketing initiatives for Champion and Playtex
in the first half of 2008 and significantly lowered our overall spending during the second half of
2008. In contrast, in 2007, our media related MAP spending was spread across multiple product
categories and brands. MAP expenses may vary from period to period during a fiscal year depending
on the timing of our advertising campaigns for retail selling seasons and product introductions. |
||||||||||||||||
In addition, spin off and related charges of $3 million recognized in 2007 did not recur in
2008. Our pension income of $12 million was higher by $9 million, which included an adjustment that
reduced pension expense in 2007 related to the final separation of our pension assets and
liabilities from those of Sara Lee. |
||||||||||||||||
We experienced higher bad debt expense of $7 million primarily related to the Mervyn’s
bankruptcy, higher computer software amortization costs of $5 million, higher technology consulting
and related expenses of $4 million and higher distribution expenses of $4 million in 2008 compared
to 2007. The higher technology consulting and computer software amortization costs are related to
our efforts to integrate our information technology systems across our company which involves
reducing the number of information technology platforms serving our business functions. The higher
distribution expenses in 2008 compared to 2007 were primarily related to higher volumes in our
international business, higher postage and freight costs and higher rework expenses in our
distribution centers. We also incurred higher expenses of $3 million in 2008 compared to 2007 as a
result of having opened 10 retail stores in 2008. In addition, we incurred $7 million in
amortization of gain on curtailment of postretirement benefits in 2007 which did not recur in 2008. |
||||||||||||||||
Gain on Curtailment of Postretirement Benefits |
||||||||||||||||
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Gain on curtailment of postretirement benefits |
$ | — | $ | (32,144 | ) | $ | (32,144 | ) | NM | |||||||
In December 2006, we notified retirees and employees of the phase out of premium subsidies for
early retiree medical coverage and move to an access-only plan for early retirees by the end of
2007. In December 2007, in connection with the termination of the postretirement medical plan, we
recognized a final gain on curtailment of plan benefits of $32 million. Concurrently with the
termination of the existing plan, we established a new access-only plan that is fully paid by the
participants.
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Restructuring
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Restructuring |
$ | 50,263 | $ | 43,731 | $ | 6,532 | 14.9 | % | ||||||||
During 2008, we approved actions to close 11 manufacturing facilities and three distribution
centers and eliminate approximately 6,800 positions in Mexico, the United States, Costa Rica,
Honduras and El Salvador. The production capacity represented by the manufacturing facilities has
been relocated to lower cost locations in Asia, Central America and the Caribbean Basin. The
distribution capacity has been relocated to our West Coast distribution facility in California in
order to expand capacity for goods we source from Asia. In addition, approximately 200 management
and administrative positions were eliminated, with the majority of these positions based in the
United States. We recorded a charge of $34 million related to employee termination and other
benefits recognized in accordance with benefit plans previously communicated to the affected
employee group, fixed asset impairment charges of $9 million and charges related to exiting supply
contracts of $11 million, which was partially offset by $4 million of favorable settlements of
contract obligations for lower amounts than previously estimated.
In 2008, we recorded $19 million in one-time write-offs of stranded raw materials and work in
process inventory determined not to be salvageable or cost-effective to relocate related to the
closure of manufacturing facilities in the “Cost of sales” line. In addition, in connection with
our consolidation and globalization strategy, in 2008 and 2007, we recognized non-cash charges of
$24 million and $37 million, respectively, in the “Cost of sales” line and a non-cash charge of $3
million in the “Selling, general and administrative expenses” line in 2007 related to accelerated
depreciation of buildings and equipment for facilities that have been closed or will be closed.
These actions, which are a continuation of our consolidation and globalization strategy, are
expected to result in benefits of moving production to lower-cost manufacturing facilities,
leveraging our large scale in high-volume products and consolidating production capacity.
During 2007, we incurred $44 million in restructuring charges which primarily related to
a charge of $32 million related to employee termination and other benefits associated with plant
closures approved during that period and the elimination of certain management and administrative
positions, a $10 million charge for estimated lease termination costs associated with facility
closures and a $2 million impairment charge associated with facility closures.
Operating Profit
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Operating profit |
$ | 317,480 | $ | 388,569 | $ | (71,089 | ) | (18.3 | )% | |||||||
Operating profit was lower in 2008 compared to 2007 as a result of lower gross profit of $64
million, a $32 million gain on curtailment of postretirement benefits recognized in 2007 which did
not recur in 2008 and higher restructuring and related charges for facility closures of $7 million
partially offset by lower selling, general and administrative expenses of $31 million. The lower
gross profit was primarily the result of lower sales volume, unfavorable product sales mix and
increases in manufacturing input costs for cotton and energy and other oil related costs, all of
which exceeded our savings from executing our consolidation and globalization strategy during 2008.
The total impact of the 53rd week in 2008, which is included in the amounts above, was
a $6 million increase in operating profit.
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Other Expense (Income)
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Other expense (income) |
$ | (634 | ) | $ | 5,235 | $ | (5,869 | ) | (112.1 | )% | ||||||
During 2008, we recognized a gain of $2 million related to the repurchase of $6 million of our
Floating Rate Senior Notes for $4 million. This gain was partially offset by a $1 million loss on
early extinguishment of debt related to unamortized debt issuance costs on the 2006 Senior Secured
Credit Facility for the prepayment of $125 million of principal in December 2008. During 2007, we
recognized losses on early extinguishment of debt related to unamortized debt issuance costs on the
2006 Senior Secured Credit Facility for prepayments of $428 million of principal in 2007, including
a prepayment of $250 million that was made in connection with funding from the Accounts Receivable
Securitization Facility we entered into in November 2007.
Interest Expense, Net
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Interest expense, net |
$ | 155,077 | $ | 199,208 | $ | (44,131 | ) | (22.2 | )% | |||||||
Interest expense, net was lower by $44 million in 2008 compared to 2007. The lower interest
expense is primarily attributable to a lower weighted average interest rate, $32 million of which
resulted from a lower LIBOR and $4 million of which resulted from reduced interest rates achieved
through changes in our financing structure such as the February 2007 amendment to our 2006 Senior
Secured Credit Facility and the Accounts Receivable Securitization Facility that we entered into in
November 2007. In addition, interest expense was reduced by $8 million as a result of our net
prepayments of long-term debt during 2007 and 2008 of $303 million. Our weighted average interest
rate on our outstanding debt was 6.09% during 2008 compared to 7.74% in 2007.
At January 3, 2009, we had outstanding interest rate hedging arrangements whereby we capped
the interest rate on $400 million of our floating rate debt at 3.50% and fixed the interest rate on
$1.4 billion of our floating rate debt at 4.16%. Approximately 82% of our total debt outstanding at
January 3, 2009 was at a fixed or capped LIBOR rate.
Income Tax Expense
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Income tax expense |
$ | 35,868 | $ | 57,999 | $ | (22,131 | ) | (38.2 | )% | |||||||
Our annual effective income tax rate was 22.0% in 2008 compared to 31.5% in 2007. The lower
income tax expense is attributable primarily to lower pre-tax income and a lower effective income
tax rate. The lower effective income tax rate is primarily due to higher unremitted earnings from
foreign subsidiaries in 2008 taxed at rates less than the U.S. statutory rate. Our annual effective
tax rate reflects our strategic initiative to make substantial capital investments outside the
United States in our global supply chain in 2008.
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Net Income
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net income |
$ | 127,169 | $ | 126,127 | $ | 1,042 | 0.8 | % | ||||||||
Net income for 2008 was higher than 2007 primarily due to lower interest expense, lower
selling, general and administrative expenses and a lower effective income tax rate offset by lower
gross profit resulting from lower sales volume and higher manufacturing input costs, a gain on
curtailment of postretirement benefits recognized in 2007 which did not recur in 2008 and higher
restructuring charges. The total impact of the 53rd week in 2008 was a $3 million
increase in net income.
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Operating Results by Business Segment — Year Ended January 3, 2009 (“2008”) Compared with Year
Ended December 29, 2007 (“2007”)
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales: |
||||||||||||||||
Innerwear |
$ | 1,947,167 | $ | 2,100,554 | $ | (153,387 | ) | (7.3 | )% | |||||||
Outerwear |
1,196,155 | 1,256,214 | (60,059 | ) | (4.8 | ) | ||||||||||
Hosiery |
217,391 | 251,731 | (34,340 | ) | (13.6 | ) | ||||||||||
Direct to Consumer |
370,163 | 360,500 | 9,663 | 2.7 | ||||||||||||
International |
496,170 | 448,618 | 47,552 | 10.6 | ||||||||||||
Other |
21,724 | 56,920 | (35,196 | ) | (61.8 | ) | ||||||||||
Total net sales |
$ | 4,248,770 | $ | 4,474,537 | $ | (225,767 | ) | (5.0 | )% | |||||||
Segment operating profit (loss): |
||||||||||||||||
Innerwear |
$ | 223,420 | $ | 242,132 | $ | (18,712 | ) | (7.7 | )% | |||||||
Outerwear |
66,149 | 67,340 | (1,191 | ) | (1.8 | ) | ||||||||||
Hosiery |
68,696 | 74,636 | (5,940 | ) | (8.0 | ) | ||||||||||
Direct to Consumer |
44,541 | 57,489 | (12,948 | ) | (22.5 | ) | ||||||||||
International |
64,349 | 57,820 | 6,529 | 11.3 | ||||||||||||
Other |
328 | (1,333 | ) | 1,661 | (124.6 | ) | ||||||||||
Total segment operating profit: |
467,483 | 498,084 | (30,601 | ) | (6.1 | ) | ||||||||||
Items not included in segment operating
profit: |
||||||||||||||||
General corporate expenses |
(45,177 | ) | (52,271 | ) | (7,094 | ) | (13.6 | ) | ||||||||
Amortization of trademarks and other
intangibles |
(12,019 | ) | (6,205 | ) | 5,814 | 93.7 | ||||||||||
Gain on curtailment of postretirement benefits |
— | 32,144 | (32,144 | ) | NM | |||||||||||
Restructuring |
(50,263 | ) | (43,731 | ) | 6,532 | 14.9 | ||||||||||
Inventory write-off included in cost of sales |
(18,696 | ) | — | 18,696 | NM | |||||||||||
Accelerated depreciation included in cost of
sales |
(23,862 | ) | (36,912 | ) | (13,050 | ) | (35.4 | ) | ||||||||
Accelerated depreciation included in selling,
general and administrative expenses |
14 | (2,540 | ) | (2,554 | ) | (100.6 | ) | |||||||||
Total operating profit |
317,480 | 388,569 | (71,089 | ) | (18.3 | ) | ||||||||||
Other income (expense) |
634 | (5,235 | ) | 5,869 | 112.1 | |||||||||||
Interest expense, net |
(155,077 | ) | (199,208 | ) | (44,131 | ) | (22.2 | ) | ||||||||
Income before income tax expense |
$ | 163,037 | $ | 184,126 | $ | (21,089 | ) | (11.5 | )% | |||||||
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Innerwear
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 1,947,167 | $ | 2,100,554 | $ | (153,387 | ) | (7.3 | )% | |||||||
Segment operating profit |
223,420 | 242,132 | (18,712 | ) | (7.7 | ) | ||||||||||
Overall net sales in the Innerwear segment were lower by $153 million or 7% in 2008 compared
to 2007. The difficult economic and retail environment significantly impacted consumers’
discretionary spending which resulted in lower sales in our intimate apparel and socks product
categories. Total intimate apparel net sales were $115 million lower in 2008 compared to 2007. We
experienced lower intimate apparel sales in our Hanes brand of $52 million and our smaller brands
(barely there, Just My Size and Wonderbra) of $45 million and our private label brands of $6
million which we believe was primarily attributable to weaker sales at retail. In 2008 compared to
2007, our Playtex brand intimate apparel net sales were higher by $2 million and our Bali brand
intimate apparel net sales were lower by $13 million. The growth in our Playtex brand sales was
supported by successful marketing initiatives in the first half of 2008. Net sales in our male
underwear product category were $11 million lower, which includes the impact of exiting a license
arrangement for a boys’ character underwear program in early 2008 that lowered sales by $15
million. The lower net sales in our socks product category reflects a decline in kids’ and men’s
Hanes brand net sales of $20 million and Champion brand net sales of $10 million primarily related
to the loss of a men’s program for one of our customers. The total impact of the 53rd
week in 2008, which is included in the amounts above, was a $27 million increase in sales for the
Innerwear segment.
As a percent of segment net sales, gross profit percentage in the Innerwear segment was 33.0%
in 2008 compared to 33.3% in 2007. The lower gross profit was due to lower sales volume of $86
million, unfavorable product sales mix of $16 million, higher cotton costs of $12 million, higher
production costs of $10 million related to higher energy and oil related costs including freight
costs, other vendor price increases of $7 million and lower product sales pricing of $4 million.
These higher costs were offset by savings from our cost reduction initiatives and prior
restructuring actions of $26 million, lower sales incentives of $23 million, $11 million of lower
duty costs primarily related to higher refunds, $8 million of favorable one-time out of period cost
recognition related to the capitalization of certain inventory supplies to be on a consistent basis
across all business lines and lower other manufacturing overhead costs of $4 million. In addition,
we incurred lower on-going excess and obsolete inventory costs of $8 million arising from realizing
the benefits of driving down obsolete inventory levels through aggressive management and promotions
and simplifying our product category offerings which reduced our style counts ranging from 7% to
30% in our various product category offerings.
The lower Innerwear segment operating profit in 2008 compared to 2007 is primarily
attributable to lower gross profit and higher bad debt expense of $4 million primarily related to
the Mervyn’s bankruptcy. These higher costs were partially offset by savings of $17 million from
prior restructuring actions primarily for compensation and related benefits, lower non-media
related MAP expenses of $13 million, lower media related MAP expenses of $8 million and lower
spending of $2 million in numerous other areas. A significant portion of the selling, general and
administrative expenses in each segment is an allocation of our consolidated selling, general and
administrative expenses, however certain expenses that are specifically identifiable to a segment
are charged directly to each segment. The allocation methodology for the consolidated selling,
general and administrative expenses for 2008 is consistent with 2007. Our consolidated selling,
general and administrative expenses before segment allocations was $31 million lower in 2008
compared to 2007.
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Outerwear
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 1,196,155 | $ | 1,256,214 | $ | (60,059 | ) | (4.8 | )% | |||||||
Segment operating profit |
66,149 | 67,340 | (1,191 | ) | (1.8 | ) | ||||||||||
Net sales in the Outerwear segment were lower by $60 million or 5% in 2008 compared to 2007,
primarily as a result of higher net sales of Champion brand activewear of $26 million offset by
lower net sales of retail casualwear of $63 million and lower net sales through our wholesale
channel of $19 million, primarily in promotional T-shirts and sport shirts. Our Champion brand
sales continued to benefit from our investment in the brand through our marketing initiatives. Our
“How You Play” marketing campaign has received a very positive response from consumers. The lower
retail casualwear net sales of $63 million reflect a $6 million impact related to the loss of
seasonal programs continuing into the first half of 2009. The impact on 2009 net sales of losing
these programs, which consisted of recurring seasonal programs that were renewed in prior years but
were not renewed for 2009, occurred primarily in the first half of 2009. The total impact of the
53rd week in 2008, which is included in the amounts above, was a $14 million increase in
sales for the Outerwear segment.
As a percent of segment net sales, gross profit percentage in the Outerwear segment was 22.5%
in 2008 compared to 22.2% in 2007. While the gross profit percentage was higher, gross profit
dollars were lower due to higher cotton costs of $18 million, lower sales volume of $17 million,
higher production costs of $10 million related to higher energy and oil related costs including
freight costs, higher sales incentives of $7 million and other vendor price increases of $3
million. These higher costs were partially offset by lower other manufacturing overhead costs of
$23 million, savings of $11 million from our cost reduction initiatives and prior restructuring
actions, higher product sales pricing of $7 million, favorable product sales mix of $2 million and
lower on-going excess and obsolete inventory costs of $2 million.
The lower Outerwear segment operating profit in 2008 compared to 2007 is primarily
attributable to lower gross profit, higher technology consulting and related expenses of $3 million
and higher bad debt expense of $2 million primarily related to the Mervyn’s bankruptcy. These
higher costs were partially offset by savings of $5 million from our cost reduction initiatives and
prior restructuring actions and lower media-related MAP expenses of $6 million. A significant
portion of the selling, general and administrative expenses in each segment is an allocation of our
consolidated selling, general and administrative expenses, however certain expenses that are
specifically identifiable to a segment are charged directly to each segment. The allocation
methodology for the consolidated selling, general and administrative expenses for 2008 is
consistent with 2007. Our consolidated selling, general and administrative expenses before segment
allocations was $31 million lower in 2008 compared to 2007.
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Hosiery
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 217,391 | $ | 251,731 | $ | (34,340 | ) | (13.6 | )% | |||||||
Segment operating profit |
68,696 | 74,636 | (5,940 | ) | (8.0 | ) | ||||||||||
Net sales in the Hosiery segment declined by $34 million or 14%, which was substantially
more than the long-term trend primarily due to lower sales of the Hanes brand to national chains
and department stores and the L’eggs brand to mass retailers and food and drug stores. In
addition, we experienced lower sales of $4 million related to the Donna Karan and DKNY license
agreement and lower sales of our Just My Size brand of $3 million. We expect the trend of declining
hosiery sales to continue consistent with the overall decline in the industry and with shifts in
consumer preferences. Generally, we manage the Hosiery segment for cash, placing an emphasis on
reducing our cost structure and managing cash efficiently. The total impact of the 53rd
week in 2008, which is included in the amounts above, was a $4 million increase in sales for the
Hosiery segment.
As a percent of segment net sales, gross profit percentage was 49.8% in 2008 compared to 49.1%
in 2007. While the gross profit percentage was higher, gross profit dollars were lower due to lower
sales volume of $20 million, unfavorable product sales mix of $2 million and vendor price increases
of $2 million, partially offset by savings of $4 million from our cost reduction initiatives and
prior restructuring actions and lower sales incentives of $4 million.
The lower Hosiery segment operating profit in 2008 compared to 2007 is primarily attributable
to lower gross profit partially offset by lower distribution expenses of $3 million, lower
non-media related MAP expenses of $3 million, savings of $1 million from our cost reduction
initiatives and prior restructuring actions, and lower spending of $2 million in numerous other
areas. A significant portion of the selling, general and administrative expenses in each segment is
an allocation of our consolidated selling, general and administrative expenses, however certain
expenses that are specifically identifiable to a segment are charged directly to each segment. The
allocation methodology for the consolidated selling, general and administrative expenses for 2008
is consistent with 2007. Our consolidated selling, general and administrative expenses before
segment allocations was $31 million lower in 2008 compared to 2007.
Direct to Consumer
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 370,163 | $ | 360,500 | $ | 9,663 | 2.7 | % | ||||||||
Segment operating profit |
44,541 | 57,489 | (12,948 | ) | (22.5 | ) | ||||||||||
Direct to Consumer segment net sales were higher by $10 million or 3% in 2008 compared to 2007
primarily due to higher net sales of $10 million in our Internet operations. Net sales in our
outlet stores were flat overall primarily due to higher net sales attributable to new store
openings offset by lower comparable store sales (2%) driven by lower traffic. We ended 2008 with
213 outlet stores, reflecting 10 store openings during 2008. The total impact of the
53rd week in 2008, which is included in the amounts above, was a $7 million increase in
sales for the Direct to Consumer segment.
As a percent of segment net sales, gross profit in the Direct to Consumer segment was 61.1% in
2008 compared to 61.4% in 2007. While the gross profit percentage was lower, gross profit dollars
were higher due to higher sales
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volume of $6 million and favorable product sales mix of $4 million, partially offset by higher
other overhead manufacturing costs of $4 million.
The lower Direct to Consumer segment operating profit in 2008 compared to 2007 was primarily
attributable to higher non-media related MAP expenses of $9 million, higher distribution expenses
of $4 million and higher expenses of $3 million as a result of opening 10 retail stores in 2008,
partially offset by higher gross profit. A significant portion of the selling, general and
administrative expenses in each segment is an allocation of our consolidated selling, general and
administrative expenses, however certain expenses that are specifically identifiable to a segment
are charged directly to such segment. The allocation methodology for the consolidated selling,
general and administrative expenses for 2008 is consistent with 2007. Our consolidated selling,
general and administrative expenses before segment allocations was $31 million lower 2008 compared
to 2007.
International
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 496,170 | $ | 448,618 | $ | 47,552 | 10.6 | % | ||||||||
Segment operating profit |
64,349 | 57,820 | 6,529 | 11.3 | ||||||||||||
Overall net sales in the International segment were higher by $48 million or 11% in 2008
compared to 2007. During 2008, we experienced higher net sales, in each case excluding the impact
of foreign currency exchange rates but including the impact of the 53rd week, in Europe
of $13 million, Canada of $9 million and Asia of $5 million. The growth in our European casualwear
business was driven by the strength of the Stedman brand that is sold in the wholesale channel.
Higher sales in our Champion and Hanes brands activewear and male underwear businesses in Canada
and in our Champion brand casualwear business in Asia also contributed to the sales growth. Changes
in foreign currency exchange rates had a favorable impact on net sales of $22 million in 2008
compared to 2007. The favorable impact was primarily due to the strengthening of the Japanese yen,
Euro and Brazilian real. The total impact of the 53rd week in 2008 was a $2 million
increase in sales for the International segment.
As a percent of segment net sales, gross profit percentage was 40.1% in 2008 compared to 2007
at 40.6%. While the gross profit percentage was lower, gross profit dollars were higher for 2008
compared to 2007 as a result of higher sales volume of $15 million, a favorable impact related to
foreign currency exchange rates of $9 million and lower on-going excess and obsolete inventory
costs of $3 million partially offset by higher sales incentives of $7 million, unfavorable product
sales mix of $2 million and higher spending of $3 million in numerous other areas.
The higher International segment operating profit in 2008 compared to 2007 is primarily
attributable to the higher gross profit partially offset by higher distribution expenses of $3
million, higher non-media related MAP expenses of $3 million and higher media-related MAP expenses
of $2 million. Changes in foreign currency exchange rates, which are included in the impact on
gross profit above, had a favorable impact on segment operating profit of $4 million in 2008
compared to 2007.
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Other
| Years Ended | ||||||||||||||||
| January 3, | December 29, | Higher | Percent | |||||||||||||
| 2009 | 2007 | (Lower) | Change | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Net sales |
$ | 21,724 | $ | 56,920 | $ | (35,196 | ) | (61.8 | )% | |||||||
Segment operating profit (loss) |
328 | (1,333 | ) | 1,661 | 124.6 | |||||||||||
The decline in net sales in our Other segment is primarily due to the continued vertical
integration of a yarn and fabric operation acquisition from 2006 with less focus on sales of
nonfinished fabric and yarn to third parties.
General Corporate Expenses
General
corporate expenses were lower in 2008 compared to 2007 primarily due
to lower pension expense of $8 million, which reflects a
$3 million adjustment that reduced pension expense in 2007
related to the final separation of our pension assets and liabilities
from Sara Lee, $4 million of lower start-up and shut-down costs
associated with our consolidation and globalization of our supply
chain, $3 million of spin off and related charges recognized in 2007 which did not
recur in 2008 and $2 million of higher foreign exchange
transaction gains. These lower expenses were partially offset by $7 million in amortization
of gain on curtailment of postretirement benefits in 2007 which did
not recur in 2008 and higher spending in numerous areas of
$3 million.
Liquidity and Capital Resources
Trends and Uncertainties Affecting Liquidity
Our primary sources of liquidity are cash generated by operations and availability under our
Revolving Loan Facility, Accounts Receivable Securitization Facility and our international loan
facilities. At January 2, 2010, we had $307 million of borrowing availability under our $400
million Revolving Loan Facility (after taking into account outstanding letters of credit), $91
million of borrowing availability under our Accounts Receivable Securitization Facility, $39
million in cash and cash equivalents and $35 million of borrowing availability under our
international loan facilities. We currently believe that our existing cash balances and cash
generated by operations, together with our available credit capacity, will enable us to comply with
the terms of our indebtedness and meet foreseeable liquidity requirements.
The following have impacted or are expected to impact liquidity:
| • | we have principal and interest obligations under our debt; |
| • | we expect to continue to invest in efforts to improve operating efficiencies and lower costs; |
| • | we expect to continue to ramp up our lower-cost manufacturing capacity in Asia, Central America and the Caribbean Basin and enhance efficiency; |
| • | we may selectively pursue strategic acquisitions; |
| • | we could increase or decrease the portion of the income of our foreign subsidiaries that is expected to be remitted to the United States, which could significantly impact our effective income tax rate; and |
| • | our board of directors has authorized the repurchase of up to 10 million shares of our stock in the open market over the next few years (2.8 million of which we have repurchased as of January 2, 2010 at a cost of $75 million), although we may choose not to repurchase any stock and instead focus on the repayment of our debt in the next 12 months in light of the current economic recession. |
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We have restructured our supply chain over the past three years to create more efficient
production clusters that utilize fewer, larger facilities and to balance our production capability
between the Western Hemisphere and Asia. With our global supply chain infrastructure substantially
in place, we are now focused on optimizing our supply chain to further enhance efficiency, improve
working capital and asset turns and reduce costs. We are focused on optimizing the working capital
needs of our supply chain through several initiatives, such as supplier-managed inventory for raw
materials and sourced goods ownership relationships. The consolidation of our distribution network
is still in process but will not result in any substantial charges in future periods. The
distribution network consolidation involves the implementation of new warehouse management systems
and technology, and opening of new distribution centers and new third-party logistics providers to
replace parts of our legacy distribution network.
We are operating in an uncertain and volatile economic environment, which could have
unanticipated adverse effects on our business. The retail environment has been impacted by recent
volatility in the financial markets, including stock prices, and by uncertain economic conditions.
Increases in food and fuel prices, changes in the credit and housing markets leading to the current
financial and credit crisis, actual and potential job losses among many sectors of the economy,
significant declines in the stock market resulting in large losses to consumer retirement and
investment accounts, and uncertainty regarding future federal tax and economic policies have all
added to declines in consumer confidence and curtailed retail spending.
During 2009, we did not see a sustained rebound in consumer spending but rather mixed results.
We also experienced substantial pressure on profitability due to the economic climate, increased
pension costs and increased costs associated with implementing our price increase which became
effective in February 2009, including repackaging costs.
Hosiery products continue to be more adversely impacted than other apparel categories by
reduced consumer discretionary spending, which contributes to weaker sales and lowering of
inventory levels by retailers. The Hosiery segment comprised 5% only of our net sales in 2009
however, and as a result, the decline in the Hosiery segment has not had a significant impact on
our net sales or cash flows. Generally, we manage the Hosiery segment for cash, placing an emphasis
on reducing our cost structure and managing cash efficiently.
We expect to be able to manage our working capital levels and capital expenditure amounts to
maintain sufficient levels of liquidity. Factors that could help us in these efforts include higher
sales volume and the realization of additional cost benefits from previous restructuring and
related actions. During 2009, we reduced our media spending as the continuing recession
constrained consumer spending. In 2010 we anticipate that we will restore our media spending back
to a range of $90 to $100 million in an effort to generate sales growth.
2010 Outlook
We have secured significant shelf-space and distribution gains, starting primarily in 2010.
Program gains significantly outnumber program losses, and we expect the net space gains to generate
approximately 5% incremental sales growth in 2010, independent of a consumer spending rebound. If
consumer spending does rebound, we have potential for additional upside in sales growth. By segment, two-thirds of the increases are expected in our Innerwear segment
and most of the remainder in our Outerwear segment. However, both our Direct to Consumer and
International segments should also see mid-single-digit growth in 2010.
Specifically for our Innerwear segment, the bulk of the gains are in men’s underwear and
intimate apparel. The new programs in men’s underwear have already begun to ship, with the new
intimate apparel program starting to ship in the second quarter of 2010. The remaining growth in
the Innerwear segment in the back half of the year will be driven by replenishment of these new
programs.
For the Outerwear segment, growth will be driven by the expansion of our Just My Size brand in
the first half as a result of a multi-year agreement we entered into with Wal-Mart in April 2009
that significantly expanded the presence of our Just My Size brand. In the second half of 2010, Champion has confirmed
space and distribution gains in fleece, performance apparel and sports bras across a broad set of
accounts.
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Our projected sales growth, combined with our cost savings, should drive greater operating
profit growth in 2010. To support this growth, we have increased our production capacity. Our Nanjing
textile facility started production in the fourth quarter of 2009 and is right on plan. We also
secured additional capacity with outside contractors. The earthquake
in Haiti caused some short-term disruption and incremental costs in
early 2010,
however we do not believe it will have a material impact on net sales.
Cash Requirements for Our Business
We rely on our cash flows generated from operations and the borrowing capacity under our
Revolving Loan Facility, Accounts Receivable Securitization Facility and international loan
facilities to meet the cash requirements of our business. The primary cash requirements of our
business are payments to vendors in the normal course of business, restructuring costs, capital
expenditures, maturities of debt and related interest payments, contributions to our pension plans
and repurchases of our stock. We believe we have sufficient cash and available borrowings for our
liquidity needs. The flexibility provided by our debt refinancing provides greater opportunity to
pay down debt, repurchase our stock, pursue selected acquisitions or make discretionary
contributions to our pension plans. During 2009, we reduced debt by $284 million through the use
of cash flows from operations generated primarily by the reduction of inventory by $249 million.
The implementation of our consolidation and globalization strategy, which was designed to
improve operating efficiencies and lower costs, has resulted in significant costs and will generate
savings in future years. Restructuring charges related to our consolidation and globalization
strategy were substantially completed by the end of 2009. The consolidation of our distribution
network is still in process but will not result in any substantial charges in future periods. The
distribution network consolidation involves the implementation of new warehouse management systems
and technology, and opening of new distribution centers and new third-party logistics providers to
replace parts of our legacy distribution network. As a result of our consolidation and
globalization strategy, we expected to incur approximately $250 million in restructuring and
related charges over the three year period following the spin off from Sara Lee on September 5,
2006, of which approximately half was expected to be noncash. Through this three year period, we
have recognized approximately $278 million in restructuring and related charges related to this
strategy, of which approximately half have been noncash. These actions represent the substantial
completion of the consolidation and globalization of our supply chain.
In December 2009, we entered into an agreement to sell selected trade accounts receivable to a
financial institution on a nonrecourse basis. After the sale, we do not retain any interests in the
receivables nor are we involved in the servicing or collection of these receivables. As of January
2, 2010, we had sold $71 million of accounts receivable at their stated value less applicable
discount charges and fees.
Capital spending has varied significantly from year to year as we have executed our supply
chain consolidation and globalization strategy and the integration and consolidation of our
technology systems. We spent $127 million on gross capital expenditures during 2009. During 2010,
we expect our annual gross capital spending to be relatively comparable to our annual depreciation
and amortization expense and should represent our last high year of gross capital spending related
to these efforts.
Pension Plans
Our U.S. qualified pension plan is approximately 80% funded as of January 2, 2010 compared to
86% funded as of January 3, 2009. The funded status reflects an increase in the benefit obligation
due to a decrease in the discount rate used in the valuation of the liability, partially offset by
an increase in the fair value of plan assets as a result of the stock market’s performance during
2009. We may elect to make voluntary contributions, which are not expected to be significant, to
maintain an 80% funded level which will avoid certain benefit payment restrictions under the
Pension Protection Act. We expect pension expense in 2010 of approximately $17 million compared to
$22 million in 2009. See Note 16 to our financial statements for more information on the plan asset
components.
In connection with closing a manufacturing facility in early 2009, we, as required, notified
the Pension Benefit Guaranty Corporation (the “PBGC”) of the closing and requested a liability
determination under section 4062(e) of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”) with respect to the National Textiles, L.L.C. Pension Plan. In September 2009, we
entered into an agreement with the PBGC under which we contributed $7 million to the plan in
September 2009 and agreed to contribute an additional $7 million to the plan by September 2010. In
addition, in September 2009 we made a voluntary contribution of $2 million to the Hanesbrands Inc.
Pension Plan to maintain a funding level sufficient to avoid certain benefit payment restrictions
under the Pension Protection Act and may elect to do the same again in 2010.
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Share Repurchase Program
On February 1, 2007, we announced that our Board of Directors granted authority for the
repurchase of up to 10 million shares of our common stock. Share repurchases are made periodically
in open-market transactions, and are subject to market conditions, legal requirements and other
factors. Additionally, management has been granted authority to establish a trading plan under Rule
10b5-1 of the Exchange Act in connection with share repurchases, which will allow us to repurchase
shares in the open market during periods in which the stock trading window is otherwise closed for
our company and certain of our officers and employees pursuant to our insider trading policy. Since
inception of the program, we have purchased 2.8 million shares of our common stock at a cost of $75
million (average price of $26.33). The primary objective of our share repurchase program is to
reduce the impact of dilution caused by the exercise of options and vesting of stock unit awards.
In light of the current economic recession, we may choose not to repurchase any stock and focus
more on other uses of cash in the next twelve months.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements within the meaning of Item 303(a)(4) of
SEC Regulation S-K.
Future Contractual Obligations and Commitments
The following table contains information on our contractual obligations and commitments
as of January 2, 2010, and their expected timing on future cash flows and liquidity.
| Payments Due by Period | ||||||||||||||||||||
| At January 2, | Less Than | |||||||||||||||||||
| 2010 | 1 Year | 1 - 3 Years | 3 - 5 Years | Thereafter | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
Operating activities: |
||||||||||||||||||||
Inventory purchase obligations |
$ | 256,468 | $ | 256,468 | $ | — | $ | — | $ | — | ||||||||||
Other purchase obligations (1) |
158,285 | 158,285 | — | — | — | |||||||||||||||
Marketing
and advertising obligations |
18,773 | 16,973 | 1,550 | 250 | — | |||||||||||||||
Uncertain tax positions |
28,070 | 3,268 | 16,822 | — | 7,980 | |||||||||||||||
Deferred
compensation |
16,629 | 4,029 | 6,321 | 1,952 | 4,327 | |||||||||||||||
Interest on debt obligations (2) |
599,463 | 104,896 | 195,228 | 185,477 | 113,862 | |||||||||||||||
Operating lease obligations |
249,944 | 49,047 | 71,373 | 43,361 | 86,163 | |||||||||||||||
Defined
benefit plan mandatory contributions (3) |
6,816 | 6,816 | — | — | — | |||||||||||||||
Severence
and other restructuring payments |
22,399 | 18,244 | 4,155 | — | — | |||||||||||||||
Other long-term obligations (4) |
67,874 | 16,153 | 17,674 | 13,363 | 20,684 | |||||||||||||||
Investing activities: |
||||||||||||||||||||
Capital
expenditures |
13,965 | 12,139 | 1,826 | — | — | |||||||||||||||
Financing activities: |
||||||||||||||||||||
Debt |
1,892,235 | 164,688 | 13,125 | 557,235 | 1,157,187 | |||||||||||||||
Notes payable |
66,681 | 66,681 | — | — | — | |||||||||||||||
Total |
$ | 3,397,602 | $ | 877,687 | $ | 328,074 | $ | 801,638 | $ | 1,390,203 | ||||||||||
| (1) | Includes other purchase obligations, excluding inventory purchase obligations, for which we have agreed upon a fixed or minimum quantity to purchase, a fixed, minimum or variable pricing arrangement, and an approximate delivery date. Actual cash expenditures relating to these obligations may vary from the amounts shown in the table above. We enter into purchase obligations when terms or conditions are favorable or when a long-term commitment is necessary. Many of these arrangements are cancelable after a notice period without a significant penalty. This table omits purchase obligations that did not exist as of January 2, 2010, as well as obligations for accounts payable and accrued liabilities recorded on the Consolidated Balance Sheet. | |
| (2) | Interest obligations on floating rate debt instruments are calculated for future periods using interest rates in effect at January 2, 2010. |
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| (3) | In connection with closing a manufacturing facility in early 2009, we, as required, notified the PBGC of the closing and requested a liability determination under section 4062(e) of ERISA with respect to a defined benefit plan. In September 2009, we entered into an agreement with the PBGC under which we contributed $7 million to the defined contribution plan in September 2009 and agreed to contribute an additional $7 million to the plan by September 2010. | |
| (4) | Represents the projected payment for long-term liabilities recorded on the Consolidated Balance Sheet for certain employee benefit claims, royalty-bearing license agreement payments and capital leases. |
Sources and Uses of Our Cash
The information presented below regarding the sources and uses of our cash flows for the years
ended January 2, 2010 and January 3, 2009 was derived from our financial statements.
| Years Ended | ||||||||
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
| (dollars in thousands) | ||||||||
Operating activities |
$ | 414,504 | $ | 177,397 | ||||
Investing activities |
(88,844 | ) | (177,248 | ) | ||||
Financing activities |
(354,174 | ) | (104,738 | ) | ||||
Effect of
changes in foreign currency exchange rates on cash |
115 | (2,305 | ) | |||||
Decrease in cash and cash equivalents |
(28,399 | ) | (106,894 | ) | ||||
Cash and cash equivalents at beginning of year |
67,342 | 174,236 | ||||||
Cash and cash equivalents at end of period |
$ | 38,943 | $ | 67,342 | ||||
Operating Activities
Net cash provided by operating activities was $415 million in 2009 compared to $177
million in 2008. The net increase in cash from operating activities of $237 million for 2009
compared to 2008 is primarily attributable to significantly lower uses of our working capital of
$284 million, partially offset by lower net income.
Accounts receivable increased $40 million from January 3, 2009 primarily due to a longer
collection cycle reflecting a more challenging retail environment, partially offset by the sale of
selected accounts receivable as discussed in the “Cash Requirements for Our Business” section
above.
Net inventory decreased $249 million from January 3, 2009 primarily due to decreases in levels
as we complete the execution of our supply chain consolidation and globalization strategy, lower
input costs such as cotton, oil and freight and lower excess and obsolete inventory levels. We
continually monitor our inventory levels to best balance current supply and demand with potential
future demand that typically surges when consumers no longer postpone purchases in our product
categories. The lower excess and obsolete inventory levels are attributable to both our continuous
evaluation of inventory levels and simplification of our product category offerings. We realized
these benefits by driving down obsolete inventory levels through aggressive management and
promotions.
With our global supply chain substantially restructured, we are now focused on optimizing our
supply chain to further enhance efficiency, improve working capital and asset turns and reduce
costs. We are focused on optimizing the working capital needs of our supply chain through several
initiatives, such as supplier-managed inventory for raw materials and sourced goods ownership
relationships. The consolidation of our distribution network is still in process but will not
result in any substantial charges in future periods. The distribution network consolidation
involves the implementation of new warehouse management systems and technology, and opening of new
distribution centers and new third-party logistics providers to replace parts of our legacy
distribution network.
In October 2009, we completed the sale of our yarn operations to Parkdale America as a result
of which we ceased making our own yarn and now source all of our yarn requirements from large-scale
yarn suppliers. We also entered into a yarn purchase agreement with Parkdale. Under this
agreement, which has an initial term of six years, Parkdale will produce and sell to us a
substantial amount of our Western Hemisphere yarn requirements. During the first two years of the
term, Parkdale will also produce and sell to us a substantial amount of the yarn requirements of
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our Nanjing, China textile facility. Exiting yarn production and entering into a supply
agreement is expected to generate $100 million of working capital improvements within six months
after the sale from reduced raw material requirements, reduced inventory, and sale proceeds.
Investing Activities
Net cash used in investing activities was $89 million in 2009 compared to $177 million in
2008. The lower net cash used in investing activities of $88 million for 2009 compared to 2008 was
primarily the result of lower net spending on capital expenditures in 2009 compared to 2008 and
acquisitions of a sewing operation in Thailand and an embroidery and screen print operation in
Honduras for an aggregate cost of $15 million during 2008. During 2009, gross capital expenditures
were $127 million as we continued to build out our textile and sewing network in Asia, Central
America and the Caribbean Basin.
Financing Activities
Net cash used in financing activities was $354 million in 2009 compared to $105 million in
2008. The higher net cash used in financing activities of $249 million for 2009 compared to 2008
was primarily the result of higher repayments of debt of $147 million, fees paid for the amendments
of the 2006 Senior Secured Credit Facility and Accounts Receivable Securitization Facility of $22
million in 2009 and fees paid related to the issuance of the 8% Senior Notes and the execution of
the 2009 Senior Secured Credit Facility of $53 million in 2009. Lower net borrowings on notes
payable of $38 million also contributed to the higher net cash used in financing activities in 2009
compared to 2008. In addition, we received $18 million in cash from Sara Lee in 2008 which was
offset by stock repurchases of $30 million in 2008 that did not recur in 2009.
Cash and Cash Equivalents
As of January 2, 2010 and January 3, 2009, cash and cash equivalents were $39 million and $67
million, respectively. The lower cash and cash equivalents as of January 2, 2010 was primarily the
result of net cash used in financing activities of $354 million and net cash used in investing
activities of $89 million, partially offset by cash provided by operating activities of $415
million.
Financing Arrangements
We believe our financing structure provides a secure base to support our ongoing operations
and key business strategies. In December 2009, we completed a growth-focused debt refinancing that
enables us to simultaneously reduce leverage and consider acquisition opportunities. The
refinancing gives us more flexibility in our use of excess cash flow, allows continued debt
reduction, and provides a stable long-term capital structure with extended debt maturities at rates
slightly lower than previous effective rates. The refinancing consisted of the sale of our $500
million 8% Senior Notes and the concurrent amendment and restatement of our 2006 Senior Secured
Credit Facility to provide for the $1.15 billion 2009 Senior Secured Credit Facility. The proceeds
from the sale of the 8% Senior Notes, together with the proceeds from borrowings under the 2009
Senior Secured Credit Facility, were used to refinance borrowings under the 2006 Senior Secured
Credit Facility, to repay all borrowings under the Second Lien Credit Facility and to pay fees and
expenses relating to these transactions.
Moody’s Investors Service’s (“Moody’s”) corporate credit rating for us is Ba3 and Standard &
Poor’s Ratings Services’ (“Standard & Poor’s”) corporate credit rating for us is BB-. In November
2009, Moody’s changed our rating outlook to “stable” from “negative,” affirmed our corporate
rating, probability of default rating and speculative grade liquidity rating, and assigned a rating
of Ba1 to the 2009 Senior Secured Credit Facility. In December 2009, Moody’s again affirmed our
corporate rating, probability of default rating and speculative grade liquidity rating, assigned a
rating of B1 to the 8% Senior Notes, and raised the rating on the Floating Rate Notes from B1 to
B2. In September 2009, Standard & Poor’s changed our current outlook to “negative” and placed our
corporate credit rating and all issue-level ratings for us on “Creditwatch with negative
implications.” In December 2009, Standard & Poor’s affirmed our corporate rating and outlook, and
removed us from “Creditwatch with negative implications.” Standard & Poor’s also assigned ratings
of BB+ and B+ to the 2009 Senior Secured Credit Facility and the 8% Senior Notes, respectively, and
raised the rating on the Floating Rate Notes to B+.
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As of January 2, 2010, we were in compliance with all financial covenants under our credit
facilities. We ended the year with a leverage ratio, as calculated under the 2009 Senior Secured
Credit Facility and the Accounts Receivable Securitization Facility, of 4.11 to 1. The maximum
leverage ratio permitted under the 2009 Senior Secured Credit Facility and the Accounts Receivable
Securitization Facility was 4.50 to 1 for the quarter ended January 2, 2010 and will decline over
time until it reaches 3.75 to 1 beginning with the second fiscal quarter of 2011. We continue to
monitor our covenant compliance carefully in this difficult economic environment. We expect to
maintain compliance with our covenants during 2010, however economic conditions or the occurrence
of events discussed above under “Risk Factors” could cause noncompliance.
2009 Senior Secured Credit Facility
The 2009 Senior Secured Credit Facility initially provides for aggregate borrowings of $1.15
billion, consisting of a $750 million term loan facility (the “Term Loan Facility”) and the $400
million Revolving Loan Facility. A portion of the Revolving Loan Facility is available for the
issuances of letters of credit and the making of swingline loans, and any such issuance of letters
of credit or making of a swingline loan will reduce the amount available under the Revolving Loan
Facility. At our option, we may add one or more term loan facilities or increase the commitments
under the Revolving Loan Facility in an aggregate amount of up to $300 million so long as certain
conditions are satisfied, including, among others, that no default or event of default is in
existence and that we are in pro forma compliance with the financial covenants described below. As
of January 2, 2010, we had $52 million outstanding under the Revolving Loan Facility, $41 million
of standby and trade letters of credit issued and outstanding under this facility and $307 million
of borrowing availability. At January 2, 2010, the interest rates on the Term Loan Facility and the
Revolving Loan Facility were 5.25% and 6.75% respectively.
The proceeds of the Term Loan Facility were used to refinance all amounts outstanding under
the Term A loan facility (in an initial principal amount of $250 million) and Term B loan facility
(in an initial principal amount of $1.4 billion) under the 2006 Senior Secured Credit Facility and
to repay all amounts outstanding under the Second Lien Credit Facility. Proceeds of the Revolving
Loan Facility were used to pay fees and expenses in connection with these transactions, and will be
used for general corporate purposes and working capital needs.
The 2009 Senior Secured Credit Facility is guaranteed by substantially all of our existing and
future direct and indirect U.S. subsidiaries, with certain customary or agreed-upon exceptions for
certain subsidiaries. We and each of the guarantors under the 2009 Senior Secured Credit Facility
have granted the lenders under the 2009 Senior Secured Credit Facility a valid and perfected first
priority (subject to certain customary exceptions) lien and security interest in the following:
| • | the equity interests of substantially all of our direct and indirect U.S. subsidiaries and 65% of the voting securities of certain first tier foreign subsidiaries; and |
| • | substantially all present and future property and assets, real and personal, tangible and intangible, of us and each guarantor, except for certain enumerated interests, and all proceeds and products of such property and assets. |
The Term Loan Facility matures on December 10, 2015. The Term Loan Facility will be repaid in
equal quarterly installments in an amount equal to 1% per annum, with the balance due on the
maturity date. The Revolving Loan Facility matures on December 10, 2013. All borrowings under the
Revolving Loan Facility must be repaid in full upon maturity. Outstanding borrowings under the 2009
Senior Secured Credit Facility are prepayable without penalty. There are mandatory prepayments of
principal in connection with (i) the incurrence of certain indebtedness, (ii) non-ordinary course
asset sales or other dispositions (including as a result of casualty or condemnation) that exceed
certain thresholds in any period of 12 consecutive months, with customary reinvestment provisions,
and (iii) excess cash flow, which percentage will be based upon our leverage ratio during the
relevant fiscal period.
At our option, borrowings under the 2009 Senior Secured Credit Facility may be maintained from
time to time as (a) Base Rate loans, which shall bear interest at the highest of (i) 1/2 of 1% in
excess of the federal funds rate, (ii) the rate publicly announced by JPMorgan Chase Bank as its
“prime rate” at its principal office in New York City, in effect from time to time and (iii) the
LIBO Rate (as defined in the 2009 Senior Secured Credit Facility and
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adjusted
for maximum reserves) for LIBOR-based loans with a one-month interest period plus 1.0%, in
effect from time to time, in each case plus the applicable margin, or (b) LIBOR-based loans, which
shall bear interest at the higher of (i) LIBO Rate (as defined in the 2009 Senior Secured Credit
Facility and adjusted for maximum reserves), as determined by reference to the rate for deposits in
dollars appearing on the Reuters Screen LIBOR01 Page for the respective interest period or other
commercially available source designated by the administrative agent, and (ii) 2.00%, plus the
applicable margin in effect from time to time. The applicable margin for the Term Loan Facility and
the Revolving Loan Facility will be determined by reference to a leverage-based pricing grid set
forth in the 2009 Senior Secured Credit Facility. In the case of the Term Loan Facility, the
applicable margin will be (a) 3.25% for LIBOR-based loans and 2.25% for Base Rate loans if our
leverage ratio is greater than or equal to 2.50 to 1, and (b) 3.00% for LIBOR-based loans and 2.00%
for Base Rate loans if our leverage ratio is less than 2.50 to 1. In the case of the Revolving Loan
Facility, the applicable margin will range from a maximum of 4.75% in the case of LIBOR-based loans
and 3.75% in the case of Base Rate loans if our leverage ratio is greater than or equal to 4.00 to
1, and will step down in 0.25% increments to a minimum of 4.00% in the case of LIBOR-based loans
and 3.00% in the case of Base Rate loans if our leverage ratio is less than 2.50 to 1. The
applicable margin from the closing date of the 2009 Senior Secured Credit Facility through the
delivery of our financial statements for the second fiscal quarter of 2010 will be (a) in the case
of the Term Loan Facility, 3.25% and 2.25% for LIBOR-based loans and Base Rate loans, respectively,
and (b) in the case of the Revolving Loan Facility, 4.50% and 3.50% for LIBOR-based loans and Base
Rate loans, respectively.
The 2009 Senior Secured Credit Facility requires us to comply with customary affirmative,
negative and financial covenants. The 2009 Senior Secured Credit Facility requires that we maintain
a minimum interest coverage ratio and a maximum total debt to EBITDA (earnings before income taxes,
depreciation expense and amortization, as computed pursuant to the 2009 Senior Secured Credit
Facility), or leverage ratio. The interest coverage ratio covenant requires that the ratio of our
EBITDA for the preceding four fiscal quarters to our consolidated total interest expense for such
period shall not be less than a specified ratio for each fiscal quarter beginning with the fourth
fiscal quarter of 2009. This ratio was 2.50 to 1 for the fourth fiscal quarter of 2009 and will
increase over time until it reaches 3.25 to 1 for the third fiscal quarter of 2011 and thereafter.
The leverage ratio covenant requires that the ratio of our total debt to EBITDA for the preceding
four fiscal quarters will not be more than a specified ratio for each fiscal quarter beginning with
the fourth fiscal quarter of 2009. This ratio was 4.50 to 1 for the fourth fiscal quarter of 2009
and will decline over time until it reaches 3.75 to 1 for the second fiscal quarter of 2011 and
thereafter. The method of calculating all of the components used in the covenants is included in
the 2009 Senior Secured Credit Facility.
The 2009 Senior Secured Credit Facility also requires us to calculate excess cash flow (as computed
pursuant to the 2009 Senior Secured Credit Facility)
as of the end of each fiscal year and we may be required in certain circumstances to make mandatory
prepayments of amounts outstanding under the Term
Loan Facility as a result of such calculation. As a result of the excess cash flow calculation for
2009, we are required to prepay $57.2 million under
the Term Loan Facility during the second quarter of 2010.
The 2009 Senior Secured Credit Facility contains customary events of default, including
nonpayment of principal when due; nonpayment of interest after a stated grace period, fees or other
amounts after stated grace period; material inaccuracy of representations and warranties;
violations of covenants; certain bankruptcies and liquidations; any cross-default to material
indebtedness; certain material judgments; certain events related to ERISA, actual or asserted
invalidity of any guarantee, security document or subordination provision or non-perfection of
security interest, and a change in control (as defined in the 2009 Senior Secured Credit Facility).
8% Senior Notes
On December 10, 2009, we issued $500 million aggregate principal amount of the 8% Senior
Notes. The 8% Senior Notes are senior unsecured obligations that rank equal in right of payment
with all of our existing and future unsubordinated indebtedness. The 8% Senior Notes bear interest
at an annual rate equal to 8%. Interest is payable on the 8% Senior Notes on June 15 and December
15 of each year. The 8% Senior Notes will mature on December 10, 2016. The net proceeds from the
sale of the 8% Senior Notes were approximately $480 million. As noted above, these proceeds,
together with the proceeds from borrowings under the 2009 Senior Secured Credit Facility, were used
to refinance borrowings under the 2006 Senior Secured Credit Facility, to repay all borrowings
under the Second Lien Credit Facility and to pay fees and expenses relating to these transactions.
The 8% Senior Notes are guaranteed by substantially all of our domestic subsidiaries.
We may redeem some or all of the notes prior to December 15, 2013 at a redemption price equal
to 100% of the principal amount of 8% Senior Notes redeemed plus an applicable premium. We may
redeem some or all of the 8% Senior Notes at any time on or after December 15, 2013 at a redemption
price equal to the principal amount of the 8% Senior Notes plus a premium of 4% if redeemed during
the 12-month period commencing on December 15,
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2013, 2% if redeemed during the 12-month period commencing on December 15, 2014 and no premium
if redeemed after December 15, 2015, as well as any accrued and unpaid interest as of the
redemption date. In addition, at any time prior to December 15, 2012, we may redeem up to 35% of
the aggregate principal amount of the Notes at a redemption price of 108% of the principal amount
of the Notes redeemed with the net cash proceeds of certain equity offerings.
The indenture governing the 8% Senior Notes contains customary events of default which include
(subject in certain cases to customary grace and cure periods), among others, nonpayment of
principal or interest; breach of other agreements in such indenture; failure to pay certain other
indebtedness; failure to pay certain final judgments; failure of certain guarantees to be
enforceable; and certain events of bankruptcy or insolvency.
Floating Rate Senior Notes
On December 14, 2006, we issued $500 million aggregate principal amount of the Floating Rate
Senior Notes. The Floating Rate Senior Notes are senior unsecured obligations that rank equal in
right of payment with all of our existing and future unsubordinated indebtedness. The Floating Rate
Senior Notes bear interest at an annual rate, reset semi-annually, equal to LIBOR plus 3.375%.
Interest is payable on the Floating Rate Senior Notes on June 15 and December 15 of each year. The
Floating Rate Senior Notes will mature on December 15, 2014. The net proceeds from the sale of the
Floating Rate Senior Notes were approximately $492 million. These proceeds, together with our
working capital, were used to repay in full the $500 million outstanding under the bridge loan
facility that we entered into in 2006. The Floating Rate Senior Notes are guaranteed by
substantially all of our domestic subsidiaries.
We may redeem some or all of the Floating Rate Senior Notes at any time on or after December
15, 2008 at a redemption price equal to the principal amount of the Floating Rate Senior Notes plus
a premium of 2% if redeemed during the 12-month period commencing on December 15, 2008, 1% if
redeemed during the 12-month period commencing on December 15, 2009 and no premium if redeemed
after December 15, 2010, as well as any accrued and unpaid interest as of the redemption date.
The indenture governing the Floating Rate Senior Notes contains customary events of default
which include (subject in certain cases to customary grace and cure periods), among others,
nonpayment of principal or interest; breach of other agreements in such indenture; failure to pay
certain other indebtedness; failure to pay certain final judgments; failure of certain guarantees
to be enforceable; and certain events of bankruptcy or insolvency.
We repurchased $3 million of the Floating Rate Senior Notes for $2.8 million resulting in a
gain of $0.2 million in 2009. We repurchased $6 million of the Floating Rate Senior Notes for $4
million resulting in a gain of $2 million in 2008.
Accounts Receivable Securitization
On November 27, 2007, we entered into the Accounts Receivable Securitization Facility, which
initially provided for up to $250 million in funding accounted for as a secured borrowing, limited
to the availability of eligible receivables, and is secured by certain domestic trade receivables.
Under the terms of the Accounts Receivable Securitization Facility, we sell, on a revolving basis,
certain domestic trade receivables to HBI Receivables LLC (“Receivables LLC”), a wholly-owned
bankruptcy-remote subsidiary that in turn uses the trade receivables to secure the borrowings,
which are funded through conduits that issue commercial paper in the short-term market and are not
affiliated with us or through committed bank purchasers if the conduits fail to fund. The assets
and liabilities of Receivables LLC are fully reflected on the Consolidated Balance Sheet, and the
securitization is treated as a secured borrowing for accounting purposes. The borrowings under the
Accounts Receivable Securitization Facility remain outstanding throughout the term of the agreement
subject to us maintaining sufficient eligible receivables, by continuing to sell trade receivables
to Receivables LLC, unless an event of default occurs. All of the proceeds from the Accounts
Receivable Securitization Facility were used to make a prepayment of principal under the 2006
Senior Secured Credit Facility. On January 29, 2010, Receivables LLC gave notice to the agent and
the managing agents under the Accounts Receivable Securitization Facility that, as permitted by the
terms of the Accounts Receivable Securitization Facility, effective February 11, 2010, the amount
of funding available under the Accounts Receivable Securitization Facility was being reduced from
$250 million to $150 million.
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Availability of funding under the Accounts Receivable Securitization Facility depends
primarily upon the eligible outstanding receivables balance. As of January 2, 2010, we had $100
million outstanding under the Accounts Receivable Securitization Facility. The outstanding balance
under the Accounts Receivable Securitization Facility is reported on our Consolidated Balance Sheet
in the line “Current portion of debt.” Unless the conduits fail to fund, the yield on the
commercial paper, which is the conduits’ cost to issue the commercial paper plus certain dealer
fees, is considered a financing cost and is included in interest expense on the Consolidated
Statement of Income. If the conduits fail to fund, the Accounts Receivable Securitization Facility
would be funded through committed bank purchasers, and the interest rate payable at our option at
the rate announced from time to time by JPMorgan as its prime rate or at the LIBO Rate (as defined
in the Accounts Receivable Securitization Facility) plus the applicable margin in effect from time
to time. The average blended interest rate for the outstanding balance as of January 2, 2010 was
2.80%.
On March 16, 2009, we and Receivables LLC entered into Amendment No. 1 (“Amendment No. 1”) to
the Accounts Receivable Securitization Facility. Prior to the execution of Amendment No. 1, the
Accounts Receivable Securitization Facility contained the same leverage ratio and interest coverage
ratio provisions as the 2006 Senior Secured Credit Facility, and Amendment No. 1 conformed these
ratios to the ratios provided for in the 2006 Senior Secured Credit Facility as modified by an
amendment to the 2006 Senior Secured Credit Facility that was also entered into in March 2009.
Pursuant to Amendment No.1, the rate that would be payable to the conduit purchasers or the
committed purchasers party to the Accounts Receivable Securitization Facility in the event of
certain defaults was increased from 1% over the prime rate to 3% over the greatest of (i) the
one-month LIBO rate plus 1%, (ii) the weighted average rates on federal funds transactions plus
0.5%, or (iii) the prime rate. Also pursuant to Amendment No. 1, several of the factors that
contribute to the overall availability of funding were amended in a manner that would be expected
to generally reduce the amount of funding that would be available under the Accounts Receivable
Securitization Facility. Amendment No. 1 also provides for certain other amendments to the Accounts
Receivable Securitization Facility, including changing the termination date for the Accounts
Receivable Securitization Facility from November 27, 2010 to March 15, 2010, and requiring that
Receivables LLC make certain payments to a conduit purchaser, a committed purchaser, or certain
entities that provide funding to or are affiliated with them, in the event that assets and
liabilities of a conduit purchaser are consolidated for financial and/or regulatory accounting
purposes with certain other entities.
On April 13, 2009, we and Receivables LLC entered into Amendment No. 2 (“Amendment No. 2”) to
the Accounts Receivable Securitization Facility. Pursuant to Amendment No. 2, several of the
factors that contribute to the overall availability of funding were amended in a manner would be
expected to generally increase over time the amount of funding that would be available under the
Accounts Receivable Securitization Facility as compared to the amount that would be available
pursuant to Amendment No. 1. Amendment No. 2 also provides for certain other amendments to the
Accounts Receivable Securitization Facility, including changing the termination date for the
Accounts Receivable Securitization Facility from March 15, 2010 to April 12, 2010. In addition,
HSBC Securities (USA) Inc. replaced JPMorgan Chase Bank, N.A. as agent under the Accounts
Receivable Securitization Facility, PNC Bank, N.A. replaced JPMorgan Chase Bank, N.A. as a managing
agent, and PNC Bank, N.A. and an affiliate of PNC Bank, N.A. replaced affiliates of JPMorgan Chase
Bank, N.A. as a committed purchaser and a conduit purchaser, respectively.
On August 17, 2009, we and HBI Receivables entered into Amendment No. 3 to the Accounts
Receivable Securitization Facility, pursuant to which certain definitions were amended to clarify
the calculation of certain ratios that impact reporting under the Accounts Receivable
Securitization Facility.
On December 10, 2009, we and Receivables LLC entered into Amendment No. 4 (“Amendment No. 4”)
to the Accounts Receivable Securitization Facility. Prior to the execution of Amendment No. 4, the
Accounts Receivable Securitization Facility contained the same leverage ratio and interest coverage
ratio provisions as the 2006 Senior Secured Credit Facility. Amendment No. 4 conformed these ratios
to the ratios provided for in the 2009 Senior Secured Credit Facility.
On December 21, 2009, we and Receivables LLC entered into Amendment No. 5 (“Amendment No. 5”)
to the Accounts Receivable Securitization Facility. Pursuant to Amendment No. 5, Receivables LLC
was permitted to sell receivables from certain obligors back to us, and to cease purchasing
receivables of these certain obligors from us in the future. Amendment No. 5 also provides for
certain other amendments to the Accounts Receivable Securitization
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Facility, including changing the termination date for the Accounts Receivable Securitization
Facility from April 12, 2010 to December 20, 2010. In addition, certain of the factors that
contribute to the overall availability of funding were modified in a manner that, taken together,
could result in a reduction in the amount of funding that will be available under the Accounts
Receivable Securitization Facility. In connection with Amendment No. 5, certain fees were due to
the managing agents and certain fees payable to the committed purchasers and the conduit purchasers
were decreased.
The Accounts Receivable Securitization Facility contains customary events of default and
requires us to maintain the same interest coverage ratio and leverage ratio as required by the 2009
Senior Secured Credit Facility. As of January 2, 2010, we were in compliance with all financial
covenants.
Notes Payable
Notes payable were $67 million at January 2, 2010 and $62 million at January 3, 2009.
We have a short-term revolving facility arrangement with a Salvadoran branch of a Canadian
bank amounting to $30 million of which $30 million was outstanding at January 2, 2010 which accrues
interest at 4.47%. We were in compliance with the financial covenants contained in this facility at
January 2, 2010.
We have a short-term revolving facility arrangement with a U.S. bank amounting to $25.0
million of which $25.0 million was outstanding at January 2, 2010 which accrues interest at 3.23%.
We were in compliance with the financial covenants contained in this facility at January 2, 2010.
We have a short-term revolving facility arrangement with a Hong Kong bank amounting to THB 600
million ($18 million) of which $4.3 million was outstanding at January 2, 2010 which accrues
interest at 5.32%. We were in compliance with the financial covenants contained in this facility at
January 2, 2010.
We have a short-term revolving facility arrangement with a Chinese branch of a U.S. bank
amounting to RMB 56 million ($8.2 million) of which $7.4 million was outstanding at January 2, 2010
which accrues interest at 6.37%. Borrowings under the facility accrue interest at the prevailing
base lending rates published by the People’s Bank of China from time to time plus 20%. We were in
compliance with the financial covenants contained in this facility at January 2, 2010.
In addition, we have short-term revolving credit facilities in various other locations that
can be drawn on from time to time amounting to $20.4 million of which $0 was outstanding at January
2, 2010.
Derivatives
In connection with the amendment and restatement of the 2006 Senior Secured Credit Facility
and repayment of the Second Lien Credit Facility in December 2009, all outstanding interest rate
hedging instruments which were hedging these underlying debt instruments along with the interest
rate hedge instrument related to the Floating Rate Senior Notes were settled for $62 million, of
which $40 million was paid in December 2009 and the remaining $22 million was included in the
“Accounts Payable” line of the Consolidated Balance Sheet at January 2, 2010. The amounts deferred
in Accumulated Other Comprehensive Loss associated with the 2006 Senior Secured Credit Facility and
Second Lien Credit Facility were released to earnings as the underlying forecasted interest
payments were no longer probable of occurring, which resulted in recognition of losses totaling $26
million that are included in the “Other Expense (Income)” line of the Consolidated Statement of
Income. The amounts deferred in Accumulated Other Comprehensive Loss associated with the Floating
Rate Senior Notes interest rate hedge were frozen at the termination date and will be amortized
over the original remaining term of the interest rate hedge instrument.
We are required under the 2009 Senior Secured Credit Facility to hedge a portion of our
floating rate debt to reduce interest rate risk caused by floating rate debt issuance.
To comply with this requirement, in the first quarter of 2010 we entered into a
hedging arrangement whereby we capped the LIBOR interest rate component on $490.7 million of the
floating rate debt under the Floating Rate Senior Notes at 4.262%, as a result of which
approximately 52% of our total debt outstanding at January 2, 2010 is now at a fixed rate.
We use forward exchange and option contracts to reduce the effect of fluctuating foreign
currencies for a portion of our anticipated short-term foreign currency-denominated transactions.
Cotton is the primary raw material used to manufacture many of our products. While we have
sold our yarn operations, we are still exposed to fluctuations in the cost of cotton. Increases in
the cost of cotton can result in higher costs in the price we pay for yarn from our large-scale
yarn suppliers. While we do
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employ a dollar cost averaging strategy by entering into hedging
contracts from time to time in an attempt to protect our business from the
volatility of the market price of cotton, our business can be affected by dramatic movements in
cotton prices.
Critical Accounting Policies and Estimates
We have chosen accounting policies that we believe are appropriate to accurately and fairly
report our operating results and financial condition in conformity with accounting principles
generally accepted in the United States. We apply these accounting policies in a consistent manner.
Our significant accounting policies are discussed in Note 2, titled “Summary of Significant
Accounting Policies,” to our financial statements.
The application of critical accounting policies requires that we make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosures. These estimates and assumptions are based on historical and other factors
believed to be reasonable under the circumstances. We evaluate these estimates and assumptions on
an ongoing basis and may retain outside consultants to assist in our evaluation. If actual results
ultimately differ from previous estimates, the revisions are included in results of operations in
the period in which the actual amounts become known. The critical accounting policies that involve
the most significant management judgments and estimates used in preparation of our financial
statements, or are the most sensitive to change from outside factors, are the following:
Sales Recognition and Incentives
We recognize revenue when (i) there is persuasive evidence of an arrangement, (ii) the sales
price is fixed or determinable, (iii) title and the risks of ownership have been transferred to the
customer and (iv) collection of the receivable is reasonably assured, which occurs primarily upon
shipment. We record provisions for any uncollectible amounts based upon our historical collection
statistics and current customer information. Our management reviews these estimates each quarter
and makes adjustments based upon actual experience.
Note 2(d), titled “Summary of Significant Accounting Policies — Sales Recognition and
Incentives,” to our financial statements describes a variety of sales incentives that we offer to
resellers and consumers of our products. Measuring the cost of these incentives requires, in many
cases, estimating future customer utilization and redemption rates. We use historical data for
similar transactions to estimate the cost of current incentive programs. Our management reviews
these estimates each quarter and makes adjustments based upon actual experience and other available
information. We classify the costs associated with cooperative advertising as a reduction of “Net
sales” in our Consolidated Statements of Income.
Accounts Receivable Valuation
Accounts receivable consist primarily of amounts due from customers. We carry our
accounts receivable at their net realizable value. In determining the appropriate allowance for
doubtful accounts, we consider a combination of factors, such as the aging of trade receivables,
industry trends, and our customers’ financial strength, credit standing, and payment and default
history. Changes in the aforementioned factors, among others, may lead to adjustments in our
allowance for doubtful accounts. The calculation of the required allowance requires judgment by our
management as to the impact of these and other factors on the ultimate realization of our trade
receivables. Charges to the allowance for doubtful accounts are reflected in the “Selling, general
and administrative expenses” line and charges to the allowance for customer chargebacks and other
customer deductions are primarily reflected as a reduction in the “Net sales” line of our
Consolidated Statements of Income. Our management reviews these estimates each quarter and makes
adjustments based upon actual experience. Because we cannot predict future changes in the
financial stability of our customers, actual future losses from uncollectible accounts may differ
from our estimates. If the financial condition of our customers were to deteriorate, resulting in
their inability to make payments, a large reserve might be required. The amount of actual
historical losses has not varied materially from our estimates for bad debts.
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Catalog Expenses
We incur expenses for printing catalogs for our products to aid in our sales efforts. We
initially record these expenses as a prepaid item and charge it against selling, general and
administrative expenses over time as the catalog is used. Expenses are recognized at a rate that
approximates our historical experience with regard to the timing and amount of sales attributable
to a catalog distribution.
Inventory Valuation
We carry inventory on our balance sheet at the estimated lower of cost or market. Cost is
determined by the first-in, first-out, or “FIFO,” method for our inventories. We carry obsolete,
damaged, and excess inventory at the net realizable value, which we determine by assessing
historical recovery rates, current market conditions and our future marketing and sales plans.
Because our assessment of net realizable value is made at a point in time, there are inherent
uncertainties related to our value determination. Market factors and other conditions underlying
the net realizable value may change, resulting in further reserve requirements. A reduction in the
carrying amount of an inventory item from cost to market value creates a new cost basis for the
item that cannot be reversed at a later period. While we believe that adequate write-downs for
inventory obsolescence have been provided in the financial statements, consumer tastes and
preferences will continue to change and we could experience additional inventory write-downs in the
future.
Rebates, discounts and other cash consideration received from a vendor related to inventory
purchases are reflected as reductions in the cost of the related inventory item, and are therefore
reflected in cost of sales when the related inventory item is sold.
Income Taxes
Deferred taxes are recognized for the future tax effects of temporary differences between
financial and income tax reporting using tax rates in effect for the years in which the differences
are expected to reverse. We have recorded deferred taxes related to operating losses and capital
loss carryforwards. Realization of deferred tax assets is dependent on future taxable income in
specific jurisdictions, the amount and timing of which are uncertain, possible changes in tax laws
and tax planning strategies. If in our judgment it appears that we will not be able to generate
sufficient taxable income or capital gains to offset losses during the carryforward periods, we
have recorded valuation allowances to reduce those deferred tax assets to amounts expected to be
ultimately realized. An adjustment to income tax expense would be required in a future period if
we determine that the amount of deferred tax assets to be realized differs from the net recorded
amount.
Federal income taxes are provided on that portion of our income of foreign subsidiaries that
is expected to be remitted to the United States and be taxable, reflecting the decisions made by us
with regards to earnings permanently reinvested in foreign jurisdictions. In periods after the spin
off, we may make different decisions as to the amount of earnings permanently reinvested in foreign
jurisdictions, due to anticipated cash flow or other business requirements, which may impact our
federal income tax provision and effective tax rate.
We periodically estimate the probable tax obligations using historical experience in tax
jurisdictions and our informed judgment. There are inherent uncertainties related to the
interpretation of tax regulations in the jurisdictions in which we transact business. The judgments
and estimates made at a point in time may change based on the outcome of tax audits, as well as
changes to, or further interpretations of, regulations. Income tax expense is adjusted in the
period in which these events occur, and these adjustments are included in our Consolidated
Statements of Income. If such changes take place, there is a risk that our effective tax rate may
increase or decrease in any period. A company must recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position are measured based on the largest
benefit that has a greater than fifty percent likelihood of being realized upon ultimate
resolution.
In conjunction with the spin off, we and Sara Lee entered into a tax sharing agreement, which
allocates responsibilities between us and Sara Lee for taxes and certain other tax matters. Under
the tax sharing agreement, Sara Lee generally is liable for all U.S. federal, state, local and
foreign income taxes attributable to us with respect
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to taxable periods ending on or before September 5, 2006. Sara Lee also is liable for income
taxes attributable to us with respect to taxable periods beginning before September 5, 2006 and
ending after September 5, 2006, but only to the extent those taxes are allocable to the portion of
the taxable period ending on September 5, 2006. We are generally liable for all other taxes
attributable to us. Changes in the amounts payable or receivable by us under the stipulations of
this agreement may impact our tax provision in any period.
Under the tax sharing agreement, within 180 days after Sara Lee filed its final consolidated
tax return for the period that included September 5, 2006, Sara Lee was required to deliver to us a
computation of the amount of deferred taxes attributable to our United States and Canadian
operations that would be included on our opening balance sheet as of September 6, 2006 (“as finally
determined”) which has been done. We have the right to participate in the computation of the amount
of deferred taxes. Under the tax sharing agreement, if substituting the amount of deferred taxes
as finally determined for the amount of estimated deferred taxes that were included on that balance
sheet at the time of the spin off causes a decrease in the net book value reflected on that balance
sheet, then Sara Lee will be required to pay us the amount of such decrease. If such substitution
causes an increase in the net book value reflected on that balance sheet, then we will be required
to pay Sara Lee the amount of such increase. For purposes of this computation, our deferred taxes
are the amount of deferred tax benefits (including deferred tax consequences attributable to
deductible temporary differences and carryforwards) that would be recognized as assets on the
Company’s balance sheet computed in accordance with GAAP, but without regard to valuation
allowances, less the amount of deferred tax liabilities (including deferred tax consequences
attributable to taxable temporary differences) that would be recognized as liabilities on our
opening balance sheet computed in accordance with GAAP, but without regard to valuation allowances.
Neither we nor Sara Lee will be required to make any other payments to the other with respect to
deferred taxes.
Based on our computation of the final amount of deferred taxes for
our opening balance sheet as of September 6, 2006, the
amount that is expected to be collected from Sara Lee based on our
computation of $72 million, which reflects a preliminary cash installment
received from Sara Lee of $18,000,
is included as a receivable in Other Current Assets in the Consolidated Balance Sheets as
of January 2, 2010 and January 3, 2009. We have exchanged information with Sara Lee in connection
with this matter, but Sara Lee has disagreed with our computation. In accordance with the dispute
resolution provisions of the tax sharing agreement, on August 3, 2009, we submitted the dispute to
binding arbitration. The arbitration process is ongoing, and we will continue to prosecute our
claim. We do not believe that the resolution of this dispute will have a material impact on our
financial position, results of operations or cash flows.
Stock Compensation
We established the Omnibus Incentive Plan to award stock options, stock appreciation rights,
restricted stock, restricted stock units, deferred stock units, performance shares and cash to our
employees, non-employee directors and employees of our subsidiaries to promote the interest of our
company and incent performance and retention of employees. Stock-based compensation is estimated
at the grant date based on the award’s fair value and is recognized as expense over the requisite
service period. Estimation of stock-based compensation for stock options granted, utilizing the
Black-Scholes option-pricing model, requires various highly subjective assumptions including
volatility and expected option life. We use a combination of the volatility of our company and the
volatility of peer companies for a period of time that is comparable to the expected life of the
option to determine volatility assumptions. We utilize the simplified method outlined in SEC
accounting rules to estimate expected lives for options granted. The simplified method is used for
valuing stock option grants by eligible public companies that do not have sufficient historical
exercise patterns on options granted to employees. We estimate forfeitures for stock-
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based awards granted that are not expected to vest. If any of these inputs or assumptions
changes significantly, our stock-based compensation expense could be materially different in the
future.
Defined Benefit Pension Plans
For a discussion of our net periodic benefit cost, plan obligations, plan assets, and how we
measure the amount of these costs, see Note 16 titled “Defined Benefit Pension Plans” to our
consolidated financial statements.
Our U.S. qualified pension plan is approximately 80% funded as of January 2, 2010 compared to
86% funded as of January 3, 2009. The funded status reflects an increase in the benefit obligation
due to a decrease in the discount rate used in the valuation of the liability, partially offset by
an increase in the fair value of plan assets as a result of the stock market’s performance during
2009. We may elect to make voluntary contributions to maintain an 80% funded level which will
avoid certain benefit payment restrictions under the Pension Protection Act. The funded status of
our defined benefit pension plans are recognized on our balance sheet and changes in the funded
status are reflected in comprehensive income. We measure the funded status of our plans as of the
date of our fiscal year end. We expect pension expense in 2010 of approximately $17 million
compared to $22 million in 2009.
The net periodic cost of the pension plans is determined using projections and actuarial
assumptions, the most significant of which are the discount rate and the long-term rate of asset
return. The net periodic pension income or expense is recognized in the year incurred. Gains and
losses, which occur when actual experience differs from actuarial assumptions, are amortized over
the average future expected life of participants.
Our policies regarding the establishment of pension assumptions are as follows:
| • | In determining the discount rate, we utilized the Citigroup Pension Discount Curve (rounded to the nearest 10 basis points) in order to determine a unique interest rate for each plan and match the expected cash flows for each plan. | ||
| • | Salary increase assumptions were based on historical experience and anticipated future management actions. The salary increase assumption only applies to the Canadian plans and portions of the Hanesbrands nonqualified retirement plans, as benefits under these plans are not frozen. The benefits under the Hanesbrands Inc. Pension Plan were frozen as of January 1, 2006. | ||
| • | In determining the long-term rate of return on plan assets we applied a proportionally weighted blend between assuming the historical long-term compound growth rate of the plan portfolio would predict the future returns of similar investments, and the utilization of forward looking assumptions. | ||
| • | Retirement rates were based primarily on actual experience while standard actuarial tables were used to estimate mortality. |
The sensitivity of changes in actuarial assumptions on our annual pension expense and on our plans’
projected benefit obligations, all other factors being equal, is illustrated by the following:
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| Increase (Decrease) in | ||||||||
| Projected Benefit | ||||||||
| Pension Expense | Obligation | |||||||
1% decrease in discount rate |
$ | 1 | $ | 114 | ||||
1% increase in discount rate |
(1 | ) | (94 | ) | ||||
1% decrease in expected investment return |
6 | — | ||||||
1% increase in expected investment return |
(6 | ) | — | |||||
Trademarks and Other Identifiable Intangibles
Trademarks and computer software are our primary identifiable intangible assets. We amortize
identifiable intangibles with finite lives, and we do not amortize identifiable intangibles with
indefinite lives. We base the estimated useful life of an identifiable intangible asset upon a
number of factors, including the effects of demand, competition, expected changes in distribution
channels and the level of maintenance expenditures required to obtain future cash flows. As of
January 2, 2010, the net book value of trademarks and other identifiable intangible assets was $136
million, of which we are amortizing the entire balance. We anticipate that our amortization expense
for 2010 will be $12 million.
We evaluate identifiable intangible assets subject to amortization for impairment using a
process similar to that used to evaluate asset amortization described below under “— Depreciation
and Impairment of Property, Plant and Equipment.” We assess identifiable intangible assets not
subject to amortization for impairment at least annually and more often as triggering events occur.
In order to determine the impairment of identifiable intangible assets not subject to amortization,
we compare the fair value of the intangible asset to its carrying amount. We recognize an
impairment loss for the amount by which an identifiable intangible asset’s carrying value exceeds
its fair value.
We measure a trademark’s fair value using the royalty saved method. We determine the royalty
saved method by evaluating various factors to discount anticipated future cash flows, including
operating results, business plans, and present value techniques. The rates we use to discount cash
flows are based on interest rates and the cost of capital at a point in time. Because there are
inherent uncertainties related to these factors and our judgment in applying them, the assumptions
underlying the impairment analysis may change in such a manner that impairment in value may occur
in the future. Such impairment will be recognized in the period in which it becomes known.
Goodwill
As of January 2, 2010, we had $322 million of goodwill. We do not amortize goodwill, but we
assess for impairment at least annually and more often as triggering events occur. The timing of
our annual goodwill impairment testing is the first day of the third fiscal quarter.
In evaluating the recoverability of goodwill, we estimate the fair value of our reporting
units. We rely on a number of factors to determine the fair value of our reporting units and
evaluate various factors to discount anticipated future cash flows, including operating results,
business plans, and present value techniques. As discussed above under “Trademarks and Other
Identifiable Intangibles,” there are inherent uncertainties related to these factors, and our
judgment in applying them and the assumptions underlying the impairment analysis may change in such
a manner that impairment in value may occur in the future. Such impairment will be recognized in
the period in which it becomes known.
We evaluate the recoverability of goodwill using a two-step process based on an evaluation of
reporting units. The first step involves a comparison of a reporting unit’s fair value to its
carrying value. In the second step, if the reporting unit’s carrying value exceeds its fair value,
we compare the goodwill’s implied fair value and its carrying value. If the goodwill’s carrying
value exceeds its implied fair value, we recognize an impairment loss in an amount equal to such
excess.
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Depreciation and Impairment of Property, Plant and Equipment
We state property, plant and equipment at its historical cost, and we compute depreciation
using the straight-line method over the asset’s life. We estimate an asset’s life based on
historical experience, manufacturers’ estimates, engineering or appraisal evaluations, our future
business plans and the period over which the asset will economically benefit us, which may be the
same as or shorter than its physical life. Our policies require that we periodically review our
assets’ remaining depreciable lives based upon actual experience and expected future utilization. A
change in the depreciable life is treated as a change in accounting estimate and the accelerated
depreciation is accounted for in the period of change and future periods. Based upon current levels
of depreciation, the average remaining depreciable life of our net property other than land is five
years.
We test an asset for recoverability whenever events or changes in circumstances indicate that
its carrying value may not be recoverable. Such events include significant adverse changes in
business climate, several periods of operating or cash flow losses, forecasted continuing losses or
a current expectation that an asset or asset group will be disposed of before the end of its useful
life. We evaluate an asset’s recoverability by comparing the asset or asset group’s net carrying
amount to the future net undiscounted cash flows we expect such asset or asset group will generate.
If we determine that an asset is not recoverable, we recognize an impairment loss in the amount by
which the asset’s carrying amount exceeds its estimated fair value.
When we recognize an impairment loss for an asset held for use, we depreciate the asset’s
adjusted carrying amount over its remaining useful life. We do not restore previously recognized
impairment losses if circumstances change.
Insurance Reserves
We maintain insurance coverage for property, workers’ compensation and other casualty
programs. We are responsible for losses up to certain limits and are required to estimate a
liability that represents the ultimate exposure for aggregate losses below those limits. This
liability is based on management’s estimates of the ultimate costs to be incurred to settle known
claims and claims not reported as of the balance sheet date. The estimated liability is not
discounted and is based on a number of assumptions and factors, including historical trends,
actuarial assumptions and economic conditions. If actual trends differ from the estimates, the
financial results could be impacted. Actual trends have not differed materially from the
estimates.
Assets and Liabilities Acquired in Business Combinations
We account for business acquisitions using the purchase method, which requires us to allocate
the cost of an acquired business to the acquired assets and liabilities based on their estimated
fair values at the acquisition date. We recognize the excess of an acquired business’s cost over
the fair value of acquired assets and liabilities as goodwill as discussed below under “Goodwill.”
We use a variety of information sources to determine the fair value of acquired assets and
liabilities. We generally use third-party appraisers to determine the fair value and lives of
property and identifiable intangibles, consulting actuaries to determine the fair value of
obligations associated with defined benefit pension plans, and legal counsel to assess obligations
associated with legal and environmental claims.
Recently Issued Accounting Pronouncements
Accounting for Transfers of Financial Assets
In June 2009, the Financial Accounting Standards Board (“FASB”) issued new accounting rules
for transfers of financial assets. The new rules require greater transparency and additional
disclosures for transfers of financial assets and the entity’s continuing involvement with them and
change the requirements for derecognizing financial assets. The new accounting rules are effective
for financial asset transfers occurring after the beginning of our first fiscal year that begins
after November 15, 2009. We are evaluating the impact of adoption of these new rules on our
financial condition, results of operations and cash flows.
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Consolidation — Variable Interest Entities
In June 2009, the FASB issued new accounting rules related to the
accounting and disclosure requirements for the consolidation of variable interest entities. The new accounting rules are
effective for our first fiscal year that begins after November 15, 2009. We are evaluating the
impact of adoption of these rules on our financial condition, results of operations and cash flows.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in foreign exchange rates,
interest rates and commodity prices. Our risk management control system uses analytical techniques including market
value, sensitivity analysis and value at risk estimations.
Foreign Exchange Risk
We sell the majority of our products in transactions denominated in
U.S. dollars; however, we purchase some raw materials, pay a portion of our wages and make other payments in our supply chain
in foreign currencies. Our exposure to foreign exchange rates exists primarily with respect to the
Canadian dollar, European euro, Mexican peso and Japanese yen against the U.S. dollar. We use
foreign exchange forward and option contracts to hedge material exposure to adverse changes in
foreign exchange rates. A sensitivity analysis technique has been used to evaluate the effect that
changes in the market value of foreign exchange currencies will have on our forward and option
contracts. At January 2, 2010, the potential change in fair value of foreign currency derivative
instruments, assuming a 10% adverse change in the underlying currency price, was $7 million.
Interest Rates
Our debt under the 2009 Senior Secured Credit Facility, Floating Rate Senior Notes and
Accounts Receivable Securitization Facility bear interest at variable rates. As a result, we are
exposed to changes in market interest rates that could impact the cost of servicing our debt. We
are required under the 2009 Senior Secured Credit Facility to hedge a portion of our floating rate
debt to reduce interest rate risk caused by floating rate debt issuance. To
comply with this requirement, in the first quarter of 2010 we entered into a hedging arrangement
whereby we capped the LIBOR interest rate component on $490.7 million of the floating rate debt
under the Floating Rate Senior Notes at 4.262%, as a result of which approximately 52% of our
total debt outstanding at January 2, 2010 is now at a fixed rate. After giving effect to these arrangements, a 25-basis point movement in the annual interest rate charged
on the outstanding debt balances as of January 2, 2010 would result in a change in annual interest expense of $3.5 million. We may also execute interest rate cash flow
hedges in the form of caps and swaps in the future in order to mitigate our exposure to variability
in cash flows for the future interest payments on a designated portion of borrowings.
Commodities
Cotton is the primary raw material used in manufacturing many of our products. While we
have sold our yarn operations, we are still exposed to fluctuations in the cost of cotton. While
we attempt to protect our business from the volatility of the market price of cotton
through employing a dollar cost
averaging strategy by entering into hedging contracts from time to time, our business can be adversely affected
by dramatic movements in cotton prices. The cotton prices reflected in our results were 55 cents
per pound in 2009. We expect the cost of cotton included in our results to average 68 cents per
pound for the full year of 2010. The ultimate effect of these pricing levels on our earnings cannot
be quantified, as the effect of movements in cotton prices on industry selling prices are
uncertain, but any dramatic increase in the price of cotton could have a material adverse effect on
our business, results of operations, financial condition and cash flows. We estimate that a change
of $0.01 per pound in cotton prices would affect our annual raw material costs by $3 million, at
current levels of production. The ultimate effect of this change on our earnings cannot be
quantified, as the effect of movements in cotton prices on industry selling prices are uncertain,
but any dramatic increase in the price of cotton would have a material adverse effect on our
business, results of operations, financial condition and cash flows.
In addition, fluctuations in crude oil or petroleum prices may influence
the prices of other raw materials we use to manufacture our products, such as chemicals, dyestuffs, polyester yarn and foam. We generally purchase raw
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materials at market prices. We estimate that a change of $10.00 per barrel in the price of
oil would affect our freight costs by approximately $3 million, at current levels of usage.
Item 8. Financial Statements and Supplementary Data
Our
financial statements required by this item are contained on pages F-1
through F-63 of
this Annual Report on Form 10-K. See Item 15(a)(1) for a listing of financial statements provided.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As required by Exchange Act Rule 13a-15(b), our management, including our Chief Executive
Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure
controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period
covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Exchange Act Rule 13a-15(f). Management’s annual report on
internal control over financial reporting and the report of independent registered public
accounting firm are incorporated by reference to pages F-2 and F-3 of this Annual Report on
Form 10-K.
Changes in Internal Control over Financial Reporting
In connection with the evaluation required by Exchange Act Rule 13a-15(d), our management,
including our Chief Executive Officer and Chief Financial Officer, concluded that no changes in our
internal control over financial reporting occurred during the period covered by this report that
have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this Item 10 regarding our executive officers is included in Item 1C
of this Annual Report on Form 10-K. We will provide other information that is responsive to this
Item 10 in our definitive proxy statement or in an amendment to this Annual Report not later than
120 days after the end of the fiscal year covered by this Annual Report. That information is
incorporated in this Item 10 by reference.
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Item 11. Executive Compensation
We will provide information that is responsive to this Item 11 in our definitive proxy
statement or in an amendment to this Annual Report on Form 10-K not later than 120 days after the
end of the fiscal year covered by this Annual Report on Form 10-K. That information is incorporated
in this Item 11 by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
We will provide information that is responsive to this Item 12 in our definitive proxy
statement or in an amendment to this Annual Report on Form 10-K not later than 120 days after the
end of the fiscal year covered by this Annual Report on Form 10-K. That information is incorporated
in this Item 12 by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
We will provide information that is responsive to this Item 13 in our definitive proxy
statement or in an amendment to this Annual Report on Form 10-K not later than 120 days after the
end of the fiscal year covered by this Annual Report on Form 10-K. That information is incorporated
in this Item 13 by reference.
Item 14. Principal Accounting Fees and Services
We will provide information that is responsive to this Item 14 in our definitive proxy
statement or in an amendment to this Annual Report on Form 10-K not later than 120 days after the
end of the fiscal year covered by this Annual Report on Form 10-K. That information is incorporated
in this Item 14 by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1)-(2) Financial Statements and Schedules
The financial statements and schedules listed in the accompanying Index to Consolidated
Financial Statements on page F-1 are filed as part of this Report.
(a)(3) Exhibits
See “Index to Exhibits” beginning on page E-1, which is incorporated by reference herein. The
Index to Exhibits lists all exhibits filed with this Report and identifies which of those exhibits
are management contracts and compensation plans.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 9th day of February, 2010.
| HANESBRANDS INC. | ||||
| /s/ Richard A. Noll | ||||
| Richard A. Noll | ||||
| Chief Executive Officer | ||||
POWER OF ATTORNEY
KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints jointly and severally, Richard A. Noll, E. Lee Wyatt Jr. and Joia M.
Johnson, and each one of them, his or her attorneys-in-fact, each with the power of substitution,
for him or her in any and all capacities, to sign any and all amendments to this Annual Report on
Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all that each said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on
Form 10-K has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
| Signature | Capacity | Date | ||
/s/ Richard A. Noll
|
Chief Executive Officer and | February 9, 2010 | ||
Richard A. Noll
|
Chairman of the Board of Directors (principal executive officer) |
|||
/s/ E. Lee Wyatt Jr.
|
Executive Vice President, | February 9, 2010 | ||
E. Lee Wyatt Jr.
|
Chief Financial Officer (principal financial officer) |
|||
/s/ Dale W. Boyles
|
Vice President, |
February 9, 2010 | ||
Dale W. Boyles
|
Chief Accounting Officer and Controller (principal accounting officer) |
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| Signature | Capacity | Date | ||
/s/
Lee A. Chaden |
Director | February 9, 2010 | ||
Lee
A. Chaden
|
||||
/s/ Bobby J. Griffin |
Director | February 9, 2010 | ||
Bobby J. Griffin
|
||||
/s/ James C. Johnson |
Director | February 9, 2010 | ||
James C. Johnson
|
||||
/s/ Jessica T. Mathews |
Director | February 9, 2010 | ||
Jessica T. Mathews
|
||||
/s/ J. Patrick Mulcahy |
Director | February 9, 2010 | ||
J. Patrick Mulcahy
|
||||
/s/ Ronald L. Nelson |
Director | February 9, 2010 | ||
Ronald L. Nelson
|
||||
/s/ Andrew J. Schindler |
Director | February 9, 2010 | ||
Andrew J. Schindler
|
||||
/s/ Ann E. Ziegler |
Director | February 9, 2010 | ||
Ann E. Ziegler
|
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INDEX TO EXHIBITS
References in this Index to Exhibits to the “Registrant” are to Hanesbrands Inc. The Registrant
will furnish you, without charge, a copy of any exhibit, upon written request. Written requests to
obtain any exhibit should be sent to Corporate Secretary, Hanesbrands Inc., 1000 East Hanes Mill
Road, Winston-Salem, North Carolina 27105.
| Exhibit | ||
| Number | Description | |
3.1
|
Articles of Amendment and Restatement of Hanesbrands Inc. (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006). | |
3.2
|
Articles Supplementary (Junior Participating Preferred Stock, Series A) (incorporated by reference from Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006). | |
3.3
|
Amended and Restated Bylaws of Hanesbrands Inc. (incorporated by reference from Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2008). | |
3.4
|
Certificate of Formation of BA International, L.L.C. (incorporated by reference from Exhibit 3.4 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.5
|
Limited Liability Company Agreement of BA International, L.L.C. (incorporated by reference from Exhibit 3.5 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.6
|
Certificate of Incorporation of Caribesock, Inc., together with Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference from Exhibit 3.6 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.7
|
Bylaws of Caribesock, Inc. (incorporated by reference from Exhibit 3.7 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.8
|
Certificate of Incorporation of Caribetex, Inc., together with Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference from Exhibit 3.8 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.9
|
Bylaws of Caribetex, Inc. (incorporated by reference from Exhibit 3.9 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.10
|
Certificate of Formation of CASA International, LLC (incorporated by reference from Exhibit 3.10 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.11
|
Limited Liability Company Agreement of CASA International, LLC (incorporated by reference from Exhibit 3.11 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.12
|
Certificate of Incorporation of Ceibena Del, Inc., together with Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference from Exhibit 3.12 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.13
|
Bylaws of Ceibena Del, Inc. (incorporated by reference from Exhibit 3.13 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). |
E-1
Table of Contents
| Exhibit | ||
| Number | Description | |
3.14
|
Certificate of Formation of Hanes Menswear, LLC, together with Certificate of Conversion from a Corporation to a Limited Liability Company Pursuant to Section 18-214 of the Limited Liability Company Act and Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference from Exhibit 3.14 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.15
|
Limited Liability Company Agreement of Hanes Menswear, LLC (incorporated by reference from Exhibit 3.15 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.16
|
Certificate of Incorporation of HPR, Inc., together with Certificate of Merger of Hanes Puerto Rico, Inc. into HPR, Inc. (now known as Hanes Puerto Rico, Inc.) (incorporated by reference from Exhibit 3.16 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.17
|
Bylaws of Hanes Puerto Rico, Inc. (incorporated by reference from Exhibit 3.17 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.18
|
Articles of Organization of Sara Lee Direct, LLC, together with Articles of Amendment reflecting the change of the entity’s name to Hanesbrands Direct, LLC (incorporated by reference from Exhibit 3.18 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.19
|
Limited Liability Company Agreement of Sara Lee Direct, LLC (now known as Hanesbrands Direct, LLC) (incorporated by reference from Exhibit 3.19 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.20
|
Certificate of Incorporation of Sara Lee Distribution, Inc., together with Certificate of Amendment of Certificate of Incorporation of Sara Lee Distribution, Inc. reflecting the change of the entity’s name to Hanesbrands Distribution, Inc. (incorporated by reference from Exhibit 3.20 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.21
|
Bylaws of Sara Lee Distribution, Inc. (now known as Hanesbrands Distribution, Inc.)(incorporated by reference from Exhibit 3.21 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.22
|
Certificate of Formation of HBI Branded Apparel Enterprises, LLC (incorporated by reference from Exhibit 3.22 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.23
|
Operating Agreement of HBI Branded Apparel Enterprises, LLC (incorporated by reference from Exhibit 3.23 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.24
|
Certificate of Incorporation of HBI Branded Apparel Limited, Inc. (incorporated by reference from Exhibit 3.24 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.25
|
Bylaws of HBI Branded Apparel Limited, Inc. (incorporated by reference from Exhibit 3.25 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.26
|
Certificate of Formation of HbI International, LLC (incorporated by reference from Exhibit 3.26 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). |
E-2
Table of Contents
| Exhibit | ||
| Number | Description | |
3.27
|
Limited Liability Company Agreement of HbI International, LLC (incorporated by reference from Exhibit 3.27 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.28
|
Certificate of Formation of SL Sourcing, LLC, together with Certificate of Amendment to the Certificate of Formation of SL Sourcing, LLC reflecting the change of the entity’s name to HBI Sourcing, LLC (incorporated by reference from Exhibit 3.28 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.29
|
Limited Liability Company Agreement of SL Sourcing, LLC (now known as HBI Sourcing, LLC) (incorporated by reference from Exhibit 3.29 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.30
|
Certificate of Formation of Inner Self LLC (incorporated by reference from Exhibit 3.30 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.31
|
Limited Liability Company Agreement of Inner Self LLC (incorporated by reference from Exhibit 3.31 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.32
|
Certificate of Formation of Jasper-Costa Rica, L.L.C. (incorporated by reference from Exhibit 3.32 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.33
|
Amended and Restated Limited Liability Company Agreement of Jasper-Costa Rica, L.L.C. (incorporated by reference from Exhibit 3.33 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.34
|
Certificate of Formation of Playtex Dorado, LLC, together with Certificate of Conversion from a Corporation to a Limited Liability Company Pursuant to Section 18-214 of the Limited Liability Company Act (incorporated by reference from Exhibit 3.36 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.35
|
Amended and Restated Limited Liability Company Agreement of Playtex Dorado, LLC (incorporated by reference from Exhibit 3.37 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.36
|
Certificate of Incorporation of Playtex Industries, Inc. (incorporated by reference from Exhibit 3.38 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.37
|
Bylaws of Playtex Industries, Inc. (incorporated by reference from Exhibit 3.39 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.38
|
Certificate of Formation of Seamless Textiles, LLC, together with Certificate of Conversion from a Corporation to a Limited Liability Company Pursuant to Section 18-214 of the Limited Liability Company Act (incorporated by reference from Exhibit 3.40 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.39
|
Limited Liability Company Agreement of Seamless Textiles, LLC (incorporated by reference from Exhibit 3.41 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.40
|
Certificate of Incorporation of UPCR, Inc., together with Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference from Exhibit 3.42 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). |
E-3
Table of Contents
| Exhibit | ||
| Number | Description | |
3.41
|
Bylaws of UPCR, Inc. (incorporated by reference from Exhibit 3.43 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.42
|
Certificate of Incorporation of UPEL, Inc., together with Certificate of Change of Location of Registered Office and Registered Agent (incorporated by reference from Exhibit 3.44 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
3.43
|
Bylaws of UPEL, Inc. (incorporated by reference from Exhibit 3.45 to the Registrant’s Registration Statement on Form S-4 (Commission file number 333-142371) filed with the Securities and Exchange Commission on April 26, 2007). | |
4.1
|
Rights Agreement between Hanesbrands Inc. and Computershare Trust Company, N.A., Rights Agent. (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006). | |
4.2
|
Form of Rights Certificate (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006). | |
4.3
|
Placement Agreement, dated December 11, 2006, among Hanesbrands Inc., certain subsidiaries of Hanesbrands Inc., Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 15, 2006). | |
4.4
|
Indenture, dated as of December 14, 2006, among Hanesbrands Inc., certain subsidiaries of Hanesbrands Inc., and Branch Banking and Trust Company, as Trustee (incorporated by reference from Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 20, 2006). | |
4.5
|
Registration Rights Agreement with respect to Floating Rate Senior Notes due 2014, dated as of December 14, 2006, among Hanesbrands Inc., certain subsidiaries of Hanesbrands Inc., and Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, ABN AMRO Incorporated, Barclays Capital Inc., Citigroup Global Markets Inc., and HSBC Securities (USA) Inc. (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 20, 2006). | |
4.6
|
Indenture, dated as of August 1, 2008, among the Registrant, certain subsidiaries of the Registrant, and Branch Banking and Trust Company, as Trustee (incorporated by reference from Exhibit 4.3 to the Registrant’s Registration Statement on Form S-3 (Commission file number 333-152733) filed with the Securities and Exchange Commission on August 1, 2008). | |
4.7
|
Underwriting Agreement dated December 3, 2009 between the Registrant, the subsidiary guarantors party thereto and J.P. Morgan Securities Inc. (incorporated by reference from Exhibit 1.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 11, 2009). | |
4.8
|
First Supplemental Indenture, dated December 10, 2009, among the Registrant, the subsidiary guarantors and Branch Banking and Trust Company (incorporated by reference from Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 11, 2009). | |
10.1
|
Hanesbrands Inc. Omnibus Incentive Plan of 2006 (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006).* | |
10.2
|
Form of Stock Option Grant Notice and Agreement under the Hanesbrands Inc. Omnibus Incentive Plan of 2006 (incorporated by reference from Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006).* |
E-4
Table of Contents
| Exhibit | ||
| Number | Description | |
10.3
|
Form of Restricted Stock Unit Grant Notice and Agreement under the Hanesbrands Inc. Omnibus Incentive Plan of 2006. (incorporated by reference from Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006).* | |
10.4
|
Form of Performance Cash Award Grant Notice and Agreement under the Hanesbrands Inc. Omnibus Incentive Plan of 2006.* | |
10.5
|
Form of Non-Employee Director Restricted Stock Unit Grant Notice and Agreement under the Hanesbrands Inc. Omnibus Incentive Plan of 2006 (incorporated by reference from Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 11, 2009). * | |
10.6
|
Form of Non-Employee Director Stock Option Grant Notice and Agreement under the Hanesbrands Inc. Omnibus Incentive Plan of 2006 (incorporated by reference from Exhibit 10.5 to the Registrant’s Transition Report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2007).* | |
10.7
|
Hanesbrands Inc. Retirement Savings Plan * | |
10.8
|
Hanesbrands Inc. Supplemental Employee Retirement Plan * | |
10.9
|
Hanesbrands Inc. Performance-Based Annual Incentive Plan (incorporated by reference from Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006).* | |
10.10
|
Hanesbrands Inc. Executive Deferred Compensation Plan (incorporated by reference from Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on October 31, 2008).* | |
10.11
|
Hanesbrands Inc. Executive Life Insurance Plan (incorporated by reference from Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 11, 2009).* | |
10.12
|
Hanesbrands Inc. Executive Long-Term Disability Plan. (incorporated by reference from Exhibit 10.11 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 11, 2009).* | |
10.13
|
Hanesbrands Inc. Employee Stock Purchase Plan of 2006 (incorporated by reference from Exhibit 10.11 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2006).* | |
10.14
|
Hanesbrands Inc. Non-Employee Director Deferred Compensation Plan (incorporated by reference from Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 11, 2009).* | |
10.15
|
Severance/Change in Control Agreement dated December 18, 2008 between the Registrant and Richard A. Noll. (incorporated by reference from Exhibit 10.14 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 11, 2009).* | |
10.16
|
Severance/Change in Control Agreement dated December 18, 2008 between the Registrant and Gerald W. Evans Jr. (incorporated by reference from Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 11, 2009).* | |
10.17
|
Severance/Change in Control Agreement dated December 18, 2008 between the Registrant and E. Lee Wyatt Jr. (incorporated by reference from Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 11, 2009).* |
E-5
Table of Contents
| Exhibit | ||
| Number | Description | |
10.18
|
Severance/Change in Control Agreement dated December 10, 2008 between the Registrant and Kevin W. Oliver (incorporated by reference from Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 11, 2009).* | |
10.19
|
Severance/Change in Control Agreement dated December 17, 2008 between the Registrant and Joia M. Johnson (incorporated by reference from Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 11, 2009).* | |
10.20
|
Severance/Change in Control Agreement dated December 18, 2008 between the Registrant and William J. Nictakis (incorporated by reference from Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 11, 2009).* | |
10.21
|
Master Separation Agreement dated August 31, 2006 between the Registrant and Sara Lee Corporation (incorporated by reference from Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 28, 2006). | |
10.22
|
Tax Sharing Agreement dated August 31, 2006 between the Registrant and Sara Lee Corporation (incorporated by reference from Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 28, 2006). | |
10.23
|
Employee Matters Agreement dated August 31, 2006 between the Registrant and Sara Lee Corporation (incorporated by reference from Exhibit 10.23 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 28, 2006). | |
10.24
|
Master Transition Services Agreement dated August 31, 2006 between the Registrant and Sara Lee Corporation (incorporated by reference from Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 28, 2006). | |
10.25
|
Real Estate Matters Agreement dated August 31, 2006 between the Registrant and Sara Lee Corporation (incorporated by reference from Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 28, 2006). | |
10.26
|
Indemnification and Insurance Matters Agreement dated August 31, 2006 between the Registrant and Sara Lee Corporation (incorporated by reference from Exhibit 10.26 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 28, 2006). | |
10.27
|
Intellectual Property Matters Agreement dated August 31, 2006 between the Registrant and Sara Lee Corporation (incorporated by reference from Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 28, 2006). | |
10.28
|
First Lien Credit Agreement dated September 5, 2006 (the “2006 Senior Secured Credit Facility”) among the Registrant the various financial institutions and other persons from time to time party thereto, HSBC Bank USA, National Association, LaSalle Bank National Association, Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley Senior Funding, Inc., Citicorp USA, Inc. and Citibank, N.A. (incorporated by reference from Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 28, 2006).† | |
10.29
|
First Amendment dated February 22, 2007 to the 2006 Senior Secured Credit Facility (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 28, 2007). | |
10.30
|
Second Amendment dated August 21, 2008 to the 2006 Senior Secured Credit Facility (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2008). | |
10.31
|
Third Amendment dated March 10, 2009 to the 2006 Senior Secured Credit Facility (incorporated by reference from Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 16, 2009). |
E-6
Table of Contents
| Exhibit | ||
| Number | Description | |
10.32 |
Amended and Restated Credit Agreement dated as of September 5, 2006, as amended and restated as of December 10, 2009, among the Registrant, the various financial institutions and other Persons from time to time party to this Agreement, Barclays Bank PLC and Goldman Sachs Credit Partners L.P., as the co-documentation agents, Bank of America, N.A. and HSBC Securities (USA) Inc., as the co-syndication agents, JPMorgan Chase Bank, N.A., as the administrative agent and the collateral agent, and J.P. Morgan Securities Inc., Banc of America Securities LLC, HSBC Securities (USA) Inc. and Barclays Capital, the investment banking division of Barclays Bank PLC, as the joint lead arrangers and joint bookrunners. | |
10.33 |
Second Lien Credit Agreement dated September 5, 2006 (the “Second Lien Credit Agreement”) among HBI Branded Apparel Limited, Inc., the Registrant, the various financial institutions and other persons from time to time party thereto, HSBC Bank USA, National Association, LaSalle Bank National Association, Barclays Bank PLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley Senior Funding, Inc., Citicorp USA, Inc. and Citibank, N.A. (incorporated by reference from Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 28, 2006).† | |
10.34 |
First Amendment dated August 21, 2008 to the Second Lien Credit Agreement (incorporated by reference from Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2008). | |
10.35 |
Receivables Purchase Agreement dated as of November 27, 2007 (the “Accounts Receivable Securitization Facility”) among HBI Receivables LLC and the Registrant, JPMorgan Chase Bank, N.A., HSBC Bank USA, National Association, Falcon Asset Securitization Company LLC, Bryant Park Funding LLC, and HSBC Securities (USA) Inc. (incorporated by reference from Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 19, 2008).† | |
10.36 |
Amendment No. 1 dated as of March 16, 2009 to the Accounts Receivables Securitization Facility (incorporated by reference from Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 16, 2009).† | |
10.37 |
Amendment No. 2 dated as of April 13, 2009 to the Accounts Receivables Securitization Facility (incorporated by reference from Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 11, 2009).† | |
10.38 |
Amendment No. 3 dated as of August 17, 2009 to the Accounts Receivables Securitization Facility (incorporated by reference from Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 5, 2009). | |
10.39 |
Amendment No. 4 dated as of December 10, 2009 to the Accounts Receivables Securitization Facility. | |
10.40 |
Amendment No. 5 dated as of December 21, 2009 to the Accounts Receivables Securitization Facility. † | |
12.1 |
Ratio of Earnings to Fixed Charges. | |
21.1 |
Subsidiaries of the Registrant. | |
23.1 |
Consent of PricewaterhouseCoopers LLP. | |
24.1 |
Powers of Attorney (included on the signature pages hereto). | |
31.1 |
Certification of Richard A. Noll, Chief Executive Officer. | |
31.2 |
Certification of E. Lee Wyatt Jr., Chief Financial Officer. | |
32.1 |
Section 1350 Certification of Richard A. Noll, Chief Executive Officer. | |
32.2 |
Section 1350 Certification of E. Lee Wyatt Jr., Chief Financial Officer. |
| * | Agreement relates to executive compensation. | |
| † | Portions of this exhibit were redacted pursuant to a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
E-7
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
HANESBRANDS INC.
| Page | ||
Consolidated Financial Statements:
|
||
| F-2 | ||
| F-3 | ||
| F-4 | ||
| F-5 | ||
| F-6 | ||
| F-7 | ||
| F-8 |
F-1
Table of Contents
Hanesbrands Inc.
Management’s Report on Internal Control Over Financial Reporting
Management of Hanesbrands Inc. (“Hanesbrands”) is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f) under the
Securities and Exchange Act of 1934. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States. Hanesbrands’ system of internal control over financial
reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of Hanesbrands; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with accounting principles
generally accepted in the United States, and that receipts and expenditures of Hanesbrands are
being made only in accordance with authorizations of management and directors of Hanesbrands; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of Hanesbrands’ assets that could have a material effect on the
financial statements.
Management has evaluated the effectiveness of Hanesbrands’ internal control over financial
reporting as of January 2, 2010, based upon criteria for effective internal control over financial
reporting described in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our evaluation, management
determined that Hanesbrands’ internal control over financial reporting was effective as of January
2, 2010.
The effectiveness of our internal control over financial reporting as of January 2, 2010 has
been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which is included in Part II, Item 8 of this Annual Report on Form 10-K.
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Hanesbrands Inc.
Hanesbrands Inc.
In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Hanesbrands Inc. (the “Company”) at
January 2, 2010 and January 3, 2009, and the results of its operations and its cash flows for each
of the three years in the period ended January 2, 2010 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of January 2,
2010, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s management
is responsible for these financial statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express opinions on these financial statements and on the Company’s internal
control over financial reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our audits of the
financial statements included 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. Our
audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Greensboro, North Carolina
February 9, 2010
Greensboro, North Carolina
February 9, 2010
F-3
Table of Contents
HANESBRANDS INC.
Consolidated Statements of Income
(in thousands, except per share amounts)
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Net sales |
$ | 3,891,275 | $ | 4,248,770 | $ | 4,474,537 | ||||||
Cost of sales |
2,626,001 | 2,871,420 | 3,033,627 | |||||||||
Gross profit |
1,265,274 | 1,377,350 | 1,440,910 | |||||||||
Selling, general and administrative expenses |
940,530 | 1,009,607 | 1,040,754 | |||||||||
Gain on curtailment of postretirement benefits |
— | — | (32,144 | ) | ||||||||
Restructuring |
53,888 | 50,263 | 43,731 | |||||||||
Operating profit |
270,856 | 317,480 | 388,569 | |||||||||
Other expense (income) |
49,301 | (634 | ) | 5,235 | ||||||||
Interest expense, net |
163,279 | 155,077 | 199,208 | |||||||||
Income before income tax expense |
58,276 | 163,037 | 184,126 | |||||||||
Income tax expense |
6,993 | 35,868 | 57,999 | |||||||||
Net income |
$ | 51,283 | $ | 127,169 | $ | 126,127 | ||||||
Earnings per share: |
||||||||||||
Basic |
$ | 0.54 | $ | 1.35 | $ | 1.31 | ||||||
Diluted |
$ | 0.54 | $ | 1.34 | $ | 1.30 | ||||||
Weighted average shares outstanding: |
||||||||||||
Basic |
95,158 | 94,171 | 95,936 | |||||||||
Diluted |
95,668 | 95,164 | 96,741 | |||||||||
See accompanying notes to Consolidated Financial Statements.
F-4
Table of Contents
HANESBRANDS INC.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
| ASSETS |
||||||||
Cash and cash equivalents |
$ | 38,943 | $ | 67,342 | ||||
Trade accounts receivable less allowances of $25,776 at January
2, 2010
and $21,897 at January 3, 2009 |
450,541 | 404,930 | ||||||
Inventories |
1,049,204 | 1,290,530 | ||||||
Deferred tax assets |
139,836 | 181,850 | ||||||
Other current assets |
144,033 | 165,673 | ||||||
Total current assets |
1,822,557 | 2,110,325 | ||||||
Property, net |
602,826 | 588,189 | ||||||
Trademarks and other identifiable intangibles, net |
136,214 | 147,443 | ||||||
Goodwill |
322,002 | 322,002 | ||||||
Deferred tax assets |
357,103 | 321,037 | ||||||
Other noncurrent assets |
85,862 | 45,053 | ||||||
Total assets |
$ | 3,326,564 | $ | 3,534,049 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Accounts payable |
$ | 351,971 | $ | 347,153 | ||||
Accrued liabilities and other: |
||||||||
Payroll and employee benefits |
76,315 | 82,815 | ||||||
Advertising and promotion |
85,069 | 69,102 | ||||||
Restructuring |
18,244 | 21,381 | ||||||
Other |
116,007 | 120,459 | ||||||
Notes payable |
66,681 | 61,734 | ||||||
Current portion of debt |
164,688 | 45,640 | ||||||
Total current liabilities |
878,975 | 748,284 | ||||||
Long-term debt |
1,727,547 | 2,130,907 | ||||||
Pension and postretirement benefits |
290,030 | 294,095 | ||||||
Other noncurrent liabilities |
95,293 | 175,608 | ||||||
Total liabilities |
2,991,845 | 3,348,894 | ||||||
Stockholders’ equity: |
||||||||
Preferred stock (50,000,000 authorized shares; $.01 par value)
Issued and outstanding — None |
— | — | ||||||
Common stock (500,000,000 authorized shares; $.01 par value)
Issued and outstanding — 95,396,967 at January 2, 2010 and
93,520,132 at January 3, 2009 |
954 | 935 | ||||||
Additional paid-in capital |
287,955 | 248,167 | ||||||
Retained earnings |
268,805 | 217,522 | ||||||
Accumulated other comprehensive loss |
(222,995 | ) | (281,469 | ) | ||||
Total stockholders’ equity |
334,719 | 185,155 | ||||||
Total liabilities and stockholders’ equity |
$ | 3,326,564 | $ | 3,534,049 | ||||
See accompanying notes to Consolidated Financial Statements.
F-5
Table of Contents
HANESBRANDS INC.
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(in thousands)
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common Stock | Paid-In | Retained | Comprehensive | |||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Loss | Total | |||||||||||||||||||
Balances at December 30, 2006 |
96,312 | $ | 963 | $ | 94,852 | $ | 33,024 | $ | (59,568 | ) | $ | 69,271 | ||||||||||||
Net income |
— | — | — | 126,127 | — | 126,127 | ||||||||||||||||||
Translation adjustments |
— | — | — | — | 20,114 | 20,114 | ||||||||||||||||||
Net unrealized loss on qualifying cash
flow hedges, net of tax of $4,456 |
— | — | — | — | (6,877 | ) | (6,877 | ) | ||||||||||||||||
Recognition of gain from healthcare
plan settlement, net of
tax of $12,505 |
— | — | — | — | (19,639 | ) | (19,639 | ) | ||||||||||||||||
Net unrecognized gain from pension
and postretirement plans, net of tax
of $23,590 |
— | — | — | — | 37,052 | 37,052 | ||||||||||||||||||
Comprehensive income |
156,777 | |||||||||||||||||||||||
Stock-based compensation |
— | — | 33,185 | — | — | 33,185 | ||||||||||||||||||
Exercise of stock options, vesting of
restricted stock units and other |
533 | 7 | 3,428 | — | — | 3,435 | ||||||||||||||||||
Stock repurchases |
(1,613 | ) | (16 | ) | (2,006 | ) | (42,451 | ) | — | (44,473 | ) | |||||||||||||
Final separation of pension plan
assets
and liabilities |
— | — | 74,189 | — | — | 74,189 | ||||||||||||||||||
Net transactions related to spin off |
— | — | (4,629 | ) | — | — | (4,629 | ) | ||||||||||||||||
Adoption of new pension accounting
rules |
— | — | — | 1,149 | — | 1,149 | ||||||||||||||||||
Balances at December 29, 2007 |
95,232 | $ | 954 | $ | 199,019 | $ | 117,849 | $ | (28,918 | ) | $ | 288,904 | ||||||||||||
Net income |
— | — | — | 127,169 | — | 127,169 | ||||||||||||||||||
Translation adjustments |
— | — | — | — | (29,463 | ) | (29,463 | ) | ||||||||||||||||
Net unrealized loss on qualifying cash
flow hedges, net of tax of $24,683 |
— | — | — | — | (38,818 | ) | (38,818 | ) | ||||||||||||||||
Net unrecognized loss from pension
and postretirement plans,
net of tax of $117,012 |
— | — | — | — | (184,270 | ) | (184,270 | ) | ||||||||||||||||
Comprehensive loss |
(125,382 | ) | ||||||||||||||||||||||
Stock-based compensation |
— | — | 31,002 | — | — | 31,002 | ||||||||||||||||||
Exercise of stock options, vesting of
restricted stock units and other |
456 | 2 | 10,076 | — | — | 10,078 | ||||||||||||||||||
Stock repurchases |
(1,224 | ) | (12 | ) | (2,767 | ) | (27,496 | ) | — | (30,275 | ) | |||||||||||||
Net transactions related to spin off |
(944 | ) | (9 | ) | 10,837 | — | — | 10,828 | ||||||||||||||||
Balances at January 3, 2009 |
93,520 | $ | 935 | $ | 248,167 | $ | 217,522 | $ | (281,469 | ) | $ | 185,155 | ||||||||||||
Net income |
— | — | — | 51,283 | — | 51,283 | ||||||||||||||||||
Translation adjustments |
— | — | — | — | 18,966 | 18,966 | ||||||||||||||||||
Net unrealized gain on qualifying cash
flow hedges, net of tax of $17,639 |
— | — | — | — | 28,580 | 28,580 | ||||||||||||||||||
Net unrecognized gain from pension
and postretirement plans,
net of tax of $1,835 |
— | — | — | — | 10,928 | 10,928 | ||||||||||||||||||
Comprehensive income |
109,757 | |||||||||||||||||||||||
Stock-based compensation |
— | — | 37,391 | — | — | 37,391 | ||||||||||||||||||
Exercise of stock options, vesting of
restricted stock units and other |
1,877 | 19 | 2,397 | — | — | 2,416 | ||||||||||||||||||
Balances at January 2, 2010 |
95,397 | $ | 954 | $ | 287,955 | $ | 268,805 | $ | (222,995 | ) | $ | 334,719 | ||||||||||||
See accompanying notes to Consolidated Financial Statements.
F-6
Table of Contents
HANESBRANDS INC.
Consolidated Statements of Cash Flows
(in thousands)
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Operating activities: |
||||||||||||
Net income |
$ | 51,283 | $ | 127,169 | $ | 126,127 | ||||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||||||
Depreciation |
84,312 | 103,126 | 125,471 | |||||||||
Amortization of intangibles |
12,443 | 12,019 | 6,205 | |||||||||
Restructuring |
8,207 | 5,133 | (3,446 | ) | ||||||||
Gain on curtailment of postretirement benefits |
— | — | (32,144 | ) | ||||||||
Losses on early extinguishment of debt |
2,423 | 1,332 | 5,235 | |||||||||
Gain on repurchase of Floating Rate Senior Notes |
(157 | ) | (1,966 | ) | — | |||||||
Charges incurred for amendments of credit facilities |
20,634 | — | — | |||||||||
Interest rate hedge termination |
26,029 | — | — | |||||||||
Amortization of debt issuance costs |
10,967 | 6,032 | 6,475 | |||||||||
Stock compensation expense |
37,697 | 31,449 | 33,625 | |||||||||
Deferred taxes |
(9,152 | ) | (1,445 | ) | 28,069 | |||||||
Other |
(10,252 | ) | (1,616 | ) | (75 | ) | ||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable |
(39,805 | ) | 163,687 | (81,396 | ) | |||||||
Inventories |
248,820 | (182,971 | ) | 96,338 | ||||||||
Other assets |
22,210 | (49,256 | ) | 19,212 | ||||||||
Accounts payable |
3,522 | 34,046 | 67,038 | |||||||||
Accrued liabilities and other |
(54,677 | ) | (69,342 | ) | (37,694 | ) | ||||||
Net cash provided by operating activities |
414,504 | 177,397 | 359,040 | |||||||||
Investing activities: |
||||||||||||
Purchases of property, plant and equipment |
(126,825 | ) | (186,957 | ) | (91,626 | ) | ||||||
Acquisitions of businesses, net of cash acquired |
— | (14,655 | ) | (20,243 | ) | |||||||
Acquisition of trademark |
— | — | (5,000 | ) | ||||||||
Proceeds from sales of assets |
37,965 | 25,008 | 16,573 | |||||||||
Other |
16 | (644 | ) | (789 | ) | |||||||
Net cash used in investing activities |
(88,844 | ) | (177,248 | ) | (101,085 | ) | ||||||
Financing activities: |
||||||||||||
Borrowings on notes payable |
1,628,764 | 602,627 | 66,413 | |||||||||
Repayments on notes payable |
(1,624,139 | ) | (560,066 | ) | (88,970 | ) | ||||||
Incurrence of debt under the 2009 Senior Secured Credit Facility |
750,000 | — | — | |||||||||
Payments to amend and refinance credit facilities |
(74,976 | ) | (69 | ) | (3,266 | ) | ||||||
Borrowings on revolving loan facility |
2,034,026 | 791,000 | — | |||||||||
Repayments on revolving loan facility |
(1,982,526 | ) | (791,000 | ) | — | |||||||
Repayments of debt under 2006 Senior Secured Credit Facility |
(1,440,250 | ) | (125,000 | ) | (428,125 | ) | ||||||
Issuance of 8% Senior Notes |
500,000 | — | — | |||||||||
Repurchase of Floating Rate Senior Notes |
(2,788 | ) | (4,354 | ) | — | |||||||
Borrowings on Accounts Receivable Securitization Facility |
183,451 | 20,944 | 250,000 | |||||||||
Repayments on Accounts Receivable Securitization Facility |
(326,068 | ) | (28,327 | ) | — | |||||||
Proceeds from stock options exercised |
1,179 | 2,191 | 6,189 | |||||||||
Stock repurchases |
— | (30,275 | ) | (44,473 | ) | |||||||
Transaction with Sara Lee Corporation |
— | 18,000 | — | |||||||||
Other |
(847 | ) | (409 | ) | (1,147 | ) | ||||||
Net cash used in financing activities |
(354,174 | ) | (104,738 | ) | (243,379 | ) | ||||||
Effect of changes in foreign exchange rates on cash |
115 | (2,305 | ) | 3,687 | ||||||||
Increase (decrease) in cash and cash equivalents |
(28,399 | ) | (106,894 | ) | 18,263 | |||||||
Cash and cash equivalents at beginning of year |
67,342 | 174,236 | 155,973 | |||||||||
Cash and cash equivalents at end of year |
$ | 38,943 | $ | 67,342 | $ | 174,236 | ||||||
See accompanying notes to Consolidated Financial Statements.
F-7
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
(1) Background
Hanesbrands Inc., a Maryland corporation (the “Company”), is a consumer goods company with a
portfolio of leading apparel brands, including Hanes, Champion, Playtex, Bali, L’eggs, Just My
Size, barely there, Wonderbra, Stedman, Outer Banks, Zorba, Rinbros and Duofold. The Company
designs, manufactures, sources and sells a broad range of apparel essentials such as T-shirts,
bras, panties, men’s underwear, kids’ underwear, casualwear, activewear, socks and hosiery.
The Company’s fiscal year ends on the Saturday closest to December 31. All references to
“2009”, “2008” and “2007” relate to the 52 week fiscal year ended on January 2, 2010, the 53 week
fiscal year ended on January 3, 2009 and the 52 week fiscal year ended on December 29, 2007,
respectively.
The
Company has also evaluated subsequent events and transactions for
potential recognition or disclosure in the financial statements
through February 9, 2010, the day the financial statements were
issued.
(2) Summary of Significant Accounting Policies
(a) Consolidation
The
accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
(b) Use of Estimates
The preparation of Consolidated Financial Statements in conformity with U.S. generally
accepted accounting principles requires management to make use of estimates and assumptions that
affect the reported amount of assets and liabilities, certain financial statement disclosures at
the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results may vary from these estimates.
(c) Foreign Currency Translation
Foreign currency-denominated assets and liabilities are translated into U.S. dollars at
exchange rates existing at the respective balance sheet dates. Translation adjustments resulting
from fluctuations in exchange rates are recorded as a separate component of accumulated other
comprehensive loss within stockholders’ equity. The Company translates the results of operations of
its foreign operations at the average exchange rates during the respective periods. Gains and
losses resulting from foreign currency transactions are included in the “Selling, general and
administrative expenses” line of the Consolidated Statements of Income.
(d) Sales Recognition and Incentives
The Company recognizes revenue when (i) there is persuasive evidence of an arrangement,
(ii) the sales price is fixed or determinable, (iii) title and the risks of ownership have been
transferred to the customer and (iv) collection
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
of the receivable is reasonably assured, which occurs primarily upon shipment. The Company
records a sales reduction for returns and allowances based upon historical return experience. The
Company earns royalty revenues through license agreements with manufacturers of other consumer
products that incorporate certain of the Company’s brands. The Company accrues revenue earned under
these contracts based upon reported sales from the licensee. The Company offers a variety of sales
incentives to resellers and consumers of its products, and the policies regarding the recognition
and display of these incentives within the Consolidated Statements of Income are as follows:
Discounts, Coupons, and Rebates
The Company recognizes the cost of these incentives at the later of the date at which the
related sale is recognized or the date at which the incentive is offered. The cost of these
incentives is estimated using a number of factors, including historical utilization and redemption
rates. All cash incentives of this type are included in the determination of net sales. The Company
includes incentives offered in the form of free products in the determination of cost of sales.
Volume-Based Incentives
These incentives typically involve rebates or refunds of cash that are redeemable only if the
reseller completes a specified number of sales transactions. Under these incentive programs, the
Company estimates the anticipated rebate to be paid and allocates a portion of the estimated cost
of the rebate to each underlying sales transaction with the customer. The Company includes these
amounts in the determination of net sales.
Cooperative Advertising
Under these arrangements, the Company agrees to reimburse the reseller for a portion of the
costs incurred by the reseller to advertise and promote certain of the Company’s products. The
Company recognizes the cost of cooperative advertising programs in the period in which the
advertising and promotional activity first takes place. In 2007, the Company changed the manner in
which it accounted for cooperative advertising, which resulted in a change in the classification
from media, advertising and promotion expenses to a reduction in sales, because the estimated fair
value of the identifiable benefit was no longer obtained beginning in 2007.
Fixtures and Racks
Store fixtures and racks are periodically used by resellers to display Company products. The
Company expenses the cost of these fixtures and racks in the period in which they are delivered to
the resellers. The Company includes the costs of fixtures and racks incurred by resellers and
charged back to the Company in the determination of net sales. Fixtures and racks purchased by the
Company and provided to resellers are included in selling, general and administrative expenses.
(e) Advertising Expense
Advertising costs, which include the development and production of advertising materials and
the communication of these materials through various forms of media, are expensed in the period the
advertising first takes place. The Company recognized advertising expense in the “Selling, general
and administrative expenses” caption in the Consolidated Statements of Income of $166,467,
$187,034, and $188,327 in 2009, 2008 and 2007, respectively.
(f) Shipping and Handling Costs
Revenue received for shipping and handling costs is included in net sales and was $22,434,
$24,244, and $22,751 in 2009, 2008 and 2007, respectively. Shipping costs, that comprise payments
to third party shippers, and handling costs, which consist of warehousing costs in the Company’s
various distribution facilities, were $222,169, $238,340, and $234,070 in the 2009, 2008 and 2007,
respectively. The Company recognizes shipping, handling and
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
distribution costs in the “Selling, general and administrative expenses” line of the
Consolidated Statements of Income.
(g) Catalog Expenses
The Company incurs expenses for printing catalogs for products to aid in the Company’s sales
efforts. The Company initially records these expenses as a prepaid item and charges it against
selling, general and administrative expenses over time as the catalog is used. Expenses are
recognized at a rate that approximates historical experience with regard to the timing and amount
of sales attributable to a catalog distribution.
(h) Research and Development
Research and development costs are expensed as incurred and are included in the “Selling,
general and administrative expenses” line of the Consolidated Statements of Income. Research and
development expense was $46,305, $46,460, and $45,409 in 2009, 2008 and 2007, respectively.
(i) Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less at the time of purchase
are considered to be cash equivalents.
(j) Accounts Receivable Valuation
Accounts receivable are stated at their net realizable value. The allowance for doubtful
accounts reflects the Company’s best estimate of probable losses inherent in the accounts
receivable portfolio determined on the basis of historical experience, aging of trade receivables, specific allowances for
known troubled accounts and other currently available information.
(k) Inventory Valuation
Inventories are stated at the lower of cost or market. Obsolete, damaged, and excess
inventory is carried at the net realizable value, which is determined by assessing historical
recovery rates, current market conditions and future marketing and sales plans. Rebates, discounts
and other cash consideration received from a vendor related to inventory purchases are reflected as
reductions in the cost of the related inventory item, and are therefore reflected in cost of sales
when the related inventory item is sold.
(l) Property
Property is stated at historical cost and depreciation expense is computed using the
straight-line method over the estimated useful lives of the assets. Machinery and equipment is
depreciated over periods ranging from three to 25 years and buildings and building improvements
over periods of up to 40 years. A change in the depreciable life is treated as a change in
accounting estimate and the accelerated depreciation is accounted for in the period of change and
future periods. Additions and improvements that substantially extend the useful life of a
particular asset and interest costs incurred during the construction period of major properties are
capitalized. Repairs and maintenance costs are expensed as incurred. Upon sale or disposition of an
asset, the cost and related accumulated depreciation are removed from the accounts.
Property is tested for recoverability whenever events or changes in circumstances indicate
that its carrying value may not be recoverable. Such events include significant adverse changes in
the business climate, several periods of operating or cash flow losses, forecasted continuing
losses or a current expectation that an asset or an asset group will be disposed of before the end
of its useful life. Recoverability of property is evaluated by a comparison of the carrying amount
of an asset or asset group to future net undiscounted cash flows expected to be generated by the
asset or asset group. If these comparisons indicate that an asset is not recoverable, the
impairment loss recognized is the amount by which the carrying amount of the asset exceeds the
estimated fair value. When an impairment loss is recognized for assets to be held and used, the
adjusted carrying amount of those assets is
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
depreciated over its remaining useful life. Restoration of a previously recognized impairment
loss is not permitted under U.S. generally accepted accounting principles.
(m) Trademarks and Other Identifiable Intangible Assets
The primary identifiable intangible assets of the Company are trademarks and computer software
all of which have finite lives that are subject to amortization. The estimated useful life of a
finite-lived intangible asset is based upon a number of factors, including the effects of demand,
competition, expected changes in distribution channels and the level of maintenance expenditures
required to obtain future cash flows. Finite-lived trademarks are being amortized over periods
ranging from five to 30 years, while computer software is being amortized over periods ranging from
two to ten years. Identifiable intangible assets that are subject to amortization are evaluated for
impairment using a process similar to that used in evaluating elements of property.
The Company capitalizes internal software development costs, which include the actual costs to
purchase software from vendors and generally include personnel and related costs for employees who
were directly associated with the enhancement and implementation of purchased computer software.
Additions to computer software are included in purchases of property and equipment in the
Consolidated Statements of Cash Flows.
(n) Goodwill
Goodwill is the amount by which the purchase price exceeds the fair value of the assets
acquired and liabilities assumed in a business combination. When a business combination is
completed, the assets acquired and liabilities assumed are assigned to the reporting unit or units
of the Company given responsibility for managing, controlling and generating returns on these
assets and liabilities. In many instances, all of the acquired assets and assumed liabilities are
assigned to a single reporting unit and in these cases all of the goodwill is assigned to the same
reporting unit. In those situations in which the acquired assets and liabilities are allocated to
more than one reporting unit, the goodwill to be assigned to each reporting unit is determined in a
manner similar to how the amount of goodwill recognized in a business combination is determined.
Goodwill is not amortized; however, it is assessed for impairment at least annually and as
triggering events occur. The Company’s annual measurement date is the first day of the third
fiscal quarter. The first step involves comparing the fair value of a reporting unit to its
carrying value. If the carrying value of the reporting unit exceeds its fair value, the second step
of the process involves comparing the implied fair value to the carrying value of the goodwill of
that reporting unit. If the carrying value of the goodwill of a reporting unit exceeds the implied
fair value of that goodwill, an impairment loss is recognized in an amount equal to such excess.
In evaluating the recoverability of goodwill, it is necessary to estimate the fair values of
the reporting units. In making this assessment, management relies on a number of factors to
discount anticipated future cash flows including operating results, business plans and present
value techniques. Rates used to discount cash flows are dependent upon interest rates and the cost
of capital at a point in time. There are inherent uncertainties related to these factors and
management’s judgment in applying them to the analysis of goodwill impairment.
(o) Stock-Based Compensation
The Company established the Hanesbrands Inc. Omnibus Incentive Plan of 2006, (the “Hanesbrands
OIP”) to award stock options, stock appreciation rights, restricted stock, restricted stock units,
deferred stock units, performance shares and cash to its employees, non-employee directors and
employees of its subsidiaries to promote the interests of the Company and incent performance and
retention of employees. The Company recognizes the cost of employee services received in exchange
for awards of equity instruments based upon the grant date fair value of those awards.
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
(p) Income Taxes
Deferred taxes are recognized for the future tax effects of temporary differences between
financial and income tax reporting using tax rates in effect for the years in which the differences
are expected to reverse. Given continuing losses in certain jurisdictions in which the Company
operates on a separate return basis, a valuation allowance has been established for the deferred
tax assets in these specific locations. The Company periodically estimates the probable tax
obligations using historical experience in tax jurisdictions and informed judgment. There are
inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in
which the Company transacts business. The judgments and estimates made at a point in time may
change based on the outcome of tax audits, as well as changes to, or further interpretations of,
regulations. Income tax expense is adjusted in the period in which these events occur, and these
adjustments are included in the Company’s Consolidated Statements of Income. If such changes take
place, there is a risk that the Company’s effective tax rate may increase or decrease in any
period. A company must recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The tax benefits recognized in the financial
statements from such a position are measured based on the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate resolution.
(q) Financial Instruments
The Company uses financial instruments, including forward exchange, option and swap contracts,
to manage its exposures to movements in interest rates, foreign exchange rates and commodity
prices. The use of these financial instruments modifies the exposure of these risks with the intent
to reduce the risk or cost to the Company. The Company does not use derivatives for trading
purposes and is not a party to leveraged derivative contracts.
The Company formally documents its hedge relationships, including identifying the hedging
instruments and the hedged items, as well as its risk management objectives and strategies for
undertaking the hedge transaction. This process includes linking derivatives that are designated as
hedges of specific assets, liabilities, firm commitments or forecasted transactions. The Company
also formally assesses, both at inception and at least quarterly thereafter, whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes in
either the fair value or cash flows of the hedged item. If it is determined that a derivative
ceases to be a highly effective hedge, or if the anticipated transaction is no longer likely to
occur, the Company discontinues hedge accounting, and any deferred gains or losses are recorded in
the “Selling, general and administrative expenses” line of the Consolidated Financial Statements.
Derivatives are recorded in the Consolidated Balance Sheets at fair value in other assets and
other liabilities. The fair value is based upon either market quotes for actively traded
instruments or independent bids for nonexchange traded instruments.
On the date the derivative is entered into, the Company designates the type of derivative as a
fair value hedge, cash flow hedge, net investment hedge or a mark to market hedge, and accounts for
the derivative in accordance with its designation.
Mark to Market Hedge
A derivative used as a hedging instrument whose change in fair value is recognized to act as
an economic hedge against changes in the values of the hedged item is designated a mark to market
hedge. For derivatives designated as mark to market hedges, changes in fair value are reported in
earnings in the “Selling, general and administrative expenses” line of the Consolidated Statements
of Income. Forward exchange contracts are recorded as mark to market hedges when the hedged item is
a recorded asset or liability that is revalued in each accounting period.
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Cash Flow Hedge
A hedge of a forecasted transaction or of the variability of cash flows to be received or paid
related to a recognized asset or liability is designated as a cash flow hedge. The effective
portion of the change in the fair value of a derivative that is designated as a cash flow hedge is
recorded in the “Accumulated other comprehensive loss” line of the Consolidated Balance Sheets.
When the hedged item affects the income statement, the gain or loss included in accumulated other
comprehensive income (loss) is reported on the same line in the Consolidated Statements of Income
as the hedged item. In addition, both the fair value of changes excluded from the Company’s
effectiveness assessments and the ineffective portion of the changes in the fair value of
derivatives used as cash flow hedges are reported in the “Selling, general and administrative
expenses” line in the Consolidated Statements of Income.
(r) Recently Issued Accounting Pronouncements
The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles
In June 2009, the Financial Accounting Standards Board (“FASB”) issued the FASB Accounting
Standards Codification (the “Codification”). The Codification is the single source for all
authoritative GAAP recognized by the FASB to be applied in the preparation of financial statements
of nongovernmental entities issued for periods ending after September 15, 2009. The Codification
supersedes all existing non-SEC accounting and reporting standards. The Codification did not
change GAAP and did not have a material impact on the Company’s financial condition, results of
operations or cash flows but resulted in certain additional disclosures.
Fair Value Measurements
In September 2006, the FASB issued new accounting rules for fair value measurements, which
defines fair value, establishes a framework for measuring fair value in GAAP and expands
disclosures about fair value measurements. In February 2008, the FASB approved a one-year deferral
of the adoption of the rules as it relates to certain non-financial assets and liabilities. The
Company adopted the provisions for its financial assets and liabilities effective December 30, 2007
and adopted the provisions for its non-financial assets and liabilities effective January 4, 2009.
Neither the adoption in the first quarter ended March 29, 2008 for financial assets and liabilities
nor the adoption in the first quarter ended April 4, 2009 for non-financial assets and liabilities
had a material impact on the financial condition, results of operations or cash flows of the
Company, but both adoptions resulted in certain additional disclosures reflected in Note 15.
Noncontrolling Interests in Consolidated Financial Statements
In December 2007, the FASB issued new accounting rules on business combinations and
noncontrolling interests in consolidated financial statements. The new rules improve the
relevance, comparability, and transparency of the financial information that a company provides in
its consolidated financial statements. The new rules require a company to clearly identify and
present ownership interests in subsidiaries held by parties other than the company in the
consolidated financial statements within the equity section but separate from the company’s equity.
It also requires that the amount of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of the consolidated
statement of income; that changes in ownership interest be accounted for similarly, as equity
transactions; and when a subsidiary is deconsolidated, that any retained noncontrolling equity
investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary
be measured at fair value. The Company adopted the new accounting rules in the first quarter ended
April 4, 2009. The adoption did not have a material impact on the Company’s financial condition,
results of operations or cash flows.
Disclosures About Derivative Instruments and Hedging Activities
In March 2008, the FASB issued new accounting guidance which expands the disclosure
requirements about an entity’s derivative instruments and hedging activities. The Company adopted
the new accounting rules in the first
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
quarter ended April 4, 2009. The adoption did not have a material impact on the Company’s
financial condition, results of operations or cash flows but resulted in certain additional
disclosures reflected in Note 14.
Employers’ Disclosures about Postretirement Benefit Plan Assets
In December 2008, the FASB issued rules on the disclosure of postretirement benefit plan
assets. The rules expand the disclosure requirements to include more detailed disclosures about an
employers’ plan assets, including employers’ investment strategies, major categories of plan
assets, concentrations of risk within plan assets, and valuation techniques used to measure the
fair value of plan assets. The Company adopted the new accounting rules as of January 2, 2010.
The adoption did not have a material impact on the Company’s financial condition, results of
operations or cash flows but resulted in certain additional disclosures reflected in Notes 15, 16
and 17.
Accounting for Transfers of Financial Assets
In June 2009, the FASB issued new accounting rules for transfers of financial assets. The new
rules require greater transparency and additional disclosures for transfers of financial assets and
the entity’s continuing involvement with them and changes the requirements for derecognizing
financial assets. The new accounting rules are effective for financial asset transfers occurring
after the beginning of the Company’s first fiscal year that begins after November 15, 2009. The
Company is evaluating the impact of adoption of these new rules on the financial condition, results
of operations and cash flows of the Company.
Consolidation — Variable Interest Entities
In June 2009, the FASB issued new accounting rules related to the accounting and disclosure
requirements for the consolidation of variable interest entities. The new accounting rules are
effective for the Company’s first fiscal year that begins after November 15, 2009. The Company is
evaluating the impact of adoption of these rules on the financial condition, results of operations
and cash flows of the Company.
(s) Reclassifications
A revision to the balance sheet classification was made to the 2008 Consolidated Balance Sheet
for freight expenses payable of $21,635, which had previously been included in accrued liabilities
but has been reclassified into accounts payable. Only amounts related to invoices received from
vendors were reclassified from accrued liabilities into accounts payable. This reclassification
had no impact on the Company’s previously reported total assets, total liabilities, shareholders’
equity or net income.
(3) Earnings Per Share
Basic earnings per share (“EPS”) was computed by dividing net income by the number of weighted
average shares of common stock outstanding during the period. Diluted EPS was calculated to give
effect to all potentially dilutive shares of common stock using the treasury stock method. The
reconciliation of basic to diluted weighted average shares for 2009, 2008 and 2007 is as follows:
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Basic weighted average shares |
95,158 | 94,171 | 95,936 | |||||||||
Effect of potentially dilutive securities: |
||||||||||||
Stock options |
— | 100 | 278 | |||||||||
Restricted stock units |
510 | 882 | 527 | |||||||||
Employee stock purchase plan and other |
— | 11 | — | |||||||||
Diluted weighted average shares |
95,668 | 95,164 | 96,741 | |||||||||
Options to purchase 6,273, 3,735 and 1,163 shares of common stock and 234, 0 and 0 restricted
stock units were excluded from the diluted earnings per share calculation because their effect
would be anti-dilutive for 2009, 2008 and 2007, respectively.
(4) Stock-Based Compensation
The Company established the Hanesbrands OIP to award stock options, stock appreciation rights,
restricted stock, restricted stock units, deferred stock units, performance shares and cash to its
employees, non-employee directors and employees of its subsidiaries to promote the interests of the
Company and incent performance and retention of employees.
Stock Options
The exercise price of each stock option equals the closing market price of Hanesbrands’ stock
on the date of grant. Options generally vest ratably over two to three years and can generally be
exercised over a term of 10 years. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model. The following table illustrates the assumptions
for the Black-Scholes option-pricing model used in determining the fair value of options granted
during 2009, 2008 and 2007, respectively.
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Dividend yield |
— | — | — | |||||||||
Risk-free interest rate |
2.49 | % | 1.68-2.64 | % | 3.24-4.92 | % | ||||||
Volatility |
48 | % | 28-37 | % | 26-28 | % | ||||||
Expected term (years) |
6.0 | 3.8-6.0 | 2.5-4.5 | |||||||||
The dividend yield assumption is based on the Company’s current intent not to pay dividends.
The Company uses a combination of the volatility of the Company and the volatility of peer
companies for a period of time that is comparable to the expected life of the option to determine
volatility assumptions due to the limited trading history of the Company’s common stock. The
Company utilizes the simplified method outlined in SEC accounting rules to estimate expected lives
for options granted. The simplified method is used for valuing stock option grants by eligible
public companies that do not have sufficient historical exercise patterns on options granted to
employees.
A summary of the changes in stock options outstanding to the Company’s employees under the
Hanesbrands OIP is presented below:
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Weighted- | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted- | Remaining | |||||||||||||||
| Average | Aggregate | Contractual | ||||||||||||||
| Exercise | Intrinsic | Term | ||||||||||||||
| Shares | Price | Value | (Years) | |||||||||||||
Options outstanding at December 30, 2006 |
2,949 | $ | 22.37 | $ | 3,686 | 5.99 | ||||||||||
Granted |
1,222 | 25.59 | ||||||||||||||
Exercised |
(277 | ) | 22.37 | |||||||||||||
Forfeited |
(249 | ) | 22.97 | |||||||||||||
Options outstanding at December 29, 2007 |
3,645 | $ | 23.41 | $ | 16,369 | 5.44 | ||||||||||
Granted |
2,624 | 19.81 | ||||||||||||||
Exercised |
(98 | ) | 22.50 | |||||||||||||
Forfeited |
(142 | ) | 23.35 | |||||||||||||
Options outstanding at January 3, 2009 |
6,029 | $ | 21.86 | $ | — | 5.99 | ||||||||||
Granted |
466 | 24.33 | ||||||||||||||
Exercised |
(66 | ) | 17.71 | |||||||||||||
Forfeited |
(142 | ) | 21.32 | |||||||||||||
Options outstanding at January 2, 2010 |
6,287 | $ | 22.10 | $ | 15,770 | 7.77 | ||||||||||
Options exercisable at January 2, 2010 |
3,754 | $ | 22.51 | $ | 7,569 | 7.22 | ||||||||||
During 2008, after consultation with its compensation consultants, the Compensation Committee
of the Company’s Board of Directors (the “Compensation Committee”) determined to make decisions
regarding 2009 compensation for executive officers at its meeting in December 2008, so that such
decisions could be made prior to the January 1, 2009 effective date for any changes in total
compensation opportunities rather than retroactively, and to approve equity grants simultaneously
with those decisions. Regarding 2008 compensation, the Compensation Committee made decisions and
approved equity grants at its meeting in January 2008. Therefore, two equity awards, including
awards of stock options, were made to executive officers and other employees during 2008.
There were 2,981, 968 and 634 options that vested during 2009, 2008 and 2007, respectively.
The total intrinsic value of options that were exercised during 2009, 2008 and 2007 was $465,
$1,057 and $1,804, respectively. The weighted average fair value of individual options granted
during 2009, 2008 and 2007 was $11.80, $6.29 and $7.83, respectively.
Cash received from option exercises under all share-based payment arrangements for 2009, 2008
and 2007 was $1,179, $2,191 and $6,189, respectively. The actual tax benefit realized for the tax
deductions from option exercise of the share-based payment arrangements totaled $465, $806, and
$1,503 for 2009, 2008 and 2007, respectively.
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Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Stock Unit Awards
Restricted stock units (RSUs) of Hanesbrands’ stock are granted to certain Company employees
and non-employee directors to incent performance and retention over periods ranging from one to
three years. Upon vesting, the RSUs are converted into shares of the Company’s common stock on a
one-for-one basis and issued to the grantees. All RSUs which have been granted under the
Hanesbrands OIP vest solely upon continued future service to the Company. The cost of these awards
is determined using the fair value of the shares on the date of grant, and compensation expense is
recognized over the period during which the grantees provide the requisite service to the Company.
A summary of the changes in the restricted stock unit awards outstanding under the Hanesbrands OIP
is presented below:
| Weighted- | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted- | Remaining | |||||||||||||||
| Average | Aggregate | Contractual | ||||||||||||||
| Grant Date | Intrinsic | Term | ||||||||||||||
| Shares | Fair Value | Value | (Years) | |||||||||||||
Nonvested share units outstanding at
December 30, 2006 |
1,546 | $ | 22.37 | $ | 36,516 | 2.41 | ||||||||||
Granted |
615 | 25.38 | ||||||||||||||
Vested |
(440 | ) | 22.37 | |||||||||||||
Forfeited |
(143 | ) | 23.17 | |||||||||||||
Nonvested share units outstanding at
December 29, 2007 |
1,578 | $ | 23.47 | $ | 43,922 | 1.89 | ||||||||||
Granted |
1,512 | 18.19 | ||||||||||||||
Vested |
(583 | ) | 23.28 | |||||||||||||
Forfeited |
(105 | ) | 23.69 | |||||||||||||
Nonvested share units outstanding at
January 3, 2009 |
2,402 | $ | 20.19 | $ | 31,652 | 1.89 | ||||||||||
Granted |
408 | 24.29 | ||||||||||||||
Vested |
(1,193 | ) | 20.84 | |||||||||||||
Forfeited |
(91 | ) | 19.57 | |||||||||||||
Nonvested share units outstanding at
January 2, 2010 |
1,526 | $ | 20.82 | $ | 36,796 | 1.76 | ||||||||||
Vested share units at January 2, 2010 |
2,216 | $ | 21.79 | |||||||||||||
During 2008, after consultation with its compensation consultants, the Compensation Committee
determined to make decisions regarding 2009 compensation for executive officers at its meeting in
December 2008, so that such decisions could be made prior to the January 1, 2009 effective date for
any changes in total compensation opportunities rather than retroactively, and to approve equity
grants simultaneously with those decisions. Regarding 2008 compensation, the Compensation
Committee made decisions and approved equity grants at its meeting in January 2008. Therefore, two
equity awards, including awards of restricted stock units, were made to executive officers and
other employees during 2008.
The total fair value of shares vested during 2009, 2008 and 2007 was $24,871, $13,560 and
$9,853, respectively. Certain participants elected to defer receipt of shares earned upon vesting.
As of January 2, 2010, a total of 174 shares of common stock are issuable in future years for such
deferrals.
For all share-based payments under the Hanesbrands OIP, during 2009, 2008 and 2007, the
Company recognized total compensation expense of $37,391, $31,002 and $33,185 and recognized a
deferred tax benefit of $14,464, $11,585 and $12,360, respectively. During 2009, the Company
incurred $1,814 related to amending the terms of all outstanding stock options granted under the
Hanesbrands OIP that had an original term of five or seven
F-17
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
years to the tenth anniversary of the original grant date.
At January 2, 2010, there was $9,529 of total unrecognized compensation cost related to
non-vested stock-based compensation arrangements, of which $7,205, $1,854, and $470 is expected to
be recognized in 2010, 2011 and 2012, respectively. The Company satisfies the requirement for
common shares for share-based payments to employees pursuant to the Hanesbrands OIP by issuing
newly authorized shares. The Hanesbrands OIP authorized 13,105 shares for awards of stock options
and restricted stock units, of which 2,457 were available for future grants as of January 2, 2010.
Employee Stock Purchase Plan
The Company established the Hanesbrands Inc. Employee Stock Purchase Plan of 2006 (the
“ESPP”), which is qualified under Section 423 of the Internal Revenue Code. An aggregate of up to
2,442 shares of Hanesbrands common stock may be purchased by eligible employees pursuant to the
ESPP. The purchase price for shares under the ESPP is equal to 85% of the stock’s fair market value
on the purchase date. During 2009, 2008 and 2007, 156, 129 and 78 shares, respectively, were
purchased under the ESPP by eligible employees. The Company had 2,079 shares of common stock
available for issuance under the ESPP as of January 2, 2010. The Company recognized $306, $447 and
$440 of stock compensation expense under the ESPP during 2009, 2008 and 2007, respectively.
(5) Restructuring
Since becoming an independent company, the Company has undertaken a variety of restructuring
efforts in connection with its consolidation and globalization strategy designed to improve
operating efficiencies and lower costs. As a result of this strategy, the Company expected to incur
approximately $250,000 in restructuring and related charges over the three year period following
the spin off from Sara Lee Corporation (“Sara Lee”) on September 5, 2006, of which approximately
half was expected to be noncash. As of January 2, 2010, the Company has recognized approximately
$278,000 in restructuring and related charges related to this strategy since September 5, 2006, of
which approximately half have been noncash. Of the amounts recognized, approximately $103,000
related to employee termination and other benefits, approximately $96,000 related to accelerated
depreciation of buildings and equipment for facilities that have been or will be closed,
approximately $30,000 related to noncancelable lease and other contractual obligations,
approximately $23,000 related to write-offs of stranded raw materials and work in process inventory
determined not to be salvageable or cost-effective to relocate, approximately $17,000 related to
impairments of fixed assets and approximately $9,000 related to other exit costs such as equipment
moving costs. The consolidation of the distribution network is still in process but will not
result in any substantial charges in future periods. The distribution network consolidation
involves the implementation of new warehouse management systems and technology, and opening of new
distribution centers and new third-party logistics providers to replace parts of the Company’s
legacy distribution network.
Accelerated depreciation related to the Company’s manufacturing facilities and distribution
centers that have been or will be closed is reflected in the “Cost of sales” and “Selling, general
and administrative expenses” lines of the Consolidated Statements of Income. The write-offs of
stranded raw materials and work in process inventory are reflected in the “Cost of sales” line of
the Consolidated Statements of Income.
The reported results for 2009, 2008 and 2007 reflect amounts recognized for restructuring
actions, including the impact of certain actions that were completed for amounts more favorable
than previously estimated. The impact of restructuring efforts on income before income tax expense
is summarized as follows:
F-18
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Years Ended | ||||||||||||
| January 2, | January 3, | December 27, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Restructuring programs: |
||||||||||||
Year ended January 2, 2010 restructuring actions |
$ | 46,216 | $ | — | $ | — | ||||||
Year ended January 3, 2009 restructuring actions |
17,833 | 87,117 | — | |||||||||
Year ended December 29, 2007 restructuring actions |
4,631 | 8,661 | 70,050 | |||||||||
Six months ended December 30, 2006 and
prior restructuring actions |
1,068 | (2,971 | ) | 13,133 | ||||||||
| $ | 69,748 | $ | 92,807 | $ | 83,183 | |||||||
The following table illustrates where the costs associated with these actions are recognized
in the Consolidated Statements of Income:
| Years Ended | ||||||||||||
| January 2, | January 3, | December 27, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Cost of sales |
$ | 12,776 | $ | 42,558 | $ | 36,912 | ||||||
Selling, general and administrative expenses |
3,084 | (14 | ) | 2,540 | ||||||||
Restructuring |
53,888 | 50,263 | 43,731 | |||||||||
| $ | 69,748 | $ | 92,807 | $ | 83,183 | |||||||
Components of the restructuring actions are as follows:
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Accelerated depreciation |
$ | 11,725 | $ | 23,848 | $ | 39,452 | ||||||
Inventory write-offs |
4,135 | 18,696 | — | |||||||||
Fixed asset impairments |
7,503 | 8,993 | 1,857 | |||||||||
Employee termination and other benefits |
23,941 | 34,409 | 31,780 | |||||||||
Noncancelable lease and other contractual
obligations and other |
22,444 | 6,861 | 10,094 | |||||||||
| $ | 69,748 | $ | 92,807 | $ | 83,183 | |||||||
F-19
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Rollforward of accrued restructuring is as follows:
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Beginning accrual |
$ | 21,793 | $ | 23,350 | $ | 17,029 | ||||||
Restructuring expenses |
45,720 | 49,198 | 46,762 | |||||||||
Cash payments |
(42,282 | ) | (41,185 | ) | (35,517 | ) | ||||||
Adjustments to restructuring expenses |
(2,832 | ) | (9,570 | ) | (4,924 | ) | ||||||
Ending accrual |
$ | 22,399 | $ | 21,793 | $ | 23,350 | ||||||
The accrual balance as of January 2, 2010 is comprised of $18,244 in current accrued
liabilities and $4,155 in other noncurrent liabilities. The $18,244 in current accrued liabilities
consists of $9,415 for employee termination and other benefits and $8,829 for noncancelable lease
and other contractual obligations. The $4,155 in other noncurrent liabilities primarily consists of
noncancelable lease and other contractual obligations.
Adjustments to previous estimates resulted from actual costs to settle obligations being lower
than expected. The adjustments were reflected in the “Restructuring” line of the Consolidated
Statements of Income.
Year Ended January 2, 2010 Actions
During 2009, the Company approved actions to close eight manufacturing facilities, three
distribution centers, a yarn warehouse and a cotton warehouse in the Dominican Republic, the United
States, Costa Rica, Honduras, Puerto Rico and Canada, and eliminate an aggregate of approximately
4,100 positions in those countries and El Salvador. The production capacity represented by the
manufacturing facilities has been primarily relocated to lower cost locations in Asia, Central
America and the Caribbean Basin. The distribution capacity has been relocated to the Company’s West
Coast distribution center in California in order to expand capacity for goods the Company sources
from Asia. In addition, approximately 300 management and administrative positions were eliminated,
with the majority of these positions based in the United States. The Company recorded charges of
$46,216 in 2009, related to these actions. The Company recognized $25,038 for employee termination
and other benefits recognized in accordance with benefit plans previously communicated to the
affected employee group, $9,204 for accelerated depreciation of buildings and equipment, $6,071 for
noncancelable lease and other contractual obligations related to the closure of certain
manufacturing facilities, $3,529 for fixed asset impairments related to the closure of certain
manufacturing facilities, $1,635 for write-offs of stranded raw materials and work in process
inventory determined not to be salvageable or cost-effective to relocate related to the closure of
certain manufacturing facilities and $739 for other exit costs. These charges are reflected in the
“Restructuring,” “Cost of sales” and “Selling, general and administrative expenses” lines of the
Consolidated Statements of Income. As of January 2, 2010, 3,044 employees had been terminated and
the severance obligation remaining in accrued restructuring on the Consolidated Balance Sheet was
$8,977. The noncancelable lease and other contractual obligations remaining in accrued
restructuring on the Consolidated Balance Sheet as of January 2, 2010 was $5,471. All actions are
expected to be completed within a 12-month period.
During 2009, the Company ceased making its own yarn and now sources all of its yarn
requirements from large-scale yarn suppliers. The Company entered into an agreement with Parkdale
America, LLC (“Parkdale America”) under which the Company agreed to sell or lease assets related to
operations at the Company’s four yarn manufacturing facilities to Parkdale America. The
transaction closed in October 2009 and resulted in Parkdale America operating three of the four
facilities. As discussed above, the Company approved an action to close the fourth yarn
manufacturing facility, as well as a yarn warehouse and a cotton warehouse. The Company also
entered into a yarn purchase agreement with Parkdale America and Parkdale Mills, LLC (together with
Parkdale America,
F-20
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
“Parkdale”). Under this agreement, which has an initial term of six years, Parkdale will
produce and sell to the Company a substantial amount of the Company’s Western Hemisphere yarn
requirements. During the first two years of the term, Parkdale will also produce and sell to the
Company a substantial amount of the yarn requirements of the Company’s Nanjing, China textile
facility.
The following table summarizes planned and actual employee terminations by location as of
January 2, 2010:
| Number of Employees | Total | |||
Dominican Republic |
1,366 | |||
United States |
1,246 | |||
Costa Rica |
681 | |||
El Salvador |
599 | |||
Honduras |
332 | |||
Puerto Rico |
117 | |||
Other |
67 | |||
| 4,408 | ||||
Actions completed |
3,044 | |||
Actions remaining |
1,364 | |||
| 4,408 | ||||
Year Ended January 3, 2009 Actions
During 2008, the Company approved actions to close 11 manufacturing facilities and three
distribution centers and eliminate approximately 6,800 positions in Mexico, the United States,
Costa Rica, Honduras and El Salvador. The production capacity represented by the manufacturing
facilities has been relocated to lower cost locations in Asia, Central America and the Caribbean
Basin. The distribution capacity has been relocated to the Company’s West Coast distribution
facility in California in order to expand capacity for goods the Company sources from Asia. In
addition, approximately 200 management and administrative positions were eliminated, with the
majority of these positions based in the United States. All actions were substantially completed
within a 12-month period. The Company recorded charges of $87,117 in the year ended January 3,
2009. The Company recognized $37,190 which represents employee termination and other benefits
recognized in accordance with benefit plans previously communicated to the affected employee group,
$18,696 for write-offs of stranded raw materials and work in process inventory determined not to be
salvageable or cost-effective to relocate related to the closure of certain manufacturing
facilities, $14,457 for accelerated depreciation of buildings and equipment, $8,495 for
noncancelable leases, other contractual obligations and other charges related to the closure of
certain manufacturing facilities and $8,279 for fixed asset impairments related to the closure of
certain manufacturing facilities. These charges are reflected in the “Restructuring,” “Cost of
sales” and “Selling, general and administrative expenses” lines of the Consolidated Statement of
Income. As of January 2, 2010, 6,978 employees had been terminated and the severance obligation
remaining in accrued restructuring on the Consolidated Balance Sheet was $1,353. The lease
termination and other contractual obligations remaining in accrued restructuring on the
Consolidated Balance Sheet as of January 2, 2010 was $6,322.
During 2009, the Company recognized additional charges, as well as credits for certain actions
which were completed for amounts more favorable than previously estimated, associated with facility
closures announced in 2008, resulting in a decrease of $17,833 to income before income tax expense.
In 2009, the Company recognized charges of $7,628 for noncancelable lease and other contractual
obligations associated with plant closures announced in 2008, charges of $7,620 for other exit
costs, charges of $2,732 for fixed asset impairments related to the closure of certain
manufacturing facilities and charges of $2,411 for write-offs of stranded raw materials and work in
process inventory determined not to be salvageable or cost-effective to relocate related to the
closure of certain manufacturing facilities. The Company recognized credits of $836 for employee
termination and other
F-21
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
benefits resulting from actual costs to settle obligations being lower than expected and
credits of $1,722 to accelerated depreciation as a result of proceeds from sales of fixed assets to
which accelerated depreciation was previously charged exceeding previous estimates. These charges
and credits are reflected in the “Restructuring,” and “Cost of sales” and “Selling, general and
administrative expenses” lines of the Consolidated Statements of Income.
The following table summarizes planned and actual employee terminations by location as of
January 2, 2010:
| Number of Employees | Total | |||
Mexico |
1,958 | |||
United States |
1,909 | |||
Costa Rica |
1,710 | |||
Honduras |
1,193 | |||
El Salvador |
150 | |||
Other |
84 | |||
| 7,004 | ||||
Actions completed |
6,978 | |||
Actions remaining |
26 | |||
| 7,004 | ||||
Year Ended December 29, 2007 Restructuring Actions
During 2007, the Company, in connection with its consolidation and globalization strategy,
approved actions to close 16 manufacturing facilities and three distribution centers in the
Dominican Republic, Mexico, the United States, Brazil and Canada. All actions were substantially
completed within a 12-month period. The net impact of these actions was to reduce income before
income tax expense by $70,050 in the year ended December 29, 2007. As of January 2, 2010,
6,256 employees had been terminated and the severance obligation remaining in accrued liabilities
on the Consolidated Balance Sheet was $46. The lease termination and other contractual obligations
remaining in accrued restructuring on the Consolidated Balance Sheet as of January 2, 2010 was $94.
During 2008, the Company recognized additional restructuring charges associated with plant
closures announced in 2007, resulting in a decrease of $8,661 to net income before income tax
expense. The Company recognized charges of $10,484 for accelerated depreciation of buildings and
equipment associated with plant closures and charges of $661 for lease termination costs, other
contractual obligations and other restructuring related expenses. The additional charges are
reflected in the “Cost of sales,” “Selling, general and administrative expenses” and
“Restructuring” lines of the Consolidated Statements of Income.
During 2008, certain actions were completed for amounts more favorable than originally
estimated, resulting in an increase of $2,484 to income before income tax expense. The $2,484
consists of a credit for employee termination and other benefits and resulted from actual costs to
settle obligations being lower than expected. The adjustment is reflected in the “Restructuring”
line of the Consolidated Statements of Income.
During 2009, the Company recognized additional restructuring charges associated with plant
closures announced in 2007, resulting in a decrease of $4,631 to income before income tax expense.
In 2009, the Company recognized charges of $4,222 for accelerated depreciation of buildings and
equipment associated with plant closures and $409 for other exit costs. These charges are reflected in the “Restructuring,” “Cost of sales” and “Selling, general and administrative
expenses” lines of the Consolidated Statements of Income.
The following table summarizes planned and actual employee terminations by location as of
January 2, 2010:
F-22
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Number of Employees | Total | |||
Dominican Republic |
2,635 | |||
Mexico |
2,151 | |||
United States |
1,222 | |||
Brazil |
156 | |||
Canada |
93 | |||
| 6,257 | ||||
Actions completed |
6,256 | |||
Actions remaining |
1 | |||
| 6,257 | ||||
(6) Inventories
Inventories consisted of the following:
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
Raw materials |
$ | 106,138 | $ | 172,494 | ||||
Work in process |
100,686 | 116,800 | ||||||
Finished goods |
842,380 | 1,001,236 | ||||||
| $ | 1,049,204 | $ | 1,290,530 | |||||
(7) Trade Accounts Receivable
Allowances for Trade Accounts Receivable
The changes in the Company’s allowance for doubtful accounts and allowance for chargebacks and
other deductions are as follows:
| Allowance for | ||||||||||||
| Allowance for | Chargebacks | |||||||||||
| Doubtful | and Other | |||||||||||
| Accounts | Deductions | Total | ||||||||||
Balance at December 30, 2006 |
$ | 10,662 | $ | 17,047 | $ | 27,709 | ||||||
Charged to expenses |
(363 | ) | 45,966 | 45,603 | ||||||||
Deductions and write-offs |
(971 | ) | (40,699 | ) | (41,670 | ) | ||||||
Balance at December 29, 2007 |
9,328 | 22,314 | 31,642 | |||||||||
Charged to expenses |
8,074 | 5,366 | 13,440 | |||||||||
Deductions and write-offs |
(4,847 | ) | (18,338 | ) | (23,185 | ) | ||||||
Balance at January 3, 2009 |
12,555 | 9,342 | 21,897 | |||||||||
Charged to expenses |
3,647 | 5,724 | 9,371 | |||||||||
Deductions and write-offs |
(700 | ) | (4,792 | ) | (5,492 | ) | ||||||
Balance at January 2, 2010 |
$ | 15,502 | $ | 10,274 | $ | 25,776 | ||||||
Charges to the allowance for doubtful accounts are reflected in the “Selling, general and
administrative expenses” line and charges to the allowance for customer chargebacks and other
customer deductions are primarily reflected as a reduction in the “Net sales” line of the
Consolidated Statements of Income. Deductions and write-offs, which do not increase or decrease
income, represent write-offs of previously reserved accounts receivables and allowed customer
chargebacks and deductions against gross accounts receivable.
F-23
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Sale of Accounts Receivable
In December 2009, the Company entered into an agreement to sell selected trade accounts
receivable to a financial institution. After the sale, the Company does not retain any interests in
the receivables and the financial institution services and collects these accounts receivable
directly from the customer. Net proceeds of this accounts receivable sale program are recognized in
the Consolidated Statement of Cash Flows as part of operating cash flows. By January 2, 2010, the
Company sold $71,248 of accounts receivable at their stated value, and accordingly accounts
receivable in the January 2, 2010 Consolidated Balance Sheet was reduced by that amount. The
funding fee of $163 charged by the financial institution for this program in 2009 was recorded in
the “Other expense (income)” line in the Consolidated Statement of Income.
(8) Property, Net
Property is summarized as follows:
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
Land |
$ | 28,544 | $ | 29,633 | ||||
Buildings and improvements |
478,148 | 413,375 | ||||||
Machinery and equipment |
895,336 | 952,301 | ||||||
Construction in progress |
28,973 | 106,043 | ||||||
Capital leases |
4,018 | 3,794 | ||||||
| 1,435,019 | 1,505,146 | |||||||
Less accumulated depreciation |
832,193 | 916,957 | ||||||
Property, net |
$ | 602,826 | $ | 588,189 | ||||
(9) Notes Payable
The Company had the following short-term obligations at January 2, 2010 and January 3, 2009:
| Principle Amount | ||||||||||||
| Interest Rate as of | January 2, | January 3, | ||||||||||
| January 2, 2010 | 2010 | 2009 | ||||||||||
Short-term revolving facility in El Salvador |
4.47 | % | $ | 30,000 | $ | — | ||||||
Short-term revolving facility in Luxembourg |
3.23 | % | 25,000 | — | ||||||||
Short-term revolving facility in Thailand |
5.32 | % | 4,284 | 15,472 | ||||||||
Short-term revolving facility in China |
6.37 | % | 7,397 | 8,203 | ||||||||
Short-term revolving facility in El Salvador |
— | — | 28,730 | |||||||||
Short-term revolving facility in India |
— | — | 5,300 | |||||||||
Other |
— | — | 4,029 | |||||||||
| $ | 66,681 | $ | 61,734 | |||||||||
The Company has a short-term revolving facility arrangement with a Salvadoran branch of a
Canadian bank amounting to $30,000 of which $30,000 was outstanding at January 2, 2010 which
accrues interest at 4.47%. The Company was in compliance with the financial covenants contained in
this facility at January 2, 2010.
F-24
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
The Company has a short-term revolving facility arrangement with a U.S. bank amounting to
$25,000 of which $25,000 was outstanding at January 2, 2010 which accrues interest at 3.23%. The
Company was in compliance with the financial covenants contained in this facility at January 2,
2010.
The Company has a short-term revolving facility arrangement with a Hong Kong bank amounting to
THB 600 million ($17,980) of which $4,284 was outstanding at January 2, 2010 which accrues interest
at 5.32%. The Company was in compliance with the financial covenants contained in this facility at
January 2, 2010.
The Company has a short-term revolving facility arrangement with a Chinese branch of a
U.S. bank amounting to RMB 56 million ($8,203) of which $7,397 was outstanding at January 2, 2010
which accrues interest at 6.37%. Borrowings under the facility accrue interest at the prevailing
base lending rates published by the People’s Bank of China from
time to time plus 20%. The
Company was in compliance with the financial covenants contained in this facility at January 2,
2010.
In addition, the Company has short-term revolving credit facilities in various other locations
that can be drawn on from time to time amounting to $20,433 of which $0 was outstanding at January
2, 2010.
Total interest paid on notes payable was $3,974, $2,208 and $1,175 in 2009, 2008 and 2007,
respectively.
(10) Debt
The Company had the following debt at January 2, 2010 and January 3, 2009:
| Principal Amount | ||||||||||||||||
| Interest Rate as of | January 2, | January 3, | ||||||||||||||
| January 2, 2010 | 2010 | 2009 | Maturity Date | |||||||||||||
2009 Senior Secured Credit Facility: |
||||||||||||||||
Term Loan Facility |
5.25 | % | $ | 750,000 | $ | — | December 2015 | |||||||||
Revolving Loan Facility |
6.75 | % | 51,500 | — | December 2013 | |||||||||||
8% Senior Notes |
8.00 | % | 500,000 | — | December 2016 | |||||||||||
Floating Rate Senior Notes |
3.83 | % | 490,735 | 493,680 | December 2014 | |||||||||||
Accounts Receivable Securitization Facility |
2.80 | % | 100,000 | 242,617 | December 2010 | |||||||||||
2006 Senior Secured Credit Facility: |
||||||||||||||||
Term A Facility |
— | 139,000 | September 2012 | |||||||||||||
Term B Facility |
— | 851,250 | September 2013 | |||||||||||||
Second Lien Credit Facility |
— | 450,000 | March 2014 | |||||||||||||
| 1,892,235 | 2,176,547 | |||||||||||||||
Less current maturities |
164,688 | 45,640 | ||||||||||||||
| $ | 1,727,547 | $ | 2,130,907 | |||||||||||||
In connection with the spin off on September 5, 2006, the Company entered into a $2,150,000
senior secured credit facility (the “2006 Senior Secured Credit Facility”), a $450,000 senior
secured second lien credit facility (the “Second Lien Credit Facility”) and a $500,000 bridge loan
facility (the “Bridge Loan Facility”). The Bridge Loan Facility was paid off in full through the
issuance of $500,000 of floating rate senior notes (the “Floating Rate Senior Notes”) issued in
December 2006. On November 27, 2007, the Company entered into an accounts receivable securitization
facility (“the Accounts Receivable Securitization Facility”), which initially provided for up to
$250,000 in funding accounted for as a secured borrowing, limited to the availability of eligible
receivables, and is secured by certain domestic trade receivables. On December 10, 2009, the
Company completed the sale of $500,000 in aggregate principal amount of 8.000% senior notes (the
“8% Senior Notes”) and amended and restated
F-25
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
the 2006 Senior Secured Credit Facility to provide for a new $1,150,000 senior secured credit
facility (the “2009 Senior Secured Credit Facility”). The Company used the net proceeds from the
offering of the 8% Senior Notes together with the proceeds from the borrowings under the 2009
Senior Secured Credit Facility, to refinance outstanding borrowings under the 2006 Senior Secured
Credit Facility, to repay the outstanding borrowings under the Second Lien Credit Facility and to
pay fees and expenses related to these transactions. The outstanding balances at January 2, 2010
are reported in the “Long-term debt” and “Current portion of debt” lines of the Consolidated
Balance Sheets.
Total cash paid for interest related to debt in 2009, 2008 and 2007 was $161,854, $150,898 and
$165,331, respectively.
2009 Senior Secured Credit Facility
The 2009 Senior Secured Credit Facility initially provides for aggregate borrowings of
$1,150,000, consisting of a $750,000 term loan facility (the “Term Loan Facility”) and a $400,000
revolving loan facility (the “Revolving Loan Facility”). A portion of the Revolving Loan Facility
is available for the issuances of letters of credit and the making of swingline loans, and any such
issuance of letters of credit or making of a swingline loan will reduce the amount available under
the Revolving Loan Facility. At the Company’s option, it may add one or more term loan facilities
or increase the commitments under the Revolving Loan Facility in an aggregate amount of up to
$300,000 so long as certain conditions are satisfied, including, among others, that no default or
event of default is in existence and that the Company is in pro forma compliance with the financial
covenants described below. As of January 2, 2010, the Company had $51,500 outstanding under the
Revolving Loan Facility, $41,496 of standby and trade letters of credit issued and outstanding
under this facility and $307,004 of borrowing availability. At January 2, 2010, the interest rates
on the Term Loan Facility and the Revolving Loan Facility were 5.25% and 6.75% respectively.
The proceeds of the Term Loan Facility were used to refinance all amounts outstanding under
the Term A loan facility (in an initial principal amount of $250,000) and Term B loan facility (in
an initial principal amount of $1,400,000) under the 2006 Senior Secured Credit Facility and to
repay all amounts outstanding under the Second Lien Credit Facility. Proceeds of the Revolving Loan
Facility were used to pay fees and expenses in connection with these transactions, and will be used
for general corporate purposes and working capital needs.
The 2009 Senior Secured Credit Facility is guaranteed by substantially all of the Company’s
existing and future direct and indirect U.S. subsidiaries, with certain customary or agreed-upon
exceptions for certain subsidiaries. The Company and each of the guarantors under the 2009 Senior
Secured Credit Facility have granted the lenders under the 2009 Senior Secured Credit Facility a
valid and perfected first priority (subject to certain customary exceptions) lien and security
interest in the following:
| • | the equity interests of substantially all of the Company’s direct and indirect U.S. subsidiaries and 65% of the voting securities of certain first tier foreign subsidiaries; and | ||
| • | substantially all present and future property and assets, real and personal, tangible and intangible, of the Company and each guarantor, except for certain enumerated interests, and all proceeds and products of such property and assets. |
The Term Loan Facility matures on December 10, 2015. The Term Loan Facility will be repaid in
equal quarterly installments in an amount equal to 1% per annum, with the balance due on the
maturity date. The Revolving Loan Facility matures on December 10, 2013. All borrowings under the
Revolving Loan Facility must be repaid in full upon maturity. Outstanding borrowings under the 2009
Senior Secured Credit Facility are prepayable without penalty. There are mandatory prepayments of
principal in connection with (i) the incurrence of certain indebtedness, (ii) non-ordinary course
asset sales or other dispositions (including as a result of casualty or condemnation) that exceed
certain thresholds in any period of 12 consecutive months, with customary reinvestment
F-26
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
provisions, and (iii) excess cash flow, which percentage will be based upon the Company’s
leverage ratio during the relevant fiscal period.
At the Company’s option, borrowings under the 2009 Senior Secured Credit Facility may be
maintained from time to time as (a) Base Rate loans, which shall bear interest at the highest of
(i) 1/2 of 1% in excess of the federal funds rate, (ii) the rate publicly announced by JPMorgan
Chase Bank as its “prime rate” at its principal office in New York City, in effect from time to
time and (iii) the LIBO Rate (as defined in the 2009 Senior Secured Credit Facility and adjusted
for maximum reserves) for LIBOR-based loans with a one-month interest period plus 1.0%, in effect
from time to time, in each case plus the applicable margin, or (b) LIBOR-based loans, which shall
bear interest at the higher of (i) LIBO Rate (as defined in the 2009 Senior Secured Credit Facility
and adjusted for maximum reserves), as determined by reference to the rate for deposits in dollars
appearing on the Reuters Screen LIBOR01 Page for the respective interest period or other
commercially available source designated by the administrative agent, and (ii) 2.00%, plus the
applicable margin in effect from time to time. The applicable margin for the Term Loan Facility and
the Revolving Loan Facility will be determined by reference to a leverage-based pricing grid set
forth in the 2009 Senior Secured Credit Facility. In the case of the Term Loan Facility, the
applicable margin will be (a) 3.25% for LIBOR-based loans and 2.25% for Base Rate loans if the
Company’s leverage ratio is greater than or equal to 2.50 to 1, and (b) 3.00% for LIBOR-based loans
and 2.00% for Base Rate loans if the Company’s leverage ratio is less than 2.50 to 1. In the case
of the Revolving Loan Facility, the applicable margin will range from a maximum of 4.75% in the
case of LIBOR-based loans and 3.75% in the case of Base Rate loans if the Company’s leverage ratio
is greater than or equal to 4.00 to 1, and will step down in 0.25% increments to a minimum of 4.00%
in the case of LIBOR-based loans and 3.00% in the case of Base Rate loans if the Company’s leverage
ratio is less than 2.50 to 1. The applicable margin from the closing date of the 2009 Senior
Secured Credit Facility through the delivery of the Company’s financial statements for the second
fiscal quarter of 2010 will be (a) in the case of the Term Loan Facility, 3.25% and 2.25% for
LIBOR-based loans and Base Rate loans, respectively, and (b) in the case of the Revolving Loan
Facility, 4.50% and 3.50% for LIBOR-based loans and Base Rate loans, respectively.
The 2009 Senior Secured Credit Facility requires the Company to comply with customary
affirmative, negative and financial covenants. The 2009 Senior Secured Credit Facility requires
that the Company maintain a minimum interest coverage ratio and a maximum total debt to EBITDA
(earnings before income taxes, depreciation expense and amortization as computed pursuant to the
2009 Senior Secured Credit Facility), or leverage ratio. The interest coverage ratio covenant
requires that the ratio of the Company’s EBITDA for the preceding four fiscal quarters to its
consolidated total interest expense for such period shall not be less than a specified ratio for
each fiscal quarter beginning with the fourth fiscal quarter of 2009. This ratio was 2.50 to 1 for
the fourth fiscal quarter of 2009 and will increase over time until it reaches 3.25 to 1 for the
third fiscal quarter of 2011 and thereafter. The leverage ratio covenant requires that the ratio of
the Company’s total debt to EBITDA for the preceding four fiscal quarters will not be more than a
specified ratio for each fiscal quarter beginning with the fourth fiscal quarter of 2009. This
ratio was 4.50 to 1 for the fourth fiscal quarter of 2009 and will decline over time until it
reaches 3.75 to 1 for the second fiscal quarter of 2011 and thereafter. The method of calculating
all of the components used in the covenants is included in the 2009 Senior Secured Credit Facility.
The 2009 Senior Secured Credit Facility also requires the Company to calculate excess cash flow (as
computed pursuant to the 2009 Senior Secured Credit Facility)
as of the end of each fiscal year and the Company may be required in certain circumstances to make
mandatory prepayments of amounts outstanding under the Term
Loan Facility as a result of such calculation. As a result of the excess cash flow calculation for
2009, the Company is required to prepay $57,188 million under
the Term Loan Facility during the second quarter of 2010.
The 2009 Senior Secured Credit Facility contains customary events of default, including
nonpayment of principal when due; nonpayment of interest after a stated grace period, fees or other
amounts after stated grace period; material inaccuracy of representations and warranties;
violations of covenants; certain bankruptcies and liquidations; any cross-default to material
indebtedness; certain material judgments; certain events related to the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”), actual or asserted invalidity of any guarantee,
security document or subordination provision or non-perfection of security interest, and a change
in control (as defined in the 2009 Senior Secured Credit Facility).
F-27
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
8% Senior Notes
On December 10, 2009, the Company issued $500,000 aggregate principal amount of the 8% Senior
Notes. The 8% Senior Notes are senior unsecured obligations that rank equal in right of payment
with all of the Company’s existing and future unsubordinated indebtedness. The 8% Senior Notes bear
interest at an annual rate equal to 8%. Interest is payable on the 8% Senior Notes on June 15 and
December 15 of each year. The 8% Senior Notes will mature on December 10, 2016. The net proceeds
from the sale of the 8% Senior Notes were approximately $480,000. As noted above, these proceeds,
together with the proceeds from borrowings under the 2009 Senior Secured Credit Facility, were used
to refinance borrowings under the 2006 Senior Secured Credit Facility, to repay all borrowings
under the Second Lien Credit Facility and to pay fees and expenses relating to these transactions.
The 8% Senior Notes are guaranteed by substantially all of the Company’s domestic subsidiaries.
The Company may redeem some or all of the notes prior to December 15, 2013 at a redemption
price equal to 100% of the principal amount of 8% Senior Notes redeemed plus an applicable premium.
The Company may redeem some or all of the 8% Senior Notes at any time on or after December 15,
2013 at a redemption price equal to the principal amount of the 8% Senior Notes plus a premium of
4% if redeemed during the 12-month period commencing on December 15, 2013, 2% if redeemed during
the 12-month period commencing on December 15, 2014 and no premium if redeemed after December 15,
2015, as well as any accrued and unpaid interest as of the redemption date. In addition, at any
time prior to December 15, 2012, the Company may redeem up to 35% of the aggregate principal amount
of the Notes at a redemption price of 108% of the principal amount of the Notes redeemed with the
net cash proceeds of certain equity offerings.
The indenture governing the 8% Senior Notes contains customary events of default which include
(subject in certain cases to customary grace and cure periods), among others, nonpayment of
principal or interest; breach of other agreements in such indenture; failure to pay certain other
indebtedness; failure to pay certain final judgments; failure of certain guarantees to be
enforceable; and certain events of bankruptcy or insolvency.
Floating Rate Senior Notes
On December 14, 2006, the Company issued $500,000 aggregate principal amount of the Floating
Rate Senior Notes. The Floating Rate Senior Notes are senior unsecured obligations that rank equal
in right of payment with all of the Company’s existing and future unsubordinated indebtedness. The
Floating Rate Senior Notes bear interest at an annual rate, reset semi-annually, equal to the
London Interbank Offered Rate, or LIBOR, plus 3.375%. Interest is payable on the Floating Rate
Senior Notes on June 15 and December 15 of each year. The Floating Rate Senior Notes will mature on
December 15, 2014. The net proceeds from the sale of the Floating Rate Senior Notes were
approximately $492,000. These proceeds, together with working capital, were used to repay in full
the $500,000 outstanding under the Bridge Loan Facility. The Floating Rate Senior Notes are
guaranteed by substantially all of the Company’s domestic subsidiaries. The Company may redeem some
or all of the Floating Rate Senior Notes at any time on or after December 15, 2008 at a redemption
price equal to the principal amount of the Floating Rate Senior Notes plus a premium of 2% if
redeemed during the 12-month period commencing on December 15, 2008, 1% if redeemed during the
12-month period commencing on December 15, 2009 and no premium if redeemed after December 15, 2010,
as well as any accrued and unpaid interest as of the redemption date.
The indenture governing the Floating Rate Senior Notes contains customary events of default
which include (subject in certain cases to customary grace and cure periods), among others,
nonpayment of principal or interest; breach of other agreements in such indenture; failure to pay
certain other indebtedness; failure to pay certain final judgments; failure of certain guarantees
to be enforceable; and certain events of bankruptcy or insolvency.
The Company repurchased $2,945 of the Floating Rate Senior Notes for $2,788 resulting in a
gain of $157 in 2009. The Company repurchased $6,320 of the Floating
Rate Senior Notes for $4,354 resulting in a gain of $1,966 in 2008.
F-28
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Accounts Receivable Securitization Facility
On November 27, 2007, the Company entered into the Accounts Receivable Securitization
Facility, which initially provided for up to $250,000 in funding accounted for as a secured
borrowing, limited to the availability of eligible receivables, and is secured by certain domestic
trade receivables. Under the terms of the Accounts Receivable Securitization Facility, the Company
sells, on a revolving basis, certain domestic trade receivables to HBI Receivables LLC
(“Receivables LLC”), a wholly-owned bankruptcy-remote subsidiary that in turn uses the trade
receivables to secure the borrowings, which are funded through conduits that issue commercial paper
in the short-term market and are not affiliated with the Company or through committed bank
purchasers if the conduits fail to fund. The assets and liabilities of Receivables LLC are fully
reflected on the Consolidated Balance Sheet, and the securitization is treated as a secured
borrowing for accounting purposes. The borrowings under the Accounts Receivable Securitization
Facility remain outstanding throughout the term of the agreement subject to the Company maintaining
sufficient eligible receivables, by continuing to sell trade receivables to Receivables LLC, unless
an event of default occurs. All of the proceeds from the Accounts Receivable Securitization
Facility were used to make a prepayment of principal under the 2006 Senior Secured Credit Facility.
On January 29, 2010, Receivables LLC gave notice to the agent and the managing agents under the
Accounts Receivable Securitization Facility that, as permitted by the terms of the Accounts
Receivable Securitization Facility, effective February 11, 2010, the amount of funding available
under the Accounts Receivable Securitization Facility was being reduced from $250,000 to $150,000.
Availability of funding under the Accounts Receivable Securitization Facility depends
primarily upon the eligible outstanding receivables balance. As of January 2, 2010, the Company had
$100,000 outstanding under the Accounts Receivable Securitization Facility. The outstanding
balance under the Accounts Receivable Securitization Facility is reported on the Consolidated
Balance Sheet in the line “Current portion of debt.” Unless the conduits fail to fund, the yield on
the commercial paper, which is the conduits’ cost to issue the commercial paper plus certain dealer
fees, is considered a financing cost and is included in interest expense on the Consolidated
Statement of Income. If the conduits fail to fund, the Accounts Receivable Securitization Facility
would be funded through committed bank purchasers, and the interest rate payable at the Company’s
option at the rate announced from time to time by JPMorgan as its prime rate or at the LIBO Rate
(as defined in the Accounts Receivable Securitization Facility) plus the applicable margin in
effect from time to time. The average blended interest rate for the outstanding balance as of
January 2, 2010 was 2.80%.
On March 16, 2009, the Company and Receivables LLC entered into Amendment No. 1 (“Amendment
No. 1”) to the Accounts Receivable Securitization Facility. Prior to the execution of Amendment
No. 1, the Accounts Receivable Securitization Facility contained the same leverage ratio and
interest coverage ratio provisions as the 2006 Senior Secured Credit Facility, and Amendment No. 1
conformed these ratios to the ratios provided for in the 2006 Senior Secured Credit Facility as
modified by an amendment to the 2006 Senior Secured Credit Facility that was also entered into in
March 2009. Pursuant to Amendment No.1, the rate that would be payable to the conduit purchasers
or the committed purchasers party to the Accounts Receivable Securitization Facility in the event
of certain defaults was increased from 1% over the prime rate to 3% over the greatest of (i) the
one-month LIBO rate plus 1%, (ii) the weighted average rates on federal funds transactions plus
0.5%, or (iii) the prime rate. Also pursuant to Amendment No. 1, several of the factors that
contribute to the overall availability of funding were amended in a manner that would be expected
to generally reduce the amount of funding that would be available under the Accounts Receivable
Securitization Facility. Amendment No. 1 also provides for certain other amendments to the Accounts
Receivable Securitization Facility, including changing the termination date for the Accounts
Receivable Securitization Facility from November 27, 2010 to March 15, 2010, and requiring that
Receivables LLC make certain payments to a conduit purchaser, a committed purchaser, or certain
entities that provide funding to or are affiliated with them, in the event that assets and
liabilities of a conduit purchaser are consolidated for financial and/or regulatory accounting
purposes with certain other entities.
On April 13, 2009, the Company and Receivables LLC entered into Amendment No. 2 (“Amendment
No. 2”) to the Accounts Receivable Securitization Facility. Pursuant to Amendment No. 2, several of
the factors that
F-29
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
contribute to the overall availability of funding were amended in a manner would be expected
to generally increase over time the amount of funding that would be available under the Accounts
Receivable Securitization Facility as compared to the amount that would be available pursuant to
Amendment No. 1. Amendment No. 2 also provides for certain other amendments to the Accounts
Receivable Securitization Facility, including changing the termination date for the Accounts
Receivable Securitization Facility from March 15, 2010 to April 12, 2010. In addition, HSBC
Securities (USA) Inc. replaced JPMorgan Chase Bank, N.A. as agent under the Accounts Receivable
Securitization Facility, PNC Bank, N.A. replaced JPMorgan Chase Bank, N.A. as a managing agent, and
PNC Bank, N.A. and an affiliate of PNC Bank, N.A. replaced affiliates of JPMorgan Chase Bank, N.A.
as a committed purchaser and a conduit purchaser, respectively.
On August 17, 2009, the Company and HBI Receivables entered into Amendment No. 3 to the
Accounts Receivable Securitization Facility, pursuant to which certain definitions were amended to
clarify the calculation of certain ratios that impact reporting under the Accounts Receivable
Securitization Facility.
On December 10, 2009, the Company and Receivables LLC entered into Amendment No. 4 (“Amendment
No. 4”) to the Accounts Receivable Securitization Facility. Prior to the execution of Amendment No.
4, the Accounts Receivable Securitization Facility contained the same leverage ratio and interest
coverage ratio provisions as the 2006 Senior Secured Credit Facility. Amendment No. 4 conformed
these ratios to the ratios provided for in the 2009 Senior Secured Credit Facility.
On December 21, 2009, the Company and Receivables LLC entered into Amendment No. 5 (“Amendment
No. 5”) to the Accounts Receivable Securitization Facility. Pursuant to Amendment No. 5,
Receivables LLC was permitted to sell receivables from certain obligors back to the Company, and to
cease purchasing receivables of these certain obligors from us in the future. Amendment No. 5 also
provides for certain other amendments to the Accounts Receivable Securitization Facility, including
changing the termination date for the Accounts Receivable Securitization Facility from April 12,
2010 to December 20, 2010. In addition, certain of the factors that contribute to the overall
availability of funding were modified in a manner that, taken together, could result in a reduction
in the amount of funding that will be available under the Accounts Receivable Securitization
Facility. In connection with Amendment No. 5, certain fees were due to the managing agents and
certain fees payable to the committed purchasers and the conduit purchasers were decreased.
The Accounts Receivable Securitization Facility contains customary events of default and
requires the Company to maintain the same interest coverage ratio and leverage ratio as required by
the 2009 Senior Secured Credit Facility. As of January 2, 2010, the Company was in compliance with
all financial covenants.
The total amount of receivables used as collateral for the credit facility was $310,477 at
January 2, 2010 and is reported on the Company’s Consolidated Balance Sheet in trade accounts
receivable less allowances.
Future Principal Payments
Future
principal payments for all of the facilities described above are as
follows: $164,688
due in 2010, $5,625 due in 2011, $7,500 due in 2012, $59,000 due in 2013, $498,235 due in 2014 and
$1,157,187 thereafter.
Debt Issuance Costs
The Company incurred $54,342 in capitalized debt issuance costs in connection with entering
into of the 2009 Senior Secured Facility and the amendments to the 2006 Senior Secured Credit
Facility and the Accounts Receivable Securitization Facility in 2009. The Company incurred $69 and
$3,266 in debt issuance costs in connection with entering into the amendments to the 2006 Senior
Secured Credit Facility and the Accounts Receivable Securitization Facility in 2008 and 2007,
respectively. Debt issuance costs are amortized to interest expense over the respective lives of
the debt instruments, which range from one to seven years. As of January 2, 2010, the net carrying
value of unamortized debt issuance costs was $65,729 which is included in other noncurrent assets
in the Consolidated Balance Sheet. The Company’s debt issuance cost amortization was $10,967,
$6,032 and
F-30
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
$6,475 in 2009, 2008 and 2007, respectively.
In 2009, the Company recognized charges of $20,634 in the “Other expense (income)” line of the
Consolidated Statements of Income, which represents certain costs related to the issuance of the
2009 Senior Secured Facility and the amendments to the 2006 Senior Secured Credit Facility and the
Accounts Receivable Securitization Facility. The Company recognized $2,423 of losses on early extinguishment of debt in 2009 related to the
prepayment of $140,250 on the 2006 Senior Secured Credit Facility.
The Company recognized $1,332 of
losses on early extinguishment of debt in 2008 which is comprised of a loss of $1,269 related to
the prepayment of $125,000 on the 2006 Senior Secured Credit Facility and $63 related to the
repurchase of $6,320 of Floating Rate Senior Notes. In 2007, the Company recognized $5,235 of
losses on early extinguishment of debt related to prepayments of $425,000 on the 2006 Senior
Secured Credit Facility.
(11) Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
| Net | ||||||||||||||||||||
| Unrealized | ||||||||||||||||||||
| Income | Accumulated | |||||||||||||||||||
| Cumulative | (Loss) | Pension | Other | |||||||||||||||||
| Translation | on Cash Flows | and | Income | Comprehensive | ||||||||||||||||
| Adjustment | Hedges | Postretirement | Taxes | Loss | ||||||||||||||||
Balance at December 29, 2007 |
$ | 9,230 | $ | (17,894 | ) | $ | (44,167 | ) | $ | 23,913 | $ | (28,918 | ) | |||||||
Other comprehensive
income (loss) activity |
(29,463 | ) | (63,501 | ) | (301,282 | ) | 141,695 | (252,551 | ) | |||||||||||
Balance at January 3, 2009 |
(20,233 | ) | (81,395 | ) | (345,449 | ) | 165,608 | (281,469 | ) | |||||||||||
Other comprehensive
income (loss) activity |
18,966 | 46,219 | 12,763 | (19,474 | ) | 58,474 | ||||||||||||||
Balance at January 2, 2010 |
$ | (1,267 | ) | $ | (35,176 | ) | $ | (332,686 | ) | $ | 146,134 | $ | (222,995 | ) | ||||||
(12) Commitments and Contingencies
The Company is a party to various pending legal proceedings, claims and environmental actions
by government agencies. In accordance with the accounting rules for contingencies, the Company
records a provision with respect to a claim, suit, investigation, or proceeding when it is probable
that a liability has been incurred and the amount of the loss can reasonably be estimated. Any
provisions are reviewed at least quarterly and are adjusted to reflect the impact and status of
settlements, rulings, advice of counsel and other information pertinent to the particular matter.
The recorded liabilities for these items were not material to the Consolidated Financial Statements
of the Company in any of the years presented. Although the outcome of such items cannot be
determined with certainty, the Company’s legal counsel and management are of the opinion that the
final outcome of these matters will not have a material adverse impact on the consolidated
financial position, results of operations or liquidity.
Operating Leases
The Company leases certain buildings and equipment under agreements that are classified as
operating leases. Rental expense under operating leases was $63,759, $53,072 and $47,366 in 2009,
2008 and 2007, respectively.
Future minimum lease payments under noncancelable operating leases (with initial or remaining
lease terms in excess of one year) are as follows: $49,047 in 2010, $40,450 in 2011, $30,923 in
2012, $22,770 in 2013, $20,591 in 2014 and $86,163 thereafter.
F-31
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
During 2009, the Company entered into a sale-leaseback transaction involving a manufacturing
facility. The facility is being leased back over 22 months and is classified as an operating lease.
The Company received net proceeds on the sale of $2,517, resulting in a deferred gain of $348 which
will be amortized over the lease term.
During 2008, the Company entered into sale-leaseback transactions involving two distribution
centers and one manufacturing facility. The facilities are being leased back over terms ranging
from one to four years and are classified as operating leases. The Company received net proceeds on
the sales of $18,782, resulting in deferred gains of $6,317 which will be amortized over the lease
terms.
License Agreements
The Company is party to several royalty-bearing license agreements for use of third-party
trademarks in certain of their products. The license agreements typically require a minimum
guarantee to be paid either at the commencement of the agreement, by a designated date during the
term of the agreement or by the end of the agreement period. When payments are made in advance of
when they are due, the Company records a prepayment and amortizes the expense in the “Cost of
sales” line of the Consolidated Statements of Income uniformly over the guaranteed period. For
guarantees required to be paid at the completion of the agreement, royalties are expensed through
“Cost of sales” as the related sales are made. Management has reviewed all license agreements and
has concluded that there are no liabilities recorded at inception of the agreements.
During 2009, 2008 and 2007, the Company incurred royalty expense of approximately $11,105,
$11,709 and $11,583, respectively.
Minimum amounts due under the license agreements are approximately $8,775 in 2010, $2,644 in
2011, $1,296 in 2012, $60 in 2013 and $60 in 2014. In addition to the minimum guaranteed amounts
under license agreements, in 2007 the Company entered into a partnership agreement which included a
minimum fee of $6,300 for each year from 2008 through 2017.
(13) Intangible Assets and Goodwill
(a) Intangible Assets
The primary components of the Company’s intangible assets and the related accumulated
amortization are as follows:
| Accumulated | Net Book | |||||||||||
| Gross | Amortization | Value | ||||||||||
Year ended January 2, 2010: |
||||||||||||
Intangible assets subject to amortization: |
||||||||||||
Trademarks and brand names |
$ | 192,440 | $ | 77,146 | $ | 115,294 | ||||||
Computer software |
56,356 | 35,436 | 20,920 | |||||||||
| $ | 248,796 | $ | 112,582 | |||||||||
Net book value of intangible assets |
$ | 136,214 | ||||||||||
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Accumulated | Net Book | |||||||||||
| Gross | Amortization | Value | ||||||||||
Year ended January 3, 2009: |
||||||||||||
Intangible assets subject to amortization: |
||||||||||||
Trademarks and brand names |
$ | 192,857 | $ | 72,766 | $ | 120,091 | ||||||
Computer software |
55,556 | 28,204 | 27,352 | |||||||||
| $ | 248,413 | $ | 100,970 | |||||||||
Net book value of intangible assets |
$ | 147,443 | ||||||||||
The amortization expense for intangibles subject to amortization was $12,443, $12,019 and
$6,205 for 2009, 2008 and 2007, respectively. The estimated amortization expense for the next five
years, assuming no change in the estimated useful lives of identifiable intangible assets or
changes in foreign exchange rates is as follows: $11,620 in 2010, $8,876 in 2011, $8,484 in 2012,
$8,201 in 2013 and $7,782 in 2014. There was no impairment of trademarks in any of the periods
presented.
(b) Goodwill
During 2008, the Company completed two business acquisitions: a sewing operation in Thailand
and an embroidery and screen-printing production operation in Honduras, that resulted in the
recognition of goodwill of $3,665 and $3,797, respectively.
During 2007, the Company completed two business acquisitions in El Salvador: a textile
manufacturing operation and a sheer hosiery manufacturing company, that resulted in the recognition
of goodwill of $27,293 and $1,517, respectively. The Company recognized $4,115 of additional
goodwill for these acquisitions in 2008 upon completion of final purchase price allocations.
None of the preceding business acquisitions were determined by the Company to be material,
individually or in the aggregate. As a result, the disclosures and supplemental pro forma
information required by SFAS 141 are not presented.
Goodwill and the changes in those amounts during the period are as follows:
| Direct to | ||||||||||||||||||||||||
| Innerwear | Outerwear | Hosiery | Consumer | International | Total | |||||||||||||||||||
Net book value at December 29,
2007 |
$ | 211,209 | $ | 62,711 | $ | 23,219 | $ | 255 | $ | 13,031 | $ | 310,425 | ||||||||||||
Acquisitions of businesses |
8,520 | 1,103 | 1,954 | — | — | 11,577 | ||||||||||||||||||
Net book value at January 3, 2009 |
219,729 | 63,814 | 25,173 | 255 | 13,031 | 322,002 | ||||||||||||||||||
Net book value at January 2, 2010 |
$ | 219,729 | $ | 63,814 | $ | 25,173 | $ | 255 | $ | 13,031 | $ | 322,002 | ||||||||||||
There has been no impairment of goodwill.
F-33
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
(14) Financial Instruments and Risk Management
The Company uses financial instruments to manage its exposures to movements in interest rates,
foreign exchange rates and commodity prices. The use of these financial instruments modifies the
Company’s exposure to these risks with the goal of reducing the risk or cost to the Company. The
Company does not use derivatives for trading purposes and is not a party to leveraged derivative
contracts.
The Company recognizes all derivative instruments as either assets or liabilities at fair
value in the Consolidated Balance Sheets. The fair value is based upon either market quotes for
actively traded instruments or independent bids for nonexchange traded instruments. The Company
formally documents its hedge relationships, including identifying the hedging instruments and the
hedged items, as well as its risk management objectives and strategies for undertaking the hedge
transaction. This process includes linking derivatives that are designated as hedges of specific
assets, liabilities, firm commitments or forecasted transactions to the hedged risk. On the date
the derivative is entered into, the Company designates the derivative as a fair value hedge, cash
flow hedge, net investment hedge or a mark to market hedge, and accounts for the derivative in
accordance with its designation. The Company also formally assesses, both at inception and at least
quarterly thereafter, whether the derivatives are highly effective in offsetting changes in either
the fair value or cash flows of the hedged item. If it is determined that a derivative ceases to be
a highly effective hedge, or if the anticipated transaction is no longer likely to occur, the
Company discontinues hedge accounting, and any deferred gains or losses are recorded in the
respective measurement period. The Company currently does not have any fair value or net investment
hedge instruments.
The Company may be exposed to credit losses in the event of nonperformance by individual
counterparties or the entire group of counterparties to the Company’s derivative contracts. Risk
of nonperformance by counterparties is mitigated by dealing with highly rated counterparties and by
diversifying across counterparties.
Mark to Market Hedges
A derivative used as a hedging instrument whose change in fair value is recognized
to act as an economic hedge against changes in the values of the hedged item is designated a mark
to market hedge.
Mark to Market Hedges — Intercompany Foreign Exchange Transactions
The Company uses foreign exchange derivative contracts to reduce the impact of foreign
exchange fluctuations on anticipated intercompany purchase and lending transactions denominated in
foreign currencies. Foreign exchange derivative contracts are recorded as mark to market hedges
when the hedged item is a recorded asset or liability that is revalued in each accounting period.
Mark to market hedge derivatives relating to intercompany foreign exchange contracts are reported
in the Consolidated Statements of Cash Flows as cash flow from operating activities. The table
below summarizes the U.S. dollar equivalent of commitments to purchase and sell foreign currencies
in the Company’s foreign currency mark to market hedge derivative portfolio using the exchange rate
at the reporting date as of January 2, 2010 and January 3, 2009.
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
Foreign currency bought (sold): |
||||||||
Canadian dollar |
$ | — | $ | 40,537 | ||||
Canadian dollar |
(3,420 | ) | — | |||||
Japanese yen |
(863 | ) | — | |||||
European euro |
(2,650 | ) | (18,181 | ) | ||||
European euro |
1,732 | 5,347 | ||||||
Mexican peso |
(38,028 | ) | (11,310 | ) | ||||
Mexican peso |
14,061 | — | ||||||
Cash Flow Hedges
A hedge of a forecasted transaction or of the variability of cash flows to be received or paid
related to a recognized asset or liability is designated as a cash flow hedge. The effective
portion of the change in the fair value of a derivative that is designated as a cash flow hedge is
recorded in the “Accumulated other comprehensive loss” line of the Consolidated Balance Sheets.
When the impact of the hedged item is recognized in the income statement, the gain or loss included
in accumulated other comprehensive loss is reported on the same line in the Consolidated Statements
of Income as the hedged item.
Cash Flow Hedges — Interest Rate Derivatives
The Company has executed in the past certain interest rate cash flow hedges in the form of
swaps and caps in order to mitigate the Company’s exposure to variability in cash flows for the
future interest payments on a designated portion of floating rate debt. The effective portion of
interest rate hedge gains and losses deferred in “Accumulated other comprehensive loss” is
reclassified into earnings as the underlying debt interest payments are recognized. Interest rate
cash flow hedge derivatives are reported as a component of interest expense and therefore are
reported as cash flow from operating activities similar to the manner in which cash interest
payments are reported in the Consolidated Statements of Cash Flows.
Cash Flow Hedges — Foreign Currency Derivatives
The Company uses forward exchange and option contracts to reduce the effect of fluctuating
foreign currencies on short-term foreign currency-denominated transactions, foreign
currency-denominated investments, and other known foreign currency exposures. Gains and losses on
these contracts are intended to offset losses and gains on the hedged transaction in an effort to
reduce the earnings volatility resulting from fluctuating foreign currency exchange rates. The
effective portion of foreign exchange hedge gains and losses deferred in “Accumulated other
comprehensive loss” is reclassified into earnings as the underlying inventory is sold, using
historical inventory turnover rates. The settlement of foreign exchange hedge derivative contracts
related to the purchase of inventory or other hedged items are reported in the Consolidated
Statements of Cash Flows as cash flow from operating activities.
Historically, the principal currencies hedged by the Company include the Euro, Mexican peso,
Canadian dollar and Japanese yen. Forward exchange contracts mature on the anticipated cash
requirement date of the hedged transaction, generally within one year. The table below summarizes
the U.S. dollar equivalent of commitments to purchase and sell foreign currencies in the Company’s
foreign currency cash flow hedge derivative portfolio using the exchange rate at the reporting date
as of January 2, 2010 and January 3, 2009.
F-35
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
Foreign currency bought (sold): |
||||||||
Canadian dollar |
$ | (32,955 | ) | $ | (29,430 | ) | ||
Japanese yen |
(12,526 | ) | (7,839 | ) | ||||
European euro |
— | (7,568 | ) | |||||
Mexican peso |
(16,307 | ) | — | |||||
Cash Flow Hedges — Commodity Derivatives
Cotton is the primary raw material used to manufacture many of the Company’s products and is
purchased at market prices. From time to time, the Company uses commodity financial instruments to
hedge the price of cotton, for which there is a high correlation between the hedged item and the
hedge instrument. Gains and losses on these contracts are intended to offset losses and gains on
the hedged transactions in an effort to reduce the earnings volatility resulting from fluctuating
commodity prices. The effective portion of commodity hedge gains and losses deferred in
“Accumulated other comprehensive loss” is reclassified into earnings as the underlying inventory is
sold, using historical inventory turnover rates. The settlement of commodity hedge derivative
contracts related to the purchase of inventory is reported in the Consolidated Statements of Cash
Flows as cash flow from operating activities. There were no amounts outstanding under cotton
futures or cotton option contracts at January 2, 2010 and January 3, 2009.
Fair Values of Derivative Instruments
The fair values of derivative financial instruments recognized in the Consolidated Balance
Sheets of the Company were as follows:
| Fair Value | ||||||||||||
| January 2, | January 3, | |||||||||||
| Balance Sheet Location | 2010 | 2009 | ||||||||||
Derivative assets — hedges |
||||||||||||
Interest rate contracts |
Other current assets | $ | — | $ | 46 | |||||||
Foreign exchange contracts |
Other current assets | 407 | 1,209 | |||||||||
Total derivative assets — hedges |
407 | 1,255 | ||||||||||
Derivative assets — non-hedges |
||||||||||||
Foreign exchange contracts |
Other current assets | 207 | 3,286 | |||||||||
Total derivative assets |
$ | 614 | $ | 4,541 | ||||||||
Derivative liabilities — hedges |
||||||||||||
Interest rate contracts |
Accrued liabilities | $ | — | $ | (6,084 | ) | ||||||
Interest rate contracts |
Other noncurrent liabilities | — | (76,927 | ) | ||||||||
Foreign exchange contracts |
Accrued liabilities | (107 | ) | (1,347 | ) | |||||||
Total derivative liabilities —
hedges |
(107 | ) | (84,358 | ) | ||||||||
Derivative liabilities — non-hedges |
||||||||||||
Foreign exchange contracts |
Accrued liabilities | (432 | ) | (533 | ) | |||||||
Total derivative liabilities |
$ | (539 | ) | $ | (84,891 | ) | ||||||
Net derivative liability |
$ | 75 | $ | (80,350 | ) | |||||||
F-36
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Net Derivative Gain or Loss
The effect of cash flow hedge derivative instruments on the Consolidated Statements of Income
and Accumulated Other Comprehensive Loss is as follows:
| Amount of Gain (Loss) Recognized in | ||||||||||||
| Accumulated Other Comprehensive Loss | ||||||||||||
| (Effective Portion) | ||||||||||||
| Year Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Interest rate contracts |
$ | 20,559 | $ | (66,088 | ) | $ | (16,357 | ) | ||||
Foreign exchange contracts |
(1,560 | ) | 756 | (920 | ) | |||||||
Commodity contracts |
— | (208 | ) | (1,212 | ) | |||||||
Total |
$ | 18,999 | $ | (65,540 | ) | $ | (18,489 | ) | ||||
| Amount of Gain (Loss) Reclassified from | ||||||||||||||||
| Accumulated Other Comprehensive Loss into | Location of Gain (Loss) | |||||||||||||||
| Income (Effective Portion) | Reclassified from | |||||||||||||||
| Year Ended | Accumulated Other | |||||||||||||||
| January 2, | January 3, | December 29, | Comprehensive Loss into | |||||||||||||
| 2010 | 2009 | 2007 | Income (Effective Portion) | |||||||||||||
Interest rate contracts |
$ | (1,820 | ) | $ | (1,176 | ) | $ | (717 | ) | Interest expense, net | ||||||
Interest rate contracts |
(26,029 | ) | — | — | Other income (expense) | |||||||||||
Foreign exchange contracts |
721 | (2,025 | ) | (6 | ) | Cost of sales | ||||||||||
Commodity contracts |
(95 | ) | 473 | (6,464 | ) | Cost of sales | ||||||||||
Total |
$ | (27,223 | ) | $ | (2,728 | ) | $ | (7,187 | ) | |||||||
As disclosed in Note 10, in connection with the amendment and restatement of the 2006 Senior
Secured Credit Facility and repayment of the Second Lien Credit Facility in December 2009, all
outstanding interest rate hedging instruments which were hedging these underlying debt instruments
along with the interest rate hedge instrument related to the Floating Rate Senior Notes were
settled for $62,256, of which $40,391 was paid in December 2009 and the remaining $21,865 was
included in the “Accounts Payable” line of the Consolidated Balance Sheet at January 2, 2010. The
amounts deferred in Accumulated Other Comprehensive Loss associated with the 2006 Senior Secured
Credit Facility and Second Lien Credit Facility were released to earnings as the underlying
forecasted interest payments were no longer probable of occurring, which resulted in recognition of
losses totaling $26,029 that are included in the “Other Expense (Income)” line of the Consolidated
Statement of Income. The amounts deferred in Accumulated Other Comprehensive Loss associated with
the Floating Rate Senior Notes interest rate hedge were frozen at the termination date and will be
amortized over the original remaining term of the interest rate hedge instrument. The unamortized
balance in Accumulated Other Comprehensive Loss was $34,817 as of
January 2, 2010. In the first quarter of 2010, the Company entered into two interest rate caps to hedge the
risks associated with fluctuations in the 6-month LIBOR rate for the Floating Rate Senior
Notes. The terms of the interest rate caps include: a total notional amount of $490,735,
consisting of $240,735 and $250,000, respectively, an expiration date of December 2011, and
a capped 6-month LIBOR interest rate of 4.26%.
The Company expects to reclassify into earnings during the next 12 months a net loss from
Accumulated Other Comprehensive Loss of approximately $18,660 as a result of terminating a swap in
December 2009 with respect to which the underlying hedged item still exists as of January 2, 2010.
The changes in fair value of derivatives excluded from the Company’s effectiveness assessments
and the ineffective portion of the changes in the fair value of derivatives used as cash flow
hedges are reported in the “Selling, general and administrative expenses” line in the Consolidated
Statements of Income. The Company recognized gains (losses) related to ineffectiveness of hedging
relationships in 2009 of $161, consisting of $152 for
F-37
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
interest rate contracts and $9 for foreign exchange contracts. The Company recognized gains
(losses) related to ineffectiveness of hedging relationships in 2008 of $(323), consisting of
$(149) for interest rate contracts and $(174) for foreign exchange contracts. The Company
recognized gains (losses) related to ineffectiveness of hedging relationships in 2007of $80,
consisting of $10 for interest rate contracts and $70 for foreign exchange contracts.
The effect of mark to market hedge derivative instruments on the Consolidated Statements of
Income is as follows:
| Amount of Gain (Loss) Recognized in Income | ||||||||||||||||
| Location of Gain (Loss) | Year Ended | |||||||||||||||
| Recognized in Income | January 2, | January 3, | December 29, | |||||||||||||
| on Derivative | 2010 | 2009 | 2007 | |||||||||||||
Foreign exchange |
Selling, general and | |||||||||||||||
contracts |
administrative expenses | $ | 3,846 | $ | (6,691 | ) | $ | (451 | ) | |||||||
Total |
$ | 3,846 | $ | (6,691 | ) | $ | (451 | ) | ||||||||
(15) Fair Value of Assets and Liabilities
Fair value is an exit price, representing the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The Company utilizes market data or assumptions that market participants would
use in pricing the asset or liability. A three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value, is utilized for disclosing the fair value of the Company’s
assets and liabilities. These tiers include: Level 1, defined as observable inputs such as quoted
prices in active markets; Level 2, defined as inputs other than quoted prices in active markets
that are either directly or indirectly observable; and Level 3, defined as unobservable inputs
about which little or no market data exists, therefore requiring an entity to develop its own
assumptions.
Assets and liabilities measured at fair value are based on one or more of the following three
valuation techniques:
| • | Market approach — prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. | ||
| • | Cost approach — amount that would be required to replace the service capacity of an asset or replacement cost. | ||
| • | Income approach — techniques to convert future amounts to a single present amount based on market expectations, including present value techniques, option-pricing and other models. |
The Company primarily applies the market approach for commodity derivatives and for all
defined benefit plan investment assets, and the income approach for interest rate and foreign
currency derivatives for recurring fair value measurements and attempts to utilize valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
Assets and liabilities are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. The determination of fair values incorporates various
factors that include not only the credit standing of the counterparties involved and the impact of
credit enhancements, but also the impact of the Company’s nonperformance risk on its liabilities.
The Company’s assessment of the significance of a particular input to the fair value measurement
requires judgment, and may affect the valuation of fair value assets and liabilities and their
placement within the fair value hierarchy levels.
As of January 2, 2010 and January 3, 2009, the Company held certain financial assets and
liabilities that are required to be measured at fair value on a recurring basis. These consisted of
the Company’s derivative instruments related to interest rates and foreign exchange rates and
pension defined benefit pension plan investment assets. The fair values of cotton derivatives are
determined based on quoted prices in public markets and are categorized as
F-38
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Level 1. The fair values of interest rate and foreign exchange rate derivatives are determined
based on inputs that are readily available in public markets or can be derived from information
available in publicly quoted markets and are categorized as Level 2. The fair values of defined
benefit pension plan investments include: U.S. equity securities,
certain foreign equity securities and debt securities that are determined based on
quoted prices in public markets categorized as Level 1, certain
foreign equity securities and debt securities that are determined based
on inputs readily available in public markets or can be derived from information available in
publicly quoted markets categorized as Level 2, and investments in
hedge funds of funds and real
estate investments that are based on unobservable inputs about which
little or no market data exists that are classified as Level 3. There were no changes during 2009 to
the Company’s valuation techniques used to measure asset and liability fair values on a recurring
basis. The hedge fund of funds and real estate investments have
varying redemption terms of monthly, quarterly and annually, and have
required notification periods ranging from 45 to 90 days.
As of January 2, 2010, the Company did not have any non-financial assets or liabilities that
are required to be measured at fair value on a recurring basis.
The following tables set forth by level within the fair value hierarchy the Company’s
financial assets and liabilities accounted for at fair value on a recurring basis.
| Assets (Liabilities) at Fair Value as of January 2, 2010 | ||||||||||||
| Quoted Prices | ||||||||||||
| In Active | Significant | |||||||||||
| Markets for | Other | Significant | ||||||||||
| Identical | Observable | Unobservable | ||||||||||
| Assets | Inputs | Inputs | ||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||
Defined benefit pension plan investment assets: |
||||||||||||
Hedge fund of funds |
$ | — | $ | — | $ | 255,212 | ||||||
U.S. equity securities |
143,603 | — | — | |||||||||
Foreign equity securities |
37,815 | 26,978 | — | |||||||||
Debt securities |
4,775 | 108,839 | — | |||||||||
Real estate |
— | — | 19,990 | |||||||||
Cash and other |
15,378 | — | — | |||||||||
| 201,571 | 135,817 | 275,202 | ||||||||||
Derivative contracts, net |
— | 75 | — | |||||||||
Total |
$ | 201,571 | $ | 135,892 | $ | 275,202 | ||||||
| Assets (Liabilities) at Fair Value as of January 3, 2009 | ||||||||||||
| Quoted Prices | ||||||||||||
| In Active | Significant | |||||||||||
| Markets for | Other | Significant | ||||||||||
| Identical | Observable | Unobservable | ||||||||||
| Assets | Inputs | Inputs | ||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||
Derivative contracts, net |
$ | — | $ | (80,350 | ) | $ | — | |||||
Total |
$ | — | $ | (80,350 | ) | $ | — | |||||
The table below sets forth a summary of changes in the fair value of the Level 3 investment
assets in 2009.
F-39
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Hedge fund of | ||||||||
| funds | Real estate | |||||||
Balance at January 3, 2009 |
$ | 242,060 | $ | 27,975 | ||||
Actual return on assets |
33,152 | (7,985 | ) | |||||
Sale of assets |
(20,000 | ) | — | |||||
Balance at January 2, 2010 |
$ | 255,212 | $ | 19,990 | ||||
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable, notes receivable
and accounts payable approximated fair value as of January 2, 2010 and January 3, 2009. The fair
value of debt was $1,881,868 and $1,753,885 as of January 2, 2010 and January 3, 2009 and had a
carrying value of $1,892,235 and $2,176,547, respectively. The fair values were estimated using
quoted market prices as provided in secondary markets which consider the Company’s credit risk and
market related conditions. The carrying amounts of the Company’s notes payable approximated fair
value as of January 2, 2010 and January 3, 2009, primarily due to the short-term nature of these
instruments.
(16) Defined Benefit Pension Plans
Effective as of January 1, 2006, the Company created the Hanesbrands Inc. Pension and
Retirement Plan, a new frozen defined benefit plan to receive assets and liabilities accrued under
the Sara Lee Pension Plan that are attributable to current and former Company employees. In
connection with the spin off on September 5, 2006, the Company assumed Sara Lee’s obligations under
the Sara Lee Corporation Consolidated Pension and Retirement Plan, the Sara Lee Supplemental
Executive Retirement Plan, the Sara Lee Canada Pension Plans and certain other plans that related
to the Company’s current and former employees and assumed other Sara Lee retirement plans covering
only Company employees. The Company also assumed two noncontributory defined benefit plans, the
Playtex Apparel, Inc Pension Plan (the “Playtex Plan”) and the National Textiles, L.L.C. Pension
Plan (the “National Textiles Plan”).
Effective August 31, 2009, the Company merged the Playtex Plan and the National Textiles Plan
into the Hanesbrands Inc. Pension and Retirement Plan, which was renamed the Hanesbrands Inc.
Pension Plan (the “Hanesbrands Pension Plan”).
During 2007, the Company completed the separation of its pension plan assets and liabilities
from those of Sara Lee in accordance with governmental regulations, which resulted in a higher
total amount of pension plan assets being transferred to the Company than originally was estimated
prior to the spin off. Prior to spin off, the fair value of plan assets included in the annual
valuations represented a best estimate based upon a percentage allocation of total assets of the
Sara Lee trust. The separation resulted in a reduction to pension liabilities of approximately
$74,000 with a corresponding credit to additional paid-in capital and resulted in a decrease of
approximately $6,000 to pension expense in 2007.
The annual cost (income) incurred by the Company for these defined benefit plans in 2009, 2008
and 2007, was $21,293, $(11,801) and $(3,390), respectively.
The components of net periodic benefit cost and other amounts recognized in other
comprehensive loss of the Company’s noncontributory defined benefit pension plans were as follows:
F-40
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Service cost |
$ | 1,198 | $ | 1,136 | $ | 1,446 | ||||||
Interest cost |
50,755 | 51,412 | 49,494 | |||||||||
Expected return on assets |
(39,832 | ) | (64,549 | ) | (55,588 | ) | ||||||
Asset allocation |
— | — | (1,867 | ) | ||||||||
Settlement cost |
— | — | 345 | |||||||||
Amortization of: |
||||||||||||
Prior service cost |
26 | 39 | 43 | |||||||||
Net actuarial loss |
9,146 | 161 | 2,737 | |||||||||
Net periodic benefit cost (income) |
$ | 21,293 | $ | (11,801 | ) | $ | (3,390 | ) | ||||
Other
Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss) |
||||||||||||
Net (gain) loss |
$ | (11,947 | ) | $ | 300,127 | $ | (61,162 | ) | ||||
Prior service cost |
(26 | ) | (140 | ) | — | |||||||
Total recognized in other comprehensive loss (income) |
(11,973 | ) | 299,987 | (61,162 | ) | |||||||
Total
recognized in net periodic benefit cost and other comprehensive loss (income) |
$ | 9,320 | $ | 288,186 | $ | (64,552 | ) | |||||
The estimated net loss and prior service credit for the defined benefit pension plans that
will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2010
are $8,628 and $26, respectively.
The funded status of the Company’s defined benefit pension plans at the respective year ends
was as follows:
F-41
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
Accumulated benefit obligation: |
||||||||
Beginning of year |
$ | 854,414 | $ | 837,416 | ||||
Service cost |
1,198 | 1,136 | ||||||
Interest cost |
50,755 | 51,412 | ||||||
Benefits paid |
(57,782 | ) | (54,318 | ) | ||||
Plan curtailment |
— | 1,123 | ||||||
Impact of exchange rate change |
2,711 | (4,367 | ) | |||||
Settlements |
(5,394 | ) | — | |||||
Actuarial loss |
53,306 | 22,012 | ||||||
End of year |
899,208 | 854,414 | ||||||
Fair value of plan assets: |
||||||||
Beginning of year |
564,705 | 834,214 | ||||||
Actual return on plan assets |
92,805 | (213,491 | ) | |||||
Employer contributions |
16,052 | 3,702 | ||||||
Benefits paid |
(57,782 | ) | (54,319 | ) | ||||
Settlements |
(5,744 | ) | — | |||||
Impact of exchange rate change |
2,554 | (5,401 | ) | |||||
End of year |
612,590 | 564,705 | ||||||
Funded status |
$ | (286,618 | ) | $ | (289,709 | ) | ||
The total accumulated benefit obligation and the accumulated benefit obligation and fair value
of plan assets for the Company’s pension plans with accumulated benefit obligations in excess of
plan assets are as follows:
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
Accumulated benefit obligation |
$ | 899,208 | $ | 854,414 | ||||
Plans with accumulated benefit
obligation in excess of plan assets |
||||||||
Accumulated benefit obligation |
898,997 | 854,414 | ||||||
Fair value of plan assets |
612,317 | 564,705 | ||||||
Amounts recognized in the Company’s Consolidated Balance Sheets consist of:
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
Noncurrent assets |
$ | 51 | $ | — | ||||
Current liabilities |
(3,591 | ) | (2,919 | ) | ||||
Noncurrent liabilities |
(283,078 | ) | (286,790 | ) | ||||
Accumulated other comprehensive loss |
(332,370 | ) | (344,343 | ) | ||||
F-42
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Amounts recognized in accumulated other comprehensive loss consist of:
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
Prior service cost |
$ | 165 | $ | 191 | ||||
Actuarial loss |
332,205 | 344,152 | ||||||
| $ | 332,370 | $ | 344,343 | |||||
Accrued benefit costs related to the Company’s defined benefit pension plans are reported in
the “Other noncurrent assets”, “Accrued liabilities — Payroll and employee benefits” and “Pension
and postretirement benefits” lines of the Consolidated Balance Sheets.
(a) Measurement Date and Assumptions
A December 31 measurement date is used to value plan assets and obligations for the pension
plans. In determining the discount rate, the Company utilizes, as a general benchmark, the single
discount rate equivalent to discounting the expected cash flows from each plan using the yields at
each duration from a published yield curve as of the measurement date. The expected long-term rate
of return on plan assets was based on the Company’s investment policy target allocation of the
asset portfolio between various asset classes and the expected real returns of each asset class
over various periods of time. The weighted average actuarial assumptions used in measuring the net
periodic benefit cost and plan obligations for the periods presented were as follows:
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Net periodic benefit cost: |
||||||||||||
Discount rate |
6.11 | % | 6.34 | % | 5.80 | % | ||||||
Long-term rate of return on plan assets |
7.41 | 8.03 | 7.59 | |||||||||
Rate of compensation increase (1) |
3.38 | 3.63 | 3.63 | |||||||||
Plan obligations: |
||||||||||||
Discount rate |
5.78 | % | 6.11 | % | 6.34 | % | ||||||
Rate of compensation increase (1) |
3.70 | 3.38 | 3.63 | |||||||||
| (1) | The compensation increase assumption applies to the non domestic plans and portions of the Hanesbrands nonqualified retirement plans, as benefits under these plans were not frozen at January 2, 2010, January 3, 2009 and December 29, 2007. |
F-43
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
(b) Plan Assets, Expected Benefit Payments, and Funding
The allocation of pension plan assets as of the respective period end measurement dates is as
follows:
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
Asset category: |
||||||||
Hedge fund of funds |
42 | % | 43 | % | ||||
U.S. equity securities |
23 | 22 | ||||||
Debt securities |
19 | 20 | ||||||
Foreign equity securities |
11 | 9 | ||||||
Real estate |
3 | 5 | ||||||
Cash and other |
2 | 1 | ||||||
The Company’s asset strategy and primary investment objective are to maximize the principal
value of the plan assets to meet current and future benefit obligations to plan participants and
their beneficiaries. To accomplish this goal, the assets of the plan are broadly diversified to
protect against large investment losses and to reduce the likelihood of excessive volatility of
returns. Diversification of assets is achieved through strategic allocations to various asset
classes, as well as various investment styles within these asset classes, and by retaining
multiple, third-party investment management firms with complementary investment styles and
philosophies to implement these allocations. The Company has established a target asset allocation
based upon analysis of risk/return tradeoffs and correlations of asset mixes given long-term
historical data, prospective capital market returns and forecasted liabilities of the plans. The
target asset allocation approximates the actual asset allocation as of January 2, 2010. In
addition to volatility protection, diversification enables the assets of the plan the best
opportunity to provide adequate returns in order to meet the Company’s investment return
objectives. These objectives include, over a rolling five-year period, to achieve a total return
which exceeds the required actuarial rate of return for the plan and to outperform a passive
portfolio, consisting of a similar asset allocation.
The Company utilizes market data or assumptions that market participants would use in pricing
the pension plan assets. Effective January 2, 2010, the Company has adopted new pension disclosure
rules. In accordance with these rules, a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value, is utilized for disclosing the fair value of the Company’s
pension plan assets. At January 2, 2010, the Company had $201,571 classified as Level 1 assets,
$135,817 classified as Level 2 assets and $275,202 classified as Level 3 assets. The Level 1
assets consisted primarily of U.S. equity securities, debt
securities, certain foreign equity securities and cash
and cash equivalents, Level 2 assets consisted primarily of debt securities and certain foreign
equity securities, and Level 3 assets consisted primarily of hedge fund of funds and real estate
investments. Refer to Note 15 for the Company’s complete disclosure of the fair value of pension
plan assets.
In September 2009, the Company entered into an agreement with the Pension Benefit Guaranty
Corporation (the “PBGC”) under which the Company agreed to contribute $7,000 in 2009 and $6,816 in
2010. The Company is not required to make any other contributions to the pension plans in 2010.
Expected benefit payments are as follows: $54,223 in 2010, $52,632 in 2011, $52,721 in 2012,
$52,700 in 2013, $55,602 in 2014 and $283,598 thereafter.
(17) Postretirement Healthcare and Life Insurance Plans
On December 1, 2007 the Company effectively terminated all retiree medical coverage. A gain on
curtailment of $32,144 is recorded in the Consolidated Statement of Income for the year ended
December 29, 2007, which represents the final settlement of the retirement plan.
F-44
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
In December 2006, the Company changed the postretirement plan benefits to (a) pass along a
higher share of retiree medical costs to all retirees effective February 1, 2007, (b) eliminate
company contributions toward premiums for retiree medical coverage effective December 1, 2007,
(c) eliminate retiree medical coverage options for all current and future retirees age 65 and older
and (d) eliminate future postretirement life benefits. Gains associated with these plan amendments
were amortized throughout the year ended December 29, 2007 in anticipation of the effective
termination of the medical plan on December 1, 2007.
The postretirement plan expense (income) incurred by the Company for these postretirement
plans for 2009, 2008 and 2007 is $504, $386 and $(5,410), respectively.
The components of the Company’s postretirement healthcare and life insurance plans were as
follows:
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Service costs |
$ | — | $ | — | $ | 256 | ||||||
Interest cost |
480 | 393 | 835 | |||||||||
Expected return on assets |
— | (7 | ) | (7 | ) | |||||||
Amortization of: |
||||||||||||
Transition asset |
— | — | (62 | ) | ||||||||
Prior service cost |
— | — | (7,380 | ) | ||||||||
Net actuarial loss |
24 | — | 948 | |||||||||
Net periodic benefit (income) cost |
$ | 504 | $ | 386 | $ | (5,410 | ) | |||||
Other Changes in Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income |
||||||||||||
Net (gain) loss |
$ | (766 | ) | $ | 1,298 | $ | (191 | ) | ||||
Recognition of settlement of healthcare plan |
(24 | ) | — | (32,144 | ) | |||||||
Total recognized loss (gain) in other comprehensive
income |
(790 | ) | 1,298 | (32,335 | ) | |||||||
Total recognized in net periodic benefit cost and other
comprehensive loss |
$ | (286 | ) | $ | 1,684 | $ | (37,745 | ) | ||||
F-45
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
The funded status of the Company’s postretirement healthcare and life insurance plans at the
respective year end was as follows:
| January 2, 2010 | January 3, 2009 | |||||||
Accumulated benefit obligation: |
||||||||
Beginning of year |
$ | 7,949 | $ | 6,598 | ||||
Interest cost |
480 | 393 | ||||||
Benefits paid |
(140 | ) | (175 | ) | ||||
Actuarial (gain) loss |
(766 | ) | 1,133 | |||||
End of year |
7,523 | 7,949 | ||||||
Fair value of plan assets: |
||||||||
Beginning of year |
— | 173 | ||||||
Actual return on plan assets |
— | (173 | ) | |||||
Employer contributions |
140 | 166 | ||||||
Benefits paid |
(140 | ) | (166 | ) | ||||
End of year |
— | — | ||||||
Funded status and accrued benefit cost recognized |
$ | (7,523 | ) | $ | (7,949 | ) | ||
Amounts recognized in the Company’s Consolidated
Balance Sheet consist of: |
||||||||
Current liabilities |
$ | (571 | ) | $ | (645 | ) | ||
Noncurrent liabilities |
(6,952 | ) | (7,304 | ) | ||||
| $ | (7,523 | ) | $ | (7,949 | ) | |||
Amounts recognized in accumulated other
comprehensive loss consist of: |
||||||||
Actuarial loss |
$ | 316 | $ | 1,106 | ||||
Accrued benefit costs related to the Company’s postretirement healthcare and life insurance
plans are reported in the “Accrued liabilities — Payroll and employee benefits” and “Pension and
postretirement benefits” lines of the Consolidated Balance Sheets.
(a) Measurement Date and Assumptions
A December 31 measurement date is used to value plan assets and obligations for the
postretirement plans. The weighted average actuarial assumptions used in measuring the net periodic
benefit cost and plan obligations for the plans at the respective measurement dates were as
follows:
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Net periodic benefit cost: |
||||||||||||
Discount rate |
6.30 | % | 6.20 | % | 6.20 | % | ||||||
Long-term rate of return on plan assets |
3.70 | 3.70 | 3.70 | |||||||||
Plan obligations: |
||||||||||||
Discount rate |
5.50 | % | 6.30 | % | 6.20 | % | ||||||
F-46
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
(b) Contributions and Benefit Payments
The Company expects to make a contribution of $586 in 2010. Expected benefit payments are as
follows: $586 in 2010, $589 in 2011, $591 in 2012, $591 in 2013, $590 in 2014 and $2,865
thereafter.
(18) Income Taxes
The provision for income tax computed by applying the U.S. statutory rate to income before
taxes as reconciled to the actual provisions were:
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Income before income tax expense: |
||||||||||||
Domestic |
(142.8 | )% | 0.6 | % | 6.0 | % | ||||||
Foreign |
242.8 | 99.4 | 94.0 | |||||||||
| 100.0 | % | 100.0 | % | 100.0 | % | |||||||
Tax expense at U.S. statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes |
(3.4 | ) | 0.6 | 0.6 | ||||||||
Tax on remittance of foreign earnings |
33.9 | 1.5 | 10.8 | |||||||||
Foreign taxes less than U.S. statutory rate |
(46.4 | ) | (16.3 | ) | (15.3 | ) | ||||||
Change in state effective tax rate |
(14.1 | ) | — | — | ||||||||
Employee benefits |
10.6 | 0.6 | 0.5 | |||||||||
Change in valuation allowance |
(9.9 | ) | 2.1 | 1.6 | ||||||||
Other, net |
6.3 | (1.5 | ) | (1.7 | ) | |||||||
Taxes at effective worldwide tax rates |
12.0 | % | 22.0 | % | 31.5 | % | ||||||
Current and deferred tax provisions (benefits) were:
| Current | Deferred | Total | ||||||||||
Year ended January 2, 2010 |
||||||||||||
Domestic |
$ | — | $ | 6,727 | $ | 6,727 | ||||||
Foreign |
15,783 | (9,503 | ) | 6,280 | ||||||||
State |
362 | (6,376 | ) | (6,014 | ) | |||||||
| $ | 16,145 | $ | (9,152 | ) | $ | 6,993 | ||||||
Year ended January 3, 2009 |
||||||||||||
Domestic |
$ | 13,531 | $ | (3,672 | ) | $ | 9,859 | |||||
Foreign |
20,285 | 4,264 | 24,549 | |||||||||
State |
3,497 | (2,037 | ) | 1,460 | ||||||||
| $ | 37,313 | $ | (1,445 | ) | $ | 35,868 | ||||||
Year ended December 29, 2007 |
||||||||||||
Domestic |
$ | 452 | $ | 22,327 | $ | 22,779 | ||||||
Foreign |
23,471 | 4,780 | 28,251 | |||||||||
State |
6,007 | 962 | 6,969 | |||||||||
| $ | 29,930 | $ | 28,069 | $ | 57,999 | |||||||
F-47
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Cash payments for income taxes |
$ | 15,163 | $ | 32,767 | $ | 20,562 | ||||||
Cash payments above represent cash tax payments made by the Company primarily in foreign
jurisdictions.
The deferred tax assets and liabilities at the respective year-ends were as follows:
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
Deferred tax assets: |
||||||||
Nondeductible reserves |
$ | 10,962 | $ | 15,269 | ||||
Inventories |
84,964 | 94,803 | ||||||
Property and equipment |
6,266 | 7,076 | ||||||
Intangibles |
156,696 | 155,248 | ||||||
Bad debt allowance |
13,170 | 12,439 | ||||||
Accrued expenses |
11,590 | 20,507 | ||||||
Employee benefits |
160,671 | 166,120 | ||||||
Tax credits |
11,312 | 1,903 | ||||||
Net operating loss and other tax carryforwards |
40,192 | 21,527 | ||||||
Derivatives |
13,976 | 31,614 | ||||||
Other |
6,275 | 2,796 | ||||||
Gross deferred tax assets |
516,074 | 529,302 | ||||||
Less valuation allowances |
(21,556 | ) | (23,727 | ) | ||||
Deferred tax assets |
494,518 | 505,575 | ||||||
Deferred tax liabilities: |
||||||||
Prepaids |
2,718 | 3,443 | ||||||
Deferred tax liabilities |
2,718 | 3,443 | ||||||
Net deferred tax assets |
$ | 491,800 | $ | 502,132 | ||||
The valuation allowance for deferred tax assets as of January 2, 2010 and January 3, 2009 was
$21,556 and $23,727, respectively. The net change in the total valuation allowance for 2009 was
$(2,171) which, including foreign currency fluctuations, consisted of a release of $(6,816) related
to favorable financial performance in certain foreign jurisdictions partially offset by foreign
loss carryforwards generated. The net change in the total valuation allowance for 2008 was $7,735
which consisted of foreign loss carryforwards generated and foreign currency fluctuations. The net
change in the total valuation allowance for 2007 was $1,401 which, including foreign currency
fluctuations, consisted of $2,082 of foreign loss carryforward additions partially offset by
reductions to foreign goodwill of $(681).
The valuation allowance at January 2, 2010 relates to deferred tax assets established for
foreign loss carryforwards of $21,556. The valuation allowance at January 3, 2009 relates in part
to deferred tax assets established for foreign loss carryforwards of $21,527 and to foreign
goodwill of $2,200.
In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable
F-48
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
income, and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences, net of the existing valuation allowances.
At January 2, 2010, the Company has total net operating loss carryforwards of approximately
$220,244, consisting of $20,822 for federal, $92,102 for foreign, and $107,320 for state, which
will expire as follows:
Fiscal
Year: |
||||
2010 |
$ | 2,114 | ||
2011 |
3,377 | |||
2012 |
3,739 | |||
2013 |
10,055 | |||
2014 |
9,567 | |||
Thereafter |
191,392 |
At January 2, 2010, the Company had tax credit carryforwards totaling $11,312 which expire
after 2019.
At January 2, 2010, applicable U.S. federal income taxes and foreign withholding taxes have
not been provided on the accumulated earnings of foreign subsidiaries that are expected to be
permanently reinvested. If these earnings had not been permanently reinvested, deferred taxes of
approximately $158,000 would have been recognized in the Consolidated Financial Statements.
The
Company adopted new accounting rules in 2007 which resulted in no
adjustment to the liability for
unrecognized income tax benefits as of the beginning of 2007. Although it is not reasonably
possible to estimate the amount by which these unrecognized tax benefits may increase or decrease
within the next twelve months due to uncertainties regarding the timing of examinations and the
amount of settlements that may be paid, if any, to tax authorities, the Company currently expects a
reduction of $3,268 for unrecognized tax benefits accrued at January 2, 2010 within the next twelve
months.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows:
Balance at December 29, 2007 |
$ | 13,617 | ||
Additions based on tax positions related to the current year |
11,502 | |||
Additions for tax positions of prior years |
513 | |||
Reductions for tax positions of prior years |
(450 | ) | ||
Settlements |
— | |||
Balance at January 3, 2009 |
$ | 25,182 | ||
Additions based on tax positions related to the current year |
12,677 | |||
Additions for tax positions of prior years |
2,520 | |||
Reductions for tax positions of prior years |
(450 | ) | ||
Settlements |
— | |||
Balance at January 2, 2010 |
$ | 39,929 | ||
Included in unrecognized tax benefits are $25,869 of tax benefits
that, if recognized, would reduce the Company’s annual effective tax rate. The Company’s policy is to recognize interest and/or penalties related to income tax matters
in income tax expense. The Company recognized $1,010, $647 and $720 for interest and penalties
classified as income tax expense in the Consolidated Statement of Income for 2009, 2008, and 2007,
respectively. At January 2, 2010 and January 3, 2009, the Company had a total of $2,377 and
$1,367, respectively, of interest and penalties accrued
F-49
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
related to unrecognized tax benefits.
The
Company files a consolidated U.S. federal income tax return, as well
as separate and combined income tax returns in numerous state and
foreign jurisdictions. The tax years subject to examination vary by
jurisdiction. At January 2, 2010, all tax years since the
spin off from Sara Lee remain subject to examination. The Company
regularly assesses the outcomes of both ongoing and future
examinations for the current or prior years to ensure the
Company’s provision for income taxes is sufficient. The Company
recognizes liabilities based on estimates of whether additional
taxes will be due and believes its reserves are adequate in relation
to any potential assessments.
The Company and Sara Lee entered into a tax sharing agreement in connection with the spin off
of the Company from Sara Lee on September 5, 2006. Under the tax sharing agreement, within
180 days after Sara Lee filed its final consolidated tax return for the period that included
September 5, 2006, Sara Lee was required to deliver to the Company a computation of the amount of
deferred taxes attributable to the Company’s United States and Canadian operations that would be
included on the Company’s opening balance sheet as of September 6, 2006 (“as finally determined”)
which has been done. The Company has the right to participate in the computation of the amount of
deferred taxes. Under the tax sharing agreement, if substituting the amount of deferred taxes as
finally determined for the amount of estimated deferred taxes that were included on that balance
sheet at the time of the spin off causes a decrease in the net book value reflected on that balance
sheet, then Sara Lee will be required to pay the Company the amount of such decrease. If such
substitution causes an increase in the net book value reflected on that balance sheet, then the
Company will be required to pay Sara Lee the amount of such increase. For purposes of this
computation, the Company’s deferred taxes are the amount of deferred tax benefits (including
deferred tax consequences attributable to deductible temporary differences and carryforwards) that
would be recognized as assets on the Company’s balance sheet computed in accordance with GAAP, but
without regard to valuation allowances, less the amount of deferred tax liabilities (including
deferred tax consequences attributable to taxable temporary differences) that would be recognized
as liabilities on the Company’s opening balance sheet computed in accordance with GAAP, but without
regard to valuation allowances. Neither the Company nor Sara Lee will be required to make any
other payments to the other with respect to deferred taxes.
Based on the Company’s computation of the final amount of
deferred taxes for the Company’s opening balance sheet as of September 6, 2006, the amount that is expected to be collected from Sara Lee based on the Company’s computation
of $72,223, which reflects a preliminary cash installment received from Sara Lee of $18,000, is included as a receivable in Other current assets in the Consolidated Balance Sheet as
of January 2, 2010 and January 3, 2009. The Company and Sara Lee have exchanged information in
connection with this matter, but Sara Lee has disagreed with the Company’s computation. In
accordance with the dispute resolution provisions of the tax sharing agreement, on August 3, 2009,
the Company submitted the dispute to binding arbitration. The arbitration process is ongoing, and
the Company will continue to prosecute its claim. The Company does not believe that the resolution
of this dispute will have a material impact on the Company’s financial position, results of
operations or cash flows.
(19) Stockholders’ Equity
The Company is authorized to issue up to 500,000 shares of common stock, par value $0.01 per
share, and up to 50,000 shares of preferred stock, par value $0.01 per share, and the Company’s
board of directors may, without stockholder approval, increase or decrease the aggregate number of
shares of stock or the number of shares of stock of any class or series that the Company is
authorized to issue. At January 2, 2010 and January 3, 2009, 95,397 and 93,520 shares,
respectively, of common stock were issued and outstanding and no shares of preferred stock were
issued or outstanding. Included within the 50,000 shares of preferred stock, 500 shares are
designated Junior Participating Preferred Stock, Series A (the “Series A Preferred Stock”) and
reserved for issuance upon the exercise of rights under the rights agreement described below.
F-50
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
On February 1, 2007, the Company announced that the Board of Directors granted authority for
the repurchase of up to 10,000 shares of the Company’s common stock. Share repurchases are made
periodically in open-market transactions, and are subject to market conditions, legal requirements
and other factors. Additionally, management has been granted authority to establish a trading plan
under Rule 10b5-1 of the Exchange Act in connection with share repurchases, which will allow the
Company to repurchase shares in the open market during periods in which the stock trading window is
otherwise closed for our company and certain of the Company’s officers and employees pursuant to
the Company’s insider trading policy. Since inception of the program, the Company has purchased
2,800 shares of common stock at a cost of $74,747 (average price of $26.33). The primary objective
of the share repurchase program is to reduce the impact of dilution caused by the exercise of
options and vesting of stock unit awards.
Preferred Stock Purchase Rights
Pursuant to a stockholder rights agreement entered into by the Company prior to the spin off,
one preferred stock purchase right will be distributed with and attached to each share of the
Company’s common stock. Each right will entitle its holder, under the circumstances described
below, to purchase from the Company one one-thousandth of a share of the Series A Preferred Stock
at an exercise price of $75 per right. Initially, the rights will be associated with the Company’s
common stock, and will be transferable with and only with the transfer of the underlying share of
common stock. Until a right is exercised, its holder, as such, will have no rights as a stockholder
with respect to such rights, including, without limitation, the right to vote or to receive
dividends.
The rights will become exercisable and separately certificated only upon the rights
distribution date, which will occur upon the earlier of: (i) ten days following a public
announcement by the Company that a person or group (an “acquiring person”) has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of its outstanding shares of
common stock (the date of the announcement being the “stock acquisition date”); or (ii) ten
business days (or later if so determined by our board of directors) following the commencement of
or public disclosure of an intention to commence a tender offer or exchange offer by a person if,
after acquiring the maximum number of securities sought pursuant to such offer, such person, or any
affiliate or associate of such person, would acquire, or obtain the right to acquire, beneficial
ownership of 15% or more of our outstanding shares of the Company’s common stock.
Upon the Company’s public announcement that a person or group has become an acquiring person,
each holder of a right (other than any acquiring person and certain related parties, whose rights
will have automatically become null and void) will have the right to receive, upon exercise, common
stock with a value equal to two times the exercise price of the right. In the event of certain
business combinations, each holder of a right (except rights which previously have been voided as
described above) will have the right to receive, upon exercise, common stock of the acquiring
company having a value equal to two times the exercise price of the right.
The Company may redeem the rights in whole, but not in part, at a price of $0.001 per right
(subject to adjustment and payable in cash, common stock or other consideration deemed appropriate
by the board of directors) at any time prior to the earlier of the stock acquisition date and the
rights expiration date. Immediately upon the action of the board of directors authorizing any
redemption, the rights will terminate and the holders of rights will only be entitled to receive
the redemption price. At any time after a person becomes an acquiring person and prior to the
earlier of (i) the time any person, together with all affiliates and associates, becomes the
beneficial owner of 50% or more of the Company’s outstanding common stock and (ii) the occurrence
of a business combination, the board of directors may cause the Company to exchange for all or part
of the then-outstanding and exercisable rights shares of its common stock at an exchange ratio of
one common share per right, adjusted to reflect any stock split, stock dividend or similar
transaction.
F-51
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
(20) Business Segment Information
During the fourth quarter of 2009, as the Company sought to drive more outerwear sales through its
retail operations by expanding its Hanes and Champion offerings, the Company made the decision to
change its internal organizational structure so that its retail operations, previously included in
the Innerwear segment, would be a separate “Direct to Consumer” segment. As a result, the
Company’s operations are managed and reported in six operating segments, each of which is a
reportable segment for financial reporting purposes: Innerwear, Outerwear, Hosiery, Direct to
Consumer, International and Other. Certain other insignificant changes between segments have been reflected in
the segment disclosures to conform to the current organizational structure. These segments are
organized principally by product category, geographic location and distribution channel. Management
of each segment is responsible for the operations of these segments’ businesses but shares a common
supply chain and media and marketing platforms.
The types of products and services from which each reportable segment derives its
revenues are as follows:
| • | Innerwear sells basic branded products that are replenishment in nature under the product categories of women’s intimate apparel, men’s underwear, kids’ underwear and socks. | ||
| • | Outerwear sells basic branded products that are seasonal in nature under the product categories of casualwear and activewear. | ||
| • | Hosiery sells products in categories such as pantyhose and knee highs. | ||
| • | Direct to Consumer includes the Company’s value-based (“outlet”) stores and Internet operations which sell products from the Company’s portfolio of leading brands. The Company’s Internet operations are supported by its catalogs. | ||
| • | International relates to the Latin America, Asia, Canada, Europe and South America geographic locations which sell products that span across the Innerwear, Outerwear and Hosiery reportable segments. | ||
| • | Other is primarily comprised of sales of yarn to third parties in the United States and Latin America in order to maintain asset utilization at certain manufacturing facilities and are intended to generate approximate break even margins. |
The Company evaluates the operating performance of its segments based upon segment operating
profit, which is defined as operating profit before general corporate expenses, amortization of
trademarks and other identifiable intangibles and restructuring and related accelerated
depreciation charges and inventory write-offs. The accounting policies of the segments are
consistent with those described in Note 2, “Summary of Significant Accounting Policies.”
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Net sales: |
||||||||||||
Innerwear |
$ | 1,833,616 | $ | 1,947,167 | $ | 2,100,554 | ||||||
Outerwear |
1,051,735 | 1,196,155 | 1,256,214 | |||||||||
Hosiery |
185,710 | 217,391 | 251,731 | |||||||||
Direct to Consumer |
369,739 | 370,163 | 360,500 | |||||||||
International |
437,804 | 496,170 | 448,618 | |||||||||
Other |
12,671 | 21,724 | 56,920 | |||||||||
Total net sales |
$ | 3,891,275 | $ | 4,248,770 | $ | 4,474,537 | ||||||
F-52
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HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Segment operating profit (loss): |
||||||||||||
Innerwear |
$ | 234,352 | $ | 223,420 | $ | 242,132 | ||||||
Outerwear |
53,050 | 66,149 | 67,340 | |||||||||
Hosiery |
61,070 | 68,696 | 74,636 | |||||||||
Direct to Consumer |
37,178 | 44,541 | 57,489 | |||||||||
International |
44,688 | 64,349 | 57,820 | |||||||||
Other |
(2,164 | ) | 328 | (1,333 | ) | |||||||
Total segment operating profit |
428,174 | 467,483 | 498,084 | |||||||||
Items not included in segment operating profit (loss): |
||||||||||||
General corporate expenses |
(75,127 | ) | (45,177 | ) | (52,271 | ) | ||||||
Amortization of trademarks and other identifiable intangibles |
(12,443 | ) | (12,019 | ) | (6,205 | ) | ||||||
Gain on curtailment of postretirement benefits |
— | — | 32,144 | |||||||||
Restructuring |
(53,888 | ) | (50,263 | ) | (43,731 | ) | ||||||
Inventory write-offs included in cost of sales |
(4,135 | ) | (18,696 | ) | — | |||||||
Accelerated depreciation included in cost of sales |
(8,641 | ) | (23,862 | ) | (36,912 | ) | ||||||
Accelerated
depreciation included in selling, general and administrative expenses |
(3,084 | ) | 14 | (2,540 | ) | |||||||
Total operating profit |
270,856 | 317,480 | 388,569 | |||||||||
Other (expense) income |
(49,301 | ) | 634 | (5,235 | ) | |||||||
Interest expense, net |
(163,279 | ) | (155,077 | ) | (199,208 | ) | ||||||
Income before income tax expense |
$ | 58,276 | $ | 163,037 | $ | 184,126 | ||||||
| January 2, | January 3, | |||||||
| 2010 | 2009 | |||||||
Assets: |
||||||||
Innerwear |
$ | 1,101,632 | $ | 1,207,971 | ||||
Outerwear |
707,118 | 828,706 | ||||||
Hosiery |
83,662 | 87,518 | ||||||
Direct to Consumer |
80,243 | 77,687 | ||||||
International |
221,504 | 201,957 | ||||||
Other |
1,622 | 5,985 | ||||||
| 2,195,781 | 2,409,824 | |||||||
Corporate (1) |
1,130,783 | 1,124,225 | ||||||
Total assets |
$ | 3,326,564 | $ | 3,534,049 | ||||
F-53
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Depreciation and amortization expense: |
||||||||||||
Innerwear |
$ | 36,328 | $ | 39,949 | $ | 40,545 | ||||||
Outerwear |
21,988 | 25,092 | 25,346 | |||||||||
Hosiery |
3,831 | 5,778 | 9,157 | |||||||||
Direct to Consumer |
5,621 | 3,713 | 2,335 | |||||||||
International |
2,071 | 2,288 | 4,432 | |||||||||
Other |
169 | 802 | 1,645 | |||||||||
| 70,008 | 77,622 | 83,460 | ||||||||||
Corporate |
26,747 | 37,523 | 48,216 | |||||||||
Total depreciation and amortization expense |
$ | 96,755 | $ | 115,145 | $ | 131,676 | ||||||
| Years Ended | ||||||||||||
| January 2, | January 3, | December 29, | ||||||||||
| 2010 | 2009 | 2007 | ||||||||||
Additions to long-lived assets: |
||||||||||||
Innerwear |
$ | 49,061 | $ | 70,808 | $ | 33,509 | ||||||
Outerwear |
59,048 | 84,412 | 28,025 | |||||||||
Hosiery |
711 | 781 | 1,914 | |||||||||
Direct to Consumer |
8,914 | 11,152 | 4,212 | |||||||||
International |
1,504 | 2,693 | 1,951 | |||||||||
Other |
16 | 46 | 693 | |||||||||
| 119,254 | 169,892 | 70,304 | ||||||||||
Corporate |
7,571 | 17,065 | 26,322 | |||||||||
Total additions to long-lived assets |
$ | 126,825 | $ | 186,957 | $ | 96,626 | ||||||
| (1) | Principally cash and equivalents, certain fixed assets, net deferred tax assets, goodwill, trademarks and other identifiable intangibles, and certain other noncurrent assets. |
Sales to Wal-Mart, Target and Kohl’s were substantially in the Innerwear and Outerwear
segments and represented 27%, 17% and 7% of total sales in 2009, respectively.
Worldwide sales by product category for Innerwear, Outerwear, Hosiery and Other were
$2,395,056, $1,238,806, $244,742 and $12,671, respectively, in 2009.
F-54
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
(21) Geographic Area Information
| Years Ended or at | ||||||||||||||||||||||||
| January 2, 2010 | January 3, 2009 | December 29, 2007 | ||||||||||||||||||||||
| Long-Lived | Long-Lived | Long-Lived | ||||||||||||||||||||||
| Sales | Assets | Sales | Assets | Sales | Assets | |||||||||||||||||||
United States |
$ | 3,447,751 | $ | 185,821 | $ | 3,748,382 | $ | 237,841 | $ | 4,013,738 | $ | 312,310 | ||||||||||||
Mexico |
65,832 | 1,672 | 68,453 | 7,097 | 73,427 | 12,527 | ||||||||||||||||||
Central America and
the Caribbean Basin |
10,419 | 260,564 | 13,550 | 232,625 | 26,851 | 177,295 | ||||||||||||||||||
Japan |
94,037 | 240 | 98,251 | 311 | 83,606 | 205 | ||||||||||||||||||
Canada |
124,197 | 5,084 | 139,971 | 4,817 | 124,500 | 6,196 | ||||||||||||||||||
Europe |
59,679 | 520 | 93,560 | 489 | 70,364 | 536 | ||||||||||||||||||
China |
10,197 | 114,100 | 9,397 | 72,654 | 6,561 | 11,526 | ||||||||||||||||||
Other |
79,163 | 34,825 | 77,206 | 32,355 | 75,490 | 13,691 | ||||||||||||||||||
| $ | 3,891,275 | $ | 602,826 | $ | 4,248,770 | $ | 588,189 | $ | 4,474,537 | $ | 534,286 | |||||||||||||
The net sales by geographic region is attributed by customer location.
(22) Quarterly Financial Data (Unaudited)
| First | Second | Third | Fourth | Total | ||||||||||||||||
2009 |
||||||||||||||||||||
Net sales |
$ | 857,841 | $ | 986,022 | $ | 1,058,673 | $ | 988,739 | $ | 3,891,275 | ||||||||||
Gross profit |
257,876 | 327,391 | 356,680 | 323,327 | 1,265,274 | |||||||||||||||
Net income (loss) |
(19,328 | ) | 30,555 | 41,138 | (1,082 | ) | 51,283 | |||||||||||||
Basic earnings (loss) per share |
(0.20 | ) | 0.32 | 0.43 | (0.01 | ) | 0.54 | |||||||||||||
Diluted earnings (loss) per
share |
(0.20 | ) | 0.32 | 0.43 | (0.01 | ) | 0.54 | |||||||||||||
2008 |
||||||||||||||||||||
Net sales |
$ | 987,847 | $ | 1,072,171 | $ | 1,153,635 | $ | 1,035,117 | $ | 4,248,770 | ||||||||||
Gross profit |
344,964 | 380,956 | 341,784 | 309,646 | 1,377,350 | |||||||||||||||
Net income |
36,024 | 57,344 | 15,920 | 17,881 | 127,169 | |||||||||||||||
Basic earnings per share |
0.38 | 0.61 | 0.17 | 0.19 | 1.35 | |||||||||||||||
Diluted earnings per share |
0.38 | 0.60 | 0.17 | 0.19 | 1.34 | |||||||||||||||
The amounts above include the impact of restructuring and curtailment as described in Notes 5
and 17, respectively, to the Consolidated Financial Statements. In the fourth quarter of the year
ended January 3, 2009, the Company recognized a one-time out of period adjustment to increase gross
profit approximately $8,000 related to the capitalization of certain inventory supplies to be on a
consistent basis across all business lines. The inconsistent application of the policy was not
material to prior years or quarterly periods.
F-55
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
(23) Consolidating Financial Information
In accordance with the indenture governing the Company’s $500,000 Floating Rate Senior Notes
issued on December 14, 2006 and the indenture governing the Company’s $500,000 8% Senior Notes
issued on December 10, 2009 (together, the “Indentures”), certain of the Company’s subsidiaries
have guaranteed the Company’s obligations under the Floating Rate Senior Notes and the 8% Senior
Notes, respectively. The following presents the condensed consolidating financial information
separately for:
(i) Parent Company, the issuer of the guaranteed obligations. Parent Company
includes Hanesbrands Inc. and its 100% owned operating divisions which are not legal
entities, and excludes its subsidiaries which are legal entities;
(ii) Guarantor subsidiaries, on a combined basis, as specified in the Indentures;
(iii) Non-guarantor subsidiaries, on a combined basis;
(iv) Consolidating entries and eliminations representing adjustments to (a) eliminate
intercompany transactions between or among Parent Company, the guarantor subsidiaries and the
non-guarantor subsidiaries, (b) eliminate intercompany profit in inventory, (c) eliminate the
investments in our subsidiaries and (d) record consolidating entries; and
(v) Parent Company, on a consolidated basis.
The Floating Rate Senior Notes and the 8% Senior Notes are fully and unconditionally
guaranteed on a joint and several basis by each guarantor subsidiary, each of which is wholly
owned, directly or indirectly, by Hanesbrands Inc. Each entity in the consolidating financial
information follows the same accounting policies as described in the consolidated financial
statements, except for the use by the Parent Company and guarantor subsidiaries of the equity
method of accounting to reflect ownership interests in subsidiaries which are eliminated upon
consolidation.
F-56
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Consolidating Statement of Income Year Ended January 2, 2010 | ||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| Parent | Guarantor | Non-Guarantor | Entries and | |||||||||||||||||
| Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 3,911,759 | $ | 429,717 | $ | 2,707,159 | $ | (3,157,360 | ) | $ | 3,891,275 | |||||||||
Cost of sales |
3,201,313 | 157,800 | 2,402,017 | (3,135,129 | ) | 2,626,001 | ||||||||||||||
Gross profit |
710,446 | 271,917 | 305,142 | (22,231 | ) | 1,265,274 | ||||||||||||||
Selling, general and
administrative expenses |
743,907 | 88,993 | 105,366 | 2,264 | 940,530 | |||||||||||||||
Restructuring |
48,319 | — | 5,569 | — | 53,888 | |||||||||||||||
Operating profit (loss) |
(81,780 | ) | 182,924 | 194,207 | (24,495 | ) | 270,856 | |||||||||||||
Equity in earnings (loss) of
subsidiaries |
294,200 | 102,506 | — | (396,706 | ) | — | ||||||||||||||
Other expense |
49,301 | — | — | — | 49,301 | |||||||||||||||
Interest expense, net |
123,760 | 21,284 | 18,235 | — | 163,279 | |||||||||||||||
Income (loss) before
income
tax expense (benefit) |
39,359 | 264,146 | 175,972 | (421,201 | ) | 58,276 | ||||||||||||||
Income tax expense (benefit) |
(11,924 | ) | 3,843 | 15,074 | — | 6,993 | ||||||||||||||
Net income (loss) |
$ | 51,283 | $ | 260,303 | $ | 160,898 | $ | (421,201 | ) | $ | 51,283 | |||||||||
| Consolidating Statement of Income Year Ended January 3, 2009 | ||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| Parent | Guarantor | Non-Guarantor | Entries and | |||||||||||||||||
| Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 4,456,838 | $ | 432,209 | $ | 2,839,424 | $ | (3,479,701 | ) | $ | 4,248,770 | |||||||||
Cost of sales |
3,520,096 | 169,115 | 2,537,883 | (3,355,674 | ) | 2,871,420 | ||||||||||||||
Gross profit |
936,742 | 263,094 | 301,541 | (124,027 | ) | 1,377,350 | ||||||||||||||
Selling, general and
administrative expenses |
839,023 | 76,139 | 94,281 | 164 | 1,009,607 | |||||||||||||||
Restructuring |
34,313 | 375 | 15,575 | — | 50,263 | |||||||||||||||
Operating profit (loss) |
63,406 | 186,580 | 191,685 | (124,191 | ) | 317,480 | ||||||||||||||
Equity in earnings (loss) of
subsidiaries |
170,714 | 128,359 | — | (299,073 | ) | — | ||||||||||||||
Other income |
(634 | ) | — | — | — | (634 | ) | |||||||||||||
Interest expense, net |
103,919 | 33,462 | 17,696 | — | 155,077 | |||||||||||||||
Income (loss) before
income
tax expense |
130,835 | 281,477 | 173,989 | (423,264 | ) | 163,037 | ||||||||||||||
Income tax expense |
3,666 | 9,312 | 22,890 | — | 35,868 | |||||||||||||||
Net income (loss) |
$ | 127,169 | $ | 272,165 | $ | 151,099 | $ | (423,264 | ) | $ | 127,169 | |||||||||
F-57
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Consolidating Statement of Income Year Ended December 29, 2007 | ||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| Parent | Guarantor | Non-Guarantor | Entries and | |||||||||||||||||
| Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | 4,421,464 | $ | 875,358 | $ | 2,532,886 | $ | (3,355,171 | ) | $ | 4,474,537 | |||||||||
Cost of sales |
3,527,794 | 640,341 | 2,240,203 | (3,374,711 | ) | 3,033,627 | ||||||||||||||
Gross profit |
893,670 | 235,017 | 292,683 | 19,540 | 1,440,910 | |||||||||||||||
Selling, general and
administrative expenses |
923,127 | 4,096 | 112,332 | 1,199 | 1,040,754 | |||||||||||||||
Gain on curtailment of
postretirement benefits |
(32,144 | ) | — | — | — | (32,144 | ) | |||||||||||||
Restructuring |
39,625 | 72 | 4,034 | — | 43,731 | |||||||||||||||
Operating profit (loss) |
(36,938 | ) | 230,849 | 176,317 | 18,341 | 388,569 | ||||||||||||||
Equity in earnings (loss) of
subsidiaries |
339,034 | 137,571 | — | (476,605 | ) | — | ||||||||||||||
Other expenses |
5,235 | — | — | — | 5,235 | |||||||||||||||
Interest expense, net |
154,367 | 42,299 | 2,544 | (2 | ) | 199,208 | ||||||||||||||
Income (loss) before
income
tax expense |
142,494 | 326,121 | 173,773 | (458,262 | ) | 184,126 | ||||||||||||||
Income tax expense |
16,367 | 13,380 | 28,252 | — | 57,999 | |||||||||||||||
Net income (loss) |
$ | 126,127 | $ | 312,741 | $ | 145,521 | $ | (458,262 | ) | $ | 126,127 | |||||||||
F-58
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Condensed Consolidating Balance Sheet January 2, 2010 |
||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| Parent | Guarantor | Non-Guarantor | Entries and | |||||||||||||||||
| Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 12,805 | $ | 1,646 | $ | 24,492 | $ | — | $ | 38,943 | ||||||||||
Trade accounts receivable less
allowances |
47,654 | 5,973 | 398,807 | (1,893 | ) | 450,541 | ||||||||||||||
Inventories |
838,685 | 52,165 | 291,062 | (132,708 | ) | 1,049,204 | ||||||||||||||
Deferred tax assets and other
current assets |
233,073 | 13,605 | 37,643 | (452 | ) | 283,869 | ||||||||||||||
Total current assets |
1,132,217 | 73,389 | 752,004 | (135,053 | ) | 1,822,557 | ||||||||||||||
Property, net |
154,476 | 17,787 | 430,563 | — | 602,826 | |||||||||||||||
Trademarks and other
identifiable
intangibles, net |
20,677 | 109,833 | 5,704 | — | 136,214 | |||||||||||||||
Goodwill |
232,882 | 16,934 | 72,186 | — | 322,002 | |||||||||||||||
Investments in subsidiaries |
927,105 | 730,159 | — | (1,657,264 | ) | — | ||||||||||||||
Deferred tax assets and other
noncurrent assets |
371,287 | 153,617 | 29,259 | (111,198 | ) | 442,965 | ||||||||||||||
Total assets |
$ | 2,838,644 | $ | 1,101,719 | $ | 1,289,716 | $ | (1,903,515 | ) | $ | 3,326,564 | |||||||||
Liabilities and Stockholders’
Equity |
||||||||||||||||||||
Accounts payable |
$ | 172,802 | $ | 5,237 | $ | 88,285 | $ | 85,647 | $ | 351,971 | ||||||||||
Accrued liabilities |
207,079 | 22,902 | 65,689 | (35 | ) | 295,635 | ||||||||||||||
Notes payable |
— | — | 66,681 | — | 66,681 | |||||||||||||||
Current portion of debt |
64,688 | — | 100,000 | — | 164,688 | |||||||||||||||
Total current liabilities |
444,569 | 28,139 | 320,655 | 85,612 | 878,975 | |||||||||||||||
Long-term debt |
1,727,547 | — | — | — | 1,727,547 | |||||||||||||||
Other noncurrent liabilities |
331,809 | 3,626 | 45,597 | 4,291 | 385,323 | |||||||||||||||
Total liabilities |
2,503,925 | 31,765 | 366,252 | 89,903 | 2,991,845 | |||||||||||||||
Stockholders’ equity |
334,719 | 1,069,954 | 923,464 | (1,993,418 | ) | 334,719 | ||||||||||||||
Total liabilities and
stockholders’ equity |
$ | 2,838,644 | $ | 1,101,719 | $ | 1,289,716 | $ | (1,903,515 | ) | $ | 3,326,564 | |||||||||
F-59
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Condensed Consolidating Balance Sheet January 3, 2009 | ||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| Parent | Guarantor | Non-Guarantor | Entries and | |||||||||||||||||
| Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 16,210 | $ | 2,355 | $ | 48,777 | $ | — | $ | 67,342 | ||||||||||
Trade accounts receivable less
allowances |
(4,956 | ) | 6,096 | 406,305 | (2,515 | ) | 404,930 | |||||||||||||
Inventories |
1,078,048 | 49,581 | 295,946 | (133,045 | ) | 1,290,530 | ||||||||||||||
Deferred tax assets and other
current assets |
288,208 | 10,158 | 49,734 | (577 | ) | 347,523 | ||||||||||||||
Total current assets |
1,377,510 | 68,190 | 800,762 | (136,137 | ) | 2,110,325 | ||||||||||||||
Property, net |
208,844 | 13,914 | 365,431 | — | 588,189 | |||||||||||||||
Trademarks and other
identifiable
intangibles, net |
27,199 | 114,630 | 5,614 | — | 147,443 | |||||||||||||||
Goodwill |
232,882 | 16,934 | 72,186 | — | 322,002 | |||||||||||||||
Investments in subsidiaries |
545,866 | 649,513 | — | (1,195,379 | ) | — | ||||||||||||||
Deferred tax assets and other
noncurrent assets |
91,401 | 397,802 | (37,980 | ) | (85,133 | ) | 366,090 | |||||||||||||
Total assets |
$ | 2,483,702 | $ | 1,260,983 | $ | 1,206,013 | $ | (1,416,649 | ) | $ | 3,534,049 | |||||||||
Liabilities and Stockholders’
Equity |
||||||||||||||||||||
Accounts payable |
$ | 183,369 | $ | 3,980 | $ | 74,157 | $ | 85,647 | $ | 347,153 | ||||||||||
Accrued liabilities |
207,996 | 30,875 | 57,555 | (2,669 | ) | 293,757 | ||||||||||||||
Notes payable |
— | — | 61,734 | — | 61,734 | |||||||||||||||
Current portion of debt |
— | — | 45,640 | — | 45,640 | |||||||||||||||
Total current liabilities |
391,365 | 34,855 | 239,086 | 82,978 | 748,284 | |||||||||||||||
Long-term debt |
1,483,930 | 450,000 | 196,977 | — | 2,130,907 | |||||||||||||||
Other noncurrent liabilities |
423,252 | 7,344 | 34,968 | 4,139 | 469,703 | |||||||||||||||
Total liabilities |
2,298,547 | 492,199 | 471,031 | 87,117 | 3,348,894 | |||||||||||||||
Stockholders’ equity |
185,155 | 768,784 | 734,982 | (1,503,766 | ) | 185,155 | ||||||||||||||
Total liabilities and
stockholders’ equity |
$ | 2,483,702 | $ | 1,260,983 | $ | 1,206,013 | $ | (1,416,649 | ) | $ | 3,534,049 | |||||||||
F-60
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Condensed Consolidating Statement of Cash Flows Year Ended January 2, 2010 |
||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| Parent | Guarantor | Non-Guarantor | Entries and | |||||||||||||||||
| Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net cash provided by (used in)
operating activities |
$ | 170,296 | $ | 497,035 | $ | 140,743 | $ | (393,570 | ) | $ | 414,504 | |||||||||
Investing activities: |
||||||||||||||||||||
Purchases of property, plant and
equipment |
(21,442 | ) | (8,036 | ) | (97,347 | ) | — | (126,825 | ) | |||||||||||
Proceeds from sales of assets |
32,931 | — | 5,034 | — | 37,965 | |||||||||||||||
Other |
(148 | ) | 16 | — | 148 | 16 | ||||||||||||||
Net cash provided by (used in)
investing activities |
11,341 | (8,020 | ) | (92,313 | ) | 148 | (88,844 | ) | ||||||||||||
Financing activities: |
||||||||||||||||||||
Borrowings on notes payable |
— | — | 1,628,764 | — | 1,628,764 | |||||||||||||||
Repayments on notes payable |
— | — | (1,624,139 | ) | — | (1,624,139 | ) | |||||||||||||
Incurrence of debt under 2009 credit facilities |
750,000 | — | — | — | 750,000 | |||||||||||||||
Payments to amend and refinance credit
facilities |
(71,826 | ) | — | (3,150 | ) | — | (74,976 | ) | ||||||||||||
Borrowings on revolving loan facility |
2,034,026 | — | — | — | 2,034,026 | |||||||||||||||
Repayments on revolving loan facility |
(1,982,526 | ) | — | — | — | (1,982,526 | ) | |||||||||||||
Repayment of debt under 2006 credit
facilities |
(990,250 | ) | (450,000 | ) | — | — | (1,440,250 | ) | ||||||||||||
Issuance of 8% Senior Notes |
500,000 | — | — | — | 500,000 | |||||||||||||||
Repurchase of floating rate senior notes |
(2,788 | ) | — | — | — | (2,788 | ) | |||||||||||||
Borrowings on Accounts Receivable
Securitization Facility |
— | — | 183,451 | — | 183,451 | |||||||||||||||
Repayments on Accounts Receivable
Securitization Facility |
— | — | (326,068 | ) | — | (326,068 | ) | |||||||||||||
Proceeds from stock options exercised |
1,179 | — | — | — | 1,179 | |||||||||||||||
Other |
(815 | ) | — | (32 | ) | — | (847 | ) | ||||||||||||
Net transactions with related entities |
(422,042 | ) | (39,724 | ) | 68,344 | 393,422 | — | |||||||||||||
Net cash provided by (used in)
financing activities |
(185,042 | ) | (489,724 | ) | (72,830 | ) | 393,422 | (354,174 | ) | |||||||||||
Effect of changes in foreign exchange
rates on cash |
— | — | 115 | — | 115 | |||||||||||||||
Decrease in cash and cash
equivalents |
(3,405 | ) | (709 | ) | (24,285 | ) | — | (28,399 | ) | |||||||||||
Cash and cash equivalents at
beginning of year |
16,210 | 2,355 | 48,777 | — | 67,342 | |||||||||||||||
Cash and cash equivalents at end of
year |
$ | 12,805 | $ | 1,646 | $ | 24,492 | $ | — | $ | 38,943 | ||||||||||
F-61
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Condensed Consolidating Statement of Cash Flows Year Ended January 3, 2009 |
||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| Parent | Guarantor | Non-Guarantor | Entries and | |||||||||||||||||
| Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net cash provided by (used in)
operating activities |
$ | 18,786 | $ | 139,463 | $ | 319,393 | $ | (300,245 | ) | $ | 177,397 | |||||||||
Investing activities: |
||||||||||||||||||||
Purchases of property, plant and
equipment |
(32,129 | ) | (10,813 | ) | (144,015 | ) | — | (186,957 | ) | |||||||||||
Acquisition of businesses,
net of cash acquired |
— | — | (14,655 | ) | — | (14,655 | ) | |||||||||||||
Proceeds from sales of assets |
20,612 | 38 | 4,358 | — | 25,008 | |||||||||||||||
Other |
2,047 | (91 | ) | (1,772 | ) | (828 | ) | (644 | ) | |||||||||||
Net cash used in investing
activities |
(9,470 | ) | (10,866 | ) | (156,084 | ) | (828 | ) | (177,248 | ) | ||||||||||
Financing activities: |
||||||||||||||||||||
Borrowings on notes payable |
— | — | 602,627 | — | 602,627 | |||||||||||||||
Repayments on notes payable |
— | — | (560,066 | ) | — | (560,066 | ) | |||||||||||||
Payments to amend credit facilities |
(48 | ) | (10 | ) | (11 | ) | — | (69 | ) | |||||||||||
Borrowings on revolving loan
facility |
791,000 | — | — | — | 791,000 | |||||||||||||||
Repayments on revolving loan
facility |
(791,000 | ) | — | — | — | (791,000 | ) | |||||||||||||
Repayment of debt under credit
facilities |
(125,000 | ) | — | — | — | (125,000 | ) | |||||||||||||
Repurchase of floating rate senior
notes |
(4,354 | ) | — | — | — | (4,354 | ) | |||||||||||||
Borrowings on Accounts Receivable
Securitization Facility |
— | — | 20,944 | — | 20,944 | |||||||||||||||
Repayments on Accounts Receivable
Securitization Facility |
— | — | (28,327 | ) | — | (28,327 | ) | |||||||||||||
Proceeds from stock options
exercised |
2,191 | — | — | — | 2,191 | |||||||||||||||
Stock repurchases |
(30,275 | ) | — | — | — | (30,275 | ) | |||||||||||||
Transaction with Sara Lee
Corporation |
18,000 | — | — | — | 18,000 | |||||||||||||||
Other |
(395 | ) | — | (14 | ) | — | (409 | ) | ||||||||||||
Net transactions with related
entities |
62,299 | (132,561 | ) | (230,811 | ) | 301,073 | — | |||||||||||||
Net cash provided by (used in)
financing activities |
(77,582 | ) | (132,571 | ) | (195,658 | ) | 301,073 | (104,738 | ) | |||||||||||
Effect of changes in foreign exchange
rates on cash |
— | — | (2,305 | ) | — | (2,305 | ) | |||||||||||||
Decrease in cash and cash
equivalents |
(68,266 | ) | (3,974 | ) | (34,654 | ) | — | (106,894 | ) | |||||||||||
Cash and cash equivalents at
beginning of year |
84,476 | 6,329 | 83,431 | — | 174,236 | |||||||||||||||
Cash and cash equivalents at end of
year |
$ | 16,210 | $ | 2,355 | $ | 48,777 | $ | — | $ | 67,342 | ||||||||||
F-62
Table of Contents
HANESBRANDS INC.
Notes to Consolidated Financial Statements — (Continued)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
Years ended January 2, 2010, January 3, 2009 and December 29, 2007
(amounts in thousands, except per share data)
| Condensed Consolidating Statement of Cash Flows Year Ended December 29, 2007 |
||||||||||||||||||||
| Consolidating | ||||||||||||||||||||
| Parent | Guarantor | Non-Guarantor | Entries and | |||||||||||||||||
| Company | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net cash provided by (used in)
operating activities |
$ | 1,021,014 | $ | 138,162 | $ | (323,563 | ) | $ | (476,573 | ) | $ | 359,040 | ||||||||
Investing activities: |
||||||||||||||||||||
Purchases of property, plant and
equipment |
(43,206 | ) | (9,588 | ) | (38,832 | ) | — | (91,626 | ) | |||||||||||
Acquisitions of businesses, net of
cash acquired |
— | — | (20,243 | ) | — | (20,243 | ) | |||||||||||||
Acquisition of trademark |
— | (5,000 | ) | — | — | (5,000 | ) | |||||||||||||
Proceeds from sales of assets |
9,180 | 5,396 | 1,997 | — | 16,573 | |||||||||||||||
Other |
(1,962 | ) | 566 | (541 | ) | 1,148 | (789 | ) | ||||||||||||
Net cash provided by (used in)
investing activities |
(35,988 | ) | (8,626 | ) | (57,619 | ) | 1,148 | (101,085 | ) | |||||||||||
Financing activities: |
||||||||||||||||||||
Borrowings on notes payable |
— | — | 66,413 | — | 66,413 | |||||||||||||||
Repayments on notes payable |
— | — | (88,970 | ) | — | (88,970 | ) | |||||||||||||
Payments to amend credit facilities |
(3,135 | ) | (131 | ) | — | — | (3,266 | ) | ||||||||||||
Repayment of debt under credit
facilities |
(428,125 | ) | — | — | — | (428,125 | ) | |||||||||||||
Borrowings on Accounts Receivable
Securitization Facility |
— | — | 250,000 | — | 250,000 | |||||||||||||||
Proceeds from stock options exercised |
6,189 | — | — | — | 6,189 | |||||||||||||||
Stock repurchases |
(44,473 | ) | — | — | — | (44,473 | ) | |||||||||||||
Other |
(287 | ) | (26 | ) | (834 | ) | — | (1,147 | ) | |||||||||||
Net transactions with related entities |
(491,679 | ) | (121,799 | ) | 138,053 | 475,425 | — | |||||||||||||
Net cash provided by (used in)
financing activities |
(961,510 | ) | (121,956 | ) | 364,662 | 475,425 | (243,379 | ) | ||||||||||||
Effect of changes in foreign exchange
rates on cash |
— | — | 3,687 | — | 3,687 | |||||||||||||||
Increase (decrease) in cash and cash
equivalents |
23,516 | 7,580 | (12,833 | ) | — | 18,263 | ||||||||||||||
Cash and cash equivalents at
beginning of year |
60,960 | (1,251 | ) | 96,264 | — | 155,973 | ||||||||||||||
Cash and cash equivalents at end of
year |
$ | 84,476 | $ | 6,329 | $ | 83,431 | $ | — | $ | 174,236 | ||||||||||
F-63
Exhibit 10.4
FORM OF
HANESBRANDS INC. OMNIBUS INCENTIVE PLAN OF 2006
PERFORMANCE CASH AWARD GRANT NOTICE AND AGREEMENT
HANESBRANDS INC. OMNIBUS INCENTIVE PLAN OF 2006
PERFORMANCE CASH AWARD GRANT NOTICE AND AGREEMENT
To: [Name] (referred to herein as “Grantee” or “you”)
Hanesbrands Inc. (the “Company”) is pleased to confirm that you have been granted a Performance
Cash Award (this “Award”), effective [date] (the “Grant Date”). This Award is subject to the terms
of this Performance Cash Award Grant Notice and Agreement (this “Agreement”) and is made under the
Hanesbrands Inc. Omnibus Incentive Plan of 2006 (the “Plan”) which is incorporated into this
Agreement by reference. Any capitalized terms used herein that are otherwise undefined shall have
the same meaning as provided in the Plan.
1. Acceptance of Terms and Conditions. To be eligible to receive this Award, you must sign
this Agreement and return it to the Compensation Department within 30 days after the Grant Date.
By signing this Agreement, you agree to be bound by the terms and conditions herein, the Plan and
any and all conditions established by the Company in connection with Awards issued under the Plan,
and you further acknowledge and agree that this Award does not confer any legal or equitable right
(other than those rights constituting the Award itself) against the Company or any Subsidiary
directly or indirectly, or give rise to any cause of action at law or in equity against the
Company.
2. Grant of Performance Cash Award. Subject to the restrictions, limitations, terms and
conditions specified in the Plan, the Participation Guide/Prospectus for Hanesbrands Inc. Omnibus
Incentive Plan of 2006 (the “Plan Prospectus”), and this Agreement, the Company hereby grants you
as of the Grant Date a Performance Cash Award to be earned over the three-year Performance Period
beginning January 3, 2010 and ending December 29, 2012 (the “Performance Period”).
| • | For the fiscal year ending January 1, 2011(“FY2010”), this Performance Cash Award will have a mid-point amount of $[ ] (“Mid-Point Award”). | ||
| • | The Mid-Point Award value for the second and third years of the Performance Period will be established by the Compensation Committee of the Company’s Board of Directors (“Committee”) either immediately prior to the beginning of each year or shortly after the end of the preceding year. |
3. Measures and Targets. The Threshold, Mid-Point and Maximum measures and targets as
approved by the Committee for Section 16 Officers under the Annual Incentive Plan (“AIP”) for
FY2010, FY2011, and FY2012 shall be the Threshold, Mid-Point and Maximum measures and targets for
this Award for FY2010, FY2011, and FY2012, respectively. The applicable achievement percentage
shall be interpolated in relation to the foregoing; provided, however, that if any measure achieved
is less than the Threshold amount, the achievement percentage for that measure shall be zero; and,
provided, further, that in no event shall the achievement percentage exceed 200%.
Except to the extent provided in Paragraphs 5 through 7 below, the amount of the Award earned
under this Agreement and under any other Performance Cash Awards granted to you under which amounts
may be earned as a result of the Company’s performance during the Performance Period shall be
determined after the end of the Performance Period. The
achievement percentage of each measure shall be equal to the average of the actual achievement
percentages for each year of the Performance Period for which such Awards have been issued
multiplied by the sum of the Mid-Point Award values for the three-year Performance Period. The
three-year average achievement percentage for each measure is weighted and summed to determine the
amount of the award earned. For this purpose, the measures for this Award will be weighted in the
same relative proportion as under the AIP.
4. Payment of Award. You shall receive payment of your Award, determined under Paragraphs 2
and 3 above, in a lump sum, less applicable withholding. Except as specifically provided below,
such payment shall be made during the 21/2-month period after the end of the Performance Period,
provided you are employed by the Company or any of its Subsidiaries (collectively, the “HBI
Companies”) on the last day of the Performance Period. The Company will make payment of the Award
associated with FY2010 in cash; the Company currently intends to make payment of the Award
associated with FY2011 and FY2012 in cash but reserves the right to make payment associated with
the latter two fiscal years in shares.
5. Death or Total Disability. If you cease active employment with the HBI Companies
because of your death or total disability (as defined below) during the Performance Period that is
at least fifty (50) percent complete prior to your death or total disability, then you (or your
beneficiary in the event of your death) shall be entitled to receive payment of the Award amount
described in this Paragraph. Your Award amount shall be determined in accordance with Paragraphs 2
and 3, based on achievement through the end of the year in which you die or become totally
disabled, except that the achievement percentage for the year in which you die or become totally
disabled shall be prorated based on your period of active employment with the HBI Companies during
that year and prior to your death or total disability. Your Award amount will be paid during the
21/2 month period following the end of the calendar year in which you die or become totally disabled.
For purposes of this Paragraph 5, you shall be deemed to have a total disability if you are
determined to be totally disabled under the Company’s disability plan, you have received disability
benefits for at least three months under such plan, and your disability is expected to result in
death or to last for a continuous period of at least 12 months.
6. Retirement. If you retire (as defined below) from the HBI Companies
and the Performance Period is at least fifty (50) percent complete prior to your retirement, then
you shall be entitled to receive payment of the Award amount described in this Paragraph. Your
Award amount shall be determined in accordance with Paragraphs 2 and 3, based on achievement
through the end of the year in which you retire, except that the achievement percentage for the
year in which you retire shall be prorated based on your period of employment with the HBI
Companies during that year and prior to your retirement date. Your Award amount will be paid as
follows:
| • | If you retire in the second year of the Performance Period, payment of your Award amount shall be made during the 21/2 month period following the end of the calendar year in which you retire; provided, however, that if you are a Top-50 Employee (as determined in accordance with Code Section 409A), the payment will not be made earlier than the date that is six months following your separation from service (as defined in Code Section 409A). | ||
| • | If you retire during the last year of the Performance Period, payment of your Award amount shall be made at the date specified under Paragraph 4. |
2
For purposes of this Paragraph 6, you shall be deemed to have retired if you cease active
employment with the HBI Companies on or after attaining age 50 or older and after completing at
least 10 years of service with the HBI Companies. For purposes of determining years of service
under this Paragraph, if you were employed by Sara Lee Corporation on September 5, 2006 and
remained employed by the HBI Companies thereafter, your service with the HBI Companies and Sara Lee
Corporation will both be counted.
7. Other Terminations of Employment and Change of Control.
a. Involuntary Termination With Severance. If (i) your employment is involuntarily
terminated by the HBI Companies (other than in connection with a Change of Control as
defined in the Plan) and you are eligible to receive severance benefits under any written
severance plan of the Company (a “Severance Event Termination”) and (ii) the Performance
Period is at least fifty (50) percent complete prior to the involuntary termination with
severance, then you shall be entitled to receive payment of the Award amount described in
this subparagraph. Your Award amount shall be determined in accordance with Paragraphs 2
and 3. The achievement percentage for the year of your Severance Event Termination shall
be prorated based on your period of employment with the HBI Companies during that year and
prior to your Severance Event Termination. Payment of your Award amount shall be made at
the date specified under Paragraph 4.
b. Involuntary Termination Without Severance. If your employment is involuntarily
terminated by the HBI Companies and you are not eligible to receive severance benefits
under any written severance plan of the Company (i.e., your employment is terminated for
Cause), then vesting ends and this Award is forfeited on the date of termination.
c. Voluntary Termination. If you voluntarily terminate your employment with the
Company, other than as described in Paragraph 6 above, then vesting ends and this Award is
forfeited on the date of termination.
d. Change of Control. If (i) within three months preceding or 24 months following a
Change of Control (as defined in the Plan) your employment is terminated by the Company
other than for Cause, or if you are otherwise eligible for benefits following employment
termination due to a Change of Control pursuant to an individual agreement with the HBI
Companies, and (ii) the Performance Period is at least fifty (50) percent complete prior to
your termination, then you shall be entitled to receive payment of the Award amount
described in this subparagraph. Your Award amount shall be determined in accordance with
Paragraphs 2 and 3. In addition, the measures for the year of your termination shall be
deemed achieved at Mid-Point (notwithstanding the provisions of any individual agreement
between you and the HBI Companies) and the achievement percentage for that year shall be
prorated based on your period of employment with the HBI Companies during that year and
prior to your employment termination. Payment of your Award amount shall be made as
promptly as practicable after your termination of employment, but not later than the 15th
day of the third month after your termination of employment due to the Change of Control.
e. Other Sale, Closing or Spin-off. If (i) your employment with the Company
is terminated as a result of the sale, closing or spin-off of a specific business unit of
the Company not considered a Change of Control as defined in the Plan, and (ii) the
Performance Period is at least fifty (50) percent complete prior to your termination, then
you shall be entitled to receive payment of the Award amount described in this
subparagraph. Your Award amount shall be determined in accordance with Paragraphs 2 and 3,
except that the achievement percentage for the year in which your employment
3
terminates shall be prorated based on your period of employment with the HBI Companies
during that year and prior to your employment termination. Your Award amount will be paid
as follows:
| • | If your employment terminates during the second year of the Performance Period, payment of your Award amount shall be made during the 21/2 month period following the end of the calendar year in which your employment terminates; provided, however, that if you are a Top-50 Employee (as determined in accordance with Code Section 409A), the payment will not be made earlier than the date that is six months following your separation from service (as defined in Code Section 409A). | ||
| • | If your employment terminates during the last year of the Performance Period, payment of your Award amount shall be made at the date specified under Paragraph 4. |
8. Forfeiture/Right of Offset. Notwithstanding anything contained in this Agreement to the
contrary, if you engage in any activity inimical, contrary or harmful to the interests of the
Company or any Subsidiary, including but not limited to: (1) without the prior written consent of
the Company, counseling or becoming employed by, or otherwise engaging or participating in, or
performing consulting services for, any Competing Business (regardless of whether you receive any
compensation of any kind), where “Competing Business” means any business that competes with any
business that the HBI Companies conducted at any time during your employment with the HBI
Companies, (2) violating the Company’s Global Business Standards, (3) without the prior written
consent of the Company, soliciting any present or future employees or customers of the Company to
terminate such employment or business relationship(s) with the Company, (4) disclosing or misusing
any confidential information regarding the Company, (5) participating in any activity not approved
by the Board of Directors which could reasonably be foreseen as contributing to or resulting in a
Change of Control of the Company (as defined in the Plan), or (6) disparaging or criticizing,
orally or in writing, the business, products, policies, decisions, directors, officers or employees
of Company or any of its subsidiaries or affiliates to any person (all such activities described in
(1)-(6) above collectively referred to as “wrongful conduct”), then (i) this Award shall terminate
automatically on the date on which you first engaged in such wrongful conduct and (ii) you shall
pay to the Company in cash any financial gain you realized from the vesting of the Award within the
12-month period immediately preceding such wrongful conduct. By accepting this Award, you consent
to and authorize the Company to deduct from any amounts payable by the Company to you, any amounts
you owe to the Company under this Paragraph 8.
The Committee may make retroactive adjustments to, and you shall reimburse to the Company any
Award paid to you where such compensation was predicated upon, achieving certain financial results
that were substantially the subject of a restatement, and as a result of the restatement it is
determined that you otherwise would not have been paid such compensation, regardless of whether or
not the restatement resulted from your misconduct. In each such instance, the Company will, to the
extent practicable, seek to recover the amount by which your incentive compensation for the
relevant period exceeded the lower payment that would have been made based on the restated
financial results. The Company will, to the extent permitted by governing law, require forfeiture
of any unvested Award and reimbursement to the Company for any financial gain realized from the
vesting of any vested Award for any named executive officer (for purposes of this policy “named
executive officers” has the meaning given that term in Item 402(a)(3) of Regulation S-K under the
Securities Exchange Act of 1934) where: (i) the payment was predicated upon the achievement of
certain financial results that were subsequently the
4
subject of a substantial restatement, and (ii) in the Committee’s view the officer engaged in
fraud or misconduct that caused or partially caused the need for the substantial restatement.
In each instance described above, the Company will, to the extent practicable, seek to recover
the described incentive compensation for the relevant period, plus a reasonable rate of interest.
By accepting this Agreement, you consent to and authorize the Company to deduct from any amounts
payable by the Company to you, any amounts you owe to the Company under this Paragraph. This right
of set-off is in addition to any other remedies the Company may have against you for your breach of
this Agreement.
9. Conformity with the Plan. This Award is intended to conform in all respects with, and is
subject to, all applicable provisions of the Plan. Inconsistencies between this Agreement, the
Plan Prospectus or the Plan shall be resolved in accordance with the terms of the Plan. By your
acceptance of this Agreement, you agree to be bound by all of the terms of this Agreement, the
Plan, or the Plan Prospectus.
10. Interpretations. Any dispute, disagreement or question which arises under, or as a result
of, or in any way relates to the interpretation, construction or application of the terms of this
Agreement, the Plan, or the Plan Prospectus will be determined and resolved by the Committee or its
authorized delegate. Such determination or resolution by the Committee or its authorized delegate
will be final, binding and conclusive for all purposes.
11. No Rights to Continued Employment. By voluntarily acknowledging and accepting this Award,
you acknowledge and understand that this Award shall not form part of any contract of employment
between you and any of the HBI Companies. Nothing in the Agreement, the Plan Prospectus, or the
Plan confers on any Grantee any right to continue in the employ of the HBI Companies or in any way
affects the HBI Companies’ right to terminate the Grantee’s employment without prior notice at any
time or for any reason. You further acknowledge that this Award is for future services to the HBI
Companies and is not under any circumstances to be considered compensation for past services.
12. Consent to Transfer Personal Data. By accepting this Award, you voluntarily acknowledge
and consent to the collection, use, processing and transfer of personal data as described in this
Paragraph. You are not obliged to consent to such collection, use, processing and transfer of
personal data. However, failure to provide the consent may affect your ability to participate in
the Plan. The Company holds certain personal information about you, that may include your name,
home address and telephone number, fax number, email address, family size, marital status, sex,
beneficiary information, emergency contacts, passport/visa information, age, language skills,
drivers license information, date of birth, birth certificate, social security number or other
employee identification number, nationality, C.V. (or resume), wage history, employment references,
job title, employment or severance contract, current wage and benefit information, personal bank
account number, tax related information, plan or benefit enrollment forms and elections, option or
benefit statements, any shares of stock or directorships in the Company, details of all options or
any other entitlements to shares of stock awarded, canceled, purchased, vested, unvested or
outstanding in the Grantee’s favor, for the purpose of managing and administering the Plan
(“Data”). The Company and/or its Subsidiaries will transfer Data amongst themselves as necessary
for the purpose of implementation, administration and management of your participation in the Plan,
and the Company may further transfer Data to any third parties assisting the Company in the
implementation, administration and management of the Plan. These recipients may be located
throughout the world, including the United States. You authorize them to receive, possess, use,
retain and transfer the Data, in electronic or other form, for the purposes of implementing,
administering and managing your participation in the Plan, including any requisite transfer of such
Data as may be required for the administration of the
5
Plan. You may, at any time, review Data, require any necessary amendments to it or withdraw
the consents herein in writing by contacting the Company; however, withdrawing your consent may
affect your ability to participate in the Plan.
| 13. | Miscellaneous. |
a. Modification. This Award is documented by the records of the Committee or its
delegate which shall be the final determinant of the conditions of this Agreement. The
Committee may amend or modify this Award in any manner to the extent that the Committee
would have had the authority under the Plan initially to grant such Award, provided that no
such amendment or modification shall impair your rights under this Agreement without your
consent. Except as in accordance with the two immediately preceding sentences and
Paragraph 15, this Agreement may be amended, modified or supplemented only by an instrument
in writing signed by both parties hereto.
b. Governing Law. All matters regarding or affecting the relationship of the Company
and its stockholders shall be governed by the General Corporation Law of the State of
Maryland. All other matters arising under this Agreement including matters of validity,
construction and interpretation, shall be governed by the internal laws of the State of
North Carolina, without regard to any state’s conflict of law principles. You and the
Company agree that all claims in respect of any action or proceeding arising out of or
relating to this Agreement shall be heard or determined in any state or federal court
sitting in North Carolina, and you agree to submit to the jurisdiction of such courts, to
bring all such actions or proceedings in such courts and to waive any defense of
inconvenient forum to such actions or proceedings. A final judgment in any action or
proceeding so brought shall be conclusive and may be enforced in any manner provided by
law.
c. Successors and Assigns. Except as otherwise provided herein, this Agreement will
bind and inure to the benefit of the respective successors and permitted assigns of the
parties hereto whether so expressed or not.
d. Severability. Whenever feasible, 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 this Agreement is held to be prohibited by or invalid under applicable law,
such provision will be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of this Agreement.
e. Impact Upon Termination of Employment. By voluntarily acknowledging and accepting
this Award, you agree that no benefits accruing under the Plan will be reflected in any
severance or indemnity payments that the Company may make or be required to make to you in
the future, regardless of the jurisdiction in which you may be located.
14. Confidentiality. You agree that you will not disclose the existence or terms of this
Agreement to any other employees of the Company or third parties with the exception of your
accountants, attorneys, spouse, or Same-Sex Domestic Partner (as that term is defined in the
Hanesbrands Inc. Employee Health Benefit Plan), and shall ensure that none of them discloses such
existence or terms to any other person, except as required to comply with legal process.
15. Amendment. By accepting this Award, you agree that the granting of the Award is at the
discretion of the Committee and that acceptance of this Award is no guarantee that future Awards
will be granted under the Plan. Notwithstanding anything in this Agreement, the Plan Prospectus,
or the Plan to the contrary, this Award may be amended by the Company without the consent of the
Grantee, including but not limited to modifications to any of the rights granted to the Grantee
under this Agreement, at such time and in such manner as the Company may consider
6
necessary or desirable to reflect changes in law. The Grantee understands that the Company
may amend, resubmit, alter, change, suspend, cancel, or discontinue the Plan at any time without
limitation.
16. Plan Documents. The Plan Prospectus is available by contacting Celia Powers at
336/519-4210, and a copy of the Plan can be requested from the Committee, c/o Corporate Secretary,
Hanesbrands Inc., 1000 E. Hanes Mill Road, Winston-Salem, NC 27105.
* * *
The undersigned hereby acknowledges, accepts, and agrees to all terms and provisions of the
foregoing Agreement.
| Grantee | ||||
| Date | ||||
THE SIGNED AGREEMENT MUST BE RETURNED TO THE COMPENSATION DEPARTMENT, HANESBRANDS INC., 1000 E.
HANES MILL ROAD, WINSTON-SALEM, NC 27105, WITHIN 30 DAYS AFTER THE GRANT DATE.
7
Exhibit
10.7
HANESBRANDS INC.
RETIREMENT SAVINGS PLAN
Conformed
through Ninth Amendment
TABLE OF CONTENTS
| PAGE | ||
SECTION 1 |
1 | |
1.01 Background; Purpose of Plan |
1 | |
1.02 Effective Date; Plan Year |
2 | |
1.03 Plan Administration |
2 | |
1.04 Plan Supplements |
2 | |
1.05 Trustee; Trust |
2 | |
SECTION 2 |
3 | |
Definitions |
3 | |
2.01 Account |
3 | |
2.02 Accounting Date |
3 | |
2.03 Actual Deferral Percentage |
3 | |
2.04 Adjusted Net Worth |
3 | |
2.05 After-Tax Account |
3 | |
2.06 Alternate Payee |
3 | |
2.07 Annual Addition |
4 | |
2.08 Annual Company Contribution |
4 | |
2.09 Annual Company Contribution Account |
4 | |
2.10 Appeal Committee |
4 | |
2.11 Before-Tax Contribution |
4 | |
2.12 Before-Tax Contribution Account |
4 | |
2.13 Beneficiary |
4 | |
2.14 Catch-Up Contribution |
4 | |
2.15 Code |
5 | |
2.16 Committee |
5 | |
2.17 Company |
5 | |
2.18 Compensation |
5 | |
2.19 Contribution Percentage |
6 | |
2.20 Controlled Group Member |
6 | |
2.21 Covered Group |
6 | |
2.22 Direct Rollover |
6 | |
2.23 Distributee |
6 | |
2.24 Effective Date |
6 | |
2.25 Elective Deferral |
7 | |
2.26 Eligible Employee |
7 | |
2.27 Eligible Retirement Plan |
7 | |
2.28 Eligible Rollover Distribution |
7 | |
2.29 Employee |
8 | |
2.30 Employer |
8 | |
2.31 Employer Contributions |
8 | |
2.32 ERISA |
9 |
TABLE OF CONTENTS
(continued)
(continued)
| PAGE | ||
2.33 Excess Contribution |
9 | |
2.34 Excess Deferral |
9 | |
2.35 Excess Matching Contribution |
9 | |
2.36 Fair Market Value |
9 | |
2.37 Forfeiture |
9 | |
2.38 Hanesbrands Stock |
9 | |
2.39 Highly Compensated Employee |
10 | |
2.40 Hour of Service |
10 | |
2.41 Investment Committee |
10 | |
2.42 Leased Employee |
10 | |
2.43 Leave of Absence |
10 | |
2.44 Limitation Year |
11 | |
2.45 Matching Contributions |
11 | |
2.46 Matching Contribution Account |
11 | |
2.47 Maternity or Paternity Absence |
11 | |
2.48 Normal Retirement Age |
11 | |
2.49 One-Year Break in Service |
11 | |
2.50 Participant |
12 | |
2.51 Period of Service |
12 | |
2.52 Plan |
12 | |
2.53 Plan Year |
13 | |
2.54 Predecessor Company |
13 | |
2.55 Predecessor Company Account |
13 | |
2.56 Predecessor Plan |
13 | |
2.57 Required Commencement Date |
13 | |
2.58 Rollover Contribution |
13 | |
2.59 Rollover Contribution Account |
13 | |
2.60 Sara Lee Plan |
14 | |
2.61 Sara Lee Stock |
14 | |
2.62 Separation Date |
14 | |
2.63 Service |
14 | |
2.64 Spin-Off, Spin-Off Date |
14 | |
2.65 Totally Disabled or Total Disability |
14 | |
2.66 Transferred Participants |
14 | |
2.67 Trust Agreement |
15 | |
2.68 Trust Fund |
15 | |
2.69 Trustees |
15 | |
2.70 Year of Service |
15 | |
SECTION 3 |
17 | |
Participation |
17 | |
3.01 Eligibility to Participate |
17 | |
3.02 Covered Group |
18 |
-ii-
TABLE OF CONTENTS
(continued)
(continued)
| PAGE | ||
3.03 Leave of Absence |
18 | |
3.04 Leased Employees |
18 | |
SECTION 4 |
20 | |
Before-Tax Contributions |
20 | |
4.01 Before-Tax Contributions |
20 | |
4.02 Catch-Up Contributions |
21 | |
4.03 Change in Election |
21 | |
4.04 Direct Transfers and Rollovers |
21 | |
SECTION 5 |
23 | |
Employer Contributions |
23 | |
5.01 Before-Tax Contributions |
23 | |
5.02 Annual Company Contribution |
23 | |
5.03 Matching Contributions |
24 | |
5.04 Transition Contribution |
24 | |
5.05 Allocation of Annual Company Contribution |
25 | |
5.06 Payment of Matching Contributions |
25 | |
5.07 Allocation of Matching Contributions |
25 | |
5.08 Payment of Employer Contributions |
25 | |
5.09 Limitations on Employer Contributions |
25 | |
5.10 Verification of Employer Contributions |
25 | |
5.11 Corrective Contributions/Reallocations |
26 | |
SECTION 6 |
27 | |
Contribution Limits |
27 | |
6.01 Actual Deferral Percentage Limitations |
27 | |
6.02 Limitation on Matching Contributions |
27 | |
6.03 Dollar Limitation |
28 | |
6.04 Allocation of Earnings to Distributions of
Excess Deferrals, Excess Contributions and Excess Matching
Contributions |
29 | |
6.05 Contribution Limitations |
29 | |
SECTION 7 |
31 | |
Period of Participation |
31 | |
7.01 Separation Date |
31 | |
7.02 Restricted Participation |
31 | |
SECTION 8 |
33 | |
Accounting |
33 | |
8.01 Separate Accounts |
33 | |
8.02 Adjustment of Participants’ Accounts |
33 | |
8.03 Crediting of 401(k) Contributions |
34 |
-iii-
TABLE OF CONTENTS
(continued)
(continued)
| PAGE | ||
8.04 Charging Distributions |
35 | |
8.05 Statement of Account |
35 | |
SECTION 9 |
36 | |
The Trust Fund and Investment of Trust Assets |
36 | |
9.01 The Trust Fund |
36 | |
9.02 The Investment Funds |
36 | |
9.03 Investment of Contributions |
36 | |
9.04 Change in Investment of Contributions |
36 | |
9.05 Elections to Transfer Balances Between Accounts; Diversification |
37 | |
9.06 Voting of Stock; Tender Offers |
37 | |
9.07 Confidentiality of Participant Instructions |
38 | |
SECTION 10 |
39 | |
Payment of Account Balances |
39 | |
10.01 Payments to Participants |
39 | |
10.02 Distributions in Shares |
42 | |
10.03 Beneficiary |
42 | |
10.04 Missing Participants and Beneficiaries |
44 | |
10.05 Rollovers |
44 | |
10.06 Forfeitures |
45 | |
10.07 Recovery of Benefits |
45 | |
10.08 Dividend Pass-Through Election |
46 | |
10.09 Minimum Distributions |
46 | |
SECTION 11 |
50 | |
11.01 Loans to Participants |
50 | |
11.02 After-Tax Withdrawals |
52 | |
11.03 Hardship Withdrawals |
52 | |
11.04 Age 59-1/2 Withdrawals |
54 | |
11.05 Additional Rules for Withdrawals |
54 | |
SECTION 12 |
56 | |
Reemployment |
56 | |
12.01 Reemployed Participants |
56 | |
12.02 Calculation of Service Upon Reemployment |
56 | |
SECTION 13 |
59 | |
Special Rules for Top-Heavy Plans |
59 | |
13.01 Purpose and Effect |
59 | |
13.02 Top Heavy Plan |
59 | |
13.03 Key Employee |
59 |
-iv-
TABLE OF CONTENTS
(continued)
(continued)
| PAGE | ||
13.04 Minimum Employer Contribution |
60 | |
13.05 Aggregation of Plans |
60 | |
13.06 No Duplication of Benefits |
60 | |
13.07 Compensation |
60 | |
SECTION 14 |
61 | |
General Provisions |
61 | |
14.01 Committee’s Records |
61 | |
14.02 Information Furnished by Participants |
61 | |
14.03 Interests Not Transferable |
61 | |
14.04 Domestic Relations Orders |
61 | |
14.05 Facility of Payment |
62 | |
14.06 No Guaranty of Interests |
62 | |
14.07 Rights Not Conferred by the Plan |
62 | |
14.08 Gender and Number |
62 | |
14.09 Committee’s Decisions Final |
63 | |
14.10 Litigation by Participants |
63 | |
14.11 Evidence |
63 | |
14.12 Uniform Rules |
63 | |
14.13 Law That Applies |
63 | |
14.14 Waiver of Notice |
63 | |
14.15 Successor to Employer |
63 | |
14.16 Application for Benefits |
63 | |
14.17 Claims Procedure |
64 | |
14.18 Action by Employers |
64 | |
SECTION 15 |
65 | |
No Interest in Employers |
65 | |
SECTION 16 |
66 | |
Amendment or Termination |
66 | |
16.01 Amendment |
66 | |
16.02 Termination |
66 | |
16.03 Effect of Termination |
66 | |
16.04 Notice of Amendment or Termination |
66 | |
16.05 Plan Merger, Consolidation, Etc. |
67 | |
SECTION 17 |
68 | |
Relating to the Plan Administrator and Committees |
68 | |
17.01 The Employee Benefits Administrative Committee |
68 | |
17.02 The ERISA Appeal Committee |
69 | |
17.03 Secretary of the Committee |
70 | |
17.04 Manner of Action |
70 |
-v-
TABLE OF CONTENTS
(continued)
(continued)
| PAGE | ||
17.05 Interested Party |
71 | |
17.06 Reliance on Data |
71 | |
17.07 Committee Decisions |
71 | |
SECTION 18 |
72 | |
Adoption of Plan by Controlled Group Members |
72 | |
SECTION 19 |
73 | |
Supplements to the Plan |
73 | |
EXHIBIT A |
74 | |
Accounts Transferred from the Sara Lee Plan |
74 | |
SUPPLEMENT A |
||
Provisions Relating to the Merger of the National Textiles,
L.L.C. 401(k) Plan into the
Hanesbrands Inc. Retirement Savings Plan |
||
SUPPLEMENT B |
||
Special Participation Provisions |
-vi-
HANESBRANDS INC.
RETIREMENT SAVINGS PLAN
RETIREMENT SAVINGS PLAN
(Effective as of July 24, 2006)
SECTION 1
1.01 Background; Purpose of Plan
The purpose of the Plan is to permit Eligible Employees of Hanesbrands Inc. (the “Company”)
and the other Employers to accumulate their retirement savings on a tax-favored basis. A portion of
the Plan (that portion of the Plan invested in the Sara Lee Corporation Common Stock Fund prior to
the Spin-Off date and that portion of the Plan invested in the Hanesbrands Inc. Common Stock Fund
thereafter) is designed to invest primarily in qualifying employer securities and is intended to
satisfy the requirements of an employee stock ownership plan (as defined in Section 4975(e)(7) of
the Code) (the ESOP component); up to 100% of Plan assets may be invested in qualifying employer
securities. The remaining portion of the Plan is a profit sharing plan intended to satisfy all
requirements of Section 401(a) of the Code and includes a cash or deferred arrangement intended to
satisfy the requirements of Section 401(k) of the Code (the 401(k) component). For each Plan Year,
the 401(k) component shall include all of a Participant’s Before-Tax Contributions, the Employers’
Matching Contributions, the Annual Company Contribution and, for the 2006 Plan Year, the
Transition Contribution allocable to the Participant with respect to that Plan Year, for all
purposes of the Plan.
As of the Effective Date, the benefits of each Transferred Participant shall be transferred
from the Sara Lee Plan, and continued in the form of, the Plan. As soon as administratively
practicable on or after the Effective Date, (i) liabilities equal to the aggregate Account
balances, as adjusted through the Effective Date, of each Transferred Participant shall be
transferred from the Sara Lee Plan to the Plan and credited to the appropriate Plan accounts of
each Transferred Participant and subject to the terms and conditions of the Plan, and (ii) the
assets of the trust funding the Sara Lee Plan attributable to Transfer Participants’ benefits shall
be transferred (in kind) to the Trustee of the Trust. The transfer of the Transferred
Participants’ benefits from the Sara Lee Plan into the Plan and the transfer of assets to the Trust
shall comply with Sections 401(a)(12), 411(d)(6), and 414(l) of the Code and the regulations
thereunder.
After the Effective Date, if a Transferred Participant becomes entitled to an additional
allocation under the Sara Lee Plan, then assets and liabilities equal to the additional amount so
allocable shall be transferred from the Sara Lee Plan to the Plan as soon as administratively
practicable after the allocable amount has been determined and shall be invested pursuant to the
Transferred Participant’s current investment elections. In addition, if a Transferred Participant
transfers to employment with an Employer after the Effective Date but before the Spin-Off Date,
then assets and liabilities equal to the Transferred Participant’s account balance in the Sara Lee
Plan shall be transferred to the Plan and invested in accordance with the Transferred Participant’s
current investment elections. The transfers described in this paragraph shall comply with Sections
401(a)(12), 411(d)(6) and 414(l) of the Code and the regulations thereunder.
1
1.02 Effective Date; Plan Year
Except as otherwise required to comply with applicable law or as specifically provided herein,
the Plan is effective July 24, 2006 (the “Effective Date”). The first “Plan Year” is a short plan
year beginning as of July 24, 2006 and ending December 31, 2006. Thereafter, the “Plan Year” shall
be the twelve month period from each January 1 through December 31.
1.03 Plan Administration
As described in Subsection 17.01, the Committee shall be the administrator (as that term is
defined in Section 3(16)(A) of ERISA) of the Plan and shall be responsible for the administration
of the Plan; provided, however, that the Committee may delegate all or any part of its powers,
rights, and duties under the Plan to such person or persons as it may deem advisable.
1.04 Plan Supplements
The provisions of the Plan may be modified by Supplements to the Plan. The terms and
provisions of each Supplement are a part of the Plan and supersede the other provisions of the Plan
to the extent necessary to eliminate inconsistencies between such other Plan provisions and such
Supplement.
1.05 Trustee; Trust
Amounts contributed under the Plan are held and invested, until distributed, by the Trustee.
The Trustee acts in accordance with the terms of the Trust, which implements and forms a part of
the Plan. The provisions of and benefits under the Plan are subject to the terms and provisions of
the Trust.
2
SECTION 2
Definitions
The following terms, when used herein, unless the context clearly indicates otherwise, shall
have the following respective meanings:
2.01 Account
Except as may be stated elsewhere in the Plan, “Account” and “Accounts” mean all accounts and
subaccounts maintained for a Participant (or for a Beneficiary after a Participant’s death or for
an Alternate Payee).
2.02 Accounting Date
“Accounting Date” means each day the value of an Investment Fund is adjusted for
contributions, withdrawals, distributions, earnings, gains, losses or expenses, any date designated
by the Committee as an Accounting Date, and an Accounting Date occurring under SECTION 8. It is
anticipated that each Investment Fund will be valued as of each day on which the New York Stock
Exchange is open for trading and the Trustee is open for business.
2.03 Actual Deferral Percentage
“Actual Deferral Percentage” for a group of Eligible Employees for a Plan Year means the
average of the deferral ratios (determined separately for each Eligible Employee in such group) of:
(a) the Eligible Employee’s Before-Tax Contributions for the Plan Year; to (b) the Eligible
Employee’s compensation (determined in accordance with Code Section 414(s)) for such Plan Year.
2.04 Adjusted Net Worth
“Adjusted Net Worth” of an Investment Fund as of any Accounting Date means the then net worth
of that Investment Fund as determined by the Trustee in accordance with the provisions of the Trust
Agreement.
2.05 After-Tax Account
“After-Tax Account” means an Account maintained pursuant to Subparagraph 8.01(d).
2.06 Alternate Payee
“Alternate Payee” means a spouse, former spouse, child or other dependent of a Participant
entitled to receive payment of a portion of the Participant’s vested Plan benefits under a
qualified domestic relations order, as defined in Section 414(p) of the Code.
3
2.07 Annual Addition
“Annual Addition” for any Limitation Year means the sum of annual additions to a Participant’s
Account for the Limitation Year. Notwithstanding any Plan provision to the contrary, a
Participant’s Annual Addition shall be determined in accordance with Code Section 415 and
applicable Treasury regulations issued thereunder.
2.08 Annual Company Contribution
“Annual Company Contribution” means a contribution made by an Employer on behalf of each
Annual Company Contribution Participant pursuant to Subsection 5.02.
2.09 Annual Company Contribution Account
“Annual Company Contribution Account” means an Account maintained pursuant to Subparagraph
8.01(c).
2.10 Appeal Committee
“Appeal Committee” means an ERISA Appeal Committee as described in Subsection 17.02 of the
Plan.
2.11 Before-Tax Contribution
“Before-Tax Contribution” means the compensation deferrals under Code Section 401(k) a
Participant elects to make pursuant to Subsection 4.01. Notwithstanding the foregoing, for
purposes of implementing the required limitations of Code Sections 401(k), 402(g), and 415
contained in Subsections 6.01, 6.03 and 6.05, Before-Tax Contributions shall not include Catch-Up
Contributions or deferrals made pursuant to Code Section 414(u) by reason of an Eligible Employee’s
qualified military service.
2.12 Before-Tax Contribution Account
“Before-Tax Contribution Account” means the Account maintained by the Committee pursuant to
Subparagraph 8.01(a).
2.13 Beneficiary
“Beneficiary” means any person or persons (who may be designated contingently, concurrently or
successively) to whom a Participant’s Account balances are to be paid if the Participant dies
before he or she receives his or her entire vested Account.
2.14 Catch-Up Contribution
“Catch-Up Contribution” means the deferrals of Compensation under Code Section 414(v) an
eligible Participant elects to make pursuant to Subsection 4.02.
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2.15 Code
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
2.16 Committee
“Committee” means the Committee appointed by the Company to administer the Plan as described
in SECTION 17 of the Plan.
2.17 Company
“Company” means Hanesbrands Inc. or any successor organization or entity that assumes the
Plan.
2.18 Compensation
“Compensation” for a Plan Year means the total wages (as defined in Section 3401(a) of the
Code) paid to an individual by an Employer for the period in question for services rendered as an
Employee of an Employer, which are subject to income tax withholding at the source, determined
without regard to any exceptions to the withholding rules that limit the remuneration included in
such wages and that are based on the nature or location of the employment or the services
performed, determined in accordance with the following:
| (a) | Including (i) elective contributions made on behalf of the Employee pursuant to the Employee’s salary reduction agreement under Sections 125, 401(k), and 132(f)(4) of the Code; and (ii) any differential wage payment (as defined in Section 3401(h)(2) of the Code). | ||
| (b) | Excluding the following: |
| (i) | Nonqualified stock option exercise income; | ||
| (ii) | Stock awards; | ||
| (iii) | Gains attributable to the sale of stock within the two (2) year period beginning on the date of grant under an employee stock purchase plan as described in Section 423 of the Code; | ||
| (iv) | Reimbursements or other expense allowances; | ||
| (v) | Fringe benefits (cash and non-cash); | ||
| (vi) | Moving expenses; | ||
| (vii) | Deferred compensation when earned or paid; | ||
| (viii) | Welfare benefits; and |
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| (ix) | Severance pay and pay in lieu of notice under the Worker Adjustment and Retraining Notification Act. |
For purposes of (A) determining and allocating contributions under Subsections 4.02, 5.02, 5.03 and
5.04, (B) applying the maximum percentage limitation specified in Subsection 4.01, and (C) applying
the limitations of Subsections 6.01 and 6.02, the annual Compensation taken into account under the
Plan for any Participant for a Plan Year shall not exceed $220,000 (as adjusted by the Secretary of
the Treasury pursuant to Code Section 401(a)(17)(B)).
2.19 Contribution Percentage
“Contribution Percentage” of a group of Eligible Employees for a Plan Year means the average
of the ratios (determined separately for each Eligible Employee in such group) of: (a) the Matching
Contributions made on behalf of such Eligible Employee for such Plan Year; to (b) the Eligible
Employee’s compensation (determined in accordance with Code Section 414(s)) for such Plan Year.
2.20 Controlled Group Member
“Controlled Group Member” means the Company and any affiliated or related corporation that is
a member of a controlled group of corporations (within the meaning of Section 1563(a) of the Code)
that includes the Company or any trade or business (whether or not incorporated) which is under the
common control of the Company (within the meaning of Section 414(b), (c) or (m) of the Code).
2.21 Covered Group
“Covered Group” means a group or class of Employees to which the Plan has been and continues
to be extended by an Employer pursuant to Subsection 3.02. A listing of the Covered Groups under
the Plan is included in Exhibit A to the Plan.
2.22 Direct Rollover
“Direct Rollover” means a payment by the Plan to an Eligible Retirement Plan specified by the
Distributee.
2.23 Distributee
“Distributee” means a Participant (including a Participant described in Subsection 7.02 of the
Plan) or Beneficiary. In addition, the Participant’s surviving spouse and the Participant’s spouse
or former spouse who is an Alternate Payee are Distributees with regard to the interest of the
spouse or former spouse.
2.24 Effective Date
“Effective Date” of the Plan means July 24, 2006 as defined in Subsection 1.02.
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2.25 Elective Deferral
“Elective Deferral” means, with respect to any calendar year, each elective deferral as
defined in Code Section 402(g).
2.26 Eligible Employee
“Eligible Employee” means an Employee who is a member of a Covered Group and is otherwise
eligible to participate in the Plan pursuant to either Subsection 3.01 or Subsection 12.01.
2.27 Eligible Retirement Plan
“Eligible Retirement Plan” means the following:
| (a) | An individual retirement account described in Section 408(a) of the Code; | ||
| (b) | An annuity contract described in Section 403(b) of the Code; | ||
| (c) | An eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state or an agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred to such plan from this Plan; | ||
| (d) | An individual retirement annuity described in Section 408(b) of the Code; | ||
| (e) | An annuity plan described in Section 403(a) of the Code; or | ||
| (f) | A qualified trust described in Section 401(a) of the Code that accepts the Distributee’s Eligible Rollover Distribution. |
2.28 Eligible Rollover Distribution
“Eligible Rollover Distribution” means any distribution of all or any portion of the balance
to the credit of the Distributee, except that an Eligible Rollover Distribution does not include
the following:
| (a) | Any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or life expectancies) of the Distributee and the Distributee’s designated beneficiary, or for a specified period of ten (10) years or more; | ||
| (b) | Any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; | ||
| (c) | Hardship withdrawals; and |
7
| (d) | Any distribution excluded from the definition of “Eligible Rollover Distribution” under the Code or applicable Treasury Regulations. |
A portion of a distribution shall not fail to be an Eligible Rollover Distribution merely because
the portion includes After-Tax Contributions that are not includible in gross income; provided,
however, such portion may be transferred only to an individual retirement account or annuity
described in Code Section 408(a) or (b), a qualified retirement plan (either a defined contribution
plan or a defined benefit plan) described in Code Section 401(a) or 403(a), or an annuity contract
described in Code Section 403(b) that agrees to separately account for amounts so transferred.
2.29 Employee
“Employee” means any person employed by one or more of the Employers who is on the regular
payroll of an Employer and whose wages from the Employer are reported for Federal income tax
purposes on Internal Revenue Service Form W-2 (or successor or equivalent form). Notwithstanding
any provision of the Plan to the contrary, an individual who performs services for a Controlled
Group Member but who is paid by an Employer under a common paymaster arrangement with such
Controlled Group Member shall not be considered an Employee for purposes of the Plan. An
Employer’s classification as to whether an individual constitutes an Employee shall be
determinative for purposes of an individual’s eligibility under the Plan. An individual who is
classified as an independent contractor (or other non-employee classification) shall not be
considered an Employee and shall not be eligible for participation in the Plan, regardless of any
subsequent reclassification of such individual as an Employee or employee of an Employer by an
Employer, any government agency, court, or other third-party. Any such reclassification shall not
have a retroactive effect for purposes of the Plan. Notwithstanding any other provision of the
Plan to the contrary, nonresident alien individuals receiving no U.S.-source income from any
Employer are not considered Employees under the Plan.
2.30 Employer
“Employer” means the Company and each Controlled Group Member that adopts the Plan in
accordance with SECTION 18.
2.31 Employer Contributions
“Employer Contributions” means the following contributions made by an Employer on behalf of a
Participant:
| (a) | Annual Company Contributions; | ||
| (b) | Matching Contributions; | ||
| (c) | Transition Contributions; and | ||
| (d) | Any contributions that are made by an Employer in lieu of the contributions described in Subparagraphs (a), (b) or (c) above. |
8
2.32 ERISA
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
2.33 Excess Contribution
“Excess Contribution” means the amount by which Before-Tax Contributions (determined without
regard to the Participant’s Catch-Up Contributions) for a Plan Year made by Highly Compensated
Employees exceed the limitations of Subsection 6.01, as determined in accordance with Treasury
Regulation Section 1.401(k)-2(b).
2.34 Excess Deferral
“Excess Deferral” means the amount by which a Participant’s Before-Tax Contributions
(determined without regard to the Participant’s Catch-Up Contributions) exceed the limitations of
Code Section 402(g)(4), as provided in Subsection 6.03.
2.35 Excess Matching Contribution
“Excess Matching Contribution” means the amount by which Matching Contributions for a Plan
Year made by or on behalf of Highly Compensated Employees exceed the limitations of Subsection
6.02, as determined in accordance with Treasury Regulation Section 1.401(m)-2(b).
2.36 Fair Market Value
“Fair Market Value” means (a) with respect to Sara Lee Stock or Hanesbrands Stock held in the
Plan, the closing price per share on the New York Stock Exchange as of any date or (b) in the case
of any other stock for which there is no generally recognized market, the value determined as of a
particular date in accordance with Treasury Regulation Section 54.4975-11(d)(5) and based upon an
evaluation by an independent appraiser meeting the requirements of the regulations prescribed under
Section 401(a)(28)(C) of the Code or, in the absence of such regulations, requirements similar to
the requirements of the regulations prescribed under Section 170(a)(1) of the Code and having
expertise in rendering such evaluations.
2.37 Forfeiture
“Forfeiture” means the amount by which a Participant’s Annual Company Contribution Account,
Transition Contribution Account, Matching Contribution Account and Predecessor Company Account (or
other Employer Contribution Account under any applicable Supplement to the Plan) is reduced under
Subsections 6.01, 6.02, 6.03, 10.01 or any applicable Supplement.
2.38 Hanesbrands Stock
“Hanesbrands Stock” means shares of common stock of Hanesbrands Inc.; provided, however, that,
after the Spin-Off Date, such term shall include only such shares as constitute both “employer
securities” as defined in Section 409(l) of the Code and “qualifying employer securities” as
defined in Section 407(d)(5) of ERISA.
9
2.39 Highly Compensated Employee
“Highly Compensated Employee” means a highly compensated employee as defined in Code Section
414(q) and the regulations thereunder. Generally, a Highly Compensated Employee means any Employee
who: (a) during the immediately preceding Plan Year received annual compensation from the Employers
(determined in accordance with Subsection 6.05 of the Plan) of more than $95,000 (or such greater
amount as may be determined by the Commissioner of Internal Revenue) and, at the Company’s
discretion for such preceding year, was in the top-paid twenty percent (20%) of the Employees for
that year; or (b) was a five percent (5%) owner of an Employer during the current Plan Year or the
immediately preceding Plan Year.
A former Participant shall be treated as a Highly Compensated Employee if such Participant was
a Highly Compensated Employee when such Participant separated from service from a Controlled Group
Member or such Participant was a Highly Compensated Employee at any time after attaining age
fifty-five (55) years.
2.40 Hour of Service
“Hour of Service” means any hour for which an Employee is compensated by an Employer, directly
or indirectly, or is entitled to compensation from an Employer for the performance of duties and
for reasons other than the performance of duties, and each previously uncredited hour for which
back pay has been awarded or agreed to by an Employer, irrespective of mitigation of damages.
Hours of Service shall be credited to the period for which duties are performed (or for which
payment is made if no duties were performed), except that Hours of Service for which back pay is
awarded or agreed to by an Employer shall be credited to the period to which the back pay award or
agreement pertains. The rules for crediting Hours of Service set forth in Section 2530.200b-2 of
Department of Labor regulations are incorporated by reference. References in this Subsection to an
Employer shall include any Controlled Group Member.
2.41 Investment Committee
“Investment Committee” means the committee appointed by the Company to manage the assets of
the Plan and Trust.
2.42 Leased Employee
“Leased Employee” means any person who is not an Employee of an Employer, but who has provided
services to an Employer under the primary direction or control of the Employer, on a substantially
full-time basis for a period of at least one year, pursuant to an agreement between the Employer
and a leasing organization.
2.43 Leave of Absence
“Leave of Absence” for Plan purposes means an absence from work which is not treated by the
Participant’s Employer as a termination of employment or which is required by law to be
10
treated as a Leave of Absence. A Totally Disabled Employee shall not be considered to be on a
Leave of Absence for purposes of the Plan.
2.44 Limitation Year
“Limitation Year” means the Plan Year.
2.45 Matching Contributions
“Matching Contribution” means the amount of a Participant’s Before-Tax Contributions for which
a Matching Contribution is payable pursuant to Subsection 5.03. Notwithstanding the foregoing, for
purposes of implementing the required limitations of Code Sections 401(m) and 415 contained in
Subsections 6.02 and 6.05, Matching Contributions shall not include employer contributions made
pursuant to Code Section 414(u) by reason of an Eligible Employee’s qualified military service.
2.46 Matching Contribution Account
“Matching Contribution Account” means an Account maintained pursuant to Subparagraph 8.01(b).
2.47 Maternity or Paternity Absence
“Maternity or Paternity Absence” means an Employee’s absence from work because of the
pregnancy of the Employee or birth of a child of the Employee, the placement of a child with the
Employee, or for purposes of caring for the child immediately following such birth or placement.
The Committee may require the Employee to furnish such information as the Committee considers
necessary to establish that the Employee’s absence was for one of the reasons specified above.
2.48 Normal Retirement Age
“Normal Retirement Age” means the date upon which a Participant attains age sixty-five (65)
years.
2.49 One-Year Break in Service
“One-Year Break in Service” means each twelve (12) consecutive month period commencing on an
Employee’s or Participant’s Separation Date and on each anniversary of such date during which the
Employee or Participant does not perform an Hour of Service. In the case of a Maternity or
Paternity Absence, the twelve (12) consecutive month periods beginning on the first day of such
absence and the first anniversary thereof shall not constitute a One-Year Break in Service.
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2.50 Participant
“Participant” means each Eligible Employee who satisfies the requirements of Subsection 3.01
or 12.01, as applicable.
2.51 Period of Service
“Period of Service” means a period beginning on the date an Employee enters Service (or
reenters Service) and ending on his or her Separation Date with respect to such period, subject to
the following special rules:
| (a) | An Employee shall be deemed to enter Service on the date he or she first completes an Hour of Service. |
| (b) | An Employee shall be deemed to reenter Service on the date following a Separation Date when he or she again completes an Hour of Service. | ||
| (c) | An Employee shall be deemed to have continued in Service (and thus not to have incurred a Separation Date) for the following periods: |
| (i) | Any period for which he or she is required to be given credit for Service under any laws of the United States; and | ||
| (ii) | The period (referred to herein as “Medical Leave”) prior to his or her Separation Date during which he or she is unable, by reason of physical or mental infirmity, or both, to perform satisfactorily the duties then assigned to him or her or which an Employer or Controlled Group Member is willing to assign to him or her, as determined by the Committee pursuant to a medical examination by a medical doctor selected or approved by the Committee. Such period shall end with the earlier of his or her Separation Date, or the date of cessation of such inability. |
| (d) | Subject to the rehire rules of Subsection 12.02, all periods of Service of an Employee shall be aggregated in determining his or her Service. | ||
| (e) | If an Employee is absent from work because he or she quits, is discharged or retires, and he or she reenters Service before the first anniversary of the date of such absence, such date shall not constitute a Separation Date and the period of such absence shall be included as Service. |
2.52 Plan
“Plan” means the Hanesbrands Inc. Retirement Savings Plan, as amended from time to time.
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2.53 Plan Year
The first “Plan Year” is a short plan year beginning as of July 24, 2006 and ending December
31, 2006. Thereafter, the “Plan Year” shall be the twelve (12) month period beginning each January
1 and ending on the next following December 31 as defined in Subsection 1.02.
2.54 Predecessor Company
“Predecessor Company” means any corporation or other entity (other than Sara Lee Corporation),
the stock, assets or business of which was acquired by an Employer or another Controlled Group
Member prior to the Effective Date, or is acquired by an Employer or another Controlled Group
Member on or after the Effective Date, whether by merger, consolidation, purchase of assets or
otherwise, and any predecessor thereto designated by the Plan or by the Committee.
2.55 Predecessor Company Account
“Predecessor Company Account” means an Account maintained pursuant to Subparagraph 8.01(f).
2.56 Predecessor Plan
“Predecessor Plan” means a plan formerly maintained by a Controlled Group Member or a
Predecessor Company (other than the Sara Lee Plan) that has been merged into and continued in the
form of this Plan.
2.57 Required Commencement Date
“Required Commencement Date” means the April 1 of the calendar year next following the later
of the calendar year in which the Participant attains age seventy and one-half (70-1/2) or the
calendar year in which his or her Separation Date occurs; provided, however, that the Required
Commencement Date of a Participant who is a five percent (5%) owner (as defined in Code Section
416) of an Employer or a Controlled Group Member with respect to the Plan Year ending in the
calendar year in which he or she attains age seventy and one-half (70-1/2) shall be April 1 of the
next following calendar year.
2.58 Rollover Contribution
“Rollover Contribution” means a Participant’s contribution pursuant to Subsection 4.04.
2.59 Rollover Contribution Account
“Rollover Contribution Account” means the Account maintained pursuant to Subparagraph 8.01(e).
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2.60 Sara Lee Plan
“Sara Lee Plan” means the Sara Lee Corporation 401(k) Plan.
2.61 Sara Lee Stock
“Sara Lee Stock” means shares of common stock of Sara Lee Corporation.
2.62 Separation Date
“Separation Date” means the earlier of (a) the date on which an Employee or Participant is no
longer employed by an Employer or a Controlled Group Member because he or she quits, retires, is
discharged or dies; or (b) the first anniversary of the first day of any period during which an
Employee or Participant remains absent from service with all Controlled Group Members for any
reason other than quit, retirement, discharge or death.
2.63 Service
“Service” means the number of completed calendar years and months during a Participant’s
Periods of Service.
2.64 Spin-Off, Spin-Off Date
“Spin-Off” means Sara Lee Corporation’s distribution of all of its interest in Hanesbrands
Inc. The actual date of the Spin-Off shall be known as the “Spin-Off Date.”
2.65 Totally Disabled or Total Disability
“Totally
Disabled” or “Total Disability” when used in reference to a Participant means that
condition of the Participant resulting from injury or illness which:
| (a) | Results in such Participant’s entitlement to and receipt of monthly disability insurance benefits under the Federal Social Security Act; or | ||
| (b) | Results in such Participant’s entitlement to and receipt of (or would result in receipt of but for any applicable benefit waiting period) long-term disability benefits under a long-term disability income plan maintained or adopted by such Participant’s Employer. |
2.66 Transferred Participants
“Transferred Participant” means:
| (a) | any participant who has an account in the Sara Lee Plan and is employed by Hanesbrands Inc. or a Sara Lee Corporation division listed on Exhibit A on the Effective Date; |
14
| (b) | any participant who (i) has an account in the Sara Lee Plan on the Effective Date, and (ii) after the Effective Date but before the Spin-Off Date is transferred from employment with Sara Lee Corporation (or a subsidiary) to employment as an Eligible Employee of Hanesbrands Inc. or of a Sara Lee Corporation division listed on Exhibit A; and | ||
| (c) | any participant in the Sara Lee Plan who was not employed by any controlled group member of Sara Lee Corporation on the Effective Date but who was last employed by Hanesbrands Inc., the Sara Lee Branded Apparel division of Sara Lee Corporation, or a Sara Lee Corporation division listed in Exhibit A.” |
2.67 Trust Agreement
“Trust Agreement” means the Hanesbrands Inc. Retirement Savings Plan Trust, which implements
and forms a part of the Plan.
2.68 Trust Fund
“Trust Fund” means all assets held or acquired by the Trustee in accordance with the Plan and
the Trust.
2.69 Trustees
“Trustees” mean the person or persons appointed to act as Trustees under the Trust Agreement.
2.70 Year of Service
“Year of Service” means an Employee’s continuous employment by one or more of the Employers or
other Controlled Group Members for the twelve (12) month period beginning on the Employee’s date of
hire or on any anniversary of that date, subject to the provisions of Subsection 12.01 and the
following:
| (a) | A period of concurrent Service with two (2) or more of the Employers and the other Controlled Group Members will be considered as employment with only one of them during that period. | ||
| (b) | If an Employee is on a Leave of Absence authorized by his or her Employer, his or her period of continuous employment shall include such Leave of Absence, except for any portion thereof for which he or she is not granted rights as to reemployment by an Employer or a Controlled Group Member under any applicable statute. | ||
| (c) | If and to the extent the Committee so provides, part or all of the last continuous period of employment of an Employee with an Employer or any Predecessor |
15
| Company prior to the date of coverage hereunder shall be included in determining Years of Service; except that: |
| (i) | All service of a Transferred Participant that was recognized under the Sara Lee Plan as of the Effective Date shall be recognized and taken into account under the Plan to the same extent as if such service had been completed under the Plan, subject to any applicable break in service rules under the Sara Lee Plan and the Plan. | ||
| (ii) | If an individual (A) was previously employed by the Sara Lee Corporation (referred to as the “prior employers” for purposes of this Subparagraph), and (B) subsequently becomes an Employee of an Employer or a Controlled Group Member; all of the individual’s service with the prior employers shall be recognized and taken into account under the Plan to the same extent as if such service had been completed under the Plan, subject to any applicable break in service rules under the applicable prior employer’s plans and the Plan. |
| (d) | The foregoing provisions of this Subsection shall not be applied so as to allow an Employee to become a Participant in the Plan prior to the Employee’s actual employment by an Employer and his or her becoming a member of a Covered Group of Employees. |
16
SECTION 3
Participation
3.01 Eligibility to Participate
| (a) | Eligible Participants. |
| (i) | Each Transferred Participant shall become a Participant on the Effective Date or, if later, on the date of a transfer of employment described in Subparagraph 2.66(b), subject to the terms and conditions of the Plan. Each other Eligible Employee hired prior to January 1, 2008 shall become a Participant on the first date of the first payroll period following the date he or she attains age twenty-one (21) or on January 1, 2008, if earlier; except that Eligible Employees hired prior to January 1, 2008 and described in Supplement B to the Plan shall become Participants on their dates of hire without regard to their then attained age. Notwithstanding the foregoing, each Eligible Employee hired prior to January 1, 2008 must have attained age twenty-one (21) before becoming eligible for Annual Company Contributions provided under Subsection 5.02. An Eligible Employee may become a Participant only if he or she is a member of a Covered Group. | ||
| (ii) | Each Eligible Employee hired on or after January 1, 2008 shall become a Participant as follows: |
| (A) | With respect to Before-Tax Contributions, Catch-Up Contributions, and Matching Contributions, immediately following the date the Eligible Employee has completed at least 30 days of Service; and | ||
| (B) | With respect to Annual Company Contributions, upon his or her date of hire as an Eligible Employee or the date he or she attains age twenty-one (21), if later; |
| in each case, provided the Eligible Employee is then a member of a Covered Group.” |
| (b) | Special Participation Rules. Notwithstanding any provision of the Plan to the contrary, the following special participation rules shall apply: |
| (i) | “Participants” only for purposes of Subsection 4.04. For purposes of transferred amounts or Rollover Contributions made pursuant to Subsection 4.04, the term “Participant” shall include an Employee of an Employer who is not yet a Participant in the Plan, but such “Participant” |
17
| may not make Before-Tax Contributions or receive any Employer Contributions before satisfying the requirements of this Section. | |||
| (ii) | Transfer Between Covered Groups. In the event an Employee or Participant transfers employment from one Covered Group to a different Covered Group that is not eligible for the same contributions and benefits under the Plan, such individual shall be treated as terminating employment and simultaneously being reemployed under Subsection 12.01 solely for purposes of determining his or her eligibility for contributions and benefits under the Plan during his or her employment with the new Covered Group. | ||
| (iii) | Inactive Transferred Participants. Transferred Participants who are not actively employed by an Employer in a Covered Group shall be treated as terminated or restricted participants under Subsection 7.02 of the Plan. |
3.02 Covered Group
Designation of a Covered Group when made by the Company shall be effected by action of the
Committee or by a person or persons authorized by said Committee. Designation of a Covered Group
when made by any other Employer shall be effected by action of that Employer’s Board of Directors
or a person or persons so authorized by that Board. Notwithstanding the foregoing, Employees who
are or who become members of a group or class of Employees included in a collective bargaining unit
covered by a collective bargaining agreement between an Employer and the collective bargaining
representative of such Employees and who, as a consequence of good faith bargaining between the
Employer and such representative, are excluded from participation in the Plan shall not be
considered as belonging to a Covered Group.
3.03 Leave of Absence
A Leave of Absence will not interrupt continuity of participation in the Plan. Leaves of
Absence will be granted under an Employer’s rules applied uniformly to all Participants similarly
situated. Notwithstanding any provision of the Plan to the contrary, (i) contributions, benefits, and service
credit with respect to qualified military service will be provided in accordance with Section 414(u)
of the Code, and (ii) in the case of a Participant who dies while performing qualified military
service (as defined in Section 414(u) of the Code) on or after January 1, 2007, the survivors of
the Participant will be entitled to any benefits (other than benefit accruals relating to the period
of qualified military service) provided under the plan had the Participant resumed and then terminated
employment on account of death. In any case where a Participant is on a Leave of Absence or is a
Totally Disabled Participant and his or her employment with an Employer and its Subsidiaries is
terminated for any other reason, then his or her employment with the Employers for purposes of the
Plan will be considered terminated on the same date and for the same reason.
3.04 Leased Employees
A Leased Employee shall not be eligible to participate in the Plan. The period during which a
Leased Employee performs services for an Employer shall be taken into account for purposes of
Subsection 10.01 of the Plan, unless (a) such Leased Employee is a participant in a money purchase
pension plan maintained by the leasing organization which provides a non-integrated employer
contribution rate of at least 10 percent (10%) of compensation, immediate
18
participation for all employees and full and immediate vesting, and (b) Leased Employees do
not constitute more than 20 percent (20%) of the Employers’ nonhighly compensated workforce.
19
SECTION 4
Before-Tax Contributions
4.01 Before-Tax Contributions
| (a) | Before-Tax Contribution Election. Each full-time and part-time, exempt and non-exempt salaried or hourly Participant may elect to defer a portion of his or her Compensation for any Plan Year by electing to have a percentage (in multiples of one percent (1%) not to exceed fifty percent (50%)) of his or her Compensation contributed to the Plan on his or her behalf by his or her Employer as Before-Tax Contributions. A Participant may elect to make such Before-Tax Contributions beginning as soon as administratively possible following the date he or she becomes a Participant, subject to Subparagraph (b) below. Notwithstanding any Plan provision to the contrary, a Participant may make a Before-Tax Contribution election only with respect to amounts that are compensation within the meaning of Code Section 415 and Treasury Regulations Section 1.415(c)-2. | ||
| (b) | Automatic Deferral Election. Notwithstanding Subparagraph (a) above, each Participant as of January 1, 2008 who has not previously made an affirmative election under the Plan and each individual who becomes an Eligible Employee on or after January 1, 2008 will be deemed to have automatically elected to have four percent (4%) of his or her Compensation contributed to the Plan as Before-Tax Contributions beginning on January 1, 2008 or as soon as administratively possible after the Eligible Employee becomes a Participant under Subparagraph 3.01(a), if later. Each such Participant’s deferral percentage shall increase automatically by one percent (1%) each Plan Year thereafter, up to six percent (6%) of Compensation; provided, however, that the automatic deferral percentage for an Eligible Employee who becomes a Participant during the last three months of a Plan Year shall not increase until the beginning of the second Plan Year following his or her participation date; and further provided that automatic increases under this Subparagraph shall not apply once a Participant has made an affirmative election to change his or her deferral percentage, including an affirmative election to cease all deferrals. Prior to the date an automatic deferral election is effective, the Committee shall provide the Eligible Employee with a notice that explains the automatic deferral feature, the Eligible Employee’s right to elect not to have his or her Compensation automatically reduced and contributed to the Plan or to have another percentage contributed, and the procedure for making an alternate election. An automatic deferral election shall be treated for all purposes of the Plan as a voluntary deferral election. | ||
| (c) | Reduction of Compensation. Before-Tax Contributions shall be made by a reduction of such items of the Participant’s Compensation as each Employer shall determine (on a uniform basis) for each payroll period by the applicable percentage (not to exceed the maximum percentage determined by the Committee for any payroll period). The amount deferred by a Participant will be withheld |
20
| from the Participant’s Compensation and contributed to the Plan on the Participant’s behalf by the Participant’s Employer in accordance with Subsection 5.01. |
4.02 Catch-Up Contributions
A Participant who has attained age fifty (50) years (or will attain age fifty (50) years by
the end of the Plan Year) may elect to defer an additional amount of Compensation as Before-Tax
Contributions for such Plan Year in accordance with and subject to the limitations of Section
414(v) of the Code (“Catch-Up Contributions”). Before-Tax Contributions shall not include Catch-Up
Contributions for purposes of implementing the required limitations of Code Sections 401(k),
402(g), and 415 contained in Subsections 6.01, 6.03, and 6.05, respectively.
4.03 Change in Election
Each Participant who has made an election for any Plan Year pursuant to Subsection 4.01 or
4.02 (if applicable) may subsequently make an election to discontinue the deferral of his or her
Compensation (but not retroactively) as of the beginning of any payroll period. If a Participant
discontinues his or her deferrals, he or she may subsequently elect under Subsection 4.01 or 4.02
(if applicable) to have a deferral resumed as of any subsequent payroll period. A Participant also
may elect to change (but not retroactively) the rate of his or her Tax-Deferred Contributions and
the amount of his or her Catch-Up Contributions (if applicable) as of the beginning of any payroll
period, within the limits specified in Subsection 4.01 and 4.02 (if applicable). Elections under
this Subsection shall be made in such manner and in accordance with such rules as the Committee
determines. If the Committee in its discretion determines that elections under this Subsection
shall be made in a manner other than in writing, any Participant who makes an election pursuant to
such method may receive written confirmation of such election; further, any such election and
confirmation will be the equivalent of a writing for all purposes.
4.04 Direct Transfers and Rollovers
The Committee in its discretion may direct the Trustee to accept:
| (a) | From a trustee or insurance company a direct transfer (or an Eligible Rollover Distribution) of a Participant’s benefit (or portion thereof) under any other Eligible Retirement Plan; | ||
| (b) | From a Participant as a Rollover Contribution an amount (or portion thereof) received by the Participant as an Eligible Rollover Distribution from another Eligible Retirement Plan; or | ||
| (c) | From a Participant as a Rollover Contribution the entire amount received by the Participant as a distribution from an individual retirement account or an individual retirement annuity where such amount is attributable to a rollover contribution of a qualified total distribution pursuant to Section 408(d)(3)(A) of the Code; |
21
| provided, however, that any such Rollover Contribution made by a Participant shall be in cash only and comply with the provisions of the Code and the rules and regulations thereunder applicable to tax-free rollovers and shall be exclusive of after-tax employee contributions. If after a Rollover Contribution has been made the Committee learns that such contribution did not meet those provisions, the Committee may direct the Trustee to make a distribution to the Participant of the entire amount of the Rollover Contribution received. Any amount so transferred or contributed to the Trustee will be credited to the Account of the Participant as determined by the Committee. If any portion of a Participant’s benefits under the Plan is attributable to amounts which were transferred to the Plan, directly or indirectly (but not in a direct rollover as defined in Section 401(a)(31) of the Code), from a Plan which is subject to the requirements of Section 401(a)(11) of the Code, then the provisions of said Section 401(a)(11) shall apply to the benefits of such Participant. The Committee in its discretion may direct the Trustee to transfer Account balances of a group or class of Participants, by means of a trust-to-trust transfer, to the trustee (or insurance company) of any other individual account, profit sharing or stock bonus plan intended to meet the requirements of Section 401(a) of the Code. |
22
SECTION 5
Employer Contributions
5.01 Before-Tax Contributions
Subject to the limitations of this SECTION 5, the Employers will contribute to the Trustee on
behalf of each Participant the amount of such Participant’s Before-Tax Contributions under
Subsection 4.01. Such Before-Tax Contributions shall be paid to the Trustee as soon as practicable
after being withheld, but no later than the fifteenth (15th) business day of the next following
month, and allocated to Participants’ Current Year Before-Tax Contribution Subaccounts.
5.02 Annual Company Contribution
For that portion of the first Plan Year that follows the Spin-Off Date and for each Plan Year
thereafter, the Employers shall contribute to the Plan as follows:
| (a) | For Participants who are exempt and non-exempt salaried employees, an amount determined by the Company each year in its discretion, which amount shall not be in excess of four percent (4%) of such Participants’ Compensation for that portion of the Plan Year during which he or she was a salaried employee and a Participant in the Plan. | ||
| (b) | For Participants who are hourly, non-union employees or are New York-based sample department union Employees, an amount determined by the Company each year in its discretion, which amount shall not be in excess of two percent (2%) of such Participants’ Compensation for that portion of the Plan Year during which he or she was an hourly employee and a Participant in the Plan. |
For 2006, the Employers shall make an additional contribution on behalf of each Participant
who is an exempt or non-exempt salaried employee. Such contribution shall equal two percent (2%)
of the Participant’s Compensation for that portion of the period beginning on January 1, 2006 (or
the date the Participant was transferred to employment with Hanesbrands Inc. or a Sara Lee
Corporation division listed on Exhibit A, if later) and ending on the Spin-Off Date during which
the Participant was a salaried employee; provided that no contribution shall be made with respect
to any period during which the employee was not a participant in the Plan or the Sara Lee Plan.
For purposes of determining the amount of a Participant’s contributions under this Subsection 5.02
for 2006, the Code Section 401(a)(17)(B) limit shall be applied to the sum of the Participant’s
Compensation paid from the Company and the Sara Lee Corporation during that year.
Annual Company
Contributions under this Subsection 5.02 to be made for Plan Years beginning on or after January 1, 2008
shall be funded in either cash or shares of Hanesbrands Stock (which may be shares purchased
in the open market or authorized-but-unissued shares), as determined by the Committee. If shares of
Hanesbrands Stock are contributed, they shall be valued for allocation purposes at their Fair Market
Value as of the date of allocation. The Annual Company Contributions under this Subsection 5.02 shall
be immediately invested in accordance with the Participant’s current investment election. Notwithstanding the
foregoing, Participants shall be eligible to receive a contribution under this Subsection only if
they are employed with the Employer on the last day of the Plan Year (and for this purpose, any
Participant who is employed on the last business day of the Plan Year shall be considered to be
23
employed on the last day of the Plan Year), or if their employment ended during the Plan Year
as a result of retirement (Separation Date after age fifty-five (55) with ten (10) Years of
Service, or after age sixty-five (65)), death or Total Disability.
5.03 Matching Contributions
| (a) | As of the end of each quarter (or on a more frequent basis as determined by the Employers), the Employers will make a Matching Contribution on behalf of each Participant equal to one hundred percent (100%) of the Participant’s Before-Tax Contributions (including Catch-Up Contributions) made since the last Employer Matching Contribution that do not exceed four percent (4%) of the Participant’s Compensation. | ||
| (b) | As of the end of each calendar quarter (a “true up allocation date”), a “true up” Matching Contribution for each Participant who, as of the applicable true up allocation date, did not receive the full Matching Contribution provided under Subparagraph (a) and this Subparagraph (b), if applicable, based on the amount of his or her Before-Tax Contributions (including Catch-Up Contributions) for the Plan Year as of the applicable true up allocation date. Such true up Matching Contribution will be equal to the difference between the Matching Contribution actually made on behalf of such Participant for the Plan Year as of the true up allocation date, and the full Matching Contribution that the Participant would have been entitled to receive for the Plan Year as of the true up allocation date if such Matching Contributions were determined as of the true up allocation date instead of on a quarterly basis. | ||
| (c) | Matching Contributions for Plan Years beginning in 2009 shall be made in either cash or shares of Hanesbrands Stock (which may be shares purchased in the open market or authorized-but-unissued shares), as determined by the Committee. If shares of Hanesbrands Stock are contributed, they shall be valued for allocation purposes at their Fair Market Value as of the date of allocation. The Matching Contributions under this Subsection 5.03 shall be immediately invested in accordance with the Participant’s current investment election. |
5.04 Transition Contribution
Subject to the conditions and limitations of the Plan, solely for the Plan Year ending on
December 31, 2006, for any Participant who, on January 1, 2006:
| (a) | Was an exempt or non-exempt salaried employee of Sara Lee Corporation’s Branded Apparel division; and | ||
| (b) | Had attained age fifty (50) and completed ten (10) Years of Service; and |
who is not eligible for a transition credit allocation under the Hanesbrands Inc. Supplemental
Employee Retirement Plan (the “SERP”) (other than the salaried employee transition credit set forth
in Subsection 2.32 of the SERP); the Employers shall contribute, in cash, to the Annual Company
Contribution Account of such Participant an amount equal to ten percent (10%) of such eligible
Participant’s Compensation for calendar year 2006 (including Compensation paid prior to the
Effective Date); provided, however, that Participants shall be eligible to receive a contribution
under this Subsection only if they are employed on the last business day of the Plan Year(and for
this purpose, any Participant who is employed on the last business day of the Plan Year shall be
considered to be employed on the last day of the Plan Year), or if their employment ended during
the Plan Year as a result of retirement (Separation Date after age fifty-five (55) with ten (10)
Years of Service, or after age sixty-five (65)), death or Total Disability.
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5.05 Allocation of Annual Company Contribution
The amount of the contribution made by the Employers for each Plan Year pursuant to Subsection
5.02 for each eligible Participant in the amounts specified in Subparagraph 5.02(a) or 5.02(b) as
the case may be, shall be allocated to each such Participant’s Annual Company Contribution Account
as of the last day of the Plan Year.
5.06 Payment of Matching Contributions
Matching Contributions under Subparagraph 5.03(a) of the Plan for any Plan Year shall be made
each calendar quarter (or on a more frequent basis as
determined by the Employers) based on the matchable Before-Tax Contributions that have been posted to the
Participant’s Accounts for such period. Matching Contributions under Subparagraph 5.03(b)
of the Plan shall be made as soon as practicable
after each true up allocation date.
5.07 Allocation of Matching Contributions
Subject
to Subsections 6.02 and 6.05, the Matching Contribution under Subparagraph 5.03(a) shall be allocated and credited to the Current Year Matching Contribution
Subaccounts of those Participants entitled to share in such Matching Contributions, pro rata,
according to the matchable Before-Tax Contributions made by them, respectively, during that period
and posted to the Participants’ Current Year Before-Tax
Contribution Subaccount as
of such Accounting Date. Matching Contributions under Subparagraph
5.03(b) of the Plan shall be allocated
and credited as soon as practicable after each true up allocation date.
5.08
[RESERVED]
5.09 Limitations on Employer Contributions
The Employers’ total contribution for a Plan Year is conditioned on its deductibility under
Section 404 of the Code in that year, and shall comply with the contribution limitations set forth
in Subsection 6.05 and the allocation limitations contained in Subsections 6.01 and 5.04 of the
Plan, and shall not exceed an amount equal to the maximum amount deductible on account thereof by
the Employers for that year for purposes of federal taxes on income.
5.10 Verification of Employer Contributions
If for any reason the Employer decides to verify the correctness of any amount or calculation
relating to its contribution for any Plan Year, the certificate of an independent
25
accountant selected by the Employer as to the correctness of any such amount or calculation
shall be conclusive on all persons.
5.11 Corrective Contributions/Reallocations
If, with respect to any Plan Year, an administrative error results in a Participant’s Account not
being properly credited with his or her Before-Tax Contributions, Rollover Contributions, or
Employer Contributions, or earnings on any such amounts, corrective Employer Contributions or
account reallocations may be made in accordance with this Subsection. Solely for the purpose of
placing any affected Participant’s Account in the position that the Account would have been in had
no error been made:
| (a) | an Employer may make additional contributions to such Participant’s Accounts; or | ||
| (b) | the Committee may reallocate existing contributions among the Accounts of affected Participants. |
In addition, with respect to any Plan Year, if an administrative error results in an amount being
credited to an Account for a Participant or any other individual who is not otherwise entitled to
such amount, corrective action may be taken by the Committee, including, but not limited to, a
direction to forfeit amounts erroneously credited (with such forfeitures to be used to reduce
future Employer Contributions or other contributions to the Plan), reallocate such erroneously
credited amounts to other Participants’ Accounts, or take such other corrective action as necessary
under the circumstances. Any Plan administration error may be corrected using any appropriate
correction method permitted under the Employee Plans Compliance Resolution System ( or any
successor procedure), as determined by the Committee in its discretion.
26
SECTION 6
Contribution Limits
6.01 Actual Deferral Percentage Limitations
In no event shall the Actual Deferral Percentage of the Highly Compensated Employees for any
Plan Year exceed the greater of the:
| (a) | Actual Deferral Percentage of all other Eligible Employees for the Plan Year multiplied by 1.25; or | ||
| (b) | Actual Deferral Percentage of all other Eligible Employees for the Plan Year multiplied by 2.0; provided that the Actual Deferral Percentage of the Highly Compensated Employees does not exceed that of all other Eligible Employees by more than two (2) percentage points. |
From time to time during the Plan Year, the Committee shall determine whether the limitation
of this Subsection will be satisfied and, to the extent necessary to ensure compliance with such
limitation, may limit the Before-Tax Contributions to be withheld on behalf of Highly Compensated
Employees or may refund Before-Tax Contributions previously withheld. If, at the end of the Plan
Year, the limitation of this Subsection is not satisfied, the Committee shall refund Before-Tax
Contributions previously withheld on behalf of Highly Compensated Employees. If Before-Tax
Contributions made on behalf of Highly Compensated Employees must be refunded to satisfy the
limitation of this Subsection, the Committee shall determine the amount of Excess Contributions and
shall refund such amount on the basis of the Highly Compensated Employees’ contribution amounts,
beginning with the highest such contribution amounts. Excess Contributions previously withheld
(and any income allocable thereto determined in accordance with Subsection 6.04) may be distributed
within two and one-half (2-1/2) months after the close of the Plan Year to which such Excess
Contributions relate, but in any event no later than the end of the Plan Year following the Plan
Year in which such Excess Contributions were made. Matching Contributions attributable to Excess
Contributions shall be treated as Forfeitures under Subsection 10.06. For Plan Years beginning on
and after January 1, 2008, the Plan shall satisfy the nondiscrimination requirements of Code
Section 401(k) in accordance with the safe harbor method based on Matching Contributions, as
described in Code Section 401(k)(13)(D), and the foregoing provisions of this Subsection shall be
inapplicable.
6.02 Limitation on Matching Contributions
In no event shall the Contribution Percentage of the Highly Compensated Employees for any Plan
Year exceed the greater of the:
| (a) | Contribution Percentage of all other Eligible Employees for the Plan Year multiplied by 1.25; or |
27
| (b) | Contribution Percentage of all other Eligible Employees for the Plan Year multiplied by two (2.0); provided that the Contribution Percentage of such Highly Compensated Employees does not exceed that of all other Participants by more than two (2) percentage points. |
From time to time during the Plan Year, the Committee shall determine whether the limitation
of this Subsection will be satisfied and, to the extent necessary to ensure compliance with such
limitation, shall refund a portion of the Matching Contributions previously credited to Highly
Compensated Employees. If Matching Contributions made on behalf of Highly Compensated Employees
must be refunded to satisfy the limitation of this Subsection, the Committee shall determine the
amount of Excess Matching Contributions and shall refund such amount on the basis of the Highly
Compensated Employees’ contribution amounts, beginning with the highest such contribution amounts.
At the Committee’s discretion, if the Excess Matching Contributions are attributable to non-vested
Matching Contributions, such Excess Matching Contributions may be forfeited in accordance with
Subsection 10.06 and applied in the same manner as any other Forfeiture under the Plan. Excess
Matching Contributions previously credited (and any income allocable thereto determined in
accordance with Subsection 6.04) may be distributed or forfeited within twelve (12) months after
the close of the Plan Year to which such Excess Matching Contributions relate, but in any event no
later than the end of the Plan Year following the Plan Year in which such Excess Matching
Contributions were made. For Plan Years beginning on and after January 1, 2008, the Plan shall
satisfy the nondiscrimination requirements of Code Section 401(m) in accordance with the safe
harbor method based on Matching Contributions, as described in Code Section 401(m)(12), and the
foregoing provisions of this Subsection shall be inapplicable.
6.03 Dollar Limitation
Notwithstanding the provisions of Subsection 6.01, no Participant shall make a Before-Tax
Contribution election which will result in his or her Elective Deferrals for any calendar year
exceeding $15,000 (or such greater amount as may be prescribed by the Secretary of Treasury to take
into account cost-of-living increases pursuant to Code Section 402(g)), except to the extent
permitted with respect to Catch-Up Contributions, if applicable. If a Participant’s total Elective
Deferrals under this Plan and any other plan of another employer for any calendar year exceed the
annual dollar limit prescribed above, the Participant may notify the Committee, in writing on or
before March 1 of the next following calendar year, of his or her election to have all or a portion
of such Excess Deferrals (and the income allocable thereto determined in accordance with Subsection
6.04) allocated under this Plan and distributed in accordance with this Subsection. In such event,
or in the event that the Committee otherwise becomes aware of any Excess Deferrals, the Committee
shall, without regard to any other provision of the Plan, direct the Trustee to distribute to the
Participant by the following April 15 the Participant’s Excess Deferrals (and any income
attributable thereto determined in accordance with Subsection 6.04) so allocated under the Plan.
Distributions to be made in accordance with the preceding sentence shall be made as soon as is
practicable following receipt by the Committee of written notification of Excess Deferrals, and the
Committee shall make every effort to meet the April 15 distribution deadline for all written
notifications received by the preceding March 1.
28
The amount of such Excess Deferrals distributed to a Participant in accordance with this
Subsection shall be treated as a contribution for purposes of the limitations referred to under
Subsection 6.05, and shall continue to be treated as Before-Tax Contributions for purposes of the
Actual Deferral Percentage test described in Subsection 6.01; however, Excess Deferrals by
non-Highly Compensated Employees shall not be taken into account under Subsection 6.01 to the
extent such Excess Deferrals are made under this Plan or any other plan maintained by an Employer
or Controlled Group Member. In addition, any Matching Contributions attributable to amounts
distributed under this Subsection (and any income allocable thereto determined in accordance with
Subsection 6.04) shall be forfeited in accordance with Subsection 10.06.
| 6.04 | Allocation of Earnings to Distributions of Excess Deferrals, Excess Contributions and Excess Matching Contributions |
The earnings allocable to distributions of Excess Deferrals under Subsection 6.03, Excess
Contributions under Subsection 6.01, and Excess Matching Contributions under Subsection 6.02 shall
be determined by multiplying the earnings attributable to the applicable excess amounts (for the
calendar and/or Plan Year, whichever is applicable) by a fraction, the numerator of which is the
applicable excess amount, and the denominator of which is the balance attributable to such
contributions in the Participant’s Account or Accounts, as of the beginning of such year, plus the
contributions allocated to the applicable account for such year.
Notwithstanding the foregoing, no income shall be allocated to
Excess Deferrals, Excess Contributions or Excess Matching
Contributions for the period between the end of the Plan Year and
prior to the distribution of such amounts.
6.05 Contribution Limitations
For each Limitation Year, the Annual Addition to a Participant’s Accounts under the Plan and
under any other defined contribution plan maintained by any Employer shall not exceed the lesser of
$45,000 (as adjusted for cost-of-living increases under Code Section 415(d)) or 100% of the
Participant’s compensation for the Limitation Year. For purposes of this Subsection 6.05,
“compensation” for a Limitation Year means a Participant’s compensation within the meaning of Code
Section 415(c)(3) and Treasury Regulations Section 1.415(c)-2(b) and (c) that is actually paid or
made available during the Limitation Year, subject to the following:
| (a) | Compensation shall include elective amounts that are not includible in the gross income of the Participant by reason of Code Sections 125, 132(f) and 402(g)(3). | ||
| (b) | Compensation for a Limitation Year shall include compensation paid by the later of 2-1/2 months after a Participant’s severance from employment with the Employers or the end of the Limitation Year that includes the date of the Participant’s severance from employment with the Employers, if: |
29
| (i) | The payment is regular compensation for services during the Participant’s regular working hours, or compensation for services outside the Participant’s regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments, and absent a severance from employment, the payments would have been paid to the Participant while the Participant continued in employment with the Employers; or | ||
| (ii) | The payment is for unused accrued bona fide sick, vacation or other leave that the Participant would have been able to use if employment had continued. |
Any payment not described above shall not be considered compensation if paid after
severance from employment, even if paid by the later of 2-1/2 months after the date
of severance from employment or the end of the Limitation Year that includes the
date of severance from employment, except for payments to an individual who does not
currently perform services for the Employers by reason of qualified military service
(within the meaning of Code Section 414(u)(1)) to the extent these payments do not
exceed the amounts the individual would have received if the individual had
continued to perform services for the Employers rather than entering qualified
military service.
| (c) | A Participant’s compensation for a Limitation Year shall not include compensation in excess of the limitation under Code Section 401(a)(17) in effect for the Limitation Year. |
The Committee shall take any actions it deems advisable to avoid an Annual Addition in excess
of Code Section 415 of the Code; provided, however, if a Participant’s Annual Addition for a
Limitation Year actually exceeds the limitations of this Subsection, the Committee shall correct
such excess in accordance with applicable guidance issued by the Internal Revenue Service. Annual
Additions shall be subject to Code Section 415 and applicable Treasury regulations issued
thereunder, the requirements of which are incorporated herein by reference to the extent not
specifically provided in this Subsection 6.05.
30
SECTION 7
Period of Participation
7.01 Separation Date
If a Participant is transferred from employment with an Employer to employment with a
Controlled Group Member (other than an Employer), then, for the purpose of determining when his or
her Separation Date occurs under this Subsection, his or her employment with such Controlled Group
Member (or any Controlled Group Member to which he or she is subsequently transferred) shall be
considered as employment with the Employers. If a Participant who was an Eligible Employee of an
Employer becomes a Leased Employee of an Employer, then his or her change in status shall not be
considered a termination of employment for purposes of determining when his or her Separation Date
occurs under this Subsection. A Participant’s termination of employment with all of the Employers
at any age while Totally Disabled shall be deemed a termination on account of Total Disability.
7.02 Restricted Participation
When payment of all of a Participant’s Account balances is not made at his or her Separation
Date, or if a Participant transfers to the employ of a Controlled Group Member which is not an
Employer or continues in the employ of an Employer but ceases to be employed in a Covered Group,
the Participant or his or her Beneficiary will continue to be considered as a Participant for all
purposes of the Plan, except as follows:
| (a) | He or she will not make any Before-Tax Contributions, and his or her Employer will not make any Employer Contributions on his or her behalf, for any period beginning after his or her Separation Date occurs or for any subsequent Plan Year unless he or she is reemployed and again becomes a Participant in the Plan; provided, however, that his or her Employer shall contribute: |
| (i) | His or her Before-Tax Contributions, as provided in Subsection 5.01, with respect to Compensation paid through his or her Separation Date; and | ||
| (ii) | If applicable, an Annual Company Contribution and/or a Transition Contribution for the Plan Year in which his or her Separation Date occurs, based on his or her Compensation paid during that portion of the Plan Year in which he or she was a Participant eligible for such contributions. |
| (b) | He or she will not make any Before-Tax Contributions, and his or her Employer will not make any Employer Contributions on his or her behalf, for any period in which he or she is in the employ of an Employer but is not an Eligible Employee. | ||
| (c) | He or she will not make any Before-Tax Contributions, and his or her Employer will not make any Employer Contributions on his or her behalf, for any period in |
31
| which he or she is employed by a Controlled Group Member that is not an Employer under the Plan. | |||
| (d) | The Participant may not apply for loans under Subsection 11.01. | ||
| (e) | A Participant whose Separation Date occurs, or a Beneficiary or Alternate Payee of a Participant, may not apply for a withdrawal under Section 11. |
32
SECTION 8
Accounting
8.01 Separate Accounts
The Committee will maintain the following Accounts in the name of each Participant:
| (a) | A “Before-Tax Contribution Account,” which will reflect his or her Before-Tax Contributions, if any, made under the Plan, and the income, losses, appreciation and depreciation attributable thereto. This Account shall include a “Current Year Before-Tax Contribution Subaccount,” which will reflect only the Before-Tax Contributions made by the Participant during the current Plan Year. | ||
| (b) | A “Matching Contribution Account,” which will reflect his or her share of Matching Contributions, if any, made under the Plan, and the income, losses, appreciation and depreciation attributable thereto. This Account shall include a “Current Year Matching Contribution Subaccount,” which will reflect only the Matching Contributions allocated to the Participant during the current Plan Year. | ||
| (c) | An “Annual Company Contribution Account,” which will reflect his or her share of the Annual Company Contributions under the Plan, and the income, losses, appreciation and depreciation attributable thereto. This Account shall include a “Current Year Annual Company Contribution Subaccount,” which will reflect only the Annual Company Contributions allocated to the Participant during the current Plan Year. | ||
| (d) | An “After-Tax Account,” which will reflect his or her after-tax contributions, and the income, losses, appreciation and depreciation attributable to all after-tax contributions made to the Plan or a Predecessor Plan. | ||
| (e) | A “Rollover Contribution Account,” which will reflect his or her Rollover Contributions to the Plan, and the income, losses, appreciation and depreciation attributable thereto. | ||
| (f) | A “Predecessor Company Account,” which will reflect the contributions made by a Participant, or on his or her behalf, under a Predecessor Plan, and the income, losses, appreciation and depreciation attributable thereto. |
8.02 Adjustment of Participants’ Accounts
As of each Accounting Date, the Accounts of Participants shall be adjusted to reflect the
following:
| (a) | Transfers, if any, made between Investment Funds; |
33
| (b) | Before-Tax Contributions, Employer Contributions and Rollover Contributions, if any, and payments of principal and interest on any loans made from a Participant’s Account; | ||
| (c) | Distributions and withdrawals that have been made but not previously charged to the Participant’s Account; and | ||
| (d) | Changes in the Adjusted Net Worth of the Investment Funds in which such Account is invested. |
As of each Accounting Date, the Committee shall establish the value of each Participant’s
Account, which value shall reflect the transactions posted to the Participant’s Account as they
occurred during the preceding calendar month. As of the first day of each Plan Year, the balance
in each Participant’s Current Year Before-Tax Contribution Subaccount, Current Year Matching
Contribution Subaccount, Current Year Annual Company Contribution Subaccount, Current Year
Transition Contribution Subaccount, if any, shall be reflected in the Participant’s Before-Tax
Contribution Account, Matching Contribution Account, Annual Company Contribution Account,
Transition Contribution Account, and After-Tax Account, respectively and the balances of such
Current Year Before-Tax Contribution Subaccount, Current Year Matching Contribution Subaccount,
Current Year Annual Company Contribution Subaccount and Current Year Transition Contribution
Subaccount shall be reduced to zero. If a Special Accounting Date occurs, the accounting rules set
forth above in this Subsection and elsewhere in this SECTION 8 shall be appropriately adjusted to
reflect the resulting shorter accounting period ending on that Special Accounting Date.
Notwithstanding the foregoing, the Committee may establish separate rules to be applied on a
uniform basis in adjusting any portion of Participants’ Accounts that is invested in the Sara Lee
Corporation Common Stock Fund or the Hanesbrands Inc. Common Stock Fund for such accounting period,
including the treatment of any dividends or stock splits with respect to the securities held in
such funds. Such rules may include provisions for (i) allocating earnings from short-term
investments during an accounting period to the Subaccounts of Participants; (ii) allocating
dividends or stock splits to Participants’ Subaccounts invested in the applicable Fund (or to a
separate Account or Subaccount, as applicable); (iii) allocating shares of Sara Lee Stock or
Hanesbrands Stock to Participants’ Subaccounts based on the average purchase price per share
purchased by the Trustee during such accounting period; and (iv) allocating shares of stock (or
other securities) to Participants’ Subaccounts based on the applicable stock split or stock
dividend factor or other similar basis.
8.03 Crediting of 401(k) Contributions
Subject to the provisions of SECTION 4, each Participant’s Before-Tax Contributions will be
credited to his or her Current Year Before-Tax Contribution Subaccount no later than the Accounting
Date which ends the accounting period of the Plan during which such contributions were received by
the Trustee.
34
8.04 Charging Distributions
All payments made to a Participant or his or her Beneficiary during the accounting period
ending on each Accounting Date will be charged to the proper Accounts of the Participant in
accordance with Subsection 8.02.
8.05 Statement of Account
At such times during each Plan Year as the Committee may determine, each Participant will be
furnished with a statement reflecting the condition of his or her Account in the Trust Fund as of
the most recent Accounting Date. No Participant shall have the right to inspect the records
reflecting the Accounts of any other Participant.
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SECTION 9
The Trust Fund and Investment of Trust Assets
9.01 The Trust Fund
The Trust Fund will consist of all money, stocks, bonds, securities and other property of any
kind held and acquired by the Trustees in accordance with the Plan and the Trust Agreement.
9.02 The Investment Funds
The Investment Committee, in its discretion, may designate one or more funds, referred to
collectively as “Investment Funds,” for the investment of Participants’ Accounts. The Investment
Committee, in its discretion, may from time to time establish new Investment Funds or eliminate
existing Investment Funds. The available Investment Funds shall include the “Hanesbrands Inc.
Common Stock Fund,” the assets of which are primarily invested in shares of Hanesbrands Stock. A
portion of each Investment Fund may be invested from time to time in the short-term investment fund
(STIF) of a custodian bank.
9.03 Investment of Contributions
In accordance with rules established by the Committee, a Participant may elect to have
contributions to his or her Accounts invested in one or more of the Investment Funds in even
multiples of one percent (1%). If a Participant does not make such an election within such period
as may be determined by the Committee, he or she shall be deemed to have elected that all eligible
contributions to his or her Accounts be invested in the default investment arrangement specified by
the Investment Committee in accordance with ERISA Section 404(c)(5) and accompanying regulations.
Elections under this Subsection and Subsections 9.04 and 9.05 shall be made in such manner and
in accordance with such rules as the Committee determines. If the Committee determines in its
discretion that elections under this Subsection and Subsections 9.04 and 9.05 shall be made in a
manner other than in writing, any Participant who makes an election pursuant to such method may
receive written confirmation of such request; further, any such request and confirmation shall be
the equivalent of a writing for all purposes.
9.04 Change in Investment of Contributions
Effective as of any payroll period, a Participant may elect to change his or her investment
election under Subsection 9.03. Such change shall apply only with respect to contributions made by
or on behalf of the Participant that are received by the Trustee after the effective date of the
change.
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9.05 Elections to Transfer Balances Between Accounts; Diversification
On any Accounting Date, a Participant may elect to transfer or reallocate the balances in his
or her Accounts in an Investment Fund to one or more other Investment Funds, subject to the trading
restrictions of the Investment Fund; any such election shall be made in accordance with rules
established by the Committee, and may include an election to automatically reallocate the
Participant’s Accounts on such dates as the Participant may specify in the election. The
Participant’s Accounts in the Investment Fund from which a fund transfer or reallocation is made
will be charged, and his or her Accounts in the Investment Fund to which such fund transfer or
reallocation is made will be credited, with the amount so transferred or reallocated in accordance
with rules established by the Committee. Such transfers or reallocations shall be made as soon as
administratively feasible following the Participant’s election or, in the event of an automatic
reallocation, on the date elected by the Participant in accordance with procedures established by
the Committee. The foregoing provisions of this Subsection are contingent upon the availability of
fund transfers and reallocations between Investment Funds under the terms of the investments made
by each Investment Fund. A Participant’s Account may be charged a redemption fee for frequent
transfers into and out of an Investment Fund within a restricted time period established by the
Investment Fund. Additionally, Participants may be restricted from initiating fund transfers or
reallocations into or out of an Investment Fund if the Committee or an Investment Fund determines
that the Participant’s transfer activity would be detrimental to that Investment Fund.
9.06 Voting of Stock; Tender Offers
With respect to Hanesbrands Stock (and Sara Lee Stock for as long as it is held in the Plan),
the Committee shall notify Participants of each meeting of the shareholders of Sara Lee Corporation
or Hanesbrands Inc. and shall furnish to them copies of the proxy statements and other
communications distributed to shareholders in connection with any such meeting. The Committee also
shall notify the Participants that they are entitled to give the Trustee voting instructions as to
Sara Lee Stock or Hanesbrands Stock credited to their Accounts. If a Participant furnishes timely
instructions to the Trustee, the Trustee (in person or by proxy) shall vote the Sara Lee Stock or
Hanesbrands Stock (including fractional shares) credited to the Participant’s Accounts in
accordance with the directions of the Participant. The Trustee shall vote the Sara Lee Stock or
Hanesbrands Stock for which it has not received timely direction, in the same proportion as
directed shares are voted.
Similarly, the Committee shall notify Participants of any tender offer for, exchange of, or a
request or invitation for tenders of Sara Lee Stock or Hanesbrands Stock and shall request from
each Participant instructions for the Trustee as to the tendering of Sara Lee Stock or Hanesbrands
Stock credited to his or her Accounts. The Trustee shall tender or exchange such Sara Lee Stock or
Hanesbrands Stock as to which it receives (within the time specified in the notification)
instructions to tender or exchange. Any Sara Lee Stock or Hanesbrands Stock credited to the
Accounts of Participants as to which instructions not to tender or exchange are received and as to
which no instructions are received shall not be tendered or exchanged.
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9.07 Confidentiality of Participant Instructions
The instructions received by the Trustee from Participants or Beneficiaries with respect to
purchase, sale, voting or tender of Sara Lee Stock or Hanesbrands Stock credited to such
Participants’ or Beneficiaries’ Accounts shall be held in confidence and shall not be divulged or
released to any person, including the Committee, officers or Employees of the Company or any
Controlled Group Member.
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SECTION 10
Payment of Account Balances
10.01 Payments to Participants
(a) Vesting.
| (i) | Before-Tax Contribution, After-Tax, and Rollover Contribution Accounts. A Participant shall at all times be fully vested in and have a nonforfeitable right to the balance in his or her Before-Tax Contribution Account and his or her After-Tax and Rollover Contribution Accounts, if any. | ||
| (ii) | Annual Company Contribution and Transition Contribution Account. If a Participant’s Separation Date occurs on or after his or her Normal Retirement Age, on the date he or she dies, or on or after the date he or she becomes Totally Disabled, then the Participant shall be fully vested in his or her Annual Company Contribution Account and Transition Contribution Account. If a Participant’s Separation Date occurs under any other circumstances, the balances in his or her Annual Company Contribution Account and Transition Contribution Account shall be calculated in accordance with the vesting schedule outlined below: |
| If the Participant’s | The Vested Percentage of | |
| Number of Years of | His or Her Applicable | |
| Service is: | Accounts will be: | |
| Less than 1 year | 0% | |
| 1 year but less than 2 years | 20% | |
| 2 years but less than 3 years | 40% | |
| 3 years but less than 4 years | 60% | |
| 4 years but less than 5 years | 80% | |
| 5 years or more | 100% |
| The resulting balance in his or her Annual Company Contribution Account and Transition Contribution Account will be distributable to him or her, or, in the event of his or her death, to his or her Beneficiary, in accordance with this Subsection and Subsection 10.02. | |||
| (iii) | Matching Contribution Account. If a Participant’s Separation Date occurs on or after his or her Normal Retirement Age, on the date he or she dies, or on or after the date he or she becomes Totally Disabled, then the |
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| Participant shall be fully vested in his or her Matching Contribution Account. If a Participant’s Separation Date occurs under any other circumstances on or after January 1, 2008, the Participant shall be fully vested in his or her Matching Contribution Account balance provided he or she has completed at least two Years of Service. Notwithstanding the foregoing, if the Participant is an active employee and has a Matching Contribution Account balance on December 31, 2007, he or she shall be fully vested in his or her Matching Contribution Account (including future contributions thereto) on and after January 1, 2008. If a Participant’s Separation Date occurs prior to January 1, 2008, he or she shall be vested in his or her Matching Contribution Account balance to the same extent that he or she was vested at his or her Separation Date, subject to the provisions of Subparagraph 12.02(a)(i). The balance in the Participant’s Matching Contribution Account after application of the foregoing vesting rules will be distributable to him or her, or, in the event of his or her death, to his or her Beneficiary, in accordance with this Subsection and Subsection 10.02 | |||
| (iv) | Special Provisions to Certain Participants. In addition, a Participant who was subject to special vesting rules under the Sara Lee Plan shall be fully vested in his or her Accounts to the extent provided in the Sara Lee Plan. |
| (b) | Time of Payment. Except as provided in Subsection 10.03 below, payment of a Participant’s benefits will be made or commence within the time determined by the Committee after his or her Separation Date, but not later than sixty (60) days after (i) the end of the Plan Year in which his or her Separation Date occurs, or (ii) such later date on which the amount of the payment can be ascertained by the Committee. In the event a Participant receives a lump sum distribution of his or her entire vested Accounts and additional contributions are subsequently credited to his or her Accounts, his or her entire remaining vested Account balance shall be distributed in an immediate lump sum to the extent such vested Account balance does not exceed $1,000 as of the date of such distribution. Except as provided in the preceding sentence or in Subparagraph 10.01(f) below, distributions may not be made to the Participant before his or her Normal Retirement Age without his or her consent. | ||
| (c) | Method of Distribution. A Participant’s vested Accounts will be distributed to him or her (or, in the event of his or her death, to his or her Beneficiary) in a lump sum unless the Participant (or, in the event of his or her death, the Participant’s Beneficiary) elects, in accordance with procedures established by the Committee, to receive such distribution by any one or more of the following methods, if applicable: |
| (i) | Partial Distributions. A Participant (or, in the event of his or her death, his or her Beneficiary) may elect to receive a partial distribution of the vested |
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| Account balance (but not less than the lesser of his or her total Account balance or $250.00) as of any Accounting Date after the Participant’s Separation Date. All partial distributions under this Subparagraph shall be made in cash only. Notwithstanding any Plan provision to the contrary, a partial distribution under this Subparagraph shall not be available once a Participant or his or her surviving spouse has begun to receive installments under Subparagraph (ii) below. | |||
| (ii) | Installments. If the vested portion of a Participant’s Accounts exceeds $5,000, the Participant (or, in the event of his or her death, his or her surviving spouse) may elect to receive substantially equal installments over a period not to exceed five (5) Plan Years, commencing in any year designated but no later than the applicable Required Commencement Date, with final distribution of all vested Accounts by the fifth year. All installment distributions shall be made in cash. A Participant or his or her surviving spouse who is receiving installments may subsequently elect to receive a lump sum distribution of all remaining installment payments. No Beneficiary other than a Participant’s surviving spouse may elect to receive installments. | ||
| (iii) | Special Distribution Provisions for Certain Participants. Notwithstanding the foregoing, a Participant who had an account balance in a Predecessor Plan may elect distribution under any other method available to such Participant to the extent provided in the Sara Lee Plan. | ||
| (iv) | Order of Accounts. Distributions under this Subparagraph shall be charged to the Participant’s vested Accounts (if applicable) in such order as shall be determined by the Committee and applied uniformly. | ||
| (v) | Special Provisions Applicable to Dividends. Notwithstanding Subparagraph (a)(ii), dividends attributable to Sara Lee Stock or Hanesbrands Stock in a Participant’s Accounts shall be one hundred percent (100%) vested. |
| (d) | Fees. The Committee may, on an annual or more frequent basis, charge the Accounts of any Alternate Payee, any Beneficiary, or any Participant whose Separation Date has occurred for a reason other than Retirement, for reasonable and necessary administrative fees incurred in the ongoing maintenance of such Accounts in the Plan, in accordance with uniform rules and procedures applicable to all Participants similarly situated. “Retirement” means Separation from Service on or after the earlier of: (i) the attainment of age fifty-five (55) and ten (10) Years of Service, or (ii) Normal Retirement Age. | ||
| (e) | No Payments Due to Spin-Off. Notwithstanding any Plan provision to the contrary, no Separation Date shall have occurred and no distribution of Accounts shall be made to a Participant solely on account of the Spin-Off. |
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| (f) | Vested Accounts Not in Excess of $1,000. Notwithstanding any Plan provision to the contrary, if the Participant’s vested Accounts equal $1,000 or less on or after the Participant’s Separation Date, the method of distribution as to that Participant shall be as a lump sum cash distribution of the Participant’s vested Accounts. Such distribution shall be made as soon as practicable following the Participant’s Separation Date. If the Participant’s vested benefit under the Plan is zero, the Participant shall be deemed to have received a distribution of such vested benefit. | ||
| (g) | Special Distribution Rules for Certain Military Service Leaves. Notwithstanding the foregoing, in accordance with Section 414(u)(12) of the Code, a Participant receiving a differential wage payment (as defined in Section 3401(h)(2) of the Code) shall be treated as having been severed from employment with the employer for purposes of taking a distribution of his pre-tax compensation deferral contributions account during any period the Participant performs service in the uniformed services while on active duty for a period of more than 30 days. If a Participant elects to receive a distribution pursuant to the preceding sentence, such Participant shall not be permitted to make pre-tax compensation deferral contributions under Section 3 of the Plan during the six-month period beginning on the date of the distribution. |
10.02 Distributions in Shares
Distributions of amounts invested in the Hanesbrands Inc. Common Stock Fund (or the Sara Lee
Corporation Common Stock Fund while such fund is maintained under the Plan) may be made in cash or
in shares, as elected by the Participant, provided such shares are distributed at their Fair Market
Value, as determined by the Trustee. If a Participant elects a stock distribution of amounts
invested in the Hanesbrands Inc. Common Stock Fund or the Sara Lee Corporation Common Stock Fund
and the Participant subsequently has additional contributions allocated to either of said funds,
the Participant shall receive such additional contributions, to the extent vested, in shares of
stock in accordance with Subsection 10.01, unless such additional contributions do not exceed
$1,000 as of the date of distribution. If an election is made by the Participant to direct the
Trustee to distribute the balance of his or her Accounts invested in the Sara Lee Corporation
Common Stock Fund or the Hanesbrands Inc. Common Stock Fund in cash, the Participant shall receive
cash equal to the Fair Market Value of the balance of his or her Accounts. For purposes of this
Subsection, the rights extended to a Participant hereunder shall also apply to any Beneficiary or
Alternate Payee of such Participant. All other distributions shall be made in cash.
10.03 Beneficiary
| (a) | Designation of Beneficiary. Each Participant from time to time, in accordance with procedures established by the Committee, may name or designate a Beneficiary. A Beneficiary designation will be effective only when properly provided to the Committee in accordance with its procedures while the Participant is alive and, when effective, will cancel all earlier Beneficiary designations made by the Participant. Notwithstanding the foregoing, a deceased Participant’s surviving spouse will be his or her sole, primary Beneficiary unless: (i) the spouse had consented in writing to the Participant’s election to designate another person or persons as a primary Beneficiary or Beneficiaries, (ii) such election designates a Beneficiary which may not be changed without spousal consent (or the consent of the spouse expressly permits designations by the Participant without any further consent by the spouse) and (iii) the spouse’s consent acknowledges the effect of such election and is witnessed by a notary public. | ||
| (b) | No Beneficiary Designation at Death. If a deceased Participant failed to name or designate a Beneficiary, if the Participant’s Beneficiary designation is ineffective for any reason, or if all of the Participant’s Beneficiaries die before the |
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| Participant, the Committee will direct the Trustee to pay the Participant’s Account balance in accordance with the following: |
| (i) | To the Participant’s surviving spouse; | ||
| (ii) | If the Participant does not have a surviving spouse, to the Participant’s beneficiary or beneficiaries (if any) designated by the Participant under the Hanesbrands Inc. Life Insurance Plan; | ||
| (iii) | If the Participant does not have a surviving spouse and failed to designate a beneficiary under the Hanesbrands Inc. Life Insurance Plan, to or for the benefit of the legal representative or representatives of the Participant’s estate; and | ||
| (iv) | If the appropriate payee is not identified pursuant to Subparagraphs (i) through (iii) above, then to or for the benefit of one or more of the Participant’s relatives by blood, adoption or marriage in such proportions as the Committee (or its delegate) determines. |
| (c) | Death of Beneficiary Prior to Participant’s Death. In the event that the Participant has named multiple Beneficiaries, and one of the Beneficiaries dies before the Participant, the remaining Beneficiaries shall be entitled to the deceased Beneficiary’s share, pro rata in accordance with their share of the Account balance as of the date of the Participant’s death (or such other date as the Committee may determine is administratively practicable), subject to the Participant’s right to change his or her beneficiary designation at any time in accordance with Subparagraph (a). The Committee reserves the right, on a uniform basis for similarly situated Beneficiaries, to make distribution of a Beneficiary’s Account balance in whole or in part at any time notwithstanding any election to the contrary by the Beneficiary. | ||
| (d) | Death of Beneficiary After Participant’s Death. Each Beneficiary, in accordance with procedures established by the Committee, may name or designate an individual to receive the Beneficiary’s share of the Account balance (a ‘Recipient’) any time after the Participant’s death. In the event a Beneficiary dies before complete payment of his or her share of the Account balance, such Beneficiary’s share shall be paid to the Recipient designated by the Beneficiary. If a deceased Beneficiary failed to name or designate a Recipient, if the Beneficiary’s designation is ineffective for any reason, or if the Recipient dies before the Beneficiary or before complete payment of the Beneficiary’s share of the Account balance, the Committee will direct the Trustee to pay the Beneficiary’s share in accordance with the following: |
| (i) | To the Beneficiary’s surviving spouse; |
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| (ii) | If the Beneficiary does not have a surviving spouse, to or for the benefit of the legal representative or representatives of the Beneficiary’s estate; | ||
| (iii) | If the Beneficiary does not have a surviving spouse and an estate is not opened on behalf of the Beneficiary, to or for the benefit of one or more of the Beneficiary’s relatives by blood, adoption or marriage in such proportions as the Committee (or its delegate) determines. |
Notwithstanding anything contained herein to the contrary, all payments under this
Subparagraph shall comply with the requirements of Code Section 401(a)(9).
10.04 Missing Participants and Beneficiaries
While a Participant is alive, he or she must file with the Committee from time to time his or
her own and each of his or her named Beneficiaries’ post office addresses and each change of post
office address. After the Participant’s death, the Participant’s Beneficiary or Beneficiaries
shall be responsible for filing such information with the Committee. A communication, statement or
notice addressed to a Participant or Beneficiary at his or her last post office address filed with
the Committee, or if no address is filed with the Committee, then at his or her last post office
address as shown on the Employer’s records, will be binding on the Participant and his or her
Beneficiary for all purposes of the Plan. Neither the Trustee nor any of the Employers is required
to search for or locate a Participant or Beneficiary. If the Committee notifies a Participant or
Beneficiary that he or she is entitled to a payment and also notifies him or her of the effect of
this Subsection, and the Participant or Beneficiary fails to claim his or her Account balances or
make his or her whereabouts known to the Committee within three (3) years after the notification,
the Account balances of the Participant or Beneficiary may be disposed of in an equitable manner
permitted by law under rules adopted by the Committee, including the Forfeiture of such balances,
if the value of the Account is equal to or less than the administrative fees, if any, applicable to
the Participant’s or Beneficiary’s Account balance pursuant to Subsection 10.01.
10.05 Rollovers
| (a) | General Rule. Notwithstanding any Plan provision to the contrary, a Distributee under the Plan who receives an Eligible Rollover Distribution may elect, at the time and in the manner prescribed by the Committee, to have any portion of the distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. | ||
| (b) | Non-Spouse Beneficiary Rollovers. To the extent permitted under Code Section 402(c)(11) and related regulations and guidance, if a direct trustee-to-trustee transfer is made to an individual retirement plan described in Code Section 402(c)(8)(B)(i) or (ii), which individual retirement plan is established for the purposes of receiving a distribution on behalf of a non-spouse beneficiary (as defined by Code Section 401(a)(9)(E)), the transfer shall be treated as an Eligible Rollover Distribution for purposes of the Plan and Code Section 402(c). |
44
| (c) | Qualified Rollover Contributions to Roth IRAs. Effective as of January 1, 2008, solely to the extent permitted in Code Sections 408A(c)(3)(B), (d)(3) and (e) and the regulations and other guidance issued thereunder, an eligible Distributee may elect to roll over any portion of an Eligible Rollover Distribution to a Roth IRA (as defined by Code Section 408A) in a qualified rollover contribution (as defined in Code Section 408A(e)), provided that the requirements of Code Section 402(c) are met. Notwithstanding any provisions of the Plan to the contrary, a Distributee under the Plan who receives an Eligible Rollover Distribution may elect, at the time and in the manner prescribed by the Committee, to have any portion of the distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. |
10.06 Forfeitures
A Forfeiture shall be treated as a separate Account (which is not subject to adjustment under
Subsection 8.02) until the next following Accounting Date on which Forfeitures will be allocated. On
that date, all Forfeitures arising during the period preceding the Accounting Date which have not
been previously allocated shall be allocated among and credited to the Accounts of Participants
reemployed to the extent required under Subsection 12.01, shall be used to reduce Employer Matching
Contributions required by Subsection 5.03 or any applicable Supplement to the Plan for the current
Plan Year or succeeding Plan Years, or shall be used to reduce administrative expenses of the Plan,
as determined by the Committee.
The portion of a Participant’s Annual Company Contribution, Transition Contribution and
Matching Contribution Accounts that is not distributable by reason of the provisions of Subsection
10.01 shall be credited to a Forfeiture Account established and caused to be maintained by the
Trustee in the Participant’s name as of the Accounting Date coincident with or next following his
Separation Date (before adjustments then required under the Plan have been made). If the
Participant does not return to employment with an Employer or a related Company by the last day of
the month following sixty (60) days from his Separation Date or upon the earlier distribution of
his or vested Accounts, the balance in his Forfeiture Account (after all adjustments then required
under the Plan have been made) will be a Forfeiture.
If a Participant returns to employment with an Employer or a Related Company before incurring
five consecutive One Year Breaks in Service, the amount previously forfeited from his Forfeiture
Account, if any, will be restored to his Forfeiture Account out of Forfeitures occurring in the
year of restoration or out of a restoration contribution made by the Employer for restoration
purposes only.
10.07 Recovery of Benefits
In the event a Participant or Beneficiary receives a benefit payment under the Plan which is
in excess of the benefit payment which should have been made, the Committee shall have the
right to recover the amount of such excess from such Participant or Beneficiary on behalf of
the Plan, or from the person that received such benefit payments. The Committee may, however, at
45
its option, deduct the amount of such excess from any subsequent benefits payable to, or for, the
Participant or Beneficiary.
10.08 Dividend Pass-Through Election
With respect to a Participant’s interest in the ESOP component of the Plan (as defined in
Subsection 1.01 from time to time) , each Participant has the right to elect either (a) to have
dividends paid on such shares reinvested in shares of Sara Lee Stock or Hanesbrands Stock (as
applicable), or (b) to receive a distribution in cash of such dividends in accordance with
procedures established by the Committee. To the extent such dividends are reinvested, they shall
be one hundred percent (100%) vested. Such distributions shall be made as soon as administratively
practicable following each March 31, June 30, September 30 and December 31 Plan Year quarter, and
shall not constitute Eligible Rollover Distributions. Notwithstanding the foregoing, on and after
the Spin-Off Date, dividends attributable to Sara Lee Stock shall be fully vested and shall
automatically be reinvested in the Sara Lee Common Stock Fund.
10.09 Minimum Distributions
Distribution of a Participant’s benefits shall be made or commence by his or her Required
Commencement Date. Notwithstanding the foregoing, the Committee may establish procedures to begin
minimum distribution payments in the calendar year in which the Participant attains age seventy and
one-half (70-1/2). Distributions to a Participant after his or her Required Commencement Date shall
be made in installment payments equal to the minimum amount necessary to meet the requirements of
Section 401(a)(9) of the Code. All distributions under the Plan shall comply with the requirements
of Section 401(a)(9) of the Code and the regulations thereunder, and shall further comply with the
rules described below:
| (a) | The Participant’s Accounts will be distributed, or begin to be distributed, to the Participant no later than the Participant’s Required Commencement Date. If the Participant dies before distributions begin, the Participant’s Accounts will be distributed, or begin to be distributed, no later than as follows: |
| (i) | If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age seventy and one-half (70-1/2), if later; | ||
| (ii) | If the Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, then distributions to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died; | ||
| (iii) | If there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire |
46
| interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death; or | |||
| (iv) | If the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse have begun, this Subparagraph (a), other than Subparagraph (a)(i), will apply as if the surviving spouse were the Participant. |
| For purposes of this Subparagraph (a) and Subparagraph (c), unless Subparagraph (a)(iv) applies, distributions will be considered to have begun on the Participant’s Required Commencement Date. If Subparagraph (a)(iv) applies, distributions will be considered to have begun on the date distributions are required to begin to the surviving spouse under Subparagraph (a)(i). Unless the Participant’s interest is distributed in a single sum on or before the Required Commencement Date, distributions will be made as of the first Distribution Calendar Year in accordance with Subparagraphs (b) and (c) below. | |||
| (b) | Required Minimum Distributions During Participant’s Lifetime. During the Participant’s lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the lesser of: (i) the quotient obtained by dividing the Participant’s Account Balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s age as of the Participant’s birthday in the Distribution Calendar Year; or (ii) if the Participant’s sole Designated Beneficiary for the Distribution Calendar Year is the Participant’s spouse, the quotient obtained by dividing the Participant’s Account Balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury Regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the Distribution Calendar Year. Required minimum distributions will be determined under this Subparagraph (b) beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes the Participant’s date of death. | ||
| (c) | Required Minimum Distributions After Participant’s Death. |
| (i) | Death on or After Date Distributions Begin. If the Participant dies on or after the date distributions have begun and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the longer of the remaining Life Expectancy of the Participant or the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as follows: |
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| (A) | The Participant’s remaining Life Expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year; | ||
| (B) | The Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, the remaining Life Expectancy of the surviving spouse is calculated for each Distribution Calendar Year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For Distribution Calendar Years after the year of the surviving spouse’s death, the remaining Life Expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year; and | ||
| (C) | The Participant’s surviving spouse is not the Participant’s sole Designated Beneficiary, the Designated Beneficiary’s remaining Life Expectancy is calculated using the age of the beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year. | ||
| If the Participant dies on or after the date distributions begin and there is no Designated Beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the Participant’s remaining Life Expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year. |
| (ii) | Death Before Date Distributions Begin. If the Participant dies before the date distributions have begun and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account Balance by the remaining Life Expectancy of the Participant’s Designated Beneficiary, determined as provided in Subparagraph (c)(i). If the Participant dies before the date distributions have begun and there is no Designated Beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death. If the Participant dies before the date distributions have begun, the Participant’s surviving spouse is the Participant’s sole Designated Beneficiary, and the surviving spouse dies before distributions are required to have begun to the surviving spouse under Subparagraph |
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| (a)(i), this Subparagraph will apply as if the surviving spouse were the Participant. |
| (d) | Definitions. For purposes of this Subsection, the following definitions shall apply: |
| (i) | “Designated Beneficiary” means the Participant’s Beneficiary who is the designated beneficiary for purposes of Code Section 401(a)(9). | ||
| (ii) | “Distribution Calendar Year” means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year that contains the Participant’s Required Commencement Date. For distributions beginning after the Participant’s death, the first Distribution Calendar Year is the calendar year in which distributions are required to begin under Subparagraph (a). The required minimum distribution for the Participant’s first Distribution Calendar Year will be made on or before the Participant’s Required Commencement Date. The required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Participant’s Required Commencement Date occurs, will be made on or before December 31 of that Distribution Calendar Year. | ||
| (iii) | “Life Expectancy” means life expectancy as computed by use of the Single Life Table in Treasury Regulation Section 1.401(a)(9)-9. | ||
| (iv) | “Participant’s Account Balance” means the balance of the Participant’s Accounts as of the Valuation Calendar Year, increased by the amount of any contributions made and allocated to the Participant’s Accounts as of dates in the Valuation Calendar Year after the valuation date and decreased by distributions made in the Valuation Calendar Year after the valuation date. The balance of the Participant’s Accounts for the Valuation Calendar Year includes any amounts rolled over or transferred to the Plan either in the Valuation Calendar Year or in the Distribution Calendar Year if distributed or transferred in the Valuation Calendar Year. | ||
| (v) | “Valuation Calendar Year” means the last valuation date in the calendar year immediately preceding the Distribution Calendar Year. |
| (e) | 2009 Required Minimum Distributions. Notwithstanding the foregoing provisions of this Subsection, a Participant or Beneficiary who would have been required to receive required minimum distributions for 2009 under this Subsection (“2009 RMDs”) but for the enactment of Section 401(a)(9)(H) of the Code will not receive those distributions for 2009. However, a Participant or surviving spouse receiving periodic installments under Subsection 10.01(c)(ii) will receive scheduled installment payments even though all or part of those payments might otherwise be considered 2009 RMDs. Any 2009 RMDs paid pursuant to the preceding sentence may be considered Eligible Rollover Distributions, but shall not be eligible for Direct Rollover. |
49
SECTION 11
11.01 Loans to Participants
While the primary purpose of the Plan is to allow Participants to accumulate funds for
retirement, it is recognized that under some circumstances it is in the best interests of
Participants to permit loans to be made to them while they continue in the active service of the
Employers. Accordingly, the Committee, pursuant to such rules as it may from time to time
establish, and upon application by a Participant supported by such evidence as the Committee
requests, may direct the Trustee to make a loan from the Participant’s Accounts under the Trust
Fund (with the exception of the Participant’s Matching Contribution Account, Annual Company
Contribution Account and Transition Contributions Account) to a Participant who is actively at work
in the employ of an Employer subject to the following:
| (a) | Amount of loans. The principal amount of any loan made to a Participant shall not be less than $500 and, when added to the outstanding balance of all other loans made to the Participant from all qualified plans maintained by the Employers, shall not exceed the lesser of: |
| (i) | $50,000, reduced by the excess (if any) of the highest outstanding balance under the Plan and all other qualified employer plans during the one (1) year period ending on the day before the date of the loan, over the outstanding balance on the date of the loan; or | ||
| (ii) | One-half (1/2) of the Participant’s vested Account balances under the Plan. |
| (b) | Terms and conditions of loans. Each loan must be evidenced by a written note in a form approved by the Committee, shall bear interest at a reasonable fixed rate, and shall require substantially level amortization (with payments at least quarterly) over the term of the loan. Interest rates shall be determined monthly and shall be based on the prevailing prime rate as published in The Wall Street Journal; provided, however, that the rate shall not exceed six percent (6%) during any period that the Participant is on military leave, in accordance with the Service Members Civil Relief Act (“SCRA”) if the service member provides notification that he or she will be entering military service as required under SCRA. | ||
| (c) | Repayment of loans. Each loan for a purpose other than to purchase a principal residence (a “General Purpose Loan”) shall specify a repayment period of not less than six (6) months nor more than five (5) years, unless the proceeds of the loan are used to purchase the Participant’s principal place of residence (a “Principal Residence Loan”), in which case such loan must be repaid within ten (10) years after the date the loan is made. | ||
| (d) | Loans to Participants shall be made as soon as administratively feasible after the Committee has received the Participant’s loan request and such information and |
50
| documents from the Participant as the Committee shall deem necessary. A Participant’s Accounts may be charged a fee for processing each loan request. The Participant’s loan request shall be made in such manner and in accordance with such rules as the Committee determines. If the Committee determines in its discretion that loan requests under this Subparagraph shall be made in a manner other than in writing, any Participant who makes a request pursuant to such method may receive written confirmation of such request; further, any such request and confirmation shall be the equivalent of a writing for all purposes. | |||
| (e) | Each loan shall be secured by a pledge of the Participant’s Accounts (with the exception of the Participant’s Annual Company Contribution Account, Transition Contribution Account, and Matching Contribution Account). A Participant’s Annual Company Contribution Account, Transition Contribution Account and Matching Contribution Account shall be taken into account for purposes of determining the amount of the loan available under Subparagraphs 11.01(a)(i) and 11.01(a)(ii), but shall not be available for liquidation and conversion to cash as described in Subparagraph 11.01(f) below. | ||
| (f) | A loan granted under this Subsection to a Participant from any Account maintained in his or her name shall be made by liquidating and converting to cash his or her appropriate Accounts, with the exception of his or her Annual Company Contribution Account, Transition Contribution Account and Matching Contribution Account (and the appropriate subaccounts, pro rata, in the various Investment Funds), in such order as shall be determined by the Committee and applied uniformly. | ||
| (g) | A Participant may have only two (2) loans outstanding at a time; provided that a Participant may not have two (2) loans of the same type (Principal Residence or General Purpose) outstanding at any given time. A Participant shall not be entitled to take a second loan if the Participant is in default on a prior loan of the same type and has not repaid the defaulted amount to the Plan. | ||
| (h) | If, in connection with the granting of a loan to a Participant, a portion or all of any of his or her Accounts has been liquidated, the Committee shall establish temporary “Counterpart Loan Accounts” (not subject to adjustment under Subsection 8.02) corresponding to each such liquidated or partially liquidated Account to reflect the current investment of that Before-Tax Contribution Account or Rollover Contribution Account, for example, in such loan. In general, the initial credit balance in any such Counterpart Loan Account shall be the amount by which the corresponding Account was liquidated in order to make the loan. Interest accruing on such a loan shall be allocated among and credited to the Participant’s Counterpart Loan Accounts established in connection with the loan, in proportion to the then net credit balances in such Counterpart Loan Accounts, as such interest accrues. Each repayment of principal and interest shall be allocated among and charged to such Counterpart Loan Accounts, and shall be |
51
| allocated among and credited to the corresponding Accounts, on the same proportionate basis; provided that all such repayments shall be credited in accordance with the investment elections in effect on the date each repayment is credited. The Committee may adopt rules and procedures for loan accounting and repayment which differ from the foregoing provisions of this Subparagraph (h), but which are consistent with the general principle that a loan to a Participant under this Subsection constitutes an investment of his or her Accounts rather than a general investment of the Trust Fund. Repayments shall be required to be invested during the month in which received or within such longer period as the Committee may reasonably determine, but in any event within the time required by Subsection 5.01. Any such repayment shall be made by payroll deduction unless otherwise permitted by the Committee. | |||
| (i) | The Committee may establish uniform rules to apply where Participants fail to repay any portion of loans made to them pursuant to this Subsection and accrued interest thereon in accordance with the terms of the loans, or where any portion of any loan and accrued interest thereon remains unpaid on a Participant’s Separation Date. To the extent consistent with Internal Revenue Service rules and regulations, such rules may include charging unpaid amounts against a Participant’s Accounts (in such order as the Committee decides), and treating the amounts so charged as a payment to the Participant for purposes of SECTION 10. The Committee may charge a Participant’s Account for reasonable and necessary administrative fees incurred in administering any loan under this Subsection in accordance with uniform rules and procedures applicable to all Participants similarly situated. Loan repayments will be suspended under the Plan as permitted under Section 414(u)(4) of the Code. | ||
| (j) | Any loan which was being administered under a Predecessor Plan and which was transferred to this Plan shall be governed by the applicable terms of this Plan on and after the transfer date. |
11.02 After-Tax Withdrawals
A Participant may withdraw all or a portion of his or her After-Tax Account, if any. The
timing of such withdrawals shall be established by the Committee.
11.03 Hardship Withdrawals
In the
event a Participant suffers a serious financial hardship, such Participant may withdraw
a portion of the vested balance in his or her Accounts (excluding his or her Annual Company
Contribution Account, his or her Transition Contribution Account, any portion of his or her
Before-Tax Contribution Account attributable to qualified non-elective contributions (if
applicable), any portion of his or her Matching Contribution Account
attributable to Matching Contributions made on or after
February 24, 2009, and any earnings credited to his or her Before-Tax Contribution Account on or after
January 1, 1989), provided that the amount of the withdrawal is at least $250.00 and does not
exceed the amount required to meet the immediate financial need created by the serious financial
hardship.
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| (a) | Immediate and Heavy Need. A hardship shall be deemed on account of immediate and heavy financial need only if the withdrawal is on account of: |
| (i) | Tuition, related educational fees, and room and board expenses, for up to the next twelve (12) months of post-secondary education for the Participant or his or her spouse, children or dependents (determined under Code Section 152 without regard to Section 152(b)(1), (b)(2) and (d)(1)(B)); | ||
| (ii) | Costs directly related to the purchase of a primary residence for the Participant (not including mortgage payments); | ||
| (iii) | Unreimbursed medical expenses that would be deductible by the Participant for federal income tax purposes pursuant to Code Section 213, and that are incurred by the Participant, the Participant’s spouse or any dependent (as defined in Code Section 152 without regard to the change in the definition under the Working Families Tax Relief Act of 2004) including any non-custodial child who is subject to the special rule of Code Section 152(e); or amounts necessary to obtain medical care or medically necessary equipment or services for the Participant, the Participant’s spouse or a dependent described in this Subparagraph (iii); | ||
| (iv) | The need to prevent eviction of the Participant from his or her primary residence or foreclosure on the mortgage of the Participant’s principal residence; | ||
| (v) | Payment for burial or funeral expenses for the Participant’s deceased parent, spouse, children or dependents (as defined in Code Section 152 without regard to Section 152(d)(1)(B)); or | ||
| (vi) | Expenses for the repair of damage to the Participant’s principal residence that would qualify for the casualty deduction under Code Section 165 (determined without regard to whether the loss exceeds 10% of adjusted gross income). |
| (b) | Necessary amount. A determination of whether the requirement that the withdrawal not exceed the amount required to meet the immediate financial need created by the serious financial hardship is satisfied shall be made on the basis of all relevant facts and circumstances in a consistent and nondiscriminatory manner; provided, however, that the Participant must provide the Committee with a statement on which the Committee may reasonably rely, unless it has actual knowledge to the contrary, certifying that the Participant’s financial need cannot be relieved by all of the following means: |
53
| (i) | Through reimbursement or compensation by insurance or otherwise, | ||
| (ii) | By reasonable liquidation of the Participant’s assets, to the extent such liquidation would not itself cause an immediate and heavy financial need, | ||
| (iii) | By cessation of elective contributions under this Plan, or other distributions from this Plan, and | ||
| (iv) | By other distributions, such as the distribution of dividends which are currently available to the Participant, or nontaxable (at the time of the loan) loans from Plans maintained by the Employer or by any other employer, or by borrowing from commercial sources on reasonable commercial terms. |
| For purposes of this Subsection, the Participant’s resources shall be deemed to include those assets of his or her spouse and minor children that are reasonably available to the Participant. Property owned by the Participant and the Participant’s spouse, whether as community property, joint tenants, tenants by the entirety, or tenants in common, will be deemed a resource of the Participant. However, property held for the Participant’s child under an irrevocable trust or under the Uniform Gifts to Minors Act will not be treated as a resource of the Participant. | |||
| (c) | A Participant may not request more than two (2) withdrawals per calendar year under this Subsection. | ||
| (d) | To obtain a hardship withdrawal, a Participant must submit his withdrawal request in accordance with procedures and within such time periods as may be determined by the Committee. Hardship withdrawals shall be made as soon as administratively feasible after the Committee has received the Participant’s withdrawal request and such information and documents from the Participant as the Committee shall deem necessary. |
11.04 Age 59-1/2 Withdrawals
Upon making an application to the Committee, a Participant who has attained the age of
fifty-nine and one-half (59-1/2) may withdraw part or all of his or her vested Account balances
(excluding his or her Annual Company Contribution Account and his or her Transition Contribution
Account). The form and timing of such applications and withdrawals shall be established by the
Committee.
11.05 Additional Rules for Withdrawals
Withdrawals made pursuant to Subsections 11.02, 11.03 and 11.04 shall be made in cash and
shall be charged to the Participant’s vested Accounts (if applicable) in such order as shall be
determined by the Committee and applied uniformly. Requests for a withdrawal shall be made
54
in such manner and in accordance with such rules as the Committee determines. If the
Committee determines in its discretion that a withdrawal under this Subsection shall be made in a
manner other than in writing, any Participant who makes a request pursuant to such method may
receive written confirmation of such request; further, any such request and confirmation shall be
the equivalent of a writing for all purposes.
55
SECTION 12
Reemployment
12.01 Reemployed Participants
Except as provided below, if a Participant is reemployed by an Employer following a
termination of employment, such Participant shall resume participation in the Plan for all purposes
on the first day of the first payroll period following his rehire date that he is a member of a
Covered Group. If a former Employee or Eligible Employee is reemployed by an Employer, Service he
or she had accrued prior to his or her termination of employment will be reinstated for purposes of
determining his or her eligibility to participate in the Plan, and he or she shall become eligible
to participate in the Plan in accordance with the provisions of
Subsection 3.01.
12.02 Calculation of Service Upon Reemployment
| (a) | Reemployment with Vested Interest in Plan Accounts. If at the time the Participant terminated employment, he or she had either (A) a vested interest in his or her Before-Tax Contribution Account, Annual Company Contribution Account, Transition Contribution Account, Matching Contribution Account or Predecessor Company Account, or (B) amounts credited to his or her Before-Tax Contribution Account, the following rules shall apply: |
| (i) | If the Participant is reemployed by a Controlled Group Member before he or she incurs five (5) consecutive One-Year Breaks In Service, the Participant may repay to the Trustee, within five (5) years of his or her Reemployment Date, the total amount previously distributed to him or her from his or her Plan Accounts subject to vesting as a result of his or her earlier termination of employment. If a Participant makes such a repayment to the Trustee, both the amount of the repayment and the Forfeiture that resulted from the previous termination of employment shall be credited to his or her Accounts as of the Accounting Date coincident with or next following the date of repayment and he or she shall continue to vest in such amounts in accordance with the vesting schedule in effect at the Participant’s reemployment. | ||
| (ii) | If a Participant is reemployed by a Controlled Group Member on or after he or she incurs five (5) consecutive One-Year Breaks in Service, his or her pre-break Service shall count as Service for purposes of vesting in amounts credited to his or her Annual Company Contribution Account, Transition Contribution Account, Matching Contribution Account or Predecessor Company Account, as applicable, on or after such reemployment. However, pre-break Forfeitures will not be restored to such Participant’s Accounts and such Participant’s post-break Service shall be disregarded for purposes of vesting in his or her pre-break Annual |
56
| Company Contribution Account, Transition Contribution Account, Matching Contribution Account or Predecessor Company Account, as applicable. |
| (b) | Reemployment with No Vested Interest in Plan Accounts. If at the time the Participant terminated employment, he or she did not have either (A) a vested interest in his or her Annual Company Contribution Account, Transition Contribution Account, Matching Contribution Account, or Predecessor Company Account, or (B) amounts credited to his or her Before-Tax Contribution Account, the following rules shall apply: |
| (i) | If the Participant is reemployed by a Controlled Group Member before he or she incurs five (5) consecutive One-Year Breaks In Service, the amount of the Forfeiture that resulted from the previous termination of employment shall be credited to his or her Accounts as of the Accounting Date coincident with or next following the date of his or her reemployment or as soon as administrative feasible thereafter and he or she shall continue to vest in such amounts. | ||
| (ii) | If the Participant is reemployed by a Controlled Group Member before he or she incurs five (5) consecutive One-Year Breaks In Service, pre-break Forfeitures shall not be restored to his or her Accounts. In addition, if the Participant’s number of consecutive One-Year Breaks In Service exceeds the greater of five (5) of the aggregate number of such Participant’s pre-break Service, such pre-break Service shall be disregarded for purposes of vesting in amounts credited to his or her Employer Contribution Accounts after such employment. |
| (c) | Forfeitures. Forfeitures that are credited to a Participant’s Accounts under this Subsection shall be allocated from amounts forfeited under Subsection 10.01 or the applicable Supplement or, in the absence of such amounts, shall reduce income and gains of the Fund to be credited under Subsection 8.02. | ||
| (d) | Transferred Participants. Notwithstanding any Plan provision to the contrary, all service of a Transferred Participant that was recognized under the Sara Lee Plan as of the Effective Date (or as of a subsequent transfer of employment described in Subparagraph 2.66(b), if applicable) shall be recognized and taken into account under the Plan to the same extent as if such service had been completed under the Plan, subject to the provisions of this Section and any applicable break in service rules under this Plan and the Sara Lee Plan. | ||
| (e) | Former NTX and Sara Lee Employees. If an individual (i) was previously employed by the Sara Lee Corporation (referred to as the “prior employers” for purposes of this Subparagraph), and (ii) subsequently becomes an Employee of an Employer or a Controlled Group Member; all of the individual’s service with the prior employers shall be recognized and taken into account under the Plan to the |
57
| same extent as of such service had been completed under the Plan, subject to the provisions of this Section and any applicable break in service rules under the applicable prior employer’s plans. |
58
SECTION 13
Special Rules for Top-Heavy Plans
13.01 Purpose and Effect
The purpose of this SECTION 13 is to comply with the requirements of Code Section 416. The
provisions of this SECTION 13 shall be effective for each Plan Year in which the Plan is a
“Top-Heavy Plan” within the meaning of Code Section 416(g).
13.02 Top Heavy Plan
In general, the Plan will be a Top-Heavy Plan for any Plan Year if, as of the last day of the
preceding Plan Year (the “Determination Date”), the aggregate Account balances of Participants in
this Plan who are Key Employees (as defined in Section 416(i)(1) of the Code) exceed sixty percent
(60%) of the aggregate Account balances of all Participants in the Plan. In making the foregoing
determination, the following special rules shall apply:
| (a) | A Participant’s Account balance shall be increased by the aggregate distributions, if any, made with respect to the Participant during the one (1) year period ending on the Determination Date (including distributions under a terminated plan which, had it not been terminated, would have been aggregated with this Plan under Section 416(g)(2)(A)(i) of the Code). In the case of a distribution made for a reason other than separation from service, death or Total Disability, the one (1) year period shall be replaced with a five (5) year period. | ||
| (b) | The Account balance of, and distributions to, a Participant who was previously a Key Employee, but who is no longer a Key Employee, shall be disregarded. | ||
| (c) | The Account of a Beneficiary of a Participant shall be considered the Account of a Participant. | ||
| (d) | The Account balances of a Participant who did not perform any services for the Employers during the one (1) year period ending on the Determination Date shall be disregarded. |
13.03 Key Employee
In general, a “Key Employee” is an Employee who, at any time during the Plan Year that
includes the Determination Date was:
| (a) | An officer of an Employer receiving annual Compensation greater than $140,000 (as adjusted under Section 416(i)(l) of the Code); | ||
| (b) | A five percent (5%) owner of an Employer; or |
59
| (c) | A one percent (1%) owner of an Employer receiving annual Compensation from any of the Employers and the Controlled Group Members of more than $150,000. |
13.04 Minimum Employer Contribution
For any Plan Year in which the Plan is a Top-Heavy Plan, an Employer’s contribution, if any,
credited to each Participant who is not a Key Employee shall not be less than three percent (3%) of
such Participant’s Compensation for that year. For purposes of the foregoing, contributions under
Subsection 5.01 shall not be considered Employer contributions. In no event, however, shall an
Employer contribution credited in any year to a Participant who is not a Key Employee (expressed as
a percentage of such Participant’s Compensation) exceed the maximum Employer contribution credited
in that year to a Key Employee (expressed as a percentage of such Key Employee’s Compensation).
13.05 Aggregation of Plans
Each other defined contribution plan and defined benefit plan maintained by the Employers that
covers a “Key Employee” as a Participant or that is maintained by the Employers in order for a Plan
covering a Key Employee to qualify under Section 401(a)(4) and 410 of the Code shall be aggregated
with this Plan in determining whether this Plan is Top-Heavy. In addition, any other defined
contribution or defined benefit plan of the Employers may be included if all such plans which are
included when aggregated will continue to qualify under Section 401(a)(4) and 410 of the Code.
13.06 No Duplication of Benefits
If an Employer maintains more than one plan, the minimum Employer contribution otherwise
required under Subsection 13.04 above may be reduced in accordance with regulations of the
Secretary of the Treasury to prevent inappropriate duplications of minimum contributions or
benefits.
13.07 Compensation
For purposes of this Section 13, “Compensation” shall mean compensation as defined in
Subsection 6.05 of the Plan.
60
SECTION 14
General Provisions
14.01 Committee’s Records
The records of the Committee as to an Employee’s age, Separation Date, Leave of Absence,
reemployment and Compensation will be conclusive on all persons unless determined to the
Committee’s satisfaction to be incorrect.
14.02 Information Furnished by Participants
Participants and their Beneficiaries must furnish to the Committee such evidence, data or
information as the Committee considers desirable to carry out the Plan. The benefits of the Plan
for each person are on the condition that he or she furnish promptly true and complete evidence,
data and information requested by the Committee.
14.03 Interests Not Transferable
Except as otherwise provided in Subsection 14.04 and as may be required by application of the
tax withholding provisions of the Code or of a state’s income tax act, benefits under the Plan are
not in any way subject to the debts or other obligations of the persons entitled to such benefits
and may not be voluntarily or involuntarily sold, transferred, alienated, assigned, or encumbered.
14.04 Domestic Relations Orders
If the Committee receives a domestic relations order issued by a court pursuant to a state’s
domestic relations law, the Committee will direct the Trustee to make such payment of the
Participant’s vested benefits to an Alternate Payee or Payees as such order specifies, provided the
Committee first determines that such order is a qualified domestic relations order (“QDRO”) within
the meaning of Section 414(p) of the Code. The Committee will establish reasonable procedures for
determining whether or not a domestic relations order is a QDRO. Upon receiving a domestic
relations order, the Committee shall promptly notify the Participant and any Alternate Payee named
in the order that the Committee has received the order and any procedures for determining whether
the order is a QDRO. If, within eighteen (18) months after receiving the order, the Committee
makes a determination that the order is a QDRO, any direction to the Trustee to pay the benefits to
an Alternate Payee as specified in the QDRO will include a direction to pay any amounts that were
to be paid during the period prior to the date the Committee determines that the order is a QDRO.
If during the eighteen (18) month period the Committee determines that the order is not a QDRO or
no determination is made with respect to whether the order is a QDRO, the Committee will direct the
Trustee to pay the amounts that would have been paid to the Alternate Payee pursuant to the terms
of the order to the Participant if such amounts otherwise would have been payable to the
Participant under the terms of the Plan. The Committee in its discretion may maintain an Account
for an Alternate Payee to which any amount that is to be paid to such Alternate Payee from a
Participant’s Accounts will be
61
credited. The Alternate Payee for whom such Account is maintained may exercise the same
elections with respect to the fund or funds in which the Account will be invested as would be
permissible for a Participant in the Plan. Further, the Alternate Payee may name a Beneficiary, in
the manner provided in Subsection 10.03 to whom the balance in the Account is to be paid in the
event the Alternate Payee should die before complete payment of the Account has been made.
Distribution of the Alternate Payee’s Account shall be made in accordance with Subsections 10.01
and 10.02, and the Alternate Payee may exercise the same elections with respect to requesting a
distribution or partial distribution of his or her Account as would be permissible for a
Participant in the Plan; provided that the Alternate Payee’s Required Commencement Date shall be
the date on which the Participant attains (or, in the event of the Participant’s death, would have
attained) the Participant’s Required Commencement Date. The Committee may direct the Trustee to
distribute benefits to an Alternate Payee on the earliest date specified in a QDRO, without regard
to whether such distribution is made or commences prior to the Participant’s earliest retirement
age (as defined in Section 414(p)(4)(B) of the Code) or the earliest date that the Participant
could commence receiving benefits under the Plan.
14.05 Facility of Payment
When, in the Committee’s opinion, a Participant or Beneficiary is under a legal disability or
is incapacitated in any way so as to be unable to manage his or her financial affairs, the
Committee may direct the Trustee to make payments to his or her legal representative, or to a
relative or friend of the Participant or Beneficiary for his or her benefit, or the Committee may
direct the Trustee to apply the payment for the benefit of the Participant or Beneficiary in any
way the Committee considers advisable.
14.06 No Guaranty of Interests
Neither the Trustee nor the Employers in any way guarantee the Trust Fund from loss or
depreciation. The Employers do not guarantee any payment to any person. The liability of the
Trustee and the Employers to make any payment is limited to the available assets of the Trust Fund.
14.07 Rights Not Conferred by the Plan
The Plan is not a contract of employment, and participation in the Plan will not give any
Employee the right to be retained in an Employer’s employ, nor any right or claim to any benefit
under the Plan, unless the right or claim has specifically accrued under the Plan.
14.08 Gender and Number
Where the context admits, words denoting men include women, the plural includes the singular
and vice versa.
62
14.09 Committee’s Decisions Final
An interpretation of the Plan and a decision on any matter within the Committee’s discretion
made by it in good faith is binding on all persons. A misstatement or other mistake of fact shall
be corrected when it becomes known, and the Committee shall make such adjustment as it considers
equitable and practicable.
14.10 Litigation by Participants
If a legal action begun against the Trustee, the Committee or any of the Employers by or on
behalf of any person results adversely to that person, or if a legal action arises because of
conflicting claims to a Participant’s or Beneficiary’s benefits, the cost to the Trustee, the
Committee or any of the Employers of defending the action will be charged to such extent as
possible to the sums, if any, involved in the action or payable to the Participant or Beneficiary
concerned.
14.11 Evidence
Evidence required of anyone under the Plan may be by certificate, affidavit, document or other
information which the person acting on it considers pertinent and reliable, and signed, made or
presented by the proper party or parties.
14.12 Uniform Rules
In managing the Plan, the Committee will apply uniform rules to all Participants similarly
situated.
14.13 Law That Applies
Except to the extent superseded by laws of the United States, the laws of North Carolina
(without regard to any state’s conflict of laws principles) shall be controlling in all matters
relating to the Plan.
14.14 Waiver of Notice
Any notice required under the Plan may be waived by the person entitled to such notice.
14.15 Successor to Employer
The term “Employer” includes any entity that agrees to continue the Plan under Subparagraph
16.02(c).
14.16 Application for Benefits
Each Participant or Beneficiary eligible for benefits under the Plan shall apply for such
benefits according to procedures and deadlines established by the Committee. In the event of
denial of any application for benefits, the procedure set forth in Subsection 14.17 shall apply.
63
14.17 Claims Procedure
Claims for benefits under the Plan shall be made in such manner as the Committee shall
prescribe. Claims for benefits and the appeal of denied claims under the Plan shall be
administered in accordance with Section 503 of ERISA, the regulations thereunder (and any other law
that amends, supplements or supersedes said Section of ERISA), and the claims and appeals
procedures adopted by the Committee and/or the Appeal Committee, as appropriate, for that purpose.
The Plan shall provide adequate notice to any claimant whose claim for benefits under the Plan has
been denied, setting forth the reasons for such denial, and shall afford a reasonable opportunity
to such claimant for a full and fair review by the Appeal Committee of the decision denying the
claim. No action at law or in equity shall be brought to recover benefits under the Plan until the
appeal rights described in this Subsection have been exercised and the Plan benefits requested in
such appeal have been denied in whole or in part. Any legal action subsequent to a denial of a
benefit appeal taken by a Participant against the Plan or its fiduciaries must be filed in a court
of law no later than ninety (90) days after the Appeal Committee’s final decision on review of an
appealed claim. All decisions and communications relating to claims by Participants, denials of
claims or claims appeals under this SECTION 14 shall be held strictly confidential by the
Participant, the Committees and the Employers during and at all times after the Participant’s claim
has been submitted in accordance with this Section.
14.18 Action by Employers
Any action required or permitted under the Plan of an Employer shall be by resolution of its
Board of Directors or by a duly authorized Committee of its Board of Directors, or by a person or
persons authorized by resolution of its Board of Directors or such Committee.
64
SECTION 15
No Interest in Employers
The Employers shall have no right, title or interest in the Trust Fund, nor will any part of
the Trust Fund at any time revert or be repaid to an Employer, unless:
| (a) | The Internal Revenue Service initially determines that the Plan does not meet the requirements of Section 401(a) of the Code, in which event the assets of the Trust Fund attributable to the contributions made to the Plan by the Employer or Employers with respect to whom such determination is made shall be returned to them; or | ||
| (b) | Any portion of a contribution is made by an Employer by mistake of fact and such portion is returned to the Employer within one year after payment to the Trustee; or | ||
| (c) | A contribution conditioned on the deductibility thereof is disallowed as an expense for federal income tax purposes and such contribution (to the extent disallowed) is returned to the Employer within one year after the disallowance of the deduction. |
The amount of any contribution that may be returned to an Employer pursuant to Subparagraph
(b) or (c) above must be reduced by any portion thereof previously distributed from the Trust Fund
to Participants or their Beneficiaries and by any losses of the Trust Fund allocable thereto, and
in no event may the return of such amount cause any Participant’s Account balance to be less than
the amount that such balance would have been had the contribution not been made under the Plan.
65
SECTION 16
Amendment or Termination
16.01 Amendment
While the Employers expect to continue the Plan, the Company reserves the right, subject to
SECTION 15, to amend the Plan from time to time, by resolution of the Board of Directors in
accordance with Subsection 14.18, or by resolution of a committee authorized to amend the Plan by
resolution of the Board of Directors of the Company. Notwithstanding the foregoing, no amendment
will reduce a Participant’s Account balance to less than an amount he or she would be entitled to
receive if he or she had terminated his or her association with the Employers on the day of the
amendment.
16.02 Termination
The Plan will terminate as to all Employers on any date specified by the Company, by
resolution of the Board of Directors in accordance with Subsection 14.18, if advance written notice
of the termination is given to the Trustee and the other Employers. The Plan will terminate as to
an individual Employer on the first to occur of the following:
| (a) | The date it is terminated by that Employer, by resolution of its Board of Directors in accordance with Subsection 14.18, if advance written notice of the termination is given to the Company and the Trustee; | ||
| (b) | The date the Employer permanently discontinues its contributions under the Plan; and | ||
| (c) | The dissolution, merger, consolidation or reorganization of that Employer, or the sale by that Employer of all or substantially all of its assets; provided, however, that upon the occurrence of any of the foregoing events, arrangements may be made whereby the Plan will be continued by a successor to such Employer, in which case the successor will be substituted for such Employer under the Plan. |
16.03 Effect of Termination
On termination or partial termination of the Plan, the date of termination will be an
Accounting Date, and, after all adjustments then required have been made, each Participant’s
Account balance will be vested in him or her and distributed to him or her by one or more of the
methods described in Subsection 10.01 as the Committee decides. All appropriate accounting
provisions of the Plan will continue to apply until the Account balances of all Participants have
been distributed under the Plan.
16.04 Notice of Amendment or Termination
Participants will be notified of an amendment or termination within a reasonable time.
66
16.05 Plan Merger, Consolidation, Etc.
In the case of any merger or consolidation with, or transfer of assets or liabilities to, any
other Plan, each Participant’s benefits if the Plan terminated immediately after such merger,
consolidation or transfer shall be equal to or greater than the benefits he or she would have been
entitled to receive if the Plan had terminated immediately before the merger, consolidation or
transfer.
67
SECTION 17
Relating to the Plan Administrator and Committees
17.01 The Employee Benefits Administrative Committee
The Board of Directors of the Company has appointed the Committee, consisting of three (3) or
more individuals, to consolidate the powers and duties of administration of the employee benefit
plans and programs maintained by the Company. Each appointee to the Committee shall serve for as
long as is mutually agreeable to the Company and to the appointee. A majority of the members of
the Committee have the power to act on behalf of the Committee. The Committee may delegate any of
its responsibilities hereunder, by designating in writing other persons to advise it with regard to
any such responsibilities. Any person to whom the Committee has delegated any of its
responsibilities also may delegate any of its responsibilities hereunder, subject to the approval
of the Committee, by designating in writing other persons to carry out its responsibilities under
the Plan, and may retain other persons to advise it with regard to any of such responsibilities.
The Committee and any delegate of the Committee hereunder may serve in more than one fiduciary
capacity. The Committee and its delegates may allocate fiduciary responsibilities among themselves
in any reasonable and appropriate fashion, subject to the approval of the Committee. Except as
otherwise specifically provided and in addition to the powers, rights and duties specifically given
to the Committee elsewhere in the Plan and the Trust Agreement, the Committee shall have the
following discretionary powers, rights and duties:
| (a) | To approve the appointment and removal of the members of the Appeal Committee, who shall have such powers, rights and duties as are specifically provided elsewhere in the Plan in addition to those delegated by the Committee. | ||
| (b) | To act as “Plan Administrator” of the Plan, and to adopt such regulations and rules of procedure as in its opinion may be necessary for the proper and efficient administration of the Plan and as are consistent with the Plan and Trust Agreement. The Committee shall be the fiduciary responsible for ensuring that procedures safeguarding the confidentiality of all Participant decisions and directions relating to purchase, sale, tendering and voting (as described in Subsection 9.06) of shares of Sara Lee Stock and Hanesbrands credited to such Participants’ Accounts are sufficient and are being followed. | ||
| (c) | To determine all questions arising under the Plan other than those determinations that have been delegated to the Appeal Committee or the Investment Committee, including the power to determine the rights or eligibility of Employees or Participants and any other persons, and the amounts of their benefits under the Plan, and to remedy ambiguities, inconsistencies or omissions, and to make factual findings; such determinations shall be binding on all parties. Benefits under this Plan will be paid only if the Committee decides in its discretion that the applicant is entitled to them. |
68
| (d) | To enforce the Plan in accordance with its terms and the terms of the Trust Agreement and in accordance with the rules and regulations adopted by the Committee. | ||
| (e) | To construe and interpret the Plan and Trust Agreement, to reconcile and correct any errors or inconsistencies and to make adjustments for any mistakes or errors made in the administration of the Plan. | ||
| (f) | To furnish the Employers with such information as may be required by them for tax or other purposes. | ||
| (g) | To employ agents, attorneys, accountants, actuaries or other organizations or persons (who also may be employed by the Employers) and allocate or delegate to them any of the powers, rights and duties of the Committee as the Committee may consider necessary or advisable to properly administer the Plan. To the extent that the Committee delegates to any person or entity the discretionary authority to manage and control the administration of the Plan, such person or entity shall be a fiduciary as defined in ERISA. As appropriate, references to the Committee herein with respect to any delegated powers, rights and duties shall be considered references to the applicable delegate. |
17.02 The ERISA Appeal Committee
The Committee has appointed the Appeal Committee primarily for the purpose of reviewing
decisions denying benefits under the Plan. The Appeal Committee shall consist of five (5) or more individuals,
and each such appointee shall serve for as long as is mutually agreeable to the Committee and to
the appointee. A majority of the members of the Appeal Committee will have the power to act on
behalf of the Appeal Committee. Except as otherwise specifically provided and in addition to the
powers, rights and duties specifically given to the Appeal Committee elsewhere in the Plan and the
Trust Agreement, the Appeal Committee shall have the following powers, rights and duties:
| (a) | To adopt such regulations and rules of procedure as in its opinion may be necessary for the proper and efficient administration of the Plan and as are consistent with the Plan and Trust Agreement. | ||
| (b) | To have final review of appeals of decisions by the Committee or its delegates denying benefits under the Plan, including the power to determine the rights or eligibility of Employees or Participants and any other persons, and to remedy ambiguities, inconsistencies or omissions. |
69
| (c) | To enforce the Plan in accordance with its terms and the terms of the Trust Agreement, and in accordance with the rules and regulations adopted by the Committee. | ||
| (d) | To construe the Plan and Trust Agreement, to reconcile and correct any errors or inconsistencies and to make adjustments for any mistakes or errors made in the administration of the Plan. |
The Committee and the Appeal Committee are sometimes referred to herein collectively as the
“Committees.”
17.03 Secretary of the Committee
Each of the Committees may appoint a secretary to act upon routine matters connected with the
administration of the Plan, to whom the Committee or the Appeal Committee, as the case may be, may
delegate such authorities and duties as it deems expedient.
17.04 Manner of Action
During
any period in which two (2) or more members of any of the Committees are acting, the
following provisions apply where the context admits:
| (a) | A member of the Committee or the Appeal Committee, as applicable, by writing may delegate any or all of such member’s rights and duties to any other member, with the consent of the latter. | ||
| (b) | The Committee or the Appeal Committee, as applicable may act by meeting or by writing signed without meeting, and may sign any document by signing one document or concurrent documents. | ||
| (c) | An action or a decision of a majority of the members of the Committee or the Appeal Committee, as the case may be, as to a matter shall be effective as if taken or made by all members of the Committee or the Appeal Committee, as applicable. | ||
| (d) | If, because of the number qualified to act, there is an even division of opinion among the members of the Committee or the Appeal Committee, as the case may be, as to a matter, a disinterested party selected by the Committee or the Appeal Committee, as applicable, may decide the matter and such party’s decision shall control. | ||
| (e) | The certificate of the secretary of the Committee or the Appeal Committee, as applicable, of a majority of the members that the Committee or the Appeal Committee, as the case may be, has taken or authorized any action shall be conclusive in favor of any person relying on the certificate. |
70
17.05 Interested Party
If any member of the Committee or the Appeal Committee, as applicable also is a Participant in
the Plan, such individual may not decide or determine any matter or question concerning payments to
be made to such individual unless such decision or determination could be made by such individual
under the Plan if such individual were not a member of the applicable committees.
17.06 Reliance on Data
The Committee or the Appeal Committee, as applicable may rely upon data furnished by
authorized officers of any Employer as to the age, Service and Compensation of any Employee of such
Employer and as to any other information pertinent to any calculations or determinations to be made
under the provisions of the Plan, and the Committees shall have no duty to inquire into the
correctness thereof.
17.07 Committee Decisions
Subject to applicable law, any interpretation of the provisions of the Plan and any decisions
on any matter within the discretion of the Committee or the Appeal Committee, as applicable made by
such party in good faith shall be binding on all persons. A misstatement or other mistake of fact
shall be corrected when it becomes known, and the Committee or the Appeal Committee, as applicable
shall make such adjustments on account thereof as they consider equitable and practicable.
71
SECTION 18
Adoption of Plan by Controlled Group Members
With the consent of the Company, any Controlled Group Member of the Company may adopt the Plan
and become an Employer hereunder. The adoption of the Plan by any such Controlled Group Member
shall be effected by resolution of its Board of Directors, and the Company’s consent thereto shall
be effected by resolution of the Committee.
72
SECTION 19
Supplements to the Plan
From time to time, the Company or the Committee may adopt Supplements to the Plan for the
purpose of modifying the provisions of the Plan as they apply to certain or all Participants in a
Covered Group or for the purpose of preserving benefits derived from another plan maintained by an
Employer or a Predecessor Company to an Employer. Such Supplements will form a part of the Plan as
applied to the Participants affected or covered thereby.
* * *
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by the undersigned officer
this 26th day of July, 2006.
| HANESBRANDS INC. | ||||||
| By: | /s/ Kevin W. Oliver | |||||
| Its: | Senior Vice President, Human Resources | |||||
73
EXHIBIT A
Accounts Transferred from the Sara Lee Plan
The assets and liabilities of the Sara Lee Plan attributable to participants employed by the
following businesses/divisions were transferred from the Sara Lee Plan to the Plan as of the
Effective Date:
| Business /Division | Division Code | |
Champion Athleticwear |
7800 | |
Champion Jogbra |
9501 | |
Champion Jogbra (Vermont) |
9500 | |
Eden Yarn |
9225 | |
Harwood |
9260 | |
Hanes Printables |
9250 | |
Henson Kicknerick |
9300 | |
J. E. Morgan |
9265 | |
OuterBanks |
9266 | |
Playtex Apparel-Hourly |
9401 | |
Playtex Apparel-Salary |
9400 | |
Sara Lee Activewear/Hourly |
9221 | |
Sara Lee Business Services |
9273 |
|
| (except process level 12702) | ||
Sara Lee Casualwear |
9220 |
|
| (except process level 19901 (Courtalds)) | ||
Sara Lee Direct |
9271 | |
Sara Lee Hosiery |
9210 | |
Sara Lee Intimate Apparel |
9200 |
|
| (except process level 19901 (Courtalds)) | ||
Sara Lee Sock Company (previously
known as Adams-Millis
Corporation) |
7995 | |
Sara Lee Underwear |
9240 | |
Sara Lee Underwear Weston |
9260 | |
Scotch Maid |
7975 | |
Socks Galore |
9272 | |
Spring City Knitting |
9230 |
74
Covered Groups
The following lists the Covered Groups under the Plan as of the Effective Date
| 1. | Employees of Hanesbrands Inc. other than (a) employees employed in Puerto Rico, and (b) employees covered by a collective bargaining agreement which agreement does not provide for participation in the Plan; provided that participation in the Plan was the subject of good faith bargaining. |
75
SUPPLEMENT A
TO
HANESBRANDS INC.
RETIREMENT SAVINGS PLAN
Provisions Relating to the Merger of the
National Textiles, L.L.C. 401(k) Plan
into the
Hanesbrands Inc. Retirement Savings Plan
TO
HANESBRANDS INC.
RETIREMENT SAVINGS PLAN
Provisions Relating to the Merger of the
National Textiles, L.L.C. 401(k) Plan
into the
Hanesbrands Inc. Retirement Savings Plan
A-1. Purpose. The provisions of this Supplement A apply to: (a) participants in the
National Textiles, L.L.C. 401(k) Plan (the “NTX Plan”) as of January 1, 2007 and (b) all other
individuals who are active employees of National Textiles, L.L.C. (“NTX”) on January 1, 2007; and
shall supersede the provisions of the Plan (except such Plan provisions as impose conditions or
limitations required by applicable law) to the extent necessary to eliminate any inconsistency
between the Plan and this Supplement A. Effective as of the close of business on January 1, 2007
(the “Merger Date”), the NTX Plan shall be merged into, and continued in the form of, this Plan.
The purpose of this Supplement A is to reflect the merger and resulting transfer of accounts of
participants in the NTX Plan as of the Merger Date (“NTX Plan Participants”) and to set forth
special provisions which shall apply with respect to NTX Plan Participants. The merger and the
transfer of assets and liabilities from the NTX Plan to this Plan shall be in accordance with the
applicable provisions of ERISA and Sections 401(a)(12), 411(d)(6), and 414(l) of the Code. In
addition to providing for the merger of the NTX Plan into this Plan, this Supplement A provides a
special vesting rule with respect to individuals who are not NTX Plan Participants but are active
employees of NTX on the Merger Date.
A-2. Participation. Subject to the conditions and limitations of the Plan, each NTX
Plan Participant on the Merger Date who is employed by NTX or Hanesbrands Inc. on and after the
Merger Date shall automatically become a Participant in this Plan on the Merger Date and shall be
covered by this Supplement A. Except as provided in this Supplement A, NTX Plan Participants
described in the preceding sentence:
Shall be eligible to make Before-Tax Contributions in accordance with Subparagraph 4.01(a)
(and Catch-Up Contributions, if applicable, in accordance with Subsection 4.02);
Shall not be deemed to have made an automatic deferral election under Subparagraph 4.01(b)
until such time as otherwise determined by the Committee; and
Shall be eligible to receive Annual Company Contributions in accordance with Subsection
5.02, and Matching Contributions in accordance with Subsection 5.03.
Each other NTX Plan Participant shall, on and after the Merger Date, be treated as a restricted
Participant or Beneficiary (as applicable) of the Plan pursuant to Subsection 7.02 and the
conditions and limitations of the Plan. Notwithstanding any provision of the Plan to the contrary,
NTX Plan Participants who have not met the requirements of Section 3.01 of the Plan prior to the
Merger Date shall be permitted to continue making and receiving Plan contributions
1
described in subparagraphs (a), (b) and (c) above on and after the Merger Date; provided, however,
that any employee of NTX or Hanesbrands Inc. on and after the Merger Date who did not meet the
requirements of Section 3.01 of the Plan as of the Merger Date and who was not an NTX Participant
as of the Merger Date, must meet the requirements of Section 3.01 of the Plan on or after the
Merger Date prior to becoming a Participant in the Plan.
A-3. Transfer of Assets. The assets of accounts held in the NTX Plan will be
transferred into and become assets of this Plan and will be held, invested and administered by the
Trustee with the other assets of the Trust Fund pursuant to the provisions of the Trust Agreement
and Plan.
A-4. Transfer of Accounts. All accounts maintained for NTX Plan Participants under
the NTX Plan on the Merger Date shall be adjusted as of that date in accordance with the provisions
of the NTX Plan. As soon as administratively practicable following such adjustment, assets and
liabilities of the NTX Plan equal to the net credit balances in such accounts, as adjusted, shall
be transferred to the Plan and credited to corresponding accounts established for each NTX Plan
Participant under the Plan as follows:
NTX Account
|
HBI Account | |
Tax-Deferred 401(k) Contribution Account
|
Before-Tax Contribution Account | |
After-Tax Account
|
After-Tax Account | |
Rollover Account
|
Rollover Contribution Account | |
Prior ESOP Account
|
Predecessor Company Account | |
Matching Contribution Account
|
Predecessor Company Account | |
Prior Company Account
|
Predecessor Company Account |
Effective as of the Merger Date, NTX Plan Participants’ accounts under the NTX Plan shall be paid
from the Plan in accordance with the terms of the Plan.
A-5. Plan Benefits for Participants Who Terminated Employment Prior to the Merger
Date. The benefits that would have been provided under the Plan with respect to any
Participant who retired or whose employment otherwise terminated prior to the Merger Date will be
provided from the Plan pursuant to the provisions thereof.
A-6. Vesting. As of the Merger Date, each NTX Plan Participant, employed by NTX or
the Employer on the Merger Date, shall be 100% vested in and have a nonforfeitable interest in all
contributions made to the Plan prior to the Merger Date and on and after the Merger Date. Each
other NTX Plan Participant who was not employed by NTX, the Employer or a Controlled Group Member
on the Merger Date shall be vested in his Account balance to the same extent that he was vested at
his Separation Date, subject to Section 12 of the Plan. Each individual who is actively employed
by NTX on the Merger Date but is not then an NTX Plan Participant shall be 100% vested in and have
a nonforfeitable interest in all contributions made to the Plan on his behalf on and after the
Merger Date.
A-7. Loans. Any loans from the NTX Plan to NTX Plan Participants that are outstanding
as of the Merger Date shall be transferred to the Plan and will be held and
2
administered hereunder pursuant to the terms of such loans, regulations under the Code and
ERISA, and rules established by the Committee.
A-8. Transfer of Records. On or as soon as practicable after the Merger Date, the
administrator of the NTX Plan shall transfer to the Plan Administrator all administrative records
maintained with respect to NTX Plan Participants.
A-9. Use of Terms. The provisions of this Supplement A shall supersede the provisions
of the Plan (except such Plan provisions that impose conditions or limitations required by
applicable law) to the extent necessary to eliminate any inconsistency between this Supplement A
and the Plan. Terms used in this Supplement A shall, unless defined in this Supplement A or
otherwise noted, have the meanings given to those terms elsewhere in the Plan.
3
SUPPLEMENT B
TO
HANESBRANDS INC.
RETIREMENT SAVINGS PLAN
Special Participation Provisions
TO
HANESBRANDS INC.
RETIREMENT SAVINGS PLAN
Special Participation Provisions
The following individuals shall become Participants pursuant to Subsection 3.01(a)(i) of the Plan
without regard to age (except for purposes of the Annual Company Contribution):
| EMPLOYEE ID | BIRTHDATE | STATUS DATE | ||
150720 |
2/26/1989 | 10/2/2007 | ||
150703 |
6/28/1987 | 9/30/2007 | ||
150710 |
11/12/1987 | 10/2/2007 | ||
150712 |
6/4/1988 | 10/2/2007 | ||
150575 |
9/10/1988 | 9/19/2007 | ||
150627 |
1/16/1987 | 9/23/2007 | ||
150574 |
10/21/1987 | 9/19/2007 | ||
150578 |
12/26/1988 | 9/19/2007 | ||
150637 |
10/24/1987 | 9/24/2007 | ||
150462 |
8/22/1987 | 9/11/2007 | ||
150401 |
9/17/1987 | 9/4/2007 | ||
150436 |
12/5/1987 | 9/11/2007 | ||
150468 |
5/26/1989 | 9/5/2007 | ||
150125 |
4/12/1989 | 8/28/2007 | ||
149971 |
6/17/1988 | 8/17/2007 | ||
149981 |
11/17/1987 | 8/19/2007 | ||
149953 |
11/10/1987 | 8/14/2007 | ||
150453 |
5/13/1989 | 9/10/2007 | ||
149540 |
5/18/1988 | 7/10/2007 | ||
149571 |
2/20/1988 | 7/9/2007 | ||
149337 |
3/15/1988 | 6/15/2007 | ||
149265 |
4/29/1988 | 6/11/2007 | ||
149263 |
8/12/1987 | 6/11/2007 | ||
149194 |
5/2/1987 | 5/31/2007 | ||
148964 |
4/29/1988 | 517/2007 | ||
148879 |
9/2/1987 | 4/30/2007 | ||
148830 |
10/14/1988 | 4/24/2007 | ||
148666 |
8/12/1988 | 12/27/2007 | ||
148669 |
3/12/1988 | 3/30/2007 | ||
148461 |
11/20/1988 | 2/27/2007 | ||
148508 |
5/29/1988 | 3/7/2007 | ||
148461 |
11/20/1988 | 2/27/2007 |
A-1
| EMPLOYEE ID | BIRTHDATE | STATUS DATE | ||
148391 |
12/1/1988 | 2/15/2007 | ||
148203 |
7/5/1988 | 1/24/2007 | ||
148332 |
12/1/1990 | 2/6/2007 | ||
135548 |
5/5/1989 | 9/20/2006 | ||
135163 |
4/28/1988 | 8/28/2006 |
A-2
Exhibit 10.8
HANESBRANDS INC.
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
(Effective as of January 1, 2006)
(Conformed
Through Fourth Amendment)
TABLE OF CONTENTS
| PAGE | ||||||
SECTION 1 |
1 | |||||
Introduction |
1 | |||||
1.1 |
Purpose | 1 | ||||
1.2 |
Effective Date and Plan Year | 1 | ||||
1.3 |
Employers | 2 | ||||
1.4 |
Plan Administration | 2 | ||||
1.5 |
Plan Supplements | 2 | ||||
1.6 |
Plan Benefits for Participants who Terminated Employment | 2 | ||||
SECTION 2 |
3 | |||||
Definitions |
3 | |||||
2.1 |
2008 Special Election | 3 | ||||
2.2 |
A&B Level Transition Credit | 3 | ||||
2.3 |
Account | 4 | ||||
2.4 |
Annual Company Credit | 4 | ||||
2.5 |
Beneficiary | 4 | ||||
2.6 |
Code | 5 | ||||
2.7 |
Committee | 5 | ||||
2.8 |
Controlled Group Member | 5 | ||||
2.9 |
Corporation | 5 | ||||
2.10 |
[RESERVED.] | 5 | ||||
2.11 |
Deferred Vested Participant | 5 | ||||
2.12 |
[RESERVED.] | 5 | ||||
2.13 |
Effective Date | 5 | ||||
2.14 |
[RESERVED.] | 6 | ||||
2.15 |
Employee | 6 | ||||
2.16 |
Employer | 6 | ||||
2.17 |
ERISA | 6 | ||||
2.18 |
Matching Credit | 6 | ||||
2.19 |
Normal Retirement Date | 6 | ||||
2.20 |
Participant | 6 | ||||
TABLE OF CONTENTS
(continued)
(continued)
| PAGE | ||||||
2.21 |
Pension Plan | 7 | ||||
2.22 |
Pension SERP Benefit | 7 | ||||
2.23 |
Pension SERP Interest Rate | 7 | ||||
2.24 |
Plan | 7 | ||||
2.25 |
Plan Year | 7 | ||||
2.26 |
Plan Year RSSERP Credit | 7 | ||||
2.27 |
Present Value | 7 | ||||
2.28 |
Residual Credit | 8 | ||||
2.29 |
Retired Participant | 8 | ||||
2.30 |
Retirement Savings Plan | 8 | ||||
2.31 |
RSSERP Benefit | 8 | ||||
2.32 |
Salaried Employee Transition Credit | 9 | ||||
2.33 |
Sara Lee SERP | 9 | ||||
2.34 |
Separation from Service | 9 | ||||
2.35 |
SERP Benefit | 9 | ||||
2.36 |
Specified Employee | 9 | ||||
2.37 |
Supplemental Compensation | 10 | ||||
2.38 |
Transferred Participant | 10 | ||||
2.39 |
Total Disability | 10 | ||||
2.40 |
Other Definitions | 11 | ||||
SECTION 3 |
12 | |||||
Participation |
12 | |||||
3.1 |
Eligibility | 12 | ||||
3.2 |
Period of Participation | 12 | ||||
3.3 |
Reemployed Participants | 12 | ||||
SECTION 4 |
14 | |||||
SERP Benefits |
14 | |||||
4.1 |
RSSERP Benefit | 14 | ||||
4.2 |
Pension SERP Benefit | 16 | ||||
4.3 |
Vesting of Benefits | 16 | ||||
-ii-
TABLE OF CONTENTS
(continued)
(continued)
| PAGE | ||||||
4.4 |
Payment of Benefits | 17 | ||||
4.5 |
Payments Upon Death | 23 | ||||
4.6 |
Payment of FICA Tax on Pension SERP Benefit | 24 | ||||
4.7 |
Benefits Provided by Employers | 25 | ||||
4.8 |
Other Employment | 25 | ||||
SECTION 5 |
26 | |||||
General |
26 | |||||
5.1 |
Committee | 26 | ||||
5.2 |
Interests Not Transferable | 26 | ||||
5.3 |
Facility of Payment | 27 | ||||
5.4 |
Gender and Number | 27 | ||||
5.5 |
Controlling Law | 27 | ||||
5.6 |
Successors | 27 | ||||
5.7 |
Rights Not Conferred by the Plan | 27 | ||||
5.8 |
Litigation by Participants | 28 | ||||
5.9 |
Uniform Rules | 28 | ||||
5.10 |
Action by Employers | 28 | ||||
5.11 |
Tax Effects | 28 | ||||
SECTION 6 |
29 | |||||
Amendment and Termination |
29 | |||||
SUPPLEMENT A |
||||||
Provisions Relating to Transferred Participants Previously
Participating in the Earthgrains Company
Supplemental Executive Retirement Plan |
||||||
-iii-
HANESBRANDS INC.
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
(Effective as of January 1, 2006)
SECTION 1
Introduction
1.1 Purpose
The Hanesbrands Inc. Supplemental Employee Retirement Plan (the “Plan”) is maintained by the
Corporation to provide retirement benefits that are otherwise limited under the Retirement Savings
Plan. In addition, the accrued benefits of any Transferred Participant shall be transferred from
the Sara Lee SERP to the Plan as of the Effective Date. On and after the Effective Date, all
benefits previously accrued by Transferred Participants under the Sara Lee SERP shall be provided
under the Plan, and Transferred Participants shall accrue no additional benefits under the Sara Lee
SERP.
The Plan shall constitute a top hat plan within the meaning of Section 201(2) of ERISA.
Notwithstanding any provision of the Plan to the contrary, the Plan is subject to the provisions of
Section 409A of the Code and at all times shall be interpreted and administered so that it is
consistent with such Code section; provided, however, that the vested benefits of each Transferred
Participant who terminated employment with Sara Lee Corporation and all of its Controlled Group
Members prior to January 1, 2005 shall be determined in accordance with Subsection 1.6 (and shall
not be subject to Code Section 409A), except as otherwise provided in Subsection 3.3.
1.2 Effective Date and Plan Year
The Plan is effective as of January 1, 2006. The Plan is administered on the basis of a Plan
Year.
1.3 Employers
The Corporation and each other Controlled Group Member that is a participating employer under
the Retirement Savings Plan shall be deemed to have adopted the Plan and shall be treated as an
Employer hereunder.
1.4 Plan Administration
As described in Subsection 5.1, the Committee shall be the administrator (as defined in
Section 3(16)(A) of ERISA) of the Plan; provided, however, that the Committee may delegate all or
any part of its powers, rights, and duties under the Plan to such person or persons as it may deem
advisable.
1.5 Plan Supplements
The provisions of the Plan may be modified by supplements to the Plan. The terms and
provisions of each supplement are a part of the Plan and supersede the other provisions of the Plan
to the extent necessary to eliminate inconsistencies between such other Plan provisions and such
supplement.
1.6 Plan Benefits for Participants who Terminated Employment
The benefits provided under the Plan with respect to any Participant whose employment with the
Employers has terminated shall, except as otherwise specifically provided in the Plan, be governed
in all respects by the terms of the Plan in effect as of the date of the Participant’s termination
of employment (or in the case of a Transferred Participant who Separated from Service prior to the
Effective Date, pursuant to the Sara Lee SERP).
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SECTION 2
Definitions
2.1 2008 Special Election
If the Committee, in its discretion, decides to offer a 2008 Special Election, then the “2008
Special Election” shall mean a Participant’s valid election, made prior to December 31, 2008 in
accordance with rules and procedures established by the Committee, to receive his or her RSSERP
Benefit and/or Pension SERP Benefit at a time and in a form specified in Subparagraphs 4.4(a)(iii)
and 4.4(b)(iv), respectively.
2.2 A&B Level Transition Credit
“A&B Level Transition Credit” means the annual credit, if any, made during the 2006-2010 Plan
Years to Participants who had (a) attained age 45 and (b) completed five or more years of credited
service as an A or B level executive as of January 1, 2006; provided, however, that S. Babu, K.
McAleer, K. Oliver, and C. Yaroch shall be treated as eligible to receive the A&B Level Transition
Credit.. A&B Level Transition Credits will be calculated as follows:
| Credit | ||
| Age Plus Years of A&B Level Service | (as a percentage of the Participant’s | |
| (as of 1/1/06) | Supplemental Compensation) | |
50 to 54 |
4% | |
55 to 59 |
8% | |
60 to 64 |
12% | |
65 to 69 |
14% | |
70 or more |
15% |
In order to receive the A&B Level Transition Credit for any Plan Year, any Participant who meets
the requirements described herein must be an active Employee as of the last day of the Plan Year or
have retired, died, or become a Totally Disabled Participant during the Plan Year.
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2.3 Account
“Account” means the notional accounts and subaccounts maintained for a Participant under the
Plan, as described in Subsection 4.1.
2.4 Annual Company Credit
“Annual Company Credit” means the annual company contribution made on behalf of a Participant
as described in the Retirement Savings Plan.
2.5 Beneficiary
“Beneficiary” means the person or persons designated by a Participant to receive payment of
his or her RSSERP Benefit (“RSSERP Beneficiary”) or Pension SERP Benefit (“Pension SERP
Beneficiary”) upon his or her death in accordance with Subsection 4.5. A beneficiary designation
shall be effective only when properly provided to the Committee in accordance with its rules and
procedures while the Participant is alive and, when effective, will cancel all prior beneficiary
designations. If the Participant does not have an effective RSSERP Beneficiary and/or Pension SERP
Beneficiary designation on the date of his or her death (because the Participant failed to
designate a beneficiary or the Participant’s named beneficiary died before the Participant), the
Committee will make the applicable payments described in Subsection 4.5 as follows:
| (a) | To the Participant’s surviving spouse; | ||
| (b) | If the Participant does not have a surviving spouse, to or for the benefit of the legal representative or representatives of the Participant’s estate; | ||
| (c) | If the Participant does not have a surviving spouse and an estate is not opened on behalf of the Participant, to or for the benefit of one or more of the Participant’s relatives by blood, adoption or marriage in such proportions as the Committee (or its delegate) determines. |
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2.6 Code
“Code” means the Internal Revenue Code of 1986, as amended.
2.7 Committee
“Committee” means the Hanesbrands Inc. Employee Benefits Administrative Committee appointed by
the Corporation to administer the Plan.
2.8 Controlled Group Member
“Controlled Group Member” means the Corporation and any affiliated or related corporation
which is a member of a controlled group of corporations (within the meaning of Section 1563(a) of
the Code) which includes the Corporation or any trade or business (whether or not incorporated),
which is under common control with the Corporation (within the meaning of Section 414(c) of the
Code).
2.9 Corporation
“Corporation” means Hanesbrands Inc., a Maryland corporation.
2.10 [RESERVED.]
2.11 Deferred Vested Participant
“Deferred Vested Participant” means a Participant who has Separated from Service, is not a
Retired Participant, and is eligible for a monthly deferred vested pension under the Pension Plan.
2.12 [RESERVED.]
2.13 Effective Date
“Effective Date” means January 1, 2006, except as otherwise required to comply with applicable
law or as specifically provided herein.
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2.14 [RESERVED.]
2.15 Employee
“Employee” means a person, including an officer of an Employer, who is in the employ of an
Employer. For all purposes of the Plan, an individual shall be an “Employee” of or be “employed”
by an Employer for any Plan Year only if such individual is treated by the Employer for such Plan
Year as its employee for purposes of employment taxes and wage withholding for Federal income
taxes, regardless of any subsequent reclassification of such individual as an Employee by an
Employer, any governmental agency, court, or other third party. Any such reclassification shall
not have a retroactive effect for purposes of the Plan.
2.16 Employer
“Employer” means the Corporation and each other Controlled Group Member that is a
participating employer under the Retirement Savings Plan.
2.17 ERISA
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
2.18 Matching Credit
“Matching Credit” means the employer matching contribution made on behalf of a Participant as
described in the Retirement Savings Plan.
2.19 Normal Retirement Date
“Normal Retirement Date” means the first day of the month coincident with or next following
the Participant’s attainment of age 65.
2.20 Participant
“Participant” means an Employee who satisfies the requirements of Subsection 3.1.
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2.21 Pension Plan
“Pension Plan” means the Hanesbrands Inc. Pension and Retirement Plan, as amended from time to
time. No further benefits shall accrue under the Pension Plan on or after the Effective Date.
2.22 Pension SERP Benefit
“Pension SERP Benefit” means a Participant’s benefit described in Subsection 4.2.
2.23 Pension SERP Interest Rate
“Pension SERP Interest Rate” means an interest rate equal to 120% of the annual rate on
30-year Treasury securities published for the month that is three months prior to (i) the first day
of the month following the Participant’s Separation from Service, or (ii) the payment commencement
date, as applicable, rounded to the nearest 0.25%.
2.24 Plan
“Plan” means the Hanesbrands Inc. Supplemental Employee Retirement Plan, as amended from time
to time.
2.25 Plan Year
“Plan Year” means the 12-month period beginning each January 1 and ending the next following
December 31.
2.26 Plan Year RSSERP Credit
“Plan Year RSSERP Credit” means the credit described in Subparagraph 4.1(b).
2.27 Present Value
“Present Value” means the present value of a Participant’s Pension SERP Benefit, calculated as
if the Pension SERP Benefit were payable as an annuity under the Pension Plan using the Pension
Plan’s (a) early payment factors, as applicable, (b) the mortality table provided
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under the Pension Plan as of December 31, 2007, and (c) the Pension SERP Interest Rate. For a
Retired Participant’s Present Value calculation, the assumed commencement date shall be the date of
the Participant’s retirement and the Present Value will be accumulated with interest at the Pension
SERP Interest Rate to the actual payment commencement date. For a Deferred Vested Participant’s
Present Value calculation, the assumed commencement date shall be the Participant’s Normal
Retirement Date and the Present Value shall be determined as of the date payment is to be made
under Subparagraph 4.4(b).
2.28 Residual Credit
“Residual Credit” means a credit to the Participant’s RSSERP Benefit made after the
Participant’s Separation from Service based on the Annual Company Credit, A&B Level Transition
Credit, and Salaried Employee Transition Credit.
2.29 Retired Participant
“Retired Participant” means a Participant who has Separated from Service after attaining age
55 and completing at least 10 years of vesting service (as defined in the Pension Plan) or after
age 65.
2.30 Retirement Savings Plan
“Retirement Savings Plan” means the Hanesbrands Inc. Retirement Savings Plan, as amended from
time to time; provided, however, that for the period from the Effective Date to the date the
Retirement Savings Plan first becomes effective, the term “Retirement Savings Plan” shall mean the
Sara Lee Corporation 401(k) Plan as applied to a Participant and Code limits referenced herein
shall be applied as if the Hanesbrands Inc. Retirement Savings Plan, and the Sara Lee Corporation
401(k) Plan were a single plan for the first Plan Year.
2.31 RSSERP Benefit
“RSSERP Benefit” means the Participant’s benefit described in Subsection 4.1.
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2.32 Salaried Employee Transition Credit
In addition, a “Salaried Employee Transition Credit” will be made on behalf of any employee
who (a) had attained age 50; (b) had completed at least 10 years of vesting service (as defined in
the Pension Plan) with the Corporation as of January 1, 2006; and (c) notwithstanding any provision
of the Retirement Savings Plan, did not receive a Transition Contribution in the Retirement Savings
Plan equal to 10% of the employee’s 2006 Supplemental Compensation. The Salaried Employee
Transition Credit shall be reduced by the amount of any Transition Contribution the employee
received in the Retirement Savings Plan for 2006.
2.33 Sara Lee SERP
“Sara Lee SERP” means the Sara Lee Corporation Supplemental Executive Retirement Plan.
2.34 Separation from Service
“Separation from Service” occurs when a Participant’s terminates employment with the
Corporation and its Controlled Group Members by reason of a resignation, discharge, retirement, or
death. Separation from Service for purposes of the Plan shall be interpreted consistent with the
requirements of Code Section 409A(a)(2)(A)(i) and any IRS guidance issued thereunder.
2.35 SERP Benefit
“SERP Benefit” means the Participant’s RSSERP Benefit and/or Pension SERP Benefit, as
applicable.
2.36 Specified Employee
“Specified Employee” means an employee described in the Corporation’s “Procedures for
Determining Top-50 Employees under Code Section 409A” as adopted, and as amended from time to time,
by the Committee.
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2.37 Supplemental Compensation
For purposes of the RSSERP Benefit, a Participant’s “Supplemental Compensation” means his or
her compensation as defined in the Retirement Savings Plan but including the following additional
amounts:
| (a) | Any amounts that cannot be recognized as compensation in the Retirement Savings Plan due to the dollar limitation contained in Code Sections 401(a)(17) of the Code; | ||
| (b) | Deferrals of base salary and bonus compensation for the Plan Year in which deferred; and | ||
| (c) | Any compensation required to be included as Supplemental Compensation pursuant to an employment, severance or other written agreement with an Employer; provided, however, that severance payments to Specified Employees that are delayed six months in compliance with Code Section 409A shall be attributable to the year in which such amounts were earned rather than the year in which they are paid. |
2.38 Transferred Participant
“Transferred Participant” means any participant in the Sara Lee SERP who was employed by the
Corporation on December 31, 2005 or who was last employed by the Corporation’s predecessor division
of Sara Lee Corporation; provided, however, that L. Chaden, D. Volz, and expatriate employees of
the Corporation on January 1, 2006 shall not be considered “Transferred Participants,” so that such
individuals’ benefits under the Sara Lee SERP shall remain payable exclusively by Sara Lee
Corporation under the Sara Lee SERP.
2.39 Total Disability
“Total Disability” means total disability, as defined in the Pension Plan. A “Totally
Disabled Participant” means a Participant who is subject to a Total Disability.
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2.40 Other Definitions
Other defined terms used in the Plan shall have the meanings given such terms elsewhere in the
Plan, the Retirement Savings Plan and the Pension Plan.
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SECTION 3
Participation
3.1 Eligibility
Transferred Participants shall be eligible to participate in the Plan on the Effective Date.
In addition, each other Employee of an Employer who is a participant in the Retirement Savings Plan
will become a Participant in the Plan upon the date that the contributions that he or she would
otherwise receive under the Retirement Savings Plan are limited by one or more of the following:
| (i) | By operation of Code Section 415; | ||
| (ii) | Because Supplemental Compensation is not taken into account under the Retirement Savings Plan; or | ||
| (iii) | Because a period required to be included as service pursuant to an employment, severance or other written agreement with an Employer is not taken into account under the Retirement Savings Plan. |
3.2 Period of Participation
Each Employee who becomes a Participant in the Plan shall continue as a Participant until the
earlier of the date that all of his or her vested SERP Benefits (if any) have been distributed or
his or her death.
3.3 Reemployed Participants
| (a) | In the event a Participant who terminated employment with the Corporation and all Controlled Group Members prior to January 1, 2005 is reemployed by the Controlled Group Members on or after the Effective Date, the following rules shall apply: |
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| (i) | The Participant’s SERP Benefits that were earned and vested as of December 31, 2004 and that have been distributed or are in distribution status as of his or her reemployment date shall continue to be distributed in accordance with the terms of the Sara Lee SERP as in effect on his or her earlier Separation from Service and shall not be subject to the requirements of Code Section 409A; and |
| (ii) | The Participant’s SERP Benefits that either (i) were earned and vested as of December 31, 2004 and (A) have not been distributed, or (B) are not in distribution status, or (ii) were not earned and vested as of December 31, 2004, shall be subject to the applicable terms of this Plan document and the requirements of Code Section 409A. |
| (b) | In the event a Participant who Separated from Service with the Corporation and all Controlled Group Members on or after January 1, 2005 is reemployed by the Controlled Group Members on or after the Effective Date, the SERP Benefits determined as of the Participant’s initial Separation from Service shall be subject to the applicable terms of this Plan document and the requirements of Code Section 409A and distribution of those amounts shall not be impacted by the Participant’s reemployment. |
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SECTION 4
SERP Benefits
4.1 RSSERP Benefit
Subject to Subsection 4.3, a Participant’s RSSERP Benefit shall be equal to the balance in the
Account maintained on behalf of the Participant under the Plan, which Account balance shall be
equal to the sum of (a) plus (b) plus (c) below, and as adjusted pursuant to (d) below:
| (a) | Pre-Effective Date Benefit. A Participant’s Account under the Plan shall be credited with the amount of the Participant’s Sara Lee 401(k) SERP Benefit determined under the Sara Lee SERP, if any, determined as of the date immediately preceding the Effective Date. | ||
| (b) | Plan Year RSSERP Credits. A Participant’s Account under the Plan shall be credited with the Plan Year RSSERP Credit equal to (i) plus (ii) plus (iii) below, if any, as of the last day of each Plan Year: |
| (i) | Annual Company Credit. The amount equal to (A) minus (B) below: |
| (A) | The annual company contribution that would have been made on behalf of the Participant (if any) under the Retirement Savings Plan (or, in 2006, under the Sara Lee 401(k) Plan) for the applicable Plan Year based on the Participant’s Supplemental Compensation and without regard to Code Section 415; minus | ||
| (B) | The annual company contribution actually made on behalf of the Participant under the Retirement Savings Plan (or, in 2006, under the Sara Lee 401(k) Plan) for such Plan Year. |
| (ii) | Matching Credit. The amount equal to the Matching Credit that would have been made on behalf of the Participant under the Retirement Savings |
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| Plan for the Plan Year based on his or her Supplemental Compensation less any matching contributions received (or deemed received as described below) by the Participant under the Retirement Savings Plan for that Plan Year; provided, however, that for purposes of determining the Matching Credit under this Plan, the Participant will be deemed to (A) have made 401(k) contributions (excluding catch-up contributions) of 4% of the Participant’s Supplemental Compensation, and (B) have received the appropriate matching contribution under the Retirement Savings Plan based upon such deemed 401(k) contribution (regardless of the Participant’s actual contribution rate). |
| (iii) | The A&B Level Transition Credit, if any. | ||
| (iv) | The Salaried Employee Transition Credit, if any. |
| (c) | Forfeited Retirement Savings Plan Benefit. To the extent that service under a separation agreement is included in SERP vesting service, a Participant’s Account under the Plan shall be credited with any amount of the Participant’s Retirement Savings Plan benefit that would be vested under the Retirement Savings Plan recognizing SERP vesting service but that is forfeited due to his or her Separation from Service with the Controlled Group Members prior to becoming fully vested under the Retirement Savings Plan. | ||
| (d) | Adjustment of Account. The Account maintained on behalf of a Participant under the Plan shall be adjusted from time to time to reflect a hypothetical investment in the Hanesbrands Inc. Common Stock Fund under the Retirement Savings Plan; provided, however, that for as long as the Corporation is a Controlled Group Member of Sara Lee Corporation, the Account maintained on behalf of a Participant under the Plan shall be adjusted from time to time to reflect a hypothetical investment in the Sara Lee Corporation Common Stock Fund under the Sara Lee Corporation 401(k) Plan. The Committee may establish such rules and procedures relating to the maintenance, adjustment, and liquidation of |
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| Participants’ Accounts, the crediting of credits and the notional income, losses, expenses, appreciation, and depreciation attributable thereto, as are considered necessary or advisable. In addition to the Account described above, the Committee may maintain such other Accounts as the Committee considers necessary or desirable. |
4.2 Pension SERP Benefit
Subject to Subsection 4.3, a Transferred Participant’s Pension SERP Benefit shall be equal to
the Transferred Participant’s Sara Lee Pension SERP Benefit determined under the Sara Lee SERP, if
any, determined as of the Effective Date.
In the case of a Participant in compensation band 3, 4 or 5 who is entitled to receive
severance benefits under the Hanesbrands Inc. Severance Pay Plan (previously known as the Sara Lee
Corporation Severance Pay Plan for Employees of Sara Lee Branded Apparel) , and who would satisfy
the requirements for early retirement under the Pension Plan if his/her severance period (as
defined in the separation agreement pursuant to which the severance benefits are paid) were a
period of actual employment under the Pension Plan, then to the extent provided in the
Participant’s separation agreement, the Participant’s SERP Benefit shall be increased to reflect
the difference between (i) the Pension Plan benefit that would be payable if the years of severance
period was recognized as years of vesting service as defined in the Pension Plan; and (ii) the
actual Pension Plan benefit; provided, however, that such Participant’s severance period shall not
be considered as credited service for purposes of determining the amount of the Participant’s
accrued Pension SERP Benefit.
4.3 Vesting of Benefits
A Participant shall have a nonforfeitable right to his or her SERP Benefit as provided in
Subparagraphs (a) and (b) below, as applicable.
| (a) | RSSERP Benefit. A Participant’s Annual Company Credits and Matching Credits shall become nonforfeitable on the same basis and at the same time as his or her annual company contributions and matching contributions, respectively, become |
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| nonforfeitable under the Retirement Savings Plan. A Participant’s A&B Level Transition Credits or Salaried Employee Transition Credit, if any, shall be nonforfeitable at all times. |
| (b) | Pension SERP Benefit. A Participant’s Pension SERP Benefit shall become nonforfeitable on the same basis and at the same time as his or her benefit under the Pension Plan. |
In determining whether a Participant is vested in his or her SERP Benefit, any period required to
be included as service pursuant to an employment, severance or other written agreement with an
Employer shall be considered service with an Employer under the Plan.
4.4 Payment of Benefits
A Participant’s SERP Benefit shall, subject to the further provisions of this Plan, be payable
to or on account of the Participant as follows:
| (a) | RSSERP Benefit. |
| (i) | Balances Under $50,000. If the value of the Participant’s vested RSSERP Benefit (determined without regard to any Residual Credit) is less than $50,000 as of the Participant’s Separation from Service, then any election made by the Participant under Subparagraph (iii) or (iv) below shall be void, and the Participant’s vested RSSERP Benefit shall be paid in a lump sum in the seventh month following the Participant’s Separation from Service. | ||
| (ii) | Balances of $50,000 or More. If the value of the Participant’s vested RSSERP Benefit (determined without regard to any Residual Credit) is $50,000 or more on the Participant’s Separation from Service, the Participant’s vested RSSERP Benefit shall be paid in a lump sum in the seventh month following the Participant’s Separation from Service, unless the Participant made a valid election under Subparagraph (iii) or (iv) |
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| below, in which case the Participant’s RSSERP Benefit shall be paid in accordance with the applicable election. |
| (iii) | Participant Elections. An active Participant may elect during the 2008 Special Election period to receive his or her vested RSSERP Benefit as follows: |
| (A) | In a lump sum to be paid at the later of the seventh month following the Participant’s Separation from Service or on a specified date that is not later than the Participant’s 70th birthday; or | ||
| (B) | In annual installments over a period of five or ten years (I) commencing as of the first day of the seventh month following the Participant’s Separation from Service, or (II) commencing at the later of the seventh month following the Participant’s Separation from Service or a specified date that is not later than the Participant’s 70th birthday. |
| Any election under this Subparagraph shall be irrevocable, subject to the provisions of Subparagraph (iv) below. | |||
| (iv) | Changes in Participant Elections. After 2008, a Participant may make a one-time, irrevocable election to delay commencement of his or her RSSERP Benefit to a date not later than his or her 70th birthday, or to change the form of payment of his or her RSSERP Benefit to one of the forms specified in Subparagraph (iii) above, provided that no such election shall be effective unless (A) the Committee receives the election not later than 12 months prior to the previously scheduled distribution date, and (B) payment of the Participant’s RSSERP Benefit is made not earlier than the fifth anniversary of the previously scheduled distribution date. |
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| (v) | Payment of Residual Credits. Notwithstanding any Plan provision to the contrary, any Residual Credit to the Participant’s Account after his or her Separation from Service shall be paid as follows: |
| (A) | If the Participant receives payment of his or her RSSERP Account in a lump sum, any Residual Credit to the Participant’s Account shall be paid in a lump sum as soon as practicable but in no event later than the end of the calendar year in which such amount is credited; provided, however, that if the Participant has elected to receive his or her lump sum payment later than seven months following Separation from Service, any Residual Credit shall be paid on the date elected by the Participant for payment of his or her lump sum benefit. | ||
| (B) | If the Participant elects to receive payment of his or her RSSERP Account in installments, any Residual Credit shall be added to the Participant’s RSSERP Account and shall be paid in installments over the remaining installment period. |
| (vi) | 2009/2010 Lump Sum Cashout. Notwithstanding the foregoing, an active Participant may elect to receive distribution of his or her RSSERP Benefit determined as of December 31, 2008, with such amount paid to the Participant in a lump sum in 2009 or 2010, as elected by the Participant. For this purpose, a Participant’s RSSERP Benefit as of December 31, 2008 shall include his or her RSSERP Credits for the 2008 Plan Year; the lump sum paid in 2009 shall include gains/losses credited to the Participant’s RSSERP Account through February 28, 2009; and the lump sum paid in 2010 shall include gains/losses credited to the Participant’s RSSERP Account through December 31, 2009. If a Participant makes an election under this Subparagraph and is not fully |
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| vested as of the specified payment date, then the Participant shall receive payment of his or her vested December 31, 2008 RSSERP Benefit on the specified payment date, and his or her remaining December 31, 2008 RSSERP Benefit (as adjusted pursuant to Subparagraph 4.1(d)) shall be distributed as it becomes vested, with payment of each vested portion made by no later than 2-1/2 months after the end of the Plan Year in which it vests. |
| (vii) | Post-2008 RSSERP Credits. Notwithstanding any Plan provision to the contrary, a Participant’s RSSERP Credits for 2009 and each subsequent Plan Year shall be paid immediately to the Participant, to the extent vested, with payment made by the end of the applicable Plan Year in which such amount would otherwise be credited to the Participant’s Account. If any portion of a Participant’s RSSERP Credit for a Plan Year is not then vested, such portion (as adjusted pursuant to Subparagraph 4.1(d)) shall be distributable upon vesting, with payment made of each newly vested portion by no later than 2-1/2 months after the end of the Plan Year in which it vests. |
| (viii) | Small Benefit Cashout. Notwithstanding the foregoing, to the extent a Participant’s vested RSSERP Account does not exceed the applicable dollar amount under Code Section 402(g)(1)(B), then such Participant’s vested RSSERP Account shall be paid in a lump sum in the Plan Year in which such Account becomes vested. However, this subparagraph (viii) shall not apply to any Participant who made an affirmative election during the 2008 special election period either to receive a lump sum cashout under subparagraph (vi) above or to receive payment following Separation from Service. |
| (b) | Pension SERP Benefit. |
| (i) | General Payment Rule. If (A) the Present Value of a Participant’s vested Pension SERP Benefit is less than $50,000 as of the Participant’s Separation from Service, or (B) the Present Value of the Participant’s vested Pension SERP Benefit is $50,000 or more but the Participant is not a Retired Participant, then any 2008 Special Election or other election made by the Participant under Subparagraph (v) below shall be void, and the Present Value of the Participant’s vested Pension SERP Benefit shall be paid in a lump sum in the seventh month following the Participant’s Separation from Service. |
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| (ii) | Retired Participants with Benefits of $50,000 or More. If the Present Value of a Participant’s vested Pension SERP Benefit is $50,000 or more at the Participant’s Separation from Service and the Participant qualifies as a Retired Participant, then the Present Value shall be paid in a lump sum in the seventh month following the Participant’s Separation from Service, unless the Participant made a 2008 Special Election or an election under Subparagraph (v) below, in which case the Present Value of the Participant’s Pension SERP benefit shall be paid in accordance with the applicable election. | ||
| (iii) | Totally Disabled Participants. Notwithstanding Subparagraph (i) above, if a Participant qualifies as a Totally Disabled Participant, then the Present Value of the Participant’s vested Pension SERP Benefit (determined as if the Participant were a Retired Participant) shall be paid in a lump sum on the Totally Disabled Participant’s 65th birthday. However, if the Present Value of the Participant’s Pension SERP Benefit is $50,000 or more and the Participant made a 2008 Special Election or an election under Subparagraph (v) below, the Present Value of the Participant’s Pension SERP Benefit shall be paid in accordance with the applicable election. | ||
| (iv) | 2008 Special Elections. During the 2008 Special Election period, an active Participant may elect to receive the Present Value of his or her Pension SERP Benefit as follows: |
| (A) | In a lump sum to be paid at the later of the seventh month following the Participant’s Separation from Service or on a specified date that is not later than the Participant’s 70th birthday; or | ||
| (B) | In monthly installments over a period of five or ten years (I) commencing as of the first day of the seventh month following the Participant’s Separation from Service, or (II) |
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| commencing at the later of the seventh month following the Participant’s Separation from Service or a specified date that is not later than the Participant’s 70th birthday. |
| (v) | Changes in Participant Elections. After 2008, a Participant may make a one-time, irrevocable election to delay commencement of his or her Pension SERP Benefit to a date not later than his or her 70th birthday, or to change the form of payment of his or her Pension SERP Benefit to one of the forms specified in Subparagraph (iv) above, provided that no such election shall be effective unless (A) the Committee receives the election not later than 12 months prior to the previously scheduled distribution date, and (B) payment of the Participant’s Pension SERP Benefit is made not earlier than the fifth anniversary of the previously scheduled distribution date. | ||
| (vi) | 2009/2010 Lump Sum Cashout. Notwithstanding the foregoing, an active Participant may elect to receive the Present Value of his or her vested Pension SERP Benefit in a lump sum in January 2009 or January 2010, as elected by the Participant. For purposes of this Subparagraph 4.4(b)(vi), Present Value shall be based on the Participant’s age at January 1 of the selected distribution year, the Participant’s Pension SERP Benefit payable at age 65, and an interest rate of 5.25%; provided that any lump sum cashout paid under this Subparagraph after a Participant’s Separation from Service shall include any early retirement subsidy to which the Participant is entitled as of his or her Separation from Service. If a Participant receives a payment under this Subparagraph, then the Participant shall not be entitled to any Pension SERP Benefits upon his or her subsequent Separation from Service. |
| (c) | Pre-2009 Distribution Rules. Notwithstanding the foregoing, a Participant who Separates from Service prior to 2009 shall receive payment of his or her RSSERP |
-22-
| and Pension SERP Benefits, if any, pursuant to payment elections made and filed with the Committee in accordance with applicable procedures established by the Committee, and in accordance with applicable provisions of Code Section 409A and guidance issued thereunder. |
| (d) | All elections under this Subsection 4.4 shall be made in accordance with rules and procedures and within the time period specified by the Committee. |
4.5 Payments Upon Death
Notwithstanding any provision of Subsection 4.4 to the contrary, the following rules shall
apply upon a Participant’s death:
| (a) | RSSERP Benefit. If the Participant dies before complete payment of his or her vested RSSERP Benefit under Subparagraph 4.4(a), payment of his or her remaining RSSERP Benefit shall be made to his or her RSSERP Beneficiary in a lump sum in the fourth month following the Participant’s death. | ||
| (b) | Pension SERP Benefit. |
| (i) | Death Before Commencement. |
| (A) | If a Participant Separates from Service before qualifying as a Retired Participant and dies before commencement of his or her Pension SERP Benefit, the Present Value of the Participant’s vested Pension SERP Benefit shall be paid to the Participant’s Pension SERP Beneficiary in a lump sum in the fourth month following the Participant’s death, or if earlier, the date determined pursuant to Subparagraph 4.4(b)(i). | ||
| (B) | If a Retired Participant dies before commencement of his or her Pension SERP Benefit, the Present Value of the |
-23-
| Participant’s Pension SERP Benefit shall be paid to the Participant’s Pension SERP Beneficiary in a lump sum in the fourth month following the Participant’s death, or if earlier, the date determined pursuant to Subparagraphs 4.4(b)(i) or (ii). |
| (C) | Death while Active. If a Participant dies while actively employed by the Corporation, the Present Value of the Participant’s Pension SERP Benefit attributable to the active death benefit, as determined under the Pension Plan, shall be paid to the Participant’s Pension SERP Beneficiary in a lump sum in the fourth month following the Participant’s death. If such benefit is payable to the Participant’s surviving spouse, the Present Value shall be determined based on the surviving spouse’s age on the date of the Participant’s death. If such benefit is payable to a Pension SERP Beneficiary other than the Participant’s surviving spouse, the Present Value shall be determined as if such amount were payable to a spouse the same age as the Participant. |
| (ii) | Death After Commencement. If the Participant dies after commencement of his or her Pension SERP Benefit payments, the Present Value of any unpaid portion of his or her Pension SERP Benefit shall be paid to his or her Pension SERP Beneficiary in a lump sum in the fourth month following the Participant’s death. |
4.6 Payment of FICA Tax on Pension SERP Benefit
Notwithstanding anything contained in the Plan to the contrary, an initial Pension SERP
Benefit payment may, in the discretion of the Committee, be made on behalf of the Participant in
the amount of the Federal Insurance Contributions Act (“FICA”) tax due from the Participant on
-24-
his or her Pension SERP Benefit, determined as of the date such FICA tax is due. If such
initial Pension SERP Benefit payment is made, then all later calculations and payments related to
the Participant’s Pension SERP Benefit shall be adjusted to reflect the initial payment.
4.7 Benefits Provided by Employers
Benefits payable under this Plan to a Participant or his or her surviving spouse, beneficiary
or estate shall be paid directly by the Participant’s Employer. No Employer shall be required to
segregate any assets to be applied for the payment of benefits under this Plan.
4.8 Other Employment
A Participant or his or her surviving spouse or beneficiary who is receiving SERP Benefits
hereunder will continue to be entitled thereto regardless of other employment or self-employment.
-25-
SECTION 5
General
5.1 Committee
This Plan will be administered by the Committee appointed by the Board of Directors of the
Corporation or a committee thereof. The Committee may delegate any of its authority hereunder to a
committee or to one or more individuals provided such delegation is in writing. Any such
delegation is incorporated herein by this reference. The Committee, and to the extent applicable
its delegates, shall have the discretionary authority to determine factual issues and eligibility
for Plan coverage and benefits, to interpret the provisions and terms of Plan and to decide claims
for benefits under the terms of the Plan. Subject to applicable law, any interpretation of the
provisions of the Plan (including any Supplement) and any decision on any matter within the
discretion of the Committee, or as applicable its delegates, made by it or them in good faith shall
be final and binding on all persons. A misstatement or other mistake of fact shall be corrected
when it becomes known, and the Committee or as applicable its delegates shall make such adjustment
on account thereof as it considers equitable and practicable. The Committee shall not be liable in
any manner for any determination of fact made in good faith. Any claim for benefits under the Plan
shall be handled by the Committee, or as applicable its delegates, pursuant to the claims
procedures under the Retirement Savings Plan or the Pension Plan, as applicable, and such
procedures are incorporated herein by this reference. No action at law or in equity may be brought
to recover benefits under the Plan until the Participant has exercised all appeal rights and the
Plan benefits requested in such appeal have been denied in whole or in part. Benefits under the
Plan shall be paid only if the Committee, or as applicable its delegates, in its or their
discretion, determines that a Participant (or other claimant) is entitled to them.
5.2 Interests Not Transferable
Except as provided under an agreement between the Participant and the Corporation or required
for purposes of withholding of any tax under the laws of the United States or any State
-26-
or locality, the interest of any Participant, his or her spouse or minor children under the
Plan is not subject to the claims of creditors and may not be voluntarily or involuntarily sold,
transferred, assigned, alienated or encumbered.
5.3 Facility of Payment
When, in the Committee’s opinion, a Participant or beneficiary is under a legal disability or
is incapacitated in any way so as to be unable to manage his or her financial affairs, the amounts
payable to such person may be paid to such person’s legal representative, or to a relative or
friend of such person for his or her benefit, or such amounts may be applied for the benefit of
such person in any way the Committee considers advisable.
5.4 Gender and Number
Where the context admits, words denoting men include women, the plural includes the singular
and vice versa.
5.5 Controlling Law
To the extent not superseded by the laws of the United States, the laws of North Carolina
(without regard to any state’s conflict of law principles) shall be controlling in all matters
relating to the Plan.
5.6 Successors
This Plan is binding on each Employer and will inure to the benefit of any successor of an
Employer, whether by way of purchase, merger, consolidation or otherwise.
5.7 Rights Not Conferred by the Plan
The Plan is not a contract of employment, and participation in the Plan will not give any
Employee the right to be retained in an Employer’s employ, nor any right or claim to any benefit
under the Plan, unless the right or claim has specifically accrued under the Plan.
-27-
5.8 Litigation by Participants
If a legal action begun against the Committee or any of the Employers by or on behalf of any
person results adversely to that person, or if a legal action arises because of conflicting claims
to a Participant’s benefits, the cost to the Committee or any of the Employers of defending the
action will be charged to such extent as possible to the sums, if any, involved in the action or
payable to or on behalf of the Participant concerned.
5.9 Uniform Rules
In managing the Plan, the Committee will apply uniform rules to all Participants similarly
situated.
5.10 Action by Employers
Any action required or permitted under the Plan of an Employer shall be by resolution of its
Board of Directors or by a duly authorized Committee of its Board of Directors, or by a person or
persons authorized by resolution of its Board of Directors or such Committee.
5.11 Tax Effects
The Corporation, the Committee, the Controlled Group Members, and their representatives and
delegates do not in any way guarantee the tax treatment of benefits for any individual, and the
Corporation, the Committee, the Controlled Group Members, and their representatives and delegates
do not in any way guarantee or assume any responsibility or liability for the legal, tax, or other
implications or effects of the Plan. In the event of any legal, tax, or other change that may
affect the Plan, the Corporation, or the Controlled Group Members, the Corporation may, in its sole
discretion, take any actions it deems necessary or desirable as a result of such change.
-28-
SECTION 6
Amendment and Termination
While the Employers expect to continue the Plan indefinitely, the Corporation reserves the
right to amend or terminate the Plan by action of the Board of Directors of the Corporation or by
action of a committee or an individual authorized to amend or terminate the Plan, provided that in
no event shall any Participant’s SERP Benefit accrued to the date of such amendment or termination
be reduced or modified by such action.
Any amendment or termination of the Plan shall comply with the restrictions of Code Section
409A to the extent applicable. Specifically, no amendment or termination of the Plan may
accelerate a scheduled payment unless permitted by Treasury regulations section 1.409A-3(j)(4), nor
may any amendment permit a subsequent deferral unless such amendment complies with the requirements
of Treasury regulations section 1.409A-2(b).
-29-
SUPPLEMENT A
TO
HANESBRANDS INC.
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
Provisions Relating to Transferred Participants Previously Participating in
the Earthgrains Company Supplemental Executive Retirement Plan
the Earthgrains Company Supplemental Executive Retirement Plan
A-1. History and Purpose. The purpose of this Supplement A is to describe the benefits that
would have been payable under the Earthgrains SERP to each Supplement A Participant (defined below)
and to describe the benefits payable to each eligible Supplement A Participant under the Plan.
This Supplement A is intended to supersede the terms of the Earthgrains SERP as applied to any
Supplement A Participant. Accordingly, any benefit payable to or on behalf of a Supplement A
Participant under this Supplement shall be considered to have been provided under the Earthgrains
SERP for all purposes. A Supplement A Participant who receives the benefits described in this
Supplement shall be deemed to have received his or her entire Earthgrains SERP benefit. Except as
otherwise specifically provided herein, a Supplement A Participant is not intended to receive any
rights under this Supplement A in addition to his or her rights under the Earthgrains SERP.
“Supplement A Participant” means each Transferred Participant who was an active participant in the
Earthgrains SERP as of December 31, 2002.
A-2. Supplement A Pension SERP Benefit. In lieu of a Pension SERP Benefit, a Supplement A
Participant shall be entitled to the following:
| (a) | Amount of Supplement A Pension SERP Benefit. Subject to the requirements set forth below, each Supplement A Participant who retires or terminates employment with all Controlled Group Members shall be entitled to a benefit equal to the following: |
| (i) | The benefit which would be payable to the Supplement A Participant under the Earthgrains supplement to the Pension Plan, determined (A) without regard to the limitation of Code Section 401(a)(17), and (B) using |
A-1
| the definition of Earthgrains Formula Compensation (as defined in the Sara Lee SERP); minus | |||
| (ii) | The Supplement A Participant’s actual accrued benefit under the Earthgrains supplement of the Pension Plan. |
| (b) | Form of Payment. |
| (i) | The benefit payable to a Supplement A Participant (the Participant’s “Supplement A SERP Benefit”) shall be paid as follows: |
| (A) | Subject to Subparagraphs (B) through (D) below, if the Participant did not make a valid 2008 Supplement A Special Election (as defined below), the Participant’s vested Supplement A SERP Benefit shall be paid in a lump sum in the seventh month following the Participant’s Separation from Service. | ||
| (B) | If the Supplement A Participant made a valid 2008 Supplement A Special Election, the Participant’s vested Supplement A Benefit shall be paid in accordance with such election. A “2008 Supplement A Special Election” means a Supplement A Participant’s valid election, made prior to December 31, 2008 in accordance with rules and procedures established by the Committee, to receive his or her Supplement A Benefit in actuarially equivalent quarterly installments, semi-annual installments or annual installments (as elected) for a period not to exceed five years, commencing in the seventh month after such Supplement A Participant’s Separation from Service or commencing at the later of the seventh month following the Supplement A Participant’s Separation from Service or a |
A-2
| specified date that is not later than the Supplement A Participant’s 70th birthday. | |||
| (C) | After 2008, a Participant may make an irrevocable election to receive his or her vested Supplement A Benefit in actuarially equivalent quarterly installments, semi-annual installments or annual installments (as elected) for a period not to exceed five years, commencing at least five years after the later of (I) the Participant’s Separation from Service, or (II) the date the Participant otherwise would have commenced payment of his or her Supplement A Benefit under Subparagraphs (A) or (B) above, as applicable; provided, however that an election under this Subparagraph (C) must be made in accordance with rules and procedures established by the Committee and must be received by the Committee at least one year before the Participant’s previously scheduled distribution date. | ||
| (D) | Notwithstanding the foregoing, a Participant may elect to receive his or her vested Supplement A Benefit attributable to his or her post-2002 service in a lump sum in January 2009 or January 2010, as elected by the Participant. For purposes of this Subparagraph (D), the lump sum Present Value of the post-2002 Supplement A Benefit will be based on the Participant’s age at January 1 of the selected distribution year, the Participant’s Supplement A Benefit payable at age 65, and an interest rate of 5.25%; provided that this lump sum benefit shall include any applicable early retirement subsidy if the Participant has a Separation from Service before the lump sum benefit is paid. The Participant may also elect to receive that portion of his or |
A-3
| her Supplement A Benefit attributable to his or her pre-2003 service; if the Participant makes such an election, the pre-2003 benefit shall be paid in a lump sum on the date such benefit becomes vested, with a reduction in the benefit to reflect the Participant’s then current age based on the early retirement factors specified in Paragraph A-2(c)(ii) below. All elections under this Subparagraph shall be made in accordance with rules and procedures and within the time period specified by the Committee. |
| (c) | Actuarial Factors. The following actuarial factors shall apply for purposes of this Paragraph A-2: |
| (i) | Present Value. Present value shall be determined using the factors set forth in the Pension Plan on December 31, 2007. | ||
| (ii) | Early Retirement Reduction. The Supplement A SERP Benefit shall be reduced 4/12% per month for each of the first 60 months and 5/12% per month for each of the next 60 months that payment commences before Normal Retirement Date; provided, however, that no reduction shall apply if the Supplement A Participant retires after attaining age 62 with 20 Years of Service. | ||
| (iii) | Installment Payments. The actuarial factors for determining installment payments shall be determined using the factors set forth in the Pension Plan on December 31, 2007. |
A-3. Plan Provisions. All provisions of the Plan, to the extent that they are consistent with
the provisions of this Supplement, shall apply to Supplement A Participants; provided, however,
that a Supplement A Participant shall only be entitled to a benefit under the Plan to the extent
such benefit is specifically provided under this Supplement A.
A-4
Exhibit 10.32
EXECUTION COPY
EXECUTION COPY
AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of December 10, 2009,
among
HANESBRANDS INC.,
as the Borrower,
as the Borrower,
VARIOUS FINANCIAL INSTITUTIONS AND
OTHER PERSONS FROM TIME TO TIME
PARTY TO THIS AGREEMENT
as the Lenders,
OTHER PERSONS FROM TIME TO TIME
PARTY TO THIS AGREEMENT
as the Lenders,
BARCLAYS BANK PLC and GOLDMAN SACHS CREDIT PARTNERS L.P.
as the Co-Documentation Agents,
as the Co-Documentation Agents,
BANK OF AMERICA, N.A. and HSBC SECURITIES (USA) INC.
as the Co-Syndication Agents,
as the Co-Syndication Agents,
and
JPMORGAN CHASE BANK, N.A.,
as the Administrative Agent and the Collateral Agent
as the Administrative Agent and the Collateral Agent
J.P. MORGAN SECURITIES INC.,
BANC OF AMERICA SECURITIES LLC,
HSBC SECURITIES (USA) INC.,
and
BARCLAYS CAPITAL,
as Joint Lead Arrangers and Joint Bookrunners
TABLE OF CONTENTS
| Page | ||||
Table of Contents |
||||
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS |
1 | |||
SECTION 1.1 Defined Terms |
1 | |||
SECTION 1.2 Use of Defined Terms |
32 | |||
SECTION 1.3 Cross-References |
32 | |||
SECTION 1.4 Accounting and Financial Determinations |
32 | |||
ARTICLE II COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES, NOTES AND LETTERS OF CREDIT |
33 | |||
SECTION 2.1 Commitments |
33 | |||
SECTION 2.2 Reduction of the Commitment Amounts |
35 | |||
SECTION 2.3 Borrowing Procedures |
35 | |||
SECTION 2.4 Continuation and Conversion Elections |
37 | |||
SECTION 2.5 Funding |
37 | |||
SECTION 2.6 Issuance Procedures |
37 | |||
SECTION 2.7 Register; Notes |
42 | |||
SECTION 2.8 [Reserved] |
42 | |||
SECTION 2.9 Incremental Facilities |
43 | |||
ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES |
44 | |||
SECTION 3.1 Repayments and Prepayments; Application |
44 | |||
SECTION 3.2 Interest Provisions |
47 | |||
SECTION 3.3 Fees |
48 | |||
ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS |
49 | |||
SECTION 4.1 LIBO Rate Lending Unlawful |
49 | |||
SECTION 4.2 Deposits Unavailable |
49 | |||
SECTION 4.3 Increased LIBO Rate Loan Costs, etc |
50 | |||
SECTION 4.4 Funding Losses |
50 | |||
SECTION 4.5 Increased Capital Costs |
51 | |||
SECTION 4.6 Taxes |
51 | |||
SECTION 4.7 Payments, Computations; Proceeds of Collateral, etc |
54 | |||
SECTION 4.8 Sharing of Payments |
55 | |||
SECTION 4.9 Setoff |
55 | |||
SECTION 4.10 Mitigation |
56 | |||
SECTION 4.11 Removal of Lenders |
56 | |||
SECTION 4.12 Limitation on Additional Amounts, etc |
57 | |||
SECTION 4.13 Defaulting Lenders |
57 | |||
ARTICLE V CONDITIONS TO CREDIT EXTENSIONS |
59 | |||
SECTION 5.1 Initial Credit Extension |
59 | |||
SECTION 5.2 All Credit Extensions |
63 | |||
-i-
| Page | ||||
ARTICLE VI REPRESENTATIONS AND WARRANTIES |
64 | |||
SECTION 6.1 Organization, etc |
64 | |||
SECTION 6.2 Due Authorization, Non-Contravention, etc |
64 | |||
SECTION 6.3 Government Approval, Regulation, etc |
65 | |||
SECTION 6.4 Validity, etc |
65 | |||
SECTION 6.5 Financial Information |
65 | |||
SECTION 6.6 No Material Adverse Change |
65 | |||
SECTION 6.7 Litigation, Labor Controversies, etc |
66 | |||
SECTION 6.8 Subsidiaries |
66 | |||
SECTION 6.9 Ownership of Properties |
66 | |||
SECTION 6.10 Taxes |
66 | |||
SECTION 6.11 Pension and Welfare Plans |
66 | |||
SECTION 6.12 Environmental Warranties |
66 | |||
SECTION 6.13 Accuracy of Information |
68 | |||
SECTION 6.14 Regulations U and X |
68 | |||
SECTION 6.15 Compliance with Contracts, Laws, etc |
68 | |||
SECTION 6.16 Solvency |
68 | |||
ARTICLE VII COVENANTS |
69 | |||
SECTION 7.1 Affirmative Covenants |
69 | |||
SECTION 7.2 Negative Covenants |
75 | |||
ARTICLE VIII EVENTS OF DEFAULT |
89 | |||
SECTION 8.1 Listing of Events of Default |
89 | |||
SECTION 8.2 Action if Bankruptcy |
92 | |||
SECTION 8.3 Action if Other Event of Default |
92 | |||
ARTICLE IX
THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT; THE LEAD ARRANGERS, THE SYNDICATION AGENT AND THE DOCUMENTATION AGENT |
92 | |||
SECTION 9.1 Actions |
92 | |||
SECTION 9.2 Funding Reliance, etc |
93 | |||
SECTION 9.3 Exculpation |
93 | |||
SECTION 9.4 Successor |
93 | |||
SECTION 9.5 Loans by JPMorgan Chase Bank |
94 | |||
SECTION 9.6 Credit Decisions |
94 | |||
SECTION 9.7 Copies, etc |
94 | |||
SECTION 9.8 Reliance by Agents |
94 | |||
SECTION 9.9 Defaults |
95 | |||
SECTION 9.10 Lead Arrangers, Syndication Agents and Documentation Agents |
95 | |||
SECTION 9.11 Posting of Approved Electronic Communications |
95 | |||
ARTICLE X MISCELLANEOUS PROVISIONS |
97 | |||
SECTION 10.1 Waivers, Amendments, etc |
97 | |||
SECTION 10.2 Notices; Time |
98 | |||
SECTION 10.3 Payment of Costs and Expenses |
99 | |||
SECTION 10.4 Indemnification |
100 | |||
-ii-
| Page | ||||
SECTION 10.5 Survival |
101 | |||
SECTION 10.6 Severability |
101 | |||
SECTION 10.7 Headings |
101 | |||
SECTION 10.8 Execution in Counterparts, Effectiveness, etc |
101 | |||
SECTION 10.9 Governing Law; Entire Agreement |
101 | |||
SECTION 10.10 Successors and Assigns |
102 | |||
SECTION 10.11 Sale and Transfer of Credit Extensions; Participations in Credit
Extensions; Notes |
102 | |||
SECTION 10.12 Other Transactions |
104 | |||
SECTION 10.13 Forum Selection and Consent to Jurisdiction; Waivers |
105 | |||
SECTION 10.14 Waiver of Jury Trial |
105 | |||
SECTION 10.15 Patriot Act |
106 | |||
SECTION 10.16 Judgment Currency |
106 | |||
SECTION 10.17 No Fiduciary Duty |
106 | |||
SECTION 10.18 Counsel Representation |
107 | |||
SECTION 10.19 Confidentiality |
107 | |||
SECTION 10.20 Resignation of Citi; Appointment of JPMorgan as Successor Swing
Line Lender |
107 | |||
SECTION 10.21 Effect of Amendment and Restatement |
108 | |||
SECTION 10.22 Consent of Required Lenders |
108 | |||
SCHEDULE I — Disclosure Schedule |
||||
SCHEDULE II — Percentages; Notice Address |
||||
SCHEDULE III — Existing Letters of Credit |
||||
EXHIBIT A-1 — Form of Revolving Note |
||||
EXHIBIT A-2 — Form of New Term Note |
||||
EXHIBIT A-3 — Form of Swing Line Note |
||||
EXHIBIT B-1 — Form of Borrowing Request |
||||
EXHIBIT B-2 — Form of Issuance Request |
||||
EXHIBIT C — Form of Continuation/Conversion Notice |
||||
EXHIBIT D — Form of Lender Assignment Agreement |
||||
EXHIBIT E — Form of Compliance Certificate |
||||
EXHIBIT F — Form of Guaranty |
||||
EXHIBIT G — Form of Pledge and Security Agreement |
||||
EXHIBIT H — Form of Closing Date Certificate |
||||
EXHIBIT I — Form of Solvency Certificate |
||||
-iii-
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of September 5, 2006, as amended and
restated as of December 10, 2009, is among HANESBRANDS INC., a Maryland corporation (the
“Borrower”), the various financial institutions and other Persons from time to time party
to this Agreement (the “Lenders”), BARCLAYS BANK PLC and GOLDMAN SACHS CREDIT PARTNERS
L.P., as the co-documentation agents (in such capacities, the “Co-Documentation Agents”),
BANK OF AMERICA, N.A. and HSBC SECURITIES (USA) INC., as the co-syndication agents (in such
capacities, the “Co-Syndication Agents”), JPMORGAN CHASE BANK, N.A., as the administrative
agent and the collateral agent (in such capacities, the “Administrative Agent” and
“Collateral Agent”, respectively), and J.P. MORGAN SECURITIES INC., BANC OF AMERICA
SECURITIES LLC, HSBC SECURITIES (USA) INC. and BARCLAYS CAPITAL, the investment banking division of
BARCLAYS BANK PLC, as the joint lead arrangers and joint bookrunners (in such capacities, the
“Lead Arrangers”).
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 Defined Terms. The following terms (whether or not underscored) when used
in this Agreement, including its preamble and recitals, shall, except where the context otherwise
requires, have the following meanings (such meanings to be equally applicable to the singular and
plural forms thereof):
“2014 Senior Note Documents” means the 2014 Senior Notes, the 2014 Senior Note
Indenture and all other agreements, documents and instruments executed and delivered with respect
to the 2014 Senior Notes or the 2014 Senior Note Indenture, as the same may be amended,
supplemented, amended and restated or otherwise modified from time to time in accordance with this
Agreement.
“2014 Senior Note Indenture” means the Indenture, between the Borrower and the Person
acting as trustee thereunder (the “2014 Senior Notes Trustee”), pursuant to which the 2014
Senior Notes and any supplemental issuance of “senior notes” thereunder are issued, as the same may
be amended, supplemented, amended and restated or otherwise modified from time to time in
accordance with this Agreement.
“2014 Senior Notes” means the $500,000,000 floating rate senior unsecured notes due
December 15, 2014 issued by the Borrower.
“2014 Senior Notes Trustee” is defined in the definition of “2014 Senior Note
Indenture”.
“2016 Senior Note Documents” means the 2016 Senior Notes, the 2016 Senior Note
Indenture and all other agreements, documents and instruments executed and delivered with respect
to the 2016 Senior Notes or the 2016 Senior Note Indenture, as the same may be
amended, supplemented, amended and restated or otherwise modified from time to time in
accordance with this Agreement.
“2016 Senior Note Indenture” means the Indenture, between the Borrower and the Person
acting as trustee thereunder (the “2016 Senior Notes Trustee”), pursuant to which the 2016
Senior Notes and any supplemental issuance of “senior notes” thereunder are issued, as the same may
be amended, supplemented, amended and restated or otherwise modified from time to time in
accordance with this Agreement.
“2016 Senior Notes” means the $500,000,000 8.00% senior unsecured notes due December
15, 2016 issued by the Borrower.
“2016 Senior Notes Trustee” is defined in the definition of “2016 Senior Note
Indenture”.
“Acquired Permitted Capital Expenditure Amount” is defined in clause (a) of
Section 7.2.7.
“Administrative Agent” is defined in the preamble and includes each other
Person appointed as the successor Administrative Agent pursuant to Section 9.4.
“Affected Lender” is defined in Section 4.11.
“Affiliate” of any Person means any other Person which, directly or indirectly,
controls, is controlled by or is under common control with such Person. “Control” of a Person
means the power, directly or indirectly, (i) to vote 10% or more of the Capital Securities (on a
fully diluted basis) of such Person having ordinary voting power for the election of directors,
managing members or general partners (as applicable), or (ii) to direct or cause the direction of
the management and policies of such Person (whether by contract or otherwise).
“Agents” means, as the context may require, the Administrative Agent and the
Collateral Agent and, for the purposes of Section 5.1 only, the Co-Syndication Agents and
the Co-Documentation Agents, collectively, or either of them individually.
“Agreement” means, on any date, this Amended and Restated Credit Agreement as
originally in effect on the Restatement Effective Date and as thereafter from time to time amended,
supplemented, amended and restated or otherwise modified from time to time and in effect on such
date.
“Alternate Base Rate” means on any date and with respect to all Base Rate Loans, a
fluctuating rate of interest per annum equal to the highest of (i) the Base Rate in effect on such
day, and (ii) the Federal Funds Rate in effect on such day plus 1/2 of 1.0% and (iii) for a LIBO Rate
Loan, the LIBO Rate (Reserve Adjusted) with a one-month Interest Period commencing on such day (or
if such day is not a Business Day, the immediately preceding Business Day) plus 1.0%.
Changes in the rate of interest on that portion of any Loans maintained as Base Rate Loans will
take effect simultaneously with each change in the Alternate Base Rate. The Administrative Agent
will give notice promptly to the Borrower and the Lenders of changes in the Alternate Base Rate;
provided that, the failure to give such notice shall not affect the Alternate Base Rate in
effect after such change.
“Applicable Commitment Fee Margin” means the applicable percentage set forth below
corresponding to the relevant Leverage Ratio:
2
| Applicable Commitment | ||
| Leverage Ratio | Fee Margin | |
| Greater than or equal to 3.75:1.00 | 0.750% | |
| Less than 3.75:1.00 | 0.500% |
Notwithstanding anything to the contrary set forth in this Agreement (including the then
effective Leverage Ratio), the Applicable Commitment Fee Margin from the Restatement Effective Date
through (and including) the date of delivery of the financial statements for the second full Fiscal
Quarter ending after the Restatement Effective Date shall be 0.75%. The Leverage Ratio used to
compute the Applicable Commitment Fee Margin shall be that set forth in the Compliance Certificate
most recently delivered by the Borrower to the Administrative Agent. Changes in the Applicable
Commitment Fee Margin resulting from a change in the Leverage Ratio shall become effective upon
delivery by the Borrower to the Administrative Agent of a new Compliance Certificate pursuant to
clause (c) of Section 7.1.1. If the Borrower fails to deliver a Compliance
Certificate on or before the date required pursuant to clause (c) of Section 7.1.1,
the Applicable Commitment Fee Margin from and including the day after such required date of
delivery to but not including the date the Borrower delivers to the Administrative Agent a
Compliance Certificate shall equal the highest Applicable Commitment Fee Margin set forth above.
“Applicable Margin” means the applicable percentage set forth below
corresponding to the relevant Leverage Ratio:
| Applicable Margin for New Term Loans | ||||||||
| Leverage Ratio | LIBO Rate Loans | Base Rate Loans | ||||||
Greater than or equal to 2.50:1.00 |
3.25 | % | 2.25 | % | ||||
Less than 2.50:1:00 |
3.00 | % | 2.00 | % | ||||
| Applicable Margin for Revolving Loans | ||||||||
| (including Swing Line Loans) | ||||||||
| Leverage Ratio | LIBO Rate Loans | Base Rate Loans | ||||||
Greater than or equal to 4.00:1.00 |
4.75 | % | 3.75 | % | ||||
Less than 4.00:1.00 but greater
than or equal to 3.25:1.00 |
4.50 | % | 3.50 | % | ||||
Less than 3.25:1.00 but greater
than or equal to 2.50:1.00 |
4.25 | % | 3.25 | % | ||||
Less than 2.50:1.00 |
4.00 | % | 3.00 | % | ||||
Notwithstanding anything to the contrary set forth in this Agreement (including the then effective
Leverage Ratio), the Applicable Margin for (i) all New Term Loans from the Closing Date through
(and including) the date of delivery of the financial statements for the second full
Fiscal Quarter ending after Restatement Effective Date shall be (A) 3.25%, in the case of LIBO Rate
Loans, and (B) 2.25%, in the case of Base Rate Loans and (ii) all Revolving Loans (including Swing
Line Loans) from the Restatement Effective Date through (and including) the
3
date of delivery of the
financial statements for the second full Fiscal Quarter ending after Restatement Effective Date
shall be (A) 4.50%, in the case of LIBO Rate Loans, and (B) 3.50%, in the case of Base Rate Loans.
The Leverage Ratio used to compute the Applicable Margin shall be the Leverage Ratio set forth in
the Compliance Certificate most recently delivered by the Borrower to the Administrative Agent.
Changes in the Applicable Margin resulting from a change in the Leverage Ratio shall become
effective upon delivery by the Borrower to the Administrative Agent of a new Compliance Certificate
pursuant to clause (c) of Section 7.1.1. If the Borrower fails to deliver a
Compliance Certificate on or before the date required pursuant to clause (c) of Section
7.1.1, the Applicable Margin from and including the day after such required date of delivery to
but not including the date the Borrower delivers to the Administrative Agent a Compliance
Certificate shall equal the highest Applicable Margin set forth above.
“Applicable Percentage” means, at any time of determination, with respect to a
mandatory prepayment in respect of Excess Cash Flow pursuant to clause (f) of Section
3.1.1, (A) 50.0%, if the Leverage Ratio set forth in the Compliance Certificate most recently
delivered by the Borrower to the Administrative Agent was greater than or equal to 3.50:1.00, (B)
25.0%, if the Leverage Ratio set forth in such Compliance Certificate was less than 3.50:1.00 but
greater than or equal to 3.00:1.00, and (C) 0%, if the Leverage Ratio set forth in such Compliance
Certificate was less than 3.00:1.00.
“Approved Foreign Bank” is defined in the definition of “Cash Equivalent Investment”.
“Approved Fund” means any Person (other than a natural Person) that (i) is engaged in
making, purchasing, holding or otherwise investing in commercial loans and similar extensions of
credit in the ordinary course, and (ii) is administered or managed by a Lender, an Affiliate of a
Lender or a Person or an Affiliate of a Person that administers or manages a Lender.
“Authorized Officer” means, relative to any Obligor, the chief executive officer,
president, chief financial officer, treasurer, assistant treasurer, secretary, assistant secretary
and those of its other officers, general partners or managing members (as applicable), in each case
whose signatures and incumbency shall have been certified to the Agents, the Lenders and the
Issuers pursuant to Section 5.1.1.
“Available Retained Excess Cash Flow” means, on any date of determination thereof, an
amount equal to Retained Excess Cash Flow, minus the sum of (i) the amount of such Retained Excess
Cash Flow used to make any Investments pursuant to Section 7.2.5(l) and (p), (ii) the
amount of such Retained Excess Cash Flow used to make Restricted Payments pursuant to Section
7.2.6(e), (iii) the amount of such Retained Excess Cash Flow used to make Capital Expenditures
pursuant to Section 7.2.7 and (iv) the amount of such Retained Excess Cash Flow used to
make Permitted Acquisitions pursuant to the first proviso in Section 7.2.10(b).
“Base Rate” means, at any time, the rate of interest publicly announced by
JPMorgan Chase Bank as its prime rate in effect at its principal office in New York City.
“Base Rate Loan” means a Loan denominated in Dollars bearing interest at a fluctuating
rate determined by reference to the Alternate Base Rate.
4
“Borrower” is defined in the preamble.
“Borrowing” means the Loans of the same type and, in the case of LIBO Rate Loans,
having the same Interest Period made by all Lenders required to make such Loans on the same
Business Day and pursuant to the same Borrowing Request in accordance with Section 2.3.
“Borrowing Request” means a Loan request and certificate duly executed by an
Authorized Officer of the Borrower substantially in the form of Exhibit B-1 hereto.
“Business Day” means (i) any day which is neither a Saturday or Sunday nor a legal
holiday on which banks are authorized or required to be closed in New York, New York, (ii) relative
to the making, continuing, prepaying or repaying of any LIBO Rate Loans, any day which is a
Business Day described in clause (i) above and on which dealings in Dollars are carried on
in the London interbank eurodollar market and (iii) for purposes of Section 2.1.2 any day
which is neither a Saturday or Sunday nor a legal holiday where the relevant Issuer is located
(and, if such Issuer is located in Hong Kong, excluding any day upon which a Typhoon Number 8
signal or black rainstorm warning is hoisted before 12:00 noon (Hong Kong time)).
“CapEx Pull Forward Amount” is defined in clause (b) of Section 7.2.7.
“Capital Expenditures” means, for any period, the aggregate amount of (i) all
expenditures of the Borrower and its Subsidiaries for fixed or capital assets made during such
period which, in accordance with GAAP, would be classified as capital expenditures and (ii)
Capitalized Lease Liabilities incurred by the Borrower and its Subsidiaries during such period;
provided that Capital Expenditures shall not include any such expenditures which constitute
any of the following, without duplication: (a) a Permitted Acquisition, (b) to the extent permitted
by this Agreement, capital expenditures consisting of Net Disposition Proceeds or Net Casualty
Proceeds not otherwise required to be used to repay the Loans and (c) imputed interest capitalized
during such period incurred in connection with Capitalized Lease Liabilities not paid or payable in
cash. For the avoidance of doubt (x) to the extent that any item is classified under clause
(i) of this definition and later classified under clause (ii) of this definition or
could be classified under either clause, it will only be required to be counted once for purposes
hereunder and (y) in the event the Borrower or any Subsidiary owns an asset that was not used and
is now being reused, no portion of the unused asset shall be considered Capital Expenditures
hereunder; provided that any expenditure necessary in order to permit such asset to be
reused shall be included as a Capital Expenditure during the period that such expenditure actually
is made.
“Capital Securities” means, with respect to any Person, all shares, interests,
participations or other equivalents (however designated, whether voting or non-voting) of such
Person’s capital, whether now outstanding or issued after the Restatement Effective Date;
provided however, any shares, interests, participations or other equivalents
required to be issued in connection with convertible debt shall not be considered “Capital
Securities” until issued.
“Capitalized Lease Liabilities” means, with respect to any Person, all monetary
obligations of such Person and its Subsidiaries under any leasing or similar arrangement which, in
accordance with GAAP, should be classified as capitalized leases, and for purposes of each Loan
Document the amount of such obligations shall be the capitalized amount thereof,
5
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 prior to the first date upon which such lease may be
terminated by the lessee without payment of a premium or a penalty; provided,
however, any changes to the treatment or reclassification of operating leases under GAAP or
the interpretation of GAAP that would cause operating leases to be considered capitalized leases
under GAAP shall be ignored as if such treatment or reclassification had never occurred and, for
the avoidance of doubt, operating leases shall not be considered Capitalized Lease Liabilities
hereunder.
“Cash Collateralize” means, with respect to (i) a Letter of Credit, the deposit of
immediately available funds into a cash collateral account maintained with (or on behalf of) the
Administrative Agent on terms reasonably satisfactory to the Administrative Agent in an amount
equal to the Stated Amount of such Letter of Credit and (ii) OA Payment Obligations, the deposit of
immediately available funds into a cash collateral account maintained with (or on behalf of) the
applicable Open Account Discount Purchaser in an amount equal to the aggregate Dollar amount of
such OA Payment Obligations.
“Cash Equivalent Investment” means, at any time:
(a) any direct obligation of (or unconditionally guaranteed by) the United States or a
State thereof (or any agency or political subdivision thereof, to the extent such
obligations are supported by the full faith and credit of the United States or a State
thereof) maturing not more than one year after such time;
(b) commercial paper maturing not more than 270 days from the date of issue, which is
issued by (i) a corporation (other than an Affiliate of any Obligor) organized under the
laws of any State of the United States or of the District of Columbia and rated A-1 or
higher by S&P or P-1 or higher by Moody’s, or (ii) any Lender (or its holding company);
(c) any certificate of deposit, time deposit or bankers acceptance, maturing not more
than one year after its date of issuance, which is issued by either (i) any bank organized
under the laws of the United States (or any State thereof) and which has (A) a credit rating
of A2 or higher from Moody’s or A or higher from S&P and (B) a combined capital and surplus
greater than $500,000,000, or (ii) any Lender;
(d) any repurchase agreement having a term of 30 days or less entered into with any
Lender or any commercial banking institution satisfying the criteria set forth in clause
(c)(i) which (i) is secured by a fully perfected security interest in any obligation of
the type described in clause (a), and (ii) has a market value at the time such
repurchase agreement is entered into of not less than 100% of the repurchase obligation of
such commercial banking institution thereunder;
(e) with respect to any Foreign Subsidiary, non-Dollar denominated (i) certificates of
deposit of, bankers acceptances of, or time deposits with, any commercial bank which is
organized and existing under the laws of the country in which such Person maintains its
chief executive office or principal place of business or is
6
organized provided such country
is a member of the Organization for Economic Cooperation and Development, and which has a
short-term commercial paper rating from S&P of at least “A-1” or the equivalent thereof or
from Moody’s of at least “P-1” or the equivalent thereof (any such bank being an
“Approved Foreign Bank”) and maturing within one year of the date of acquisition and
(ii) equivalents of demand deposit accounts which are maintained with an Approved Foreign
Bank; and
(f) readily marketable obligations issued or directly and fully guaranteed or insured
by the government or any agency or instrumentality of any member nation of the European
Union whose legal tender is the Euro and which are denominated in Euros or any other foreign
currency comparable in credit quality and tenor to those referred to above and customarily
used by corporations for cash management purposes in any jurisdiction outside the United
States to the extent reasonably required in connection with any business conducted by any
Foreign Subsidiary organized in such jurisdiction, having (i) one of the three highest
ratings from either Moody’s or S&P and (ii) maturities of not more than one year from the
date of acquisition thereof; provided that the full faith and credit of any such
member nation of the European Union is pledged in support thereof.
“Cash Management Obligations” means, with respect to the Borrower or any of its
Subsidiaries, any direct or indirect liability, contingent or otherwise, of such Person in respect
of cash management services (including treasury, depository, overdraft (daylight and temporary),
credit or debit card, electronic funds transfer and other cash management arrangements) provided
after the Restatement Effective Date by a Person who is (or was at the time such Cash Management
Obligations were incurred) the Administrative Agent, any Lender or any Affiliate thereof, including
obligations for the payment of fees, interest, charges, expenses, attorneys’ fees and disbursements
in connection therewith to the extent provided for in the documents evidencing such cash management
services.
“Cash Restructuring Charges” is defined in the definition of “EBITDA.”
“Casualty Event” means the damage, destruction or condemnation, as the case may be, of
property of any Person or any of its Subsidiaries.
“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended.
“CERCLIS” means the Comprehensive Environmental Response Compensation Liability
Information System List.
“Change in Control” means
(a) any person or group (within the meaning of Sections 13(d) and 14(d) under the
Exchange Act) shall become the ultimate “beneficial owner” (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of Capital
Securities representing more than 35% of the Capital Securities of the Borrower on a
fully diluted basis;
7
(b) during any period of 24 consecutive months, individuals who at the beginning of
such period constituted the Board of Directors of the Borrower (together with any new
directors whose election to such Board or whose nomination for election by the stockholders
of the Borrower was approved by a vote of a majority of the directors then still in office
who were either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a majority of
the Board of Directors of the Borrower then in office; or
(c) the occurrence of any “Change of Control” (or similar term) under (and as defined
in) any 2014 Senior Note Document or 2016 Senior Note Document.
“Citi” means, as the context may require, Citicorp USA, Inc. and Citibank, N.A.,
collectively, or either of them, individually.
“Closing Date Certificate” means the closing date certificate executed and delivered
by an Authorized Officer of the Borrower substantially in the form of Exhibit H hereto.
“Code” means the Internal Revenue Code of 1986, and the regulations thereunder, in
each case as amended, reformed or otherwise modified from time to time.
“Co-Documentation Agents” is defined in the preamble.
“Collateral Agent” is defined in the preamble and includes each other Person
appointed as successor Collateral Agent pursuant to Section 9.4.
“Commercial Letter of Credit” means any Letter of Credit issued for the purpose of
providing the primary payment mechanism in connection with the purchase of any materials, goods or
services by the Borrower or any Subsidiary in the ordinary course of business of the Borrower or
such Subsidiary.
“Commitment” means, as the context may require, the New Term Loan Commitment, the
Revolving Loan Commitment, the Letter of Credit Commitment or the Swing Line Loan Commitment.
“Commitment Amount” means, as the context may require, the New Term Loan Commitment
Amount, the Revolving Loan Commitment Amount, the Letter of Credit Commitment Amount or the Swing
Line Loan Commitment Amount.
“Commitment Termination Date” means, as the context may require, the New Term Loan
Commitment Termination Date or the Revolving Loan Commitment Termination Date.
“Commitment Termination Event” means
(a) the occurrence of any Event of Default with respect to the Borrower described in
clauses (a) through (d) of Section 8.1.9; or
(b) the occurrence and continuance of any other Event of Default and either (i) the
declaration of all or any portion of the Loans to be due and payable pursuant to
8
Section
8.3, or (ii) the giving of notice by the Administrative Agent, acting at the direction
of the Required Lenders, to the Borrower that the Commitments have been terminated.
“Communications” is defined in clause (a) of Section 9.11.
“Compliance Certificate” means a certificate duly completed and executed by an
Authorized Officer of the Borrower, substantially in the form of Exhibit E hereto.
“Contingent Liability” means any agreement, undertaking or arrangement by which any
Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or
indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or
otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the Indebtedness
of any other Person (other than by endorsements of instruments in the course of collection), or
guarantees the payment of dividends or other distributions upon the Capital Securities of any other
Person. The amount of any Person’s obligation under any Contingent Liability shall (subject to any
limitation with respect thereto) be deemed to be the outstanding principal amount of the debt,
obligation or other liability guaranteed thereby.
“Continuation/Conversion Notice” means a notice of continuation or conversion and
certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of
Exhibit C hereto.
“Controlled Group” means all members of a controlled group of corporations and all
members of a controlled group of trades or businesses (whether or not incorporated) under common
control which, together with the Borrower, are treated as a single employer under Section 414(b) or
414(c) of the Code or Section 4001 of ERISA.
“Copyright Security Agreement” means any Copyright Security Agreement executed and
delivered by any Obligor in substantially the form of Exhibit C to the Security Agreement, as
amended, supplemented, amended and restated or otherwise modified from time to time.
“Co-Syndication Agents” is defined in the preamble.
“Credit Extension” means, as the context may require,
(a) the making of a Loan by a Lender; or
(b) the issuance of any Letter of Credit, any amendment to or modification of any
Letter of Credit that increases the face amount thereof, or the extension of any Stated
Expiry Date of any existing Letter of Credit, by an Issuer.
“Default” means any Event of Default or any condition, occurrence or event which,
after notice or lapse of time relating to any cure period or both, would constitute an Event of
Default.
“Defaulting Lender” means any Lender that has (a) failed to fund any portion of its
Loans or participations in Letters of Credit or Swing Line Loans within three Business Days of the
date required to be funded by it hereunder, (b) notified the Borrower, the Administrative
9
Agent,
the Issuers, the Swing Line Lender or any Lender in writing that it does not intend to comply with
any of its funding obligations under this Agreement or has made a public statement to the effect
that it does not intend to comply with its funding obligations under this Agreement or under other
agreements in which it commits to extend credit, (c) failed, within three Business Days after
written request by the Administrative Agent, to confirm that it will comply with the terms of this
Agreement relating to its obligations to fund prospective Loans and participations in then
outstanding Letters of Credit and Swing Line Loans, (d) otherwise failed to pay over to the
Administrative Agent or any other Lender any other amount (other than any other amount that is de
minimis) required to be paid by it hereunder within three Business Days of the date when due,
unless the subject of a good faith dispute, or (e) (i) become or is insolvent or has a parent
company that has become or is insolvent or (ii) become the subject of a bankruptcy or insolvency
proceeding, or has had a receiver, conservator, trustee or custodian appointed for it, or has taken
any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such
proceeding or appointment or has a parent company that has become the subject of a bankruptcy or
insolvency proceeding, or has had a receiver, conservator, trustee or custodian appointed for it,
or has taken any action in furtherance of, or indicating its consent to, approval of or
acquiescence in any such proceeding or appointment; provided that a Lender shall not be a
Defaulting Lender solely by virtue of the ownership or acquisition by a Governmental Authority or
an instrumentality thereof of any equity interest in such Lender or a parent company thereof.
“Disbursement” is defined in Section 2.6.2.
“Disbursement Date” is defined in Section 2.6.2.
“Disclosure Schedule” means the Disclosure Schedule attached hereto as Schedule
I, as it may be amended, supplemented, amended and restated or otherwise modified from time to
time by the Borrower with the written consent of, in the case of non-material modification, the
Administrative Agent and, in the case of material modifications the Required Lenders.
“Disposition” (or similar words such as “Dispose”) means any sale, transfer,
lease (as lessor), contribution or other conveyance (including by way of merger) of, or the
granting of options, warrants or other rights to, any of the Borrower’s or its Subsidiaries’ assets
(including accounts receivable and Capital Securities of Subsidiaries) to any other Person in a
single transaction or series of transactions other than (i) to another Obligor, (ii) by a Foreign
Subsidiary to any other Foreign Subsidiary, (iii) by a Receivables Subsidiary to any other Person
or (iv) customary derivatives issued in connection with the issuance of convertible debt.
“Dollar” and the sign “$” mean lawful money of the United States.
“EBITDA” means, for any applicable period, the sum of
(a) Net Income, plus
(b) to the extent deducted in determining Net Income, the sum of (i) amounts
attributable to amortization (including amortization of goodwill and other intangible
assets), (ii) Federal, state, local and foreign income withholding, franchise, state
single business unitary and similar Tax expense, (iii) Interest Expense, (iv) depreciation
of assets, (v) all non-cash charges, including all non-cash charges associated with
10
announced restructurings, whether announced previously or in the future (such non-cash
restructuring charges being “Non-Cash Restructuring Charges”), (vi) net cash charges
associated with or related to any contemplated restructurings (such cost restructuring
charges being “Cash Restructuring Charges”) in an aggregate amount not to exceed
$120,000,000 since September 5, 2006, (vii) all amounts in respect of extraordinary losses,
(viii) non-cash compensation expense, or other non-cash expenses or charges, arising from
the sale of stock, the granting of stock options, the granting of stock appreciation rights
and similar arrangements (including any repricing, amendment, modification, substitution or
change of any such stock, stock option, stock appreciation rights or similar arrangements),
(ix) any financial advisory fees, accounting fees, legal fees and other similar advisory and
consulting fees, cash charges in respect of strategic market reviews, management bonuses and
early retirement of Indebtedness, and related out-of-pocket expenses incurred by the
Borrower or any of its Subsidiaries as a result of the Transaction, including fees and
expenses in connection with the issuance, redemption or exchange of the 2016 Senior Notes,
all determined in accordance with GAAP, (x) non-cash or unrealized losses on agreements with
respect to Hedging Obligations and (xi) to the extent non-recurring and not capitalized, any
financial advisory fees, accounting fees, legal fees and similar advisory and consulting
fees and related costs and expenses of the Borrower and its Subsidiaries incurred as a
result of Permitted Acquisitions, Investments, Restricted Payments, Dispositions permitted
hereunder and the issuance of Capital Securities or Indebtedness permitted hereunder, all
determined in accordance with GAAP and in each case eliminating any increase or decrease in
income resulting from non-cash accounting adjustments made in connection with the related
Permitted Acquisition or Dispositions, (xii) losses on agreements with respect to Hedging
Obligations and any related tax losses and any costs, fees, and expenses related to the
termination thereof, in each case incurred in connection with or as a result of the
Transaction, (xiii) to the extent the related loss is not added back pursuant to clause
(c), all proceeds of business interruption insurance policies, (xiv) expenses incurred
by the Borrower or any Subsidiary to the extent reimbursed in cash by a third party, and
(xv) extraordinary, unusual or non-recurring cash charges not to exceed $10,000,000 in any
Fiscal Year, minus
(c) to the extent included in determining such Net Income, the sum of (i) all amounts
in respect of extraordinary gains, (ii) non-cash gains on agreements with respect to Hedging
Obligations, (iii) reversals (in whole or in part) of any restructuring charges previously
treated as Non-Cash Restructuring Charges in any prior period, (iv) gains on agreements with
respect to Hedging Obligations and any related tax gains, in each case incurred in
connection with or as a result of the Transaction and (v) non-cash items increasing such Net
Income for such period, other than (A) the accrual of revenue consistent with past practice
and (B) the reversal in such period of an accrual of, or cash reserve for, cash expenses in
a prior period, to the extent such accrual or reserve did not increase EBITDA in a prior
period.
“Eligible Assignee” means (i) in the case of an assignment of a New Term Loan, (A) a
Lender, (B) an Affiliate of a Lender, (C) an Approved Fund or (D) any other Person (other than an
Ineligible Assignee), and (ii) in the case of any assignment of the Revolving Loan Commitment or
Revolving Loans, (A) a Lender, (B) an Affiliate of a Lender or (C) any other
11
Person (other than an
Ineligible Assignee) approved by the Borrower (such approval of the Borrower not to be unreasonably
withheld or delayed) unless an Event of Default has occurred and is continuing.
“EMU” means Economic and Monetary Union as contemplated in the Treaty on European
Union.
“EMU Legislation” means legislative measures of the European Council (including
European Council regulations) for the introduction of, changeover to or operation of a single or
unified European currency (whether known as the Euro or otherwise), being in part the
implementation of the third stage of EMU.
“Environmental Laws” means all applicable federal, state or local statutes, laws,
ordinances, codes, rules, regulations and legally binding guidelines (including consent decrees and
administrative orders) relating to protection of public health and safety from environmental
hazards and protection of the environment.
“Equity Equivalents” means with respect to any Person any rights, warrants, options,
convertible securities, exchangeable securities, indebtedness or other rights, in each case
exercisable for or convertible or exchangeable into, directly or indirectly, Capital Securities of
such Person or securities exercisable for or convertible or exchangeable into Capital Securities of
such Person, whether at the time of issuance or upon the passage of time or the occurrence of some
future event.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any
successor statute thereto of similar import, together with the regulations thereunder, in each case
as in effect from time to time. References to Sections of ERISA also refer to any successor
Sections thereto.
“Euros” means the single currency of Participating Member States of the European
Union.
“Event of Default” is defined in Section 8.1.
“Excess Cash Flow” means, for any Fiscal Year, the excess (if any), of
(a) EBITDA for such Fiscal Year
minus
(b) the sum (for such Fiscal Year) of (i) Interest Expense actually paid in cash by the
Borrower and its Subsidiaries, (ii) scheduled principal repayments with respect to the
permanent reduction of Indebtedness, to the extent actually made, (iii) all Federal, state,
local and foreign income withholding, franchise, state single business unitary and
similar Taxes actually paid in cash or payable (only to the extent related to Taxes
associated with such Fiscal Year) by the Borrower and its Subsidiaries, (iv) Capital
Expenditures to the extent (x) actually made by the Borrower and its Subsidiaries in such
Fiscal Year or (y) committed to be made by the Borrower and its Subsidiaries and that are
12
permitted to be carried forward to the next succeeding Fiscal Year pursuant to Section
7.2.7; provided that the amounts deducted from Excess Cash Flow pursuant to
preceding clause (y) shall not thereafter be deducted in the determination of Excess
Cash Flow for the Fiscal Year during which such payments were actually made, (v) the portion
of the purchase price paid in cash with respect to Permitted Acquisitions to the extent such
Permitted Acquisition was made in connection with the Borrower’s offshore migration of its
supply chain, (vi) to the extent permitted to be included in the calculation of EBITDA for
such Fiscal Year, the amount of Cash Restructuring Charges actually so included in such
calculation and (vii) without duplication to any amounts deducted in preceding clauses
(i) through (vi), all items added back to EBITDA pursuant to clause (b) of the
definition thereof that represent amounts actually paid in cash.
“Excluded Properties” means the “Commerce” property, “Canterbury” property and
“Northridge” property (each as identified under the “Facility Name” column of the table set forth
in Item 6.9(b) of the Disclosure Schedule).
“Exemption Certificate” is defined in clause (e) of Section 4.6.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Existing Letters of Credit” means each of the Letters of Credit issued by an Issuer
and outstanding on the Restatement Effective Date, as listed on Schedule III hereto.
“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum
equal for each day during such period to (i) the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or (ii) if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such transactions received by the
Administrative Agent from three federal funds brokers of recognized standing selected by it.
“Filing Agent” is defined in Section 5.1.11.
“Filing Statements” is defined in Section 5.1.11.
“Fiscal Quarter” means a quarter ending on the Saturday nearest to the last day of
March, June, September or December.
“Fiscal Year” means any period of fifty-two or fifty-three consecutive calendar weeks
ending on the Saturday nearest to December 31; references to a Fiscal Year with a number
corresponding to any calendar year (e.g., the “2009 Fiscal Year”) refer to the Fiscal Year
ending on the Saturday nearest to December 31 of such calendar year.
“Foreign Pledge Agreement” means any supplemental pledge agreement governed by the
laws of a jurisdiction other than the United States or a State thereof executed and delivered by
the Borrower or any of its Subsidiaries pursuant to the terms of this Agreement, in form and
substance reasonably satisfactory to the Lead Arrangers, as necessary under the laws of
13
organization or incorporation of a Foreign Subsidiary to further protect or perfect the Lien on and
security interest in any Capital Securities issued by such Foreign Subsidiary constituting
Collateral (as defined in the Security Agreement), including any Foreign Pledge Agreement as
amended in accordance with Section 7.1.11.
“Foreign Subsidiary” means any Subsidiary that is not a U.S. Subsidiary or a
Receivables Subsidiary.
“Foreign Working Capital Lender” means each Person that is (or at the time such
Indebtedness was incurred, was) a Lender or an Affiliate of a Lender to whom a Foreign Subsidiary
owes Indebtedness that was permitted to be incurred pursuant to clause (n) of Section
7.2.2.
“F.R.S. Board” means the Board of Governors of the Federal Reserve System or any
successor thereto.
“GAAP” is defined in Section 1.4.
“Governmental Authority” means the government of the United States, any other nation
or any political subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government.
“Guaranty” means the amended and restated guaranty executed and delivered by an
Authorized Officer of the Borrower and each U.S. Subsidiary pursuant to the terms of this
Agreement, substantially in the form of Exhibit F hereto, as amended, supplemented, amended
and restated or otherwise modified from time to time.
“Hazardous Material” means (i) any “hazardous substance”, as defined by CERCLA, (ii)
any “hazardous waste”, as defined by the Resource Conservation and Recovery Act, as amended, or
(iii) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance
(including any petroleum product) within the meaning of any other Environmental Laws.
“Hedging Obligations” means, with respect to any Person, all liabilities of such
Person under foreign exchange contracts, commodity hedging agreements, currency exchange
agreements, interest rate swap agreements, interest rate cap agreements and interest rate collar
agreements, and all other agreements or arrangements designed to protect such Person against
fluctuations in interest rates, currency exchange rates or commodity prices.
“herein”, “hereof”, “hereto”, “hereunder” and similar terms
contained in any Loan Document refer to such Loan Document as a whole and not to any particular
Section, paragraph or provision of such Loan Document.
“HSBC” means HSBC Bank USA, National Association, in its individual capacity, and any
successor thereto by merger, consolidation or otherwise.
14
“Impermissible Qualification” means any qualification or exception to the opinion or
certification of any independent public accountant as to any financial statement of the Borrower
(i) which is of a “going concern” or similar nature, (ii) which relates to the limited scope in any
material respect of examination of matters relevant to such financial statement, or (iii) which
relates to the treatment or classification of any item in such financial statement (excluding
treatment or classification changes which are the result of changes in GAAP or the interpretation
of GAAP) and which, as a condition to its removal, would require an adjustment to such item the
effect of which would be to cause the Borrower to be in Default.
“including” and “include” means including without limiting the generality of
any description preceding such term, and, for purposes of each Loan Document, the parties hereto
agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which
is followed by or referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
“Increased Amount Date” is defined in Section 2.9.
“Incremental Loan Commitment” is defined in Section 2.9.
“Incremental Revolving Commitments” is defined in Section 2.9.
“Incremental Revolving Lender” is defined in Section 2.9.
“Incremental Revolving Loan” is defined in Section 2.9.
“Incremental Term Loan Lender” is defined in Section 2.9.
“Incremental Term Loan” is defined in Section 2.9.
“Incremental Term Loan Commitment” is defined in Section 2.9.
“Indebtedness” of any Person means, (i) all obligations of such Person for borrowed
money or advances and all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, (ii) all monetary obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker’s acceptances issued for the
account of such Person, (iii) all Capitalized Lease Liabilities of such Person, (iv) for purposes
of Section 8.1.5 only, net Hedging Obligations of such Person, (v) whether or not so
included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred
purchase price of property or services (excluding trade accounts payable and accrued expenses in
the ordinary course of business which are not overdue for a period of more than 90 days or, if
overdue for more than 90 days, as to which a dispute exists and adequate reserves in conformity
with GAAP have been established on the books of such Person), (vi) indebtedness secured by (or for
which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured
by) a Lien on property owned or being acquired by such Person (including indebtedness arising under
conditional sales or other title retention agreements), whether or not such
indebtedness shall have been assumed by such Person or is limited in recourse
(provided that in the event such indebtedness is limited in recourse solely to the property
subject to such Lien, for the purposes of this Agreement the amount of such indebtedness shall not
exceed the greater of
15
the book value or the fair market value (as determined in good faith by the
Borrower’s board of directors) of the property subject to such Lien), (vii) monetary obligations
arising under Synthetic Leases, (viii) the full outstanding balance of trade receivables, notes or
other instruments sold with full recourse (and the portion thereof subject to potential recourse,
if sold with limited recourse), other than in any such case any thereof sold solely for purposes of
collection of delinquent accounts and other than in connection with any Permitted Securitization or
any Permitted Factoring Facility, (ix) all obligations (other than intercompany obligations) of
such Person pursuant to any Permitted Securitization (other than Standard Securitization
Undertakings) or any Permitted Factoring Facility, and (x) all Contingent Liabilities of such
Person in respect of any of the foregoing. The Indebtedness of any Person shall include the
Indebtedness of any other Person (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefore as a result of such Person’s ownership
interest in or other relationship with such Person, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefore.
“Indemnified Liabilities” is defined in Section 10.4.
“Indemnified Parties” is defined in Section 10.4.
“Ineligible Assignee” means a natural Person, the Borrower, any Affiliate of the
Borrower or any other Person taking direction from, or working in concert with, the Borrower or any
of the Borrower’s Affiliates.
“Information” is defined in Section 10.19.
“Interest Coverage Ratio” means, as of the last day of any Fiscal Quarter, the ratio
computed for the period consisting of such Fiscal Quarter and each of the three immediately
preceding Fiscal Quarters of:
(a) EBITDA (for all such Fiscal Quarters)
to
(b) the sum (for all such Fiscal Quarters) of Interest Expense.
“Interest Expense” means, for any applicable period, the aggregate interest expense
(both, without duplication, when accrued or paid and net of interest income paid during such period
to the Borrower and its Subsidiaries) of the Borrower and its Subsidiaries for such applicable
period, including the portion of any payments made in respect of Capitalized Lease Liabilities
allocable to interest expense; provided that the term “Interest Expense” shall not include
any interest expense attributable to a Permitted Factoring Facility.
“Interest Period” means, relative to any LIBO Rate Loan, the period beginning on (and
including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO
Rate Loan pursuant to Sections 2.3 or 2.4 and shall end on (but exclude) the day
which
numerically corresponds to such date one, two, three or six months and, if agreed by all
affected Lenders, one or two weeks or 9 or 12 months thereafter (or, if any such month has no
16
numerically corresponding day, on the last Business Day of such month), as the Borrower may select
in its relevant notice pursuant to Sections 2.3 or 2.4; provided that,
(a) the Borrower shall not be permitted to select Interest Periods to be in effect at
any one time which have expiration dates occurring on more than twelve different dates; and
(b) if such Interest Period would otherwise end on a day which is not a Business Day,
such Interest Period shall end on the next following Business Day (unless such next
following Business Day is the first Business Day of a calendar month, in which case such
Interest Period shall end on the Business Day next preceding such numerically corresponding
day).
“Investment” means, relative to any Person, (i) any loan, advance or extension of
credit made by such Person to any other Person, including the purchase by such Person of any bonds,
notes, debentures or other debt securities of any other Person, and (ii) any Capital Securities
held by such Person in any other Person. The amount of any Investment shall be the original
principal or capital amount thereof less all returns of principal or equity thereon and shall, if
made by the transfer or exchange of property other than cash, be deemed to have been made in an
original principal or capital amount equal to the fair market value of such property at the time of
such Investment.
“ISP Rules” is defined in Section 10.9.
“Issuance Request” means a Letter of Credit request and certificate duly executed by
an Authorized Officer of the Borrower, substantially in the form of Exhibit B-2 hereto, or
in such electronic format as an Issuer and the Administrative Agent in their discretion accept.
Each Issuance Request delivered in an electronic format shall constitute for all purposes of this
Agreement a certification by an Authorized Officer as to the matters set forth in Exhibit
B-2.
“Issuer” means HSBC or another Lender selected by the Borrower and reasonably
acceptable to the Administrative Agent, in each case, in its capacity as an Issuer of the Letters
of Credit. At the request of HSBC and with the Borrower’s consent (not to be unreasonably withheld
or delayed), another Lender or an Affiliate of HSBC may issue one or more Letters of Credit
hereunder, in which case the term “Issuer” shall include any such Affiliate or other Lender with
respect to Letters of Credit issued by such Affiliate or such Lender.
“Joinder Agreement” is defined in Section 2.9.
“Judgment Currency” is defined in Section 10.16.
“JPMorgan” means JPMorgan Chase Bank, N.A.
“Lead Arrangers” is defined in the preamble.
“Lender Assignment Agreement” means an assignment agreement substantially in the form
of Exhibit D hereto.
17
“Lenders” is defined in the preamble.
“Lender’s Environmental Liability” means any and all losses, liabilities, obligations,
penalties, claims, litigation, demands, defenses, costs, judgments, suits, proceedings, damages
(including consequential damages), disbursements or expenses of any kind or nature whatsoever
(including reasonable attorneys’ fees at trial and appellate levels and experts’ fees and
disbursements and expenses incurred in investigating, defending against or prosecuting any
litigation, claim or proceeding) which may at any time be imposed upon, incurred by or asserted or
awarded against the Administrative Agent, any Lender or any Issuer or any of such Person’s
Affiliates, shareholders, directors, officers, employees, and agents in connection with or arising
from:
(a) any Hazardous Material on, in, under or affecting all or any portion of any
property of the Borrower or any of its Subsidiaries, the groundwater thereunder, or any
surrounding areas thereof to the extent caused by Releases from the Borrower’s or any of its
Subsidiaries’ or any of their respective predecessors’ properties;
(b) any misrepresentation, inaccuracy or breach of any warranty, contained or referred
to in Section 6.12;
(c) any violation or claim of violation by the Borrower or any of its Subsidiaries of
any Environmental Laws; or
(d) the imposition of any lien for damages caused by or the recovery of any costs for
the cleanup, release or threatened release of Hazardous Material by the Borrower or any of
its Subsidiaries, or in connection with any property owned or formerly owned by the Borrower
or any of its Subsidiaries.
“Letter of Credit” means a letter of credit that is a Standby Letter of Credit or
Commercial Letter of Credit. For greater certainty Letters of Credit shall include all Existing
Letters of Credit.
“Letter of Credit Commitment” means an Issuer’s obligation to issue Letters of Credit
pursuant to Section 2.1.2.
“Letter of Credit Commitment Amount” means, on any date, a maximum amount equal to
$150,000,000, as such amount may be permanently reduced from time to time pursuant to Section
2.2.
“Letter of Credit Outstandings” means, on any date, an amount equal to the sum of
(i) the then aggregate amount which is undrawn and available under all issued and outstanding
Letters of Credit, and (ii) the then aggregate amount of all unpaid and outstanding Reimbursement
Obligations.
“Leverage Ratio” means, as of the last day of any Fiscal Quarter, the ratio of
18
(a) Total Debt outstanding on the last day of such Fiscal Quarter
to
(b) EBITDA computed for the period consisting of such Fiscal Quarter and each of the
three immediately preceding Fiscal Quarters.
“LIBO Rate” means, relative to any Interest Period pertaining to a LIBO Rate Loan, the
rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to
such Interest Period commencing on the first day of such Interest Period appearing on the Reuters
Screen LIBOR01 Page as of 11:00 A.M., London time, two Business Days prior to the beginning of such
Interest Period. In the event that such rate does not appear on such page (or otherwise on such
screen), the “LIBO Rate” shall be determined by reference to such other comparable publicly
available service for displaying eurodollar rates as may be selected by the Administrative Agent
or, in the absence of such availability, by reference to the rate at which the Administrative Agent
is offered Dollar deposits at or about 11:00 A.M., New York City time, two Business Days prior to
the beginning of such Interest Period in the interbank eurodollar market where its eurodollar and
foreign currency and exchange operations are then being conducted for delivery on the first day of
such Interest Period for the number of days comprised therein. Notwithstanding the foregoing, with
respect to any New Term Loan, the LIBO Rate shall not be less than 2.00% per annum.
“LIBO Rate Loan” means a Loan bearing interest, at all times during an Interest Period
applicable to such Loan, at a rate of interest determined by reference to the LIBO Rate (Reserve
Adjusted).
“LIBO Rate (Reserve Adjusted)” means, relative to any Loan to be made, continued or
maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum
determined pursuant to the following formula:
| LIBO Rate | = | LIBO Rate | ||||||||
| (Reserve Adjusted) | 1.00 — LIBOR Reserve Percentage |
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans will be determined by
the Administrative Agent on the basis of the LIBOR Reserve Percentage in effect, and the applicable
rates furnished to and received by the Administrative Agent, two Business Days before the first day
of such Interest Period.
“LIBOR Reserve Percentage” means, relative to any Interest Period for LIBO Rate Loans,
the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements
(including all basic, emergency, supplemental, marginal and other reserves and taking into account
any transitional adjustments or other scheduled changes in reserve requirements) specified under
regulations issued from time to time by the F.R.S. Board and then applicable to assets or
liabilities consisting of or including “Eurocurrency Liabilities”, as currently defined in
Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest
Period.
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“Lien” means any security interest, mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in
property, or other priority or preferential arrangement of any kind or nature whatsoever.
“Loan Documents” means, collectively, this Agreement, the Notes, the Letters of
Credit, the Open Account Paying Agreements, each Rate Protection Agreement, the Security Agreement,
each Mortgage, each Foreign Pledge Agreement, each other agreement pursuant to which the Collateral
Agent is granted by the Borrower or its Subsidiaries a Lien to secure the Obligations, and the
Guaranty; provided, however, that for purposes of the definition of “Material
Adverse Effect” below, references therein to any “Loan Document(s)” shall not include any Foreign
Pledge Agreement.
“Loans” means, as the context may require, a Revolving Loan, a New Term Loan or a
Swing Line Loan of any type.
“Material Adverse Effect” means any event, development or circumstance that has had or
could reasonably be expected to have a material adverse effect on (i) the business, financial
condition, operations, performance, or assets of the Borrower and its Subsidiaries (other than any
Receivables Subsidiary) taken as a whole, (ii) the validity or enforceability of any of the Loan
Documents or the rights and remedies of any Secured Party under any Loan Document or (iii) the
ability of any Obligor to perform when due its Obligations under any Loan Document.
“Moody’s” means Moody’s Investors Service, Inc. and its successors.
“Mortgage” means each mortgage, deed of trust or agreement executed and delivered by
any Obligor in favor of the Administrative Agent for the benefit of the Secured Parties pursuant to
the requirements of this Agreement in form and substance reasonably satisfactory to the Lead
Arrangers, under which a Lien is granted on such real property and fixtures described therein, in
each case as amended in accordance with Section 7.1.11 and as further amended,
supplemented, amended and restated or otherwise modified from time to time.
“Mortgaged Property” means each parcel of real property set forth on Item 6.9(a) of
the Disclosure Schedule.
“Net Casualty Proceeds” means, with respect to any Casualty Event, the amount of any
insurance proceeds or condemnation awards received by the Borrower or any of its U.S. Subsidiaries
in connection with such Casualty Event (net of all collection or similar expenses related thereto),
but excluding any proceeds or awards required to be paid to a creditor (other than the Lenders)
which holds a first priority Lien permitted by clause (d) of Section 7.2.3 on the
property which is the subject of such Casualty Event.
“Net Debt Proceeds” means, with respect to the sale or issuance by the Borrower or any
of its U.S. Subsidiaries (other than a Receivables Subsidiary or a Subsidiary party to a Permitted
Factoring Facility) of any Indebtedness to any other Person after the Restatement Effective Date
pursuant to clause (b)(iii) of Section 7.2.2 or which is not expressly permitted by
Section 7.2.2, the excess of (i) the gross cash proceeds actually received by such Person
from such sale or issuance, over (ii) all arranging or underwriting discounts, fees, costs,
expenses and commissions, and all legal, investment banking, brokerage and accounting and other
professional
20
fees, sales commissions and disbursements and other closing costs and expenses actually
incurred in connection with such sale or issuance other than any such fees, discounts, commissions
or disbursements paid to Affiliates of the Borrower or any such Subsidiary in connection therewith.
“Net Disposition Proceeds” means the gross cash proceeds received by the Borrower or
its U.S. Subsidiaries from any Disposition pursuant to clauses (j) (l), (m)
or (n) of Section 7.2.11 or Section 7.2.15 and any cash payment received in
respect of promissory notes or other non-cash consideration delivered to the Borrower or its U.S.
Subsidiaries in respect thereof, minus the sum of (i) all legal, investment banking,
brokerage, accounting and other professional fees, costs, sales commissions and expenses and other
closing costs, fees and expenses incurred in connection with such Disposition, (ii) all taxes
actually paid or estimated by the Borrower to be payable in cash in connection with such
Disposition, (iii) payments made by the Borrower or its U.S. Subsidiaries to retire Indebtedness
(other than the Credit Extensions) where payment of such Indebtedness is required in connection
with such Disposition and (iv) any liability reserves established by the Borrower or such
Subsidiary in respect of such Disposition in accordance with GAAP; provided that, if the
amount of any estimated taxes pursuant to clause (ii) exceeds the amount of taxes required
to be paid in cash in respect of such Disposition, the aggregate amount of such excess shall
constitute Net Disposition Proceeds and to the extent any such reserves described in clause
(iv) are not fully used at the end of any applicable period for which such reserves were
established, such unused portion of such reserves shall constitute Net Disposition Proceeds.
“Net Income” means, for any period, the aggregate of all amounts which would be
included as net income on the consolidated financial statements of the Borrower and its
Subsidiaries for such period.
“New Term Loan Commitment” means, relative to any Lender, such Lender’s obligation (if
any) to make New Term Loans pursuant to Section 2.1.3.
“New Term Loan Commitment Amount” means, on any date, $750,000,000.
“New Term Loan Commitment Termination Date” means the earliest of
(a) December 31, 2009 (if the New Term Loans have not been made on or prior to such
date);
(b) the Restatement Effective Date (immediately after the making of the New Term Loans
on such date); and
(c) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described above, the New Term Loan Commitments shall
terminate automatically and without any further action.
“New Term Loans” is defined in Section 2.1.3.
21
“New Term Note” means a promissory note of the Borrower payable to any Lender, in the
form of Exhibit A-2 hereto (as such promissory note may be amended, endorsed or otherwise
modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender
resulting from outstanding New Term Loans, and also means all other promissory notes accepted from
time to time in substitution therefor or renewal thereof.
“New Term Percentage” means, relative to any Lender, the applicable percentage
relating to New Term Loans set forth opposite its name on Schedule II hereto under the New
Term Loan Commitment column or set forth in a Lender Assignment Agreement under the New Term Loan
Commitment column, as such percentage may be adjusted from time to time pursuant to Lender
Assignment Agreements executed by such Lender and its assignee Lender and delivered pursuant to
Section 10.11. A Lender shall not have any New Term Loan Commitment if its percentage
under the New Term Loan Commitment column is zero.
“Non-Cash Restructuring Charges” is defined in the definition of “EBITDA”.
“Non-Consenting Lender” is defined in Section 4.11.
“Non-Defaulting Lender” means a Lender other than a Defaulting Lender.
“Non-Excluded Taxes” means any Taxes other than (i) net income and franchise Taxes
imposed on (or measured by) net income or net profits with respect to any Secured Party by any
Governmental Authority under the laws of which such Secured Party is organized or in which it
maintains its applicable lending office, (ii) any branch profit taxes or any similar taxes imposed
by the United States of America or any other Governmental Authority described in clause
(i), (iii) Other Taxes, and (iv) any United States federal withholding taxes imposed on amounts
payable to any Secured Party at the time such recipient becomes a party to this Agreement (or
designates a new lending office) except to the extent that such Secured Party (or its assignor, if
any) was entitled, at the time of the designation of a new lending office (or assignment), to
receive additional amounts from the Borrower with respect to such withholding taxes pursuant to
Section 4.6(a)(1) or 4.6(d).
“Non-U.S. Lender” means any Lender that is not a “United States person”, as defined
under Section 7701(a)(30) of the Code.
“Note” means, as the context may require, a New Term Note, a Revolving Note or a Swing
Line Note.
“OA Payment Obligations” is defined in the definition of “Open Account Paying
Agreement”.
“OA Payment Outstandings” means, on any date, the aggregate amount of OA Payment
Obligations owed by the Obligors under all Open Account Paying Agreements.
“Obligations” means all obligations (monetary or otherwise, whether absolute or
contingent, matured or unmatured) of the Borrower and each other Obligor arising under or in
connection with a Loan Document, including Reimbursement Obligations and OA Payment Obligations and
the principal of and premium, if any, and interest (including interest accruing
22
during the pendency of any proceeding of the type described in Section 8.1.9, whether
or not allowed in such proceeding) on the Loans.
“Obligor” means, as the context may require, the Borrower, each Subsidiary Guarantor
and each other Person (other than a Secured Party) obligated (other than Persons solely consenting
to or acknowledging such document) under any Loan Document.
“OFAC” is defined in Section 6.15.
“OID” is defined in Section 2.9.
“Open Account Discount Agreement” is defined in the definition of “Open Account Paying
Agreement”.
“Open Account Discount Purchase” means a purchase, made at a discount pursuant to an
Open Account Discount Agreement, by an Open Account Discount Purchaser from an Open Account
Supplier of account receivables in respect of obligations owed by an Obligor.
“Open Account Discount Purchaser” is defined in the definition of “Open Account Paying
Agreement”.
“Open Account Paying Agreement” means an open account paying agency agreement
between or among a Lender or any of its Affiliates and an Obligor, as identified as an “Open
Account Paying Agreement” through notice given from each party thereto to the Administrative Agent,
and/or any other agreement or acknowledgment pursuant to which an Obligor has committed to pay such
Lender or its Affiliates the full face amount of any account receivable in respect of obligations
owed by an Obligor (the “OA Payment Obligations”) purchased by such Lender or its
Affiliates (each, an “Open Account Discount Purchaser”) from certain vendors or other
obligees of an Obligor prior to the Revolving Loan Commitment Termination Date (each, an “Open
Account Supplier”) (each agreement pursuant to which such account receivables are purchased
from an Open Account Supplier, an “Open Account Discount Agreement”).
“Open Account Supplier” is defined in the definition of “Open Account Paying
Agreement”.
“Organic Document” means, relative to any Obligor, as applicable, its articles or
certificate of incorporation, by-laws, certificate of partnership, partnership agreement,
certificate of formation, limited liability agreement, operating agreement and all shareholder
agreements, voting trusts and similar arrangements applicable to any of such Obligor’s Capital
Securities.
“Original Closing Date” means September 5, 2006.
“Original Credit Agreement” means the Credit Agreement dated as of September 5, 2006,
as amended prior to the Restatement Effective Date, among the Borrower, the lenders party thereto,
Citi, as administrative agent and collateral agent, and the co-documentation agents, syndication
agents and lead arrangers party thereto.
“Original Currency” is defined in Section 10.16.
23
“Other Taxes” means any and all stamp, documentary or similar Taxes, or any other
excise or property Taxes or similar levies that arise on account of any payment made or required to
be made under any Loan Document or from the execution, delivery, registration, recording or
enforcement of any Loan Document.
“Participant” is defined in clause (e) of Section 10.11.
“Participating Member State” means each country so described in any EMU Legislation.
“Patent Security Agreement” means any Patent Security Agreement executed and delivered
by any Obligor in substantially the form of Exhibit A to the Security Agreement, as amended,
supplemented, amended and restated or otherwise modified from time to time.
“Patriot Act” means the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law
October 26, 2001)), as amended and supplemented from time to time.
“Patriot Act Disclosures” means all documentation and other information available to
the Borrower or its Subsidiaries which a Lender, if subject to the Patriot Act, is required to
provide pursuant to the applicable section of the Patriot Act and which required documentation and
information the Administrative Agent or any Lender reasonably requests in order to comply with
their ongoing obligations under applicable “know your customer” and anti-money laundering rules and
regulations, including the Patriot Act.
“PBGC” means the Pension Benefit Guaranty Corporation and any Person succeeding to any
or all of its functions under ERISA.
“Pension Plan” means a “pension plan”, as such term is defined in Section 3(2) of
ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in Section
4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is,
along with the Borrower, a member of a Controlled Group, may have liability, including any
liability by reason of having been a substantial employer within the meaning of Section 4063 of
ERISA at any time during the preceding five years, or by reason of being deemed to be a
contributing sponsor under Section 4069 of ERISA.
“Percentage” means, as the context may require, any Lender’s Revolving Loan Percentage
or New Term Percentage.
“Permitted Acquisition” means an acquisition (whether pursuant to an acquisition of a
majority of the Capital Securities of a target or all or substantially all of a target’s assets or
any division or line of business of a target or merger) by the Borrower or any Subsidiary from any
Person of a business in which the following conditions are satisfied:
(a) the Borrower shall have delivered a certificate certifying that before and after
giving effect to such acquisition, the representations and warranties set forth in each Loan
Document shall, in each case, be true and correct in all material respects with the same
effect as if then made (unless stated to relate solely to an earlier date, in which case
such representations and warranties shall be true and correct in all material respects as of
24
such earlier date) and no Default has occurred and is continuing or would result
therefrom; and
(b) the Borrower shall have delivered to the Administrative Agent a Compliance
Certificate for the period of four full Fiscal Quarters immediately preceding such
acquisition (prepared in good faith and in a manner and using such methodology which is
consistent with the most recent financial statements delivered pursuant to Section
7.1.1) giving pro forma effect to the consummation of such acquisition
and evidencing compliance with the covenants set forth in Section 7.2.4.
“Permitted Factoring Facility” means any and all agreements or facilities entered into
by the Borrower or any of its Subsidiaries for the purpose of factoring its receivables for cash
consideration.
“Permitted Liens” is defined in Section 7.2.3.
“Permitted Securitization” means any Disposition by the Borrower or any of its
Subsidiaries consisting of Receivables and related collateral, credit support and similar rights
and any other assets that are customarily transferred in a securitization of receivables, pursuant
to one or more securitization programs, to a Receivables Subsidiary or a Person who is not an
Affiliate of the Borrower; provided that (i) the consideration to be received by the
Borrower and its Subsidiaries other than a Receivables Subsidiary for any such Disposition consists
of cash, a promissory note or a customary contingent right to receive cash in the nature of a
“hold-back” or similar contingent right, (ii) no Default shall have occurred and be continuing or
would result therefrom and (iii) the aggregate outstanding balance of the Indebtedness in respect
of all such programs at any point in time is not in excess of $400,000,000.
“Person” means any natural person, corporation, limited liability company,
partnership, joint venture, association, trust or unincorporated organization, Governmental
Authority or any other legal entity, whether acting in an individual, fiduciary or other capacity.
“Platform” is defined in clause (b) of Section 9.11.
“Purchase Money Note” means a promissory note evidencing a line of credit, or
evidencing other Indebtedness owed to the Borrower or any Subsidiary in connection with a Permitted
Securitization or Permitted Factoring Facility, which note shall be repaid from cash available to
the maker of such note, other than amounts required to be established as reserves, amounts paid to
investors in respect of interest, principal and other amounts owing to such investors and amounts
paid in connection with the purchase of newly generated accounts receivable.
“Quarterly Payment Date” means the last day of March, June, September and December,
or, if any such day is not a Business Day, the next succeeding Business Day.
“Rate Protection Agreement” means, collectively, any agreement with respect to Hedging
Obligations entered into by the Borrower or any of its Subsidiaries under which the counterparty of
such agreement is (or at the time such agreement was entered into, was) a Lender or an Affiliate of
a Lender.
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“Receivable” shall mean a right to receive payment arising from a sale or lease of
goods or the performance of services by a Person pursuant to an arrangement with another Person
pursuant to which such other Person is obligated to pay for goods or services under terms that
permit the purchase of such goods and services on credit and shall include, in any event, any items
of property that would be classified as an “account,” “chattel paper,” “payment intangible” or
“instrument” under the UCC and any supporting obligations.
“Receivables Subsidiary” shall mean any wholly owned Subsidiary of the Borrower (or
another Person in which the Borrower or any Subsidiary makes an Investment and to which the
Borrower or one or more of its Subsidiaries transfer Receivables and related assets) which engages
in no activities other than in connection with the financing of Receivables and which is designated
by the Board of Directors of the applicable Subsidiary (as provided below) as a Receivables
Subsidiary and which meets the following conditions:
(a) no portion of the Indebtedness or any other obligations (contingent or otherwise)
of such Subsidiary:
(i) is guaranteed by the Borrower or any Subsidiary (that is not a Receivables
Subsidiary);
(ii) is recourse to or obligates the Borrower or any Subsidiary (that is not a
Receivables Subsidiary); or
(iii) subjects any property or assets of the Borrower or any Subsidiary (that
is not a Receivables Subsidiary), directly or indirectly, contingently or otherwise,
to the satisfaction thereof;
(b) with which neither the Borrower nor any Subsidiary (that is not a Receivables
Subsidiary) has any material contract, agreement, arrangement or understanding (other than
Standard Securitization Undertakings); and
(c) to which neither the Borrower nor any Subsidiary (that is not a Receivables
Subsidiary) has any obligation to maintain or preserve such entity’s financial condition or
cause such entity to achieve certain levels of operating results.
Any such designation by the Board of Directors of the applicable Subsidiary shall be evidenced
by a certified copy of the resolution of the Board of Directors of such Subsidiary giving effect to
such designation and an officer’s certificate certifying, to the best of such officer’s knowledge
and belief, that such designation complies with the foregoing conditions
“Refunded Swing Line Loans” is defined in clause (b) of Section 2.3.2.
“Regulation S-X” is defined in Section 5.1.6.
“Register” is defined in clause (a) of Section 2.7.
“Reimbursement Obligation” is defined in Section 2.6.3.
26
“Release” means a “release”, as such term is defined in CERCLA.
“Replacement Lender” is defined in Section 4.11.
“Replacement Notice” is defined in Section 4.11.
“Required Lenders” means, at any time, Non-Defaulting Lenders holding more than 50% of
the Total Exposure Amount of all Non-Defaulting Lenders.
“Resource Conservation and Recovery Act” means the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, et seq., as amended.
“Restatement
Effective Date” means December 10, 2009.
“Restricted Payment” means (i) the declaration or payment of any dividend (other than
dividends payable solely in Capital Securities of the Borrower or any Subsidiary (excluding a
Receivables Subsidiary)) on, or the making of any payment or distribution on account of, or setting
apart assets for a sinking or other analogous fund for the purchase, redemption, defeasance,
retirement or other acquisition of, any class of Capital Securities of the Borrower or any
warrants, options or other right or obligation to purchase or acquire any such Capital Securities,
whether now or hereafter outstanding, or (ii) the making of any other distribution in respect of
such Capital Securities, in each case either directly or indirectly, whether in cash, property or
obligations of the Borrower or any Subsidiary or otherwise; provided, however, that
any conversion feature of convertible debt shall not be considered a “Restricted Payment”.
“Retained Excess Cash Flow” means, on any date of determination, the aggregate amount
of Excess Cash Flow for all prior Fiscal Years ending on or after December 31, 2009 that is not
required to be applied to repay New Term Loans pursuant to Section 3.1.1(f).
“Revolving Exposure” means, relative to any Revolving Loan Lender, at any time, (i)
the aggregate outstanding principal amount of all Revolving Loans of such Lender at such time, plus
(ii) such Lender’s Revolving Loan Percentage of the Letter of Credit Outstandings, plus
(iii) such Lender’s Swing Line Exposure, plus (iv) such Lender’s Revolving Loan Percentage
of the OA Payment Outstandings.
“Revolving Loan Commitment” means, relative to any Lender, such Lender’s obligation
(if any) to make Revolving Loans pursuant to clause (a) of Section 2.1.1.
“Revolving Loan Commitment Amount” means, on any date, $400,000,000, as such amount
may be reduced from time to time pursuant to Section 2.2.
“Revolving Loan Commitment Termination Date” means the earliest of
(a) December 31, 2009 (if the initial Credit Extension has not occurred on or prior to
such date);
(b) the fourth anniversary of the Restatement Effective Date;
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(c) the date on which the Revolving Loan Commitment Amount is terminated in full or
reduced to zero pursuant to the terms of this Agreement; and
(d) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in the preceding clauses (c) or (d), the
Revolving Loan Commitments shall terminate automatically and without any further action.
“Revolving Loan Lender” is defined in clause (a) of Section 2.1.1.
“Revolving Loan Percentage” means, relative to any Lender, the applicable percentage
relating to Revolving Loans set forth opposite its name on Schedule II hereto under the
Revolving Loan Commitment column or set forth in a Lender Assignment Agreement under the Revolving
Loan Commitment column, as such percentage may be adjusted from time to time pursuant to Lender
Assignment Agreements executed by such Lender and its assignee Lender and delivered pursuant to
Section 10.11. A Lender shall not have any Revolving Loan Commitment if its percentage
under the Revolving Loan Commitment column is zero.
“Revolving Loans” is defined in clause (a) of Section 2.1.1.
“Revolving Note” means a promissory note of the Borrower payable to any Revolving Loan
Lender, in the form of Exhibit A-1 hereto (as such promissory note may be amended, endorsed
or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to
such Revolving Loan Lender resulting from outstanding Revolving Loans, and also means all other
promissory notes accepted from time to time in substitution therefor or renewal thereof.
“S&P” means Standard & Poor’s Rating Services, a division of The McGraw-Hill
Companies, Inc. and its successors.
“SEC” means the Securities and Exchange Commission.
“Secured Parties” means, collectively, the Lenders, the Issuers, any Open Account
Discount Purchasers, the Administrative Agent, the Collateral Agent, the Lead Arrangers, each
Foreign Working Capital Lender (if applicable), each counterparty to a Rate Protection Agreement
that is (or at the time such Rate Protection Agreement was entered into, was) a Lender or an
Affiliate thereof and (in each case), each Person to whom the Borrower or any of its Subsidiaries
owes Cash Management Obligations, and each of their respective successors, transferees and assigns.
“Security Agreement” means the Amended and Restated Pledge and Security Agreement
executed and delivered by each Obligor, substantially in the form of Exhibit G hereto,
together with any supplemental Foreign Pledge Agreements delivered pursuant to the terms of this
Agreement, in each case as amended, supplemented, amended and restated or otherwise modified from
time to time.
“Senior Secured Leverage Ratio” means, on any date, the ratio of
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(e) Total Senior Secured Debt outstanding on such day
to
(f) Total Tangible Assets as of such day.
“Solvency Certificate” means a certificate executed by the chief financial or
accounting Authorized Officer of the Borrower substantially in the form of Exhibit I.
“Solvent” means, with respect to any Person and its Subsidiaries on a particular date,
that on such date (i) the fair value of the property (on a going-concern basis) of such Person and
its Subsidiaries on a consolidated basis is greater than the total amount of liabilities, including
contingent liabilities, of such Person and its Subsidiaries on a consolidated basis, (ii) the
present fair salable value of the assets (on a going-concern basis) of such Person and its
Subsidiaries on a consolidated basis is not less than the amount that will be required to pay the
probable liability of such Person and its Subsidiaries on a consolidated basis on its debts as they
become absolute and matured in the ordinary course of business, (iii) such Person does not intend
to, and does not believe that it or its Subsidiaries will, incur debts or liabilities beyond the
ability of such Person and its Subsidiaries to pay as such debts and liabilities mature in the
ordinary course of business (including through refinancings, asset sales and other capital market
transactions), and (iv) such Person and its Subsidiaries on a consolidated basis is not engaged in
business or a transaction, and such Person and its Subsidiaries on a consolidated basis is not
about to engage in a business or a transaction, for which the property of such Person and its
Subsidiaries on a consolidated basis would constitute an unreasonably small capital. The amount of
Contingent Liabilities at any time shall be computed as the amount that, in light of all the facts
and circumstances existing at such time, can reasonably be expected to become an actual or matured
liability.
“Specified Default” means (i) any Default under Section 8.1.1 or Section
8.1.9 or (ii) any other Event of Default.
“Standby Letter of Credit” means any Letter of Credit other than a Commercial Letter
of Credit.
“Standard Securitization Undertakings” shall mean representations, warranties,
covenants and indemnities entered into by the Borrower or any Subsidiary which are reasonably
customary in a securitization of Receivables.
“Stated Amount” means, on any date and with respect to a particular Letter of Credit,
the total amount then available to be drawn under such Letter of Credit.
“Stated Expiry Date” is defined in Section 2.6.
“Stated Maturity Date” means (i) with respect to the New Term Loans, the sixth
anniversary of the Restatement Effective Date and (ii) with respect to all Revolving Loans and
Swing Line Loans, the fourth anniversary of the Restatement Effective Date.
“Subsidiary” means, with respect to any Person, any other Person of which more than
50% of the outstanding Voting Securities of such other Person (irrespective of whether at the
29
time Capital Securities of any other class or classes of such other Person shall or might have
voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more other Subsidiaries of such Person, or by
one or more other Subsidiaries of such Person. Unless the context otherwise specifically requires,
the term “Subsidiary” shall be a reference to a Subsidiary of the Borrower (other than a
Receivables Subsidiary).
“Subsidiary Guarantor” means each U.S. Subsidiary that has executed and delivered to
the Administrative Agent the Guaranty (including by means of a delivery of a supplement thereto).
“Swing Line Exposure” means, at any time, the aggregate principal amount of all
outstanding Swing Line Loans at such time. The Swing Line Exposure of any Revolving Loan Lender at
any time shall be its Revolving Loan Percentage of the total Swing Line Exposure at such time.
“Swing Line Lender” means, subject to the terms of this Agreement, JPMorgan Chase
Bank, N.A.
“Swing Line Loan Commitment” is defined in clause (b) of Section
2.1.1.
“Swing Line Loan Commitment Amount” means, on any date, $50,000,000, as such amount
may be reduced from time to time pursuant to Section 2.2.
“Swing Line Loans” is defined in clause (b) of Section 2.1.1.
“Swing Line Note” means a promissory note of the Borrower payable to the Swing Line
Lender, in the form of Exhibit A-3 hereto (as such promissory note may be amended,
restated, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness
of the Borrower to the Swing Line Lender resulting from outstanding Swing Line Loans, and also
means all other promissory notes accepted from time to time in substitution therefor or renewal
thereof.
“Synthetic Lease” means, as applied to any Person, any lease (including leases that
may be terminated by the lessee at any time) of any property (whether real, personal or mixed)
(i) that is not a capital lease in accordance with GAAP and (ii) in respect of which the lessee
retains or obtains ownership of the property so leased for federal income tax purposes, other than
any such lease under which that Person is the lessor.
“Taxes” means all income, stamp or other taxes, duties, levies, imposts, charges,
assessments, fees, deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any Governmental Authority, and all interest, penalties or similar
liabilities with respect thereto.
“Termination Date” means the date on which all Obligations have been paid in full in
cash (other than contingent indemnification obligations for which no claim has been asserted), all
Letters of Credit have been terminated or expired (or been Cash Collateralized), all Rate
Protection Agreements have been terminated and all Commitments shall have terminated.
30
“Total Debt” means, on any date, the outstanding principal amount of all Indebtedness
of the Borrower and its Subsidiaries of the type referred to in clause (i) of the
definition of “Indebtedness”, clause (ii) of the definition of “Indebtedness”, clause
(iii) of the definition of “Indebtedness”, clause (vii) of the definition of
“Indebtedness” and clause (ix) of the definition of “Indebtedness”, in each case exclusive
of (a) intercompany Indebtedness between the Borrower and its Subsidiaries, (b) any Contingent
Liability in respect of any of the foregoing, (c) any Permitted Factoring Facility, (d) any
Commercial Letter of Credit, (e) any Letter of Credit or other credit support relating to the
termination of agreements with respect to Hedging Obligations, in each case under this clause (e),
incurred in connection with or as a result of the Transaction and (f) any Open Account Paying
Agreements.
“Total Exposure Amount” means, on any date of determination (and without duplication),
the outstanding principal amount of all Loans, the aggregate amount of all Letter of Credit
Outstandings and the unfunded amount of the Commitments.
“Total Senior Secured Debt” means, on any date, all Total Debt which is secured by a
Lien.
“Total Tangible Assets” means, on any date, the aggregate amount of assets of the
Borrower and its Subsidiaries shown on a consolidated balance sheet of such Persons at such date
less goodwill and other intangible assets.
“Trademark Security Agreement” means any Trademark Security Agreement executed and
delivered by any Obligor substantially in the form of Exhibit B to the Security Agreement, as
amended, supplemented, amended and restated or otherwise modified from time to time.
“Transaction” means, collectively, (i) the amendment and restatement of the Original
Credit Agreement in order to refinance the Borrower’s existing term loans and replace its existing
revolving facility thereunder and (ii) the issuance by the Borrower of the 2016 Senior Notes and
the concurrent repayment of all outstanding loans under the Borrower’s existing second lien credit
agreement.
“Transaction Documents” means, collectively, the 2016 Senior Notes and any other
material document executed or delivered in connection with the Transaction, including any
transition services agreements and tax sharing agreements, in each case as amended, supplemented,
amended and restated or otherwise modified from time to time in accordance with Section
7.2.12.
“Treaty on European Union” means the Treaty of Rome of March 25, 1957, as amended by
the Single European Act 1986 and the Maastricht Treaty (which was signed at Maastricht, the Kingdom
of Netherlands, on February 1, 1992 and came into force on November 1, 1993), as amended from time
to time.
“type” means, relative to any Loan, the portion thereof, if any, being maintained as a
Base Rate Loan or a LIBO Rate Loan.
“UCC” means the Uniform Commercial Code as in effect from time to time in the State
of New York; provided that if, with respect to any Filing Statement or by reason of any
31
provisions of law, the perfection or the effect of perfection or non-perfection of the
security interests granted to the Collateral Agent pursuant to the applicable Loan Document is
governed by the Uniform Commercial Code as in effect in a jurisdiction of the United States other
than New York, then “UCC” means the Uniform Commercial Code as in effect from time to time in such
other jurisdiction for purposes of the provisions of each Loan Document and any Filing Statement
relating to such perfection or effect of perfection or non-perfection.
“United States” or “U.S.” means the United States of America, its fifty states
and the District of Columbia.
“U.S. Subsidiary” means any Subsidiary (other than a Receivables Subsidiary) that is
incorporated or organized under the laws of the United States.
“Voting Securities” means, with respect to any Person, Capital Securities of any class
or kind ordinarily having the power to vote for the election of directors, managers or other voting
members of the governing body of such Person.
“Welfare Plan” means a “welfare plan”, as such term is defined in Section 3(1) of
ERISA.
“wholly owned Subsidiary” means any Subsidiary all of the outstanding Capital
Securities of which (other than any director’s qualifying shares or investments by foreign
nationals mandated by applicable laws) is owned directly or indirectly by the Borrower.
SECTION 1.2 Use of Defined Terms. Unless otherwise defined or the context otherwise
requires, terms for which meanings are provided in this Agreement shall have such meanings when
used in each other Loan Document and the Disclosure Schedule.
SECTION 1.3 Cross-References. Unless otherwise specified, references in a Loan
Document to any Article or Section are references to such Article or Section of such Loan Document,
and references in any Article, Section or definition to any clause are references to such clause of
such Article, Section or definition.
SECTION 1.4 Accounting and Financial Determinations. (a) Unless otherwise specified,
all accounting terms used in each Loan Document shall be interpreted, and all accounting
determinations and computations thereunder (including under Section 7.2.4 and the
definitions used in such calculations) shall be made, in accordance with those generally accepted
accounting principles (“GAAP”) applied in the preparation of the financial statements
referred to in clause (a) of Section 5.1.6. In the event that any Accounting
Change (as defined below) shall occur and such change results in a change in the method of
calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the
Administrative Agent agree to enter into good faith negotiations in order to amend such provisions
of this Agreement so as to equitably reflect such Accounting Change with the desired result that
the criteria for evaluating the Borrower and its Subsidiaries consolidated financial condition
shall be the same after such Accounting Change as if such Accounting Change had not been made.
Until such time as such an amendment shall have been executed and delivered by the Borrower, the
Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this
Agreement shall continue to be calculated or construed as if such Accounting Change had
32
not occurred. “Accounting Change” refers to any change in accounting principles
required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public Accountants or, if
applicable, the SEC. Unless otherwise expressly provided, all financial covenants and defined
financial terms shall be computed on a consolidated basis for the Borrower and its Subsidiaries, in
each case without duplication. Notwithstanding any other provision contained herein, all
computations of amounts and ratios referred to in this Agreement shall be made without giving
effect to any election under Statement of Financial Accounting Standards 159 (or any other
Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other
liabilities of the Borrower at “fair value” as defined therein.
(b) As of any date of determination, for purposes of determining the Interest Coverage Ratio
or Leverage Ratio (and any financial calculations required to be made or included within such
ratios, or required for purposes of preparing any Compliance Certificate to be delivered pursuant
to the definition of “Permitted Acquisition”), the calculation of such ratios and other
financial calculations shall include or exclude, as the case may be, the effect of any assets or
businesses that have been acquired or Disposed of by the Borrower or any of its Subsidiaries
pursuant to the terms hereof (including through mergers or consolidations) as of such date of
determination, as determined by the Borrower on a pro
forma basis in accordance with GAAP, which
determination may include one-time adjustments or reductions in costs, if any, directly
attributable to any such permitted Disposition or Permitted Acquisition, as the case may be, in
each case (i) calculated in accordance with Regulation S-X and any successor statute, for the
period of four Fiscal Quarters ended on or immediately prior to the date of determination of any
such ratios (after giving effect to any cost-savings or adjustments relating to synergies resulting
from a Permitted Acquisition which have been realized or for which the steps necessary for
realization have been taken and certified in good faith by an officer of the Borrower or otherwise
as the Administrative Agent shall otherwise agree) and (ii) giving effect to any such Permitted
Acquisition or permitted Disposition as if it had occurred on the first day of such four Fiscal
Quarter period.
ARTICLE II
COMMITMENTS, BORROWING AND ISSUANCE
PROCEDURES, NOTES AND LETTERS OF CREDIT
COMMITMENTS, BORROWING AND ISSUANCE
PROCEDURES, NOTES AND LETTERS OF CREDIT
SECTION 2.1 Commitments. On the terms and subject to the conditions of this
Agreement, the Lenders and the Issuers severally agree to make Credit Extensions as set forth
below.
SECTION 2.1.1 Revolving Loan Commitment and Swing Line Loan Commitment. From time to
time on any Business Day occurring after the Restatement Effective Date but prior to the Revolving
Loan Commitment Termination Date,
(a) each Lender that has a Revolving Loan Commitment (referred to as a “Revolving
Loan Lender”), agrees that it will make loans (relative to such Lender, its
“Revolving Loans”) to the Borrower denominated in Dollars equal to such Lender’s
Revolving Loan Percentage of the aggregate amount of each Borrowing of the Revolving Loans
requested by the Borrower to be made on such day; and
33
(b) the Swing Line Lender agrees that it will make loans (its “Swing Line
Loans”) denominated in Dollars to the Borrower equal to the principal amount of the
Swing Line Loan requested by the Borrower to be made on such day. The commitment of the
Swing Line Lender described in this clause is herein referred to as its “Swing Line Loan
Commitment”.
On the terms and subject to the conditions hereof, the Borrower may from time to time borrow,
prepay and reborrow Revolving Loans and Swing Line Loans. No Revolving Loan Lender shall be
permitted or required to make any Revolving Loan if, after giving effect thereto, (i) such Lender’s
Revolving Exposure would exceed such Lender’s Revolving Loan Percentage of the then existing
Revolving Loan Commitment Amount or (ii) the aggregate amount of Revolving Loans and Swing Line
Loans outstanding together with the Letter of Credit Outstandings and the OA Payment Outstandings
would exceed the Revolving Loan Commitment Amount. Furthermore, the Swing Line Lender shall not be
permitted or required to make Swing Line Loans if, after giving effect thereto, (A) the aggregate
outstanding principal amount of all Swing Line Loans would exceed the then existing Swing Line Loan
Commitment Amount or (B) the sum of the aggregate amount of all Swing Line Loans and all Revolving
Loans outstanding plus the aggregate amount of Letter of Credit Outstandings and OA Payment
Outstandings would exceed the Revolving Loan Commitment Amount.
SECTION 2.1.2 Letter of Credit Commitment; Open Account Agreements. (a) From time to
time on any Business Day occurring after the Restatement Effective Date but at least five Business
Days prior to the Revolving Loan Commitment Termination Date, the relevant Issuer agrees that it
will (subject to the terms hereof) (i) issue one or more Letters of Credit in Dollars for the
account of the Borrower, any Subsidiary Guarantor or any Foreign Subsidiary in the Stated Amount
requested by the Borrower on such day, or (ii) extend the Stated Expiry Date of a Letter of Credit
previously issued hereunder. No Issuer shall be permitted or required to issue any Letter of
Credit if, after giving effect thereto, (x) the sum of the aggregate amount of (A) all Letter of
Credit Outstandings plus (B) all OA Payment Outstandings would exceed the then existing Letter of
Credit Commitment Amount or (y) the sum of the aggregate amount of all (A) Letter of Credit
Outstandings plus (B) OA Payment Outstandings plus (C) the aggregate principal amount of all
Revolving Loans and Swing Line Loans then outstanding would exceed the then existing Revolving Loan
Commitment Amount.
(b) From time to time on any day occurring after the Restatement Effective Date but prior to
the Revolving Loan Commitment Termination Date, an Obligor may enter into one or more Open Account
Paying Agreements with such Lenders or their respective Affiliates as it and they shall so agree;
provided that (i) no Lender will be required to enter into an Open Account Paying Agreement
and (ii) an Obligor shall not be permitted to enter into, or incur obligations under, an Open
Account Paying Agreement if, after giving effect thereto, (x) the sum of the aggregate amount of
(A) all OA Payment Outstandings plus (B) all Letter of Credit Outstandings would exceed the
then existing Letter of Credit Commitment Amount or (y) the sum of the aggregate amount of all (A)
Letter of Credit Outstandings plus (B) OA Payment Outstandings plus (C) the
aggregate principal amount of all Revolving Loans and Swing Line Loans then outstanding would
exceed the then existing Revolving Loan Commitment Amount.
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SECTION 2.1.3 Term Loan Commitments. In a single Borrowing made on the Restatement
Effective Date, occurring on or prior to the applicable Commitment Termination Date, each Lender
that has a New Term Loan Commitment agrees that it will make Loans (relative to such Lender, its
“New Term Loans”) to the Borrower denominated in Dollars equal to such Lender’s New Term
Percentage of the aggregate amount of the Borrowing, which shall be for the full New Term Loan
Commitment Amount. No amounts paid or prepaid with respect to New Term Loans may be reborrowed.
SECTION 2.2 Reduction of the Commitment Amounts. The Commitment Amounts are subject
to reduction from time to time as set forth below.
SECTION 2.2.1 Optional. The Borrower may, from time to time on any Business Day
occurring after the Restatement Effective Date, voluntarily reduce any Commitment Amount on the
Business Day so specified by the Borrower; provided that, all such reductions shall require
at least one Business Day’s prior notice to the Administrative Agent and be permanent, and any
partial reduction of any Commitment Amount shall be in a minimum amount of $1,000,000 and in an
integral multiple of $500,000. Any optional or mandatory reduction of the Revolving Loan
Commitment Amount pursuant to the terms of this Agreement which reduces the Revolving Loan
Commitment Amount below the sum of (i) the Swing Line Loan Commitment Amount and (ii) the Letter of
Credit Commitment Amount shall result in an automatic and corresponding reduction of the Swing Line
Loan Commitment Amount and/or Letter of Credit Commitment Amount (as directed by the Borrower in a
notice to the Administrative Agent delivered together with the notice of such voluntary reduction
in the Revolving Loan Commitment Amount) to an aggregate amount not in excess of the Revolving Loan
Commitment Amount, as so reduced, without any further action on the part of the Swing Line Lender,
any Revolving Loan Lender or any Issuer.
SECTION 2.2.2 [Reserved].
SECTION 2.3 Borrowing Procedures. Loans (other than Swing Line Loans and New Term
Loans) shall be made by the Lenders in accordance with Section 2.3.1, and Swing Line Loans
shall be made by the Swing Line Lender in accordance with Section 2.3.2.
SECTION 2.3.1 Borrowing Procedure. In the case of Loans (other than Swing Line
Loans), by delivering a Borrowing Request to the Administrative Agent on or before 10:00 a.m. on a
Business Day, the Borrower may from time to time irrevocably request, on such Business Day in the
case of Base Rate Loans or on not less than three Business Days’ notice and not more than five
Business Days’ notice, in the case of LIBO Rate Loans denominated in Dollars, that a Borrowing be
made, in the case of LIBO Rate Loans, in a minimum amount of $5,000,000 and an integral multiple of
$1,000,000, in the case of Base Rate Loans, in a minimum amount of $1,000,000 and an integral
multiple of $500,000 or, in either case, in the unused amount of the applicable Commitment. On the
terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the
type of Loans, and shall be made on the Business Day specified in such Borrowing Request. In the
case of other than Swing Line Loans, on or before 12:00 noon on such Business Day each Lender that
has a Commitment to make the Loans being requested shall deposit with the Administrative Agent same
day funds in an amount equal to such Lender’s Percentage of the requested Borrowing. Such deposit
will be made to an account
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which the Administrative Agent shall specify from time to time by notice to the Lenders. To
the extent funds are received from the Lenders, the Administrative Agent shall make such funds
available to the Borrower by wire transfer to the accounts the Borrower shall have specified in its
Borrowing Request. No Lender’s obligation to make any Loan shall be affected by any other Lender’s
failure to make any Loan.
SECTION 2.3.2 Swing Line Loans; Participations, etc. (a) By telephonic notice to the
Swing Line Lender on or before 2:00 p.m. on a Business Day (followed (within one Business Day) by
the delivery of a confirming Borrowing Request), the Borrower may from time to time irrevocably
request that Swing Line Loans be made by the Swing Line Lender in an aggregate minimum principal
amount of $500,000 and an integral multiple of $100,000. All Swing Line Loans shall be made as
Base Rate Loans and shall not be entitled to be converted into LIBO Rate Loans. The proceeds of
each Swing Line Loan shall be made available by the Swing Line Lender to the Borrower by wire
transfer to the account the Borrower shall have specified in its notice therefor by the close of
business on the Business Day telephonic notice is received by the Swing Line Lender. Upon the
making of each Swing Line Loan, and without further action on the part of the Swing Line Lender or
any other Person, each Revolving Loan Lender (other than the Swing Line Lender) shall be deemed to
have irrevocably purchased, to the extent of its Revolving Loan Percentage, a participation
interest in such Swing Line Loan, and such Revolving Loan Lender shall, to the extent of its
Revolving Loan Percentage, be responsible for reimbursing within one Business Day the Swing Line
Lender for Swing Line Loans which have not been reimbursed by the Borrower in accordance with the
terms of this Agreement.
(b) If (i) any Swing Line Loan shall be outstanding for more than four Business Days, (ii) any
Swing Line Loan is or will be outstanding on a date when the Borrower requests that a Revolving
Loan be made, or (iii) any Default shall occur and be continuing, then each Revolving Loan Lender
(other than the Swing Line Lender) irrevocably agrees that it will, at the request of the Swing
Line Lender, make a Revolving Loan (which shall initially be funded as a Base Rate Loan) in an
amount equal to such Lender’s Revolving Loan Percentage of the aggregate principal amount of all
such Swing Line Loans then outstanding (such outstanding Swing Line Loans hereinafter referred to
as the “Refunded Swing Line Loans”). On or before 11:00 a.m. on the first Business Day
following receipt by each Revolving Loan Lender of a request to make Revolving Loans as provided in
the preceding sentence, each Revolving Loan Lender shall deposit in an account specified by the
Swing Line Lender the amount so requested in same day funds and such funds shall be applied by the
Swing Line Lender to repay the Refunded Swing Line Loans. At the time the Revolving Loan Lenders
make the above referenced Revolving Loans the Swing Line Lender shall be deemed to have made, in
consideration of the making of the Refunded Swing Line Loans, Revolving Loans in an amount equal to
the Swing Line Lender’s Revolving Loan Percentage of the aggregate principal amount of the Refunded
Swing Line Loans. Upon the making (or deemed making, in the case of the Swing Line Lender) of any
Revolving Loans pursuant to this clause, the amount so funded shall become an outstanding Revolving
Loan and shall no longer be owed as a Swing Line Loan. All interest payable with respect to any
Revolving Loans made (or deemed made, in the case of the Swing Line Lender) pursuant to this clause
shall be appropriately adjusted to reflect the period of time during which the Swing Line Lender
had outstanding Swing Line Loans in respect of which such Revolving Loans were made. Each
Revolving Loan Lender’s obligation to make the Revolving Loans referred to in this clause shall be
absolute and unconditional and shall not be affected by any
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circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right
which such Lender may have against the Swing Line Lender, any Obligor or any Person for any reason
whatsoever; (ii) the occurrence or continuance of any Default; (iii) any adverse change in the
condition (financial or otherwise) of any Obligor; (iv) the acceleration or maturity of any
Obligations or the termination of any Commitment after the making of any Swing Line Loan; (v) any
breach of any Loan Document by any Person; or (vi) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
SECTION 2.4 Continuation and Conversion Elections. By delivering a
Continuation/Conversion Notice to the Administrative Agent on or before 10:00 a.m. on a Business
Day, the Borrower may from time to time irrevocably elect on not less than three nor more than five
Business Days’ notice (a) to convert any Base Rate Loan into one or more LIBO Rate Loans or
(b) before the last day of the then current Interest Period with respect thereto, to continue any
LIBO Rate Loan as a LIBO Rate Loan; provided that (i) any portion of any Loan which is
continued or converted hereunder shall be in a minimum amount of $1,000,000 and in an integral
multiple amount of $1,000,000 and (ii) in the absence of prior notice as required above (which
notice may be delivered telephonically followed by written confirmation within 24 hours thereafter
by delivery of a Continuation/Conversion Notice), with respect to any LIBO Rate Loan at least three
Business Days before the last day of the then current Interest Period with respect thereto, such
LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan; provided
further that (A) each such conversion or continuation shall be pro rated among the
applicable outstanding Loans of all Lenders that have made such Loans, and (B) no portion of the
outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate
Loans when any Event of Default has occurred and is continuing.
SECTION 2.5 Funding. Each Lender may, if it so elects, fulfill its obligation to
make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or
Affiliates (or an international banking facility created by such Lender) to make or maintain such
LIBO Rate Loan; provided that, such LIBO Rate Loan shall nonetheless be deemed to have been
made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan
shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or
international banking facility. Subject to Section 4.10, each Lender may, at its option,
make any Loan available to the Borrower by causing any foreign or domestic branch or Affiliate of
such Lender to make such Loan; provided that any exercise of such option shall not affect
the obligation of the Borrower to repay Loans in accordance with the terms of this Agreement.
SECTION 2.6 Issuance Procedures. By delivering to the Administrative Agent and the
relevant Issuer an Issuance Request on or before 10:00 a.m. on a Business Day, the Borrower may
from time to time irrevocably request on not less than three nor more than ten Business Days’
notice, in the case of an initial issuance of a Letter of Credit and not less than three Business
Days’ prior notice, in the case of a request for the extension of the Stated Expiry Date of a
Standby Letter of Credit (in each case, unless a shorter notice period is agreed to by the relevant
Issuer, in its sole discretion), that an Issuer issue a Letter of Credit, or extend the Stated
Expiry Date of a Standby Letter of Credit, in such form as may be requested by the Borrower and
approved by such Issuer, solely for the purposes described in Section 7.1.7. In connection
with any Issuance Request the Borrower and/or applicable Subsidiary shall have executed and
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delivered such applications, agreements and other instruments relating to such Letter of
Credit as such Issuer shall have reasonably requested consistent with its then current practices
and procedures with respect to letters of credit of the same type, provided that in the
event of any conflict between any such application, agreement or other instrument and the
provisions of this Agreement, the provisions of this Agreement shall control. Each Standby Letter
of Credit shall by its terms be stated to expire on a date (its “Stated Expiry Date”) no
later than the earlier to occur of (i) five Business Days prior to the Revolving Loan Commitment
Termination Date or (ii) unless otherwise agreed to by an Issuer, in its sole discretion, one year
from the date of its issuance (provided that each Standby Letter of Credit may, with the
consent of the Issuer thereof in its sole discretion, provide for automatic renewals for one year
periods (which in no event shall extend beyond the Revolving Loan Commitment Termination Date)).
Each Commercial Letter of Credit shall by its terms be stated to expire on a date no later than the
earlier to occur of (i) five Business Days prior to the Revolving Loan Commitment Termination Date
or (ii) unless otherwise agreed to by an Issuer, in its sole discretion, 180 days from the date of
its issuance. Each Issuer will make available to the beneficiary thereof the original of the
Letter of Credit which it issues. Each Issuer shall provide periodic reporting of Letters of
Credit issued by such Issuer in a manner, and in time periods, mutually acceptable to the
Administrative Agent and such Issuer. Unless notified by the Administrative Agent in writing prior
to the issuance of a Letter of Credit, the applicable Issuer shall be entitled to assume that the
conditions precedent to such issuance have been met.
SECTION 2.6.1 Other Lenders Participation.
(a) Upon the issuance of each Letter of Credit, and without further action, each
Revolving Loan Lender (other than the applicable Issuer) shall be deemed to have irrevocably
purchased, to the extent of its Revolving Loan Percentage, a participation interest in such
Letter of Credit (including the Contingent Liability and any Reimbursement Obligation with
respect thereto), and such Revolving Loan Lender shall, to the extent of its Revolving Loan
Percentage, be responsible for reimbursing the applicable Issuer for Reimbursement
Obligations which have not been reimbursed by the Borrower in accordance with Section 2.6.3
in the applicable currency and at the times set forth in such Section (with the terms of
this Section surviving the termination of this Agreement). In addition, such Revolving Loan
Lender shall, to the extent of its Revolving Loan Percentage, be entitled to receive a
ratable portion of the Letter of Credit fees payable pursuant to Section 3.3.3 with respect
to each Letter of Credit (other than the issuance fees payable to the Issuer of such Letter
of Credit pursuant to the last sentence of Section 3.3.3) and of interest payable pursuant
to Section 3.2 with respect to any Reimbursement Obligation accruing on and after the date
(and to the extent) such Lender funds its participation interest in such Letter of Credit.
To the extent that any Revolving Loan Lender has reimbursed any Issuer for a Disbursement,
such Lender shall be entitled to receive its ratable portion of any amounts subsequently
received (from the Borrower or otherwise) in respect of such Disbursement. Upon any change
in the Revolving Loan Commitments pursuant to an assignment under Section 10.10 of this
Agreement, it is hereby agreed that with respect to all Letter of Credit Outstandings, there
shall be an automatic adjustment to the participations hereby created to reflect the new
Revolving Loan Percentage of the assigning and assignee Revolving Loan Lenders.
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(b) Upon the entry into each Open Account Discount Agreement, and without further
action, each Revolving Loan Lender (other than the applicable Open Account Discount
Purchaser) shall be deemed to have irrevocably purchased, to the extent of its Revolving
Loan Percentage, a participation interest in such Open Account Discount Agreement, and such
Revolving Loan Lender shall, to the extent of its Revolving Loan Percentage, be responsible
for reimbursing the applicable Open Account Discount Purchaser for OA Payment Obligations
under the applicable Open Account Paying Agreement which have not been reimbursed by the
relevant Obligor in accordance with the terms thereof (with the terms of this Section
surviving the termination of this Agreement). In addition, such Revolving Loan Lender
shall, to the extent of its Revolving Loan Percentage, be entitled to receive a ratable
portion of the Open Account Agreement payments pursuant to Section 3.3.4 and of
interest payable pursuant to Section 3.2 with respect to any OA Payment Obligations
accruing on and after the date (and to the extent) such Lender funds its participation
interest in such OA Payment Obligations. To the extent that any Revolving Loan Lender has
reimbursed any Open Account Discount Purchaser for an Open Account Discount Purchase, such
Lender shall be entitled to receive its ratable portion of any amounts subsequently received
(from the Borrower or otherwise) in respect of such Open Account Discount Purchase. Upon
any change in the Revolving Loan Commitments pursuant to an assignment under Section 10.10
of this Agreement, it is hereby agreed that with respect to all OA Payment Outstandings,
there shall be an automatic adjustment to the participations hereby created to reflect the
new Revolving Loan Percentage of the assigning and assignee Revolving Loan Lenders. The
Borrower shall be required to reimburse each Open Account Discount Purchaser in accordance
with the terms set forth in the applicable Open Account Paying Agreement.
SECTION 2.6.2 Disbursements. An Issuer will notify the Borrower and the
Administrative Agent promptly of the presentment for payment of any Letter of Credit issued by such
Issuer, together with notice of the date (the “Disbursement Date”) such payment shall be
made (each such payment, a “Disbursement”). Subject to the terms and provisions of such
Letter of Credit and this Agreement, the applicable Issuer shall make such payment to the
beneficiary (or its designee) of such Letter of Credit. Not later than 1:00 p.m. on (i) a
Disbursement Date, if the Borrower shall have received notice of such Disbursement prior to 10:00
a.m. on such Disbursement Date, or (ii) the Business Day immediately following a Disbursement Date,
if such notice is received after 10:00 a.m. on such Disbursement Date, the Borrower will reimburse
such Issuer directly in full for such Disbursement. Each such reimbursement shall be made in
immediately available funds together (in the case of a reimbursement made on such immediately
following Business Day, with interest thereon at a rate per annum equal to the rate per annum then
in effect for Base Rate Loans (with the then Applicable Margin for Revolving Loans accruing on such
amount) pursuant to Section 3.2 for the period from the Disbursement Date through the date
of such reimbursement, provided that if such reimbursement is not made when due pursuant to
this Section 2.6.2, then the interest rates set forth in Section 3.2.2 shall apply.
Without limiting in any way the foregoing and notwithstanding anything to the contrary contained
herein or in any separate application for any Letter of Credit, the Borrower hereby acknowledges
and agrees that it shall be obligated to reimburse the applicable Issuer upon each Disbursement of
a Letter of Credit, and it shall be deemed to be the obligor for purposes of each such Letter of
Credit issued hereunder (whether the account party on such Letter of Credit is the
39
Borrower or a Subsidiary). In the event that an Issuer makes any Disbursement and the
Borrower shall not have reimbursed such amount in full to such Issuer pursuant to this Section
2.6.2, such Issuer shall promptly notify the Administrative Agent which shall promptly notify
each Revolving Loan Lender of such failure, and each Revolving Loan Lender (other than such Issuer)
shall promptly and unconditionally pay in same day funds to the Administrative Agent for the
account of such Issuer the amount of such Revolving Loan Lender’s Revolving Loan Percentage of such
unreimbursed Disbursement. If an Issuer so notifies the Administrative Agent, and the
Administrative Agent so notifies the Revolving Loan Lenders prior to 2:00 p.m., on any Business
Day, each such Revolving Loan Lender shall make available to such Issuer such Revolving Loan
Lender’s Revolving Loan Percentage of the amount of such payment on such Business Day in same day
funds (or if such notice is received by such Revolving Loan Lenders after 2:00 p.m. on the day of
receipt, payment shall be made on the immediately following Business Day). If and to the extent
such Revolving Loan Lender shall not have so made its Revolving Loan Percentage of the amount of
such payment available to the applicable Issuer, such Revolving Loan Lender agrees to pay to such
Issuer forthwith on demand such amount, together with interest thereon, for each day from such date
until the date such amount is paid to the Administrative Agent for the account of such Issuer, at
the Federal Funds Rate.
SECTION 2.6.3 Reimbursement. The obligation (a “Reimbursement Obligation”) of
the Borrower under Section 2.6.2 to reimburse an Issuer with respect to each Disbursement
(including interest thereon) and, upon the failure of the Borrower to reimburse an Issuer, each
Revolving Loan Lender’s obligation under Section 2.6.1 to reimburse an Issuer, shall be
absolute and unconditional under any and all circumstances and irrespective of (i) any setoff,
counterclaim or defense to payment which the Borrower or such Revolving Loan Lender, as the case
may be, may have or have had against such Issuer, any Lender or any other Person (including any
Subsidiary) for any reason whatsoever, including any defense based upon the failure of any
Disbursement to conform to the terms of the applicable Letter of Credit (if, in such Issuer’s good
faith opinion (absent such Issuer’s gross negligence or willful misconduct), such Disbursement is
determined to be appropriate) or any non-application or misapplication by the beneficiary of the
proceeds of such Letter of Credit; (ii) the occurrence or continuance of any Default; (iii) any
adverse change in the condition (financial or otherwise) of any Obligor; (iv) the acceleration or
maturity of any Obligations or the termination of any Commitment after the issuance of a Letter of
Credit; (v) any breach of any Loan Document by any Person; or (vi) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing (including any of the
events set forth in Section 2.6.5); provided that, after paying in full its
Reimbursement Obligation hereunder, nothing herein shall adversely affect the right of the Borrower
or such Lender, as the case may be, to commence any proceeding against an Issuer for any wrongful
Disbursement made by such Issuer under a Letter of Credit as a result of acts or omissions
constituting gross negligence, bad faith or willful misconduct on the part of such Issuer.
SECTION 2.6.4 Deemed Disbursements. Upon the occurrence and during the continuation
of any Event of Default under Section 8.1.9 or upon notification by the Administrative
Agent (acting at the direction of the Required Lenders) to the Borrower of its obligations under
this Section, following the occurrence and during the continuation of any other Event of Default,
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(a) the aggregate Stated Amount of all Letters of Credit shall, without demand upon or
notice to the Borrower or any other Person, be deemed to have been paid or disbursed by the
Issuers of such Letters of Credit (notwithstanding that such amount may not in fact have
been paid or disbursed); and
(b) the Borrower shall be immediately obligated to reimburse the Issuers for the amount
deemed to have been so paid or disbursed by such Issuers.
Amounts payable by the Borrower pursuant to this Section shall be deposited in immediately
available funds with the Collateral Agent and held as cash collateral security for the
Reimbursement Obligations. When all Defaults giving rise to the deemed disbursements under this
Section have been cured or waived the Collateral Agent shall return to the Borrower all amounts
then on deposit with the Collateral Agent pursuant to this Section which have not been applied to
the satisfaction of the Reimbursement Obligations.
SECTION 2.6.5 Nature of Reimbursement Obligations. The Borrower, each other Obligor
and, to the extent set forth in Section 2.6.1, each Revolving Loan Lender shall assume all
risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. No
Issuer (except to the extent of its own gross negligence, bad faith or willful misconduct) shall be
responsible for:
(a) the form, validity, sufficiency, accuracy, genuineness or legal effect of any
Letter of Credit or any document submitted by any party in connection with the application
for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged;
(b) the form, validity, sufficiency, accuracy, genuineness or legal effect of any
instrument transferring or assigning or purporting to transfer or assign a Letter of Credit
or the rights or benefits thereunder or the proceeds thereof in whole or in part, which may
prove to be invalid or ineffective for any reason;
(c) failure of the beneficiary to comply fully with conditions required in order to
demand payment under a Letter of Credit;
(d) errors, omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise or errors in interpretation of
technical terms or any consequence arising from causes beyond the control of such Issuer; or
(e) any loss or delay in the transmission or otherwise of any document or draft
required in order to make a Disbursement under a Letter of Credit.
In furtherance of the foregoing and without limiting the generality thereof, the parties agree that
with respect to documents presented which appear on their face to be in substantial compliance with
the terms of a Letter of Credit, an Issuer may, in its sole discretion, either accept and make
payment upon such documents without responsibility for further investigation or refuse to accept
and make payment upon such documents if such documents are not in strict compliance with the terms
of such Letter of Credit. None of the foregoing shall affect, impair or prevent the vesting
41
of any of the rights or powers granted to any Issuer or any Revolving Loan Lender hereunder. In
furtherance and not in limitation or derogation of any of the foregoing, any action taken or
omitted to be taken by an Issuer in good faith (and not constituting gross negligence or willful
misconduct) shall be binding upon each Obligor and each such Secured Party, and shall not put such
Issuer under any resulting liability to any Obligor or any Secured Party, as the case may be.
SECTION 2.6.6 Existing Letters of Credit. On the Effective Date, all Existing Letters
of Credit shall be deemed to have been issued hereunder and shall for all purposes be deemed to be
“Letters of Credit” hereunder.
SECTION 2.7 Register; Notes. The Register shall be maintained on the following terms.
(a) The Borrower hereby designates the Administrative Agent to serve as the Borrower’s agent,
solely for the purpose of this clause, to maintain a register (the “Register”) on which the
Administrative Agent will record each Lender’s Commitment, the Loans made by each Lender and each
repayment in respect of the principal amount of the Loans, annexed to which the Administrative
Agent shall retain a copy of each Lender Assignment Agreement delivered to the Administrative Agent
pursuant to Section 10.11. Failure to make any recordation, or any error in such
recordation, shall not affect any Obligor’s Obligations. The entries in the Register shall
constitute prima facie evidence and shall be binding, in the absence of manifest error, and the
Borrower, the Administrative Agent and the Lenders shall treat each Person in whose name a Loan is
registered (or, if applicable, to which a Note has been issued) as the owner thereof for the
purposes of all Loan Documents, notwithstanding notice or any provision herein to the contrary.
Any assignment or transfer of a Commitment or the Loans made pursuant hereto shall be registered in
the Register only upon delivery to the Administrative Agent of a Lender Assignment Agreement that
has been executed by the requisite parties pursuant to Section 10.11. No assignment or
transfer of a Lender’s Commitment or Loans shall be effective unless such assignment or transfer
shall have been recorded in the Register by the Administrative Agent as provided in this Section.
(b) The Borrower agrees that, upon the request to the Administrative Agent by any Lender, the
Borrower will execute and deliver to such Lender a Note evidencing the Loans made by, and payable
to the order of, such Lender in a maximum principal amount equal to such Lender’s Percentage of the
original applicable Commitment Amount. The Borrower hereby irrevocably authorizes each Lender to
make (or cause to be made) appropriate notations on the grid attached to such Lender’s Note (or on
any continuation of such grid), which notations, if made, shall evidence, inter
alia, the date of, the outstanding principal amount of, and the interest rate and Interest
Period applicable to the Loans evidenced thereby. Such notations shall, to the extent not
inconsistent with notations made by the Administrative Agent in the Register, constitute prima
facie evidence and shall be binding on each Obligor absent manifest error; provided that,
the failure of any Lender to make any such notations shall not limit or otherwise affect any
Obligations of any Obligor.
SECTION 2.8 [Reserved].
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SECTION 2.9 Incremental Facilities. (a) After the Restatement Effective Date and
before the Stated Maturity Date, the Borrower, by written notice to Administrative Agent, may
request (i) the establishment of one or more additional tranches of term loans (the commitments
thereto, the “Incremental Term Loan Commitments”) and/or (ii) increases in the Revolving
Loan Commitments (the “Incremental Revolving Commitments” and, together with the
Incremental Term Loan Commitments, the “Incremental Loan Commitments”), by an aggregate
amount not in excess of $300,000,000 in the aggregate and not less than $50,000,000 individually
(or such lesser amount as shall constitute the difference between $300,000,000 and the aggregate
amount of all such Incremental Loan Commitments obtained on or prior to such date). Each such
notice shall specify the date (each, an “Increased Amount Date”) on which the Borrower
proposes that the Incremental Loan Commitments shall be effective, which shall be a date not less
than 10 Business Days after the date on which such notice is delivered to the Administrative Agent.
The Borrower may approach any Lender or any Person (other than an Ineligible Assignee) to provide
all or a portion of the Incremental Loan Commitments; provided that (i) no Lender will be
required to provide such Incremental Loan Commitment and (ii) any entity providing all or a portion
of the Incremental Loan Commitments that is not a Lender, an Affiliate of a Lender or an Approved
Fund shall not be an Ineligible Assignee and shall be reasonably acceptable to the Administrative
Agent (with such acceptance by the Administrative Agent to not be unreasonably withheld or
delayed).
(b) In each case, such Incremental Loan Commitments shall become effective as of the
applicable Increased Amount Date, provided that (i) no Default or Event of Default shall
exist on such Increased Amount Date before or after giving effect to such Incremental Loan
Commitments, (ii) the Borrower shall be in compliance with Section 7.2.4 both before and
after giving effect to such Incremental Loan Commitments, (iii) the weighted average life to
maturity of any Incremental Term Loan shall be greater than or equal to the then-remaining weighted
average life to maturity of the New Term Loans, (iv) the interest rate margin in respect of any
Incremental Term Loans or Incremental Revolving Loans (including original issue discount
(“OID”) or upfront fees in connection therewith) shall not exceed the Applicable Margin for
the New Term Loans or Revolving Loans, as applicable, or if it does so exceed such Applicable
Margin, such Applicable Margin for the New Term Loans or Revolving Loans, as applicable, shall be
increased so that the interest rate margin in respect of such Incremental Term Loan or Incremental
Revolving Loan (giving effect to any OID issued or upfront fees in connection therewith) is no
greater than the Applicable Margin for the New Term Loans or Revolving Loan, as applicable and (v)
the Incremental Loan Commitments shall be effected pursuant to one or more joinder agreements in a
form reasonably acceptable to the Administrative Agent (each, a “Joinder Agreement”)
executed and delivered by the Borrower, the applicable Incremental Term Loan Lender and the
Administrative Agent pursuant to which such Incremental Term Loan Lender agrees to be bound to the
terms of this Agreement as a Lender. Any Incremental Term Loans made on an Increased Amount Date
shall be designated a separate tranche of Incremental Term Loans for all purposes of this
Agreement.
(c) On any Increased Amount Date on which Incremental Revolving Commitments are effected,
subject to the satisfaction of the foregoing terms and conditions, (a) each of the Lenders with
Revolving Loan Commitments shall assign to each Person with an Incremental Revolving Commitment
(each, a “Incremental Revolving Lender”) and each of the Incremental Revolving Lenders
shall purchase from each of the Lenders with Revolving Loan Commitments,
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at the principal amount thereof, such interests in the Revolving Loans outstanding on such
Increased Amount Date as shall be necessary in order that, after giving effect to all such
assignments and purchases, the Revolving Loans will be held by existing Revolving Lenders and
Incremental Revolving Lenders ratably in accordance with their Revolving Loan Commitments after
giving effect to the addition of such Incremental Revolving Commitments to the Revolving Loan
Commitments, (b) each Incremental Revolving Commitment shall be deemed for all purposes a Revolving
Commitment and each Loan made thereunder (an “Incremental Revolving Loan”) shall be deemed,
for all purposes, a Revolving Loan and (c) each Incremental Revolving Lender shall become a Lender
with respect to the Incremental Revolving Commitment and all matters relating thereto. The terms
and provisions of the Incremental Revolving Loans and Incremental Revolving Commitments shall be
identical to the Revolving Loans and the Revolving Loan Commitments.
(d) On any Increased Amount Date on which any Incremental Term Loan Commitments are effected,
subject to the satisfaction of the foregoing terms and conditions, (i) each Person with an
Incremental Term Loan Commitment (each, an “Incremental Term Loan Lender”) shall make a
Loan to the Borrower (an “Incremental Term Loan”) in an amount equal to its Incremental
Term Loan Commitment, and (ii) each Incremental Term Loan Lender shall become a Lender hereunder
with respect to the Incremental Term Loan Commitment and the Incremental Term Loans made pursuant
thereto.
(e) Each Joinder Agreement may, without the consent of any other Lenders, effect such
amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in
the opinion of the Administrative Agent, to effect the provisions of this Section 2.9.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1 Repayments and Prepayments; Application. The Borrower agrees that the
Loans shall be repaid and prepaid pursuant to the following terms.
SECTION 3.1.1 Repayments and Prepayments. The Borrower shall repay in full the unpaid
principal amount of each Loan upon the applicable Stated Maturity Date therefor. Prior thereto,
payments and prepayments of the Loans shall or may be made as set forth below.
(a) From time to time on any Business Day, the Borrower may make a voluntary prepayment, in
whole or in part, of the outstanding principal amount of any
(i) Loans (other than Swing Line Loans); provided that, (A) any such voluntary
prepayment of the New Term Loans shall be made of the same type and, if applicable, having
the same Interest Period of all Lenders that have made such New Term Loans (applied to the
remaining amortization payments for the New Term Loans in such amounts as the Borrower shall
determine) and any such prepayment of Revolving Loans shall be made pro rata
among the Revolving Loans of the same type, having the same Interest Period of all Lenders
that have made such Revolving Loans; (B) all such voluntary prepayments shall require at
least (1) in the case of Base Rate Loans, one but
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no more than five Business Days’ prior notice to the Administrative Agent and (2) in
the case of LIBO Rate Loans, three but no more than five Business Days’ prior notice to the
Administrative Agent; and (C) all such voluntary partial prepayments shall be in an
aggregate minimum amount of $1,000,000 and an integral multiple of $500,000; and
(ii) Swing Line Loans; provided that, (A) all such voluntary prepayments shall
require prior telephonic notice to the Swing Line Lender on or before 1:00 p.m. on the day
of such prepayment (such notice to be confirmed in writing within 24 hours thereafter); and
(B) all such voluntary partial prepayments shall be in an aggregate minimum amount of
$200,000 and an integral multiple of $100,000.
(b) On each date when the aggregate Revolving Exposure of all Revolving Loan Lenders exceeds
the Revolving Loan Commitment Amount (as it may be reduced from time to time pursuant to this
Agreement), the Borrower shall make a mandatory prepayment of Revolving Loans or Swing Line Loans
(or both) and, if necessary, Cash Collateralize all Letter of Credit Outstandings, in an aggregate
amount equal to such excess.
(c) On each Quarterly Payment Date (beginning with the Quarterly Payment Date on March 31,
2010), the Borrower shall make a scheduled repayment of the aggregate outstanding principal amount,
if any, of all New Term Loans in an amount equal to 0.25% of the original principal amount of all
New Term Loans, with the remaining amount of New Term Loans due and payable in full on the Stated
Maturity Date for New Term Loans.
(d) [Reserved].
(e) The Borrower shall (subject to the next proviso) within 10 days after receipt of any Net
Disposition Proceeds or Net Casualty Proceeds in excess of $2,000,000 by the Borrower or any of its
U.S. Subsidiaries, deliver to the Administrative Agent a calculation of the amount of such
proceeds, and, to the extent the aggregate amount of such (i) Net Disposition Proceeds received by
the Borrower and its U.S. Subsidiaries in any period of twelve consecutive calendar months since
the Original Closing Date exceeds $10,000,000 and (ii) Net Casualty Proceeds received by the
Borrower and its U.S. Subsidiaries in any period of twelve consecutive calendar months since the
Original Closing Date exceeds $50,000,000, the Borrower shall make a mandatory prepayment of the
New Term Loans in an amount equal to 100% of such excess Net Disposition Proceeds or Net Casualty
Proceeds, as applicable; provided that, so long as (i) no Event of Default has occurred and
is continuing, such proceeds may be retained by the Borrower and its U.S. Subsidiaries (and be
excluded from the prepayment requirements of this clause) to be invested or reinvested within one
year or, subject to immediately succeeding clause (ii), 18 months or 36 months, as
applicable, to the acquisition or construction of other assets or properties consistent with the
businesses permitted to be conducted pursuant to Section 7.2.1 (including by way of merger
or Investment), and (ii) within one year following the receipt of such Net Disposition Proceeds or
Net Casualty Proceeds, such proceeds are (A) applied or (B) committed to be, and actually are,
applied within (I) 18 months following the receipt of such Net Disposition Proceeds or (II) 36
months following the receipt of such Net Casualty Proceeds, in each case to such acquisition or
construction plan. The amount of such Net Disposition Proceeds or Net Casualty Proceeds unused or
uncommitted after such one year, 18 months or 36 months, as applicable, period shall be applied to
prepay the New Term Loans as set forth in Section 3.1.2.
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At any time after receipt of any such Net Casualty Proceeds in excess of $25,000,000 but prior
to the application thereof to such mandatory prepayment or the acquisition of other assets or
properties as described above, upon the request by the Administrative Agent (acting at the
direction of the Required Lenders) to the Borrower, the Borrower shall deposit an amount equal to
such excess Net Casualty Proceeds into a cash collateral account maintained with (and subject to
documentation reasonably satisfactory to) the Collateral Agent for the benefit of the Secured
Parties (and over which the Collateral Agent shall have a first priority perfected Lien) pending
application as a prepayment or to be released as requested by the Borrower in respect of such
acquisition. Amounts deposited in such cash collateral account shall be invested in Cash
Equivalent Investments, as directed by the Borrower.
(f) Within 100 days after the close of each Fiscal Year (beginning with the Fiscal Year ending
2009) the Borrower shall make a mandatory prepayment of the New Term Loans in an amount equal to
(i) the product of (A) the Excess Cash Flow (if any) for such Fiscal Year multiplied by (B)
the Applicable Percentage minus (ii) the aggregate amount of all voluntary prepayments of
Loans (but including Revolving Loans and Swing Line Loans only to the extent of a corresponding
reduction of the Revolving Loan Commitment Amount pursuant to Section 2.2.1) made during
such Fiscal Year, to be applied as set forth in Section 3.1.2;
(g) Concurrently with the receipt by the Borrower or any of its U.S. Subsidiaries of any Net
Debt Proceeds, the Borrower shall make a mandatory prepayment of the New Term Loans in an amount
equal to 100% of such Net Debt Proceeds, to be applied as set forth in Section 3.1.2.
(h) Immediately upon any acceleration of the Stated Maturity Date of any Loans pursuant to
Section 8.2 or Section 8.3, the Borrower shall repay all the Loans, unless,
pursuant to Section 8.3, only a portion of all the Loans is so accelerated (in which case
the portion so accelerated shall be so repaid).
Each prepayment of any Loans made pursuant to this Section shall be without premium or penalty,
except as may be required by Section 4.4.
SECTION 3.1.2 Application. Amounts prepaid pursuant to Section 3.1.1 shall be
applied as set forth in this Section.
(a) Subject to clause (b), each prepayment or repayment of the principal of the Loans
shall be applied, to the extent of such prepayment or repayment, first, to the principal
amount thereof being maintained as Base Rate Loans, and second, subject to the terms of
Section 4.4, to the principal amount thereof being maintained as LIBO Rate Loans.
(b) Each prepayment of the New Term Loans made pursuant to clauses (e), (f),
and (g) of Section 3.1.1 shall be applied first, pro rata
to a mandatory prepayment of the outstanding principal amount of all New Term Loans (with the
amount of such prepayment of the New Term Loans being applied (A) first to the remaining
New Term Loans to reduce in direct order of maturity the amortization payments that are due and
payable within 24 calendar months from the date of such prepayment, and (B) second, to the
extent in excess of the amounts to be applied
46
pursuant to the preceding clause (A), to reduce the then remaining New Term Loan
amortization payments on a pro rata basis).
(c) So long as the Administrative Agent has received prior written notice from the Borrower of
a mandatory prepayment pursuant to clauses (e), (f) and (g) of Section
3.1.1, the Administrative Agent shall provide notice of such mandatory prepayment to the
Lenders with New Term Loans. It is understood and agreed by the Borrower that, notwithstanding
receipt by the Administrative Agent of any such mandatory prepayment, the New Term Loans shall not
be deemed repaid, unless otherwise consented to by the Administrative Agent, until five Business
Days have elapsed from the delivery to the Administrative Agent of the notice described above in
this clause (c).
SECTION 3.2 Interest Provisions. Interest on the outstanding principal amount of the
Loans shall accrue and be payable in accordance with the terms set forth below.
SECTION 3.2.1 Rates. Subject to Section 2.3.2, pursuant to an appropriately
delivered Borrowing Request or Continuation/Conversion Notice, the Borrower may elect that the
Loans comprising a Borrowing accrue interest at a rate per annum:
(a) on that portion maintained from time to time as a Base Rate Loan, equal to the sum
of the Alternate Base Rate from time to time in effect plus the Applicable Margin;
provided that, Swing Line Loans shall always accrue interest at the Alternate Base
Rate plus the then effective Applicable Margin for Revolving Loans maintained as
Base Rate Loans; and
(b) on that portion maintained as a LIBO Rate Loan, during each Interest Period
applicable thereto, equal to the sum of the LIBO Rate (Reserve Adjusted) plus the Applicable
Margin.
All LIBO Rate Loans shall bear interest from and including the first day of the applicable Interest
Period to (but not including) the last day of such Interest Period at the interest rate determined
as applicable to such LIBO Rate Loan.
SECTION 3.2.2 Post-Default Rates. If all or any portion of the Obligations shall not
be paid when due (whether at the Stated Maturity, by acceleration or otherwise), the Borrower shall
pay, but only to the extent permitted by law, interest (after as well as before judgment) on all
such unpaid Obligations at a rate per annum equal to (a) in the case of principal on any Loan, the
rate of interest that otherwise would be applicable to such Loan plus 2% per annum; and (b)
in the case of overdue interest, fees, and other monetary Obligations, the Alternate Base Rate from
time to time in effect, plus the Applicable Margin for the New Term Loans accruing interest at the
Alternate Base Rate, plus 2% per annum.
SECTION 3.2.3 Payment Dates. Interest accrued on each Loan shall be payable, without
duplication:
(a) on the Stated Maturity Date therefor;
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(b) on the date of any payment or prepayment, in whole or in part, of principal
outstanding on such Loan on the principal amount so paid or prepaid;
(c) with respect to Base Rate Loans, on each Quarterly Payment Date occurring after the
Restatement Effective Date;
(d) with respect to LIBO Rate Loans, on the last day of each applicable Interest Period
(and, if such Interest Period shall exceed three months, on the date occurring on each
three-month interval occurring after the first day of such Interest Period);
(e) with respect to any Base Rate Loans converted into LIBO Rate Loans on a day when
interest would not otherwise have been payable pursuant to clause (c), on the date
of such conversion; and
(f) on that portion of any Loans the Stated Maturity Date of which is accelerated
pursuant to Section 8.2 or Section 8.3, immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon
demand.
SECTION 3.3 Fees. The Borrower agrees to pay the fees set forth below. All such fees
shall be non-refundable when earned and paid.
SECTION 3.3.1 Commitment Fee. The Borrower agrees to pay to the Administrative Agent
for the account of each Non-Defaulting Lender, for the period (including any portion thereof when
its Revolving Loan Commitments are suspended by reason of the Borrower’s inability to satisfy any
condition of Article V) commencing on the Restatement Effective Date and continuing through
the Revolving Loan Commitment Termination Date, a commitment fee in an amount equal to the
Applicable Commitment Fee Margin, in each case on such Revolving Loan Lender’s Revolving Loan
Percentage of the sum of the average daily unused portion of the Revolving Loan Commitment Amount
(net of Letter of Credit Outstandings). All commitment fees payable pursuant to this Section shall
be calculated on a year comprised of 360 days and payable by the Borrower in arrears on each
Quarterly Payment Date, commencing with the first Quarterly Payment Date following the Restatement
Effective Date, and on the Revolving Loan Commitment Termination Date. The making of Swing Line
Loans shall not constitute usage of the Revolving Loan Commitment with respect to the calculation
of commitment fees to be paid by the Borrower to the Revolving Loan Lenders.
SECTION 3.3.2 Agents’ Fees. The Borrower agrees to pay to each of the Agents the fees
in the amounts and on the dates set forth in any fee agreements with any of the Agents and to
perform any other obligations contained therein.
SECTION 3.3.3 Letter of Credit Fee. The Borrower agrees to pay to the Administrative
Agent, for the pro rata account of the applicable Issuer and each Revolving Loan
Lender, a Letter of Credit fee in a per annum amount equal to the then effective Applicable Margin
for Revolving Loans maintained as LIBO Rate Loans, multiplied by the average daily
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Stated Amount of each such Letter of Credit, such fees being payable quarterly in arrears on
each Quarterly Payment Date following the date of issuance of each Letter of Credit and on the
Revolving Loan Commitment Termination Date. The Borrower further agrees to pay to the applicable
Issuer, quarterly in arrears on each Quarterly Payment Date, a fronting fee of 0.25% per annum on
the average daily Stated Amount of each such Letter of Credit and such other reasonable fees and
charges in connection with the issuance, negotiation, settlement, amendment and processing of each
Letter of Credit as agreed to by the Borrower and such Issuer.
SECTION 3.3.4 Open Account Agreement Payments. Each Open Account Discount Purchaser
agrees to pay (and in the case of any Open Account Discount Purchaser that is an affiliate of a
Lender, such Lender agrees to cause such Open Account Discount Purchaser to pay) to the
Administrative Agent, for the pro rata account of each Revolving Loan Lender, an
amount with respect to any Open Account Paying Agreement to which it is a party equal to, on a per
annum basis, the then effective Applicable Margin for Revolving Loans maintained as LIBO Rate Loans
multiplied by the aggregate amount of OA Payment Obligations actually paid to such Open Account
Discount Purchaser by the relevant Obligor under the relevant Open Account Paying Agreement, such
amounts being payable quarterly in arrears on each Quarterly Payment Date following the date of the
entry into such Open Account Discount Agreement and on the Revolving Loan Commitment Termination
Date.
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
CERTAIN LIBO RATE AND OTHER PROVISIONS
SECTION 4.1 LIBO Rate Lending Unlawful. If any Lender shall determine (which
determination shall, upon notice thereof to the Borrower and the Administrative Agent, constitute
prima facie evidence thereof and shall be binding on the Borrower absent manifest error) that the
introduction of or any change in or in the interpretation of any law makes it unlawful, or any
Governmental Authority asserts that it is unlawful, for such Lender to make or continue any Loan
as, or to convert any Loan into, a LIBO Rate Loan, the obligations of such Lender to make, continue
or convert any such LIBO Rate Loan shall, upon such determination, forthwith be suspended until
such Lender shall notify the Administrative Agent that the circumstances causing such suspension no
longer exist, and all outstanding LIBO Rate Loans payable to such Lender shall automatically
convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto
or sooner, if required by such law or assertion.
SECTION 4.2 Deposits Unavailable. If the Administrative Agent shall have determined
that
(a) Dollar deposits in the relevant amount and for the relevant Interest Period are not
available to it in its relevant market; or
(b) by reason of circumstances affecting it’s relevant market, adequate means do not
exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans;
49
then, upon notice from the Administrative Agent to the Borrower and the Lenders, the obligations of
all Lenders under Section 2.3 and Section 2.4 to make or continue any Loans as, or
to convert any Loans into, LIBO Rate Loans shall forthwith be suspended until the Administrative
Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no
longer exist.
SECTION 4.3 Increased LIBO Rate Loan Costs, etc. The Borrower agrees to reimburse
each Lender and each Issuer for any increase in the cost to such Lender or Issuer of, or any
reduction in the amount of any sum receivable by such Secured Party in respect of, such Secured
Party’s Commitments and the making of Credit Extensions hereunder (including the making, continuing
or maintaining (or of its obligation to make or continue) any Loans as, or of converting (or of its
obligation to convert) any Loans into, LIBO Rate Loans) that arise in connection with any change
in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in
after the Restatement Effective Date of, any law or regulation, directive, guideline, decision or
request (whether or not having the force of law) of any Governmental Authority, except for such
changes with respect to increased capital costs and Taxes which are governed by Sections 4.5 and
4.6, respectively. Each affected Secured Party shall promptly notify the Administrative Agent and
the Borrower in writing of the occurrence of any such event, stating the reasons therefor and the
additional amount required fully to compensate such Secured Party for such increased cost or
reduced amount. Such additional amounts shall be payable by the Borrower directly to such Secured
Party within five Business Days of its receipt of such notice, and such notice shall, in the
absence of manifest error, constitute prima facie evidence thereof and shall be binding on the
Borrower.
SECTION 4.4 Funding Losses. In the event any Lender shall incur any actual loss or
expense (including any actual loss or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender (if any) to make or continue any portion of the
principal amount of any Loan as, or to convert any portion of the principal amount of any Loan
into, a LIBO Rate Loan) as a result of
(a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate
Loan on a date other than the scheduled last day of the Interest Period applicable thereto,
whether pursuant to Article III or otherwise;
(b) any Loans not being made continued or converted as LIBO Rate Loans in accordance
with the Borrowing Request or other notice therefor;
(c) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance
with the Continuation/Conversion Notice therefor; or
(d) the assignment of any LIBO Rate Loan other than on the last day of an Interest
Period therefor as a result of a request by the Borrower pursuant to Section 4.11;
then, upon the written notice of such Lender to the Borrower (with a copy to the Administrative
Agent), the Borrower shall, within five days of its receipt thereof, pay directly to such Lender
such amount as will (in the reasonable determination of such Lender) reimburse such Lender for
50
such actual loss or expense. Such written notice shall, in the absence of manifest error,
constitute prima facie evidence thereof and shall be binding on the Borrower.
SECTION 4.5 Increased Capital Costs. If any change in, or the introduction, adoption,
effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive,
guideline, decision or request (whether or not having the force of law) of any Governmental
Authority after the Restatement Effective Date affects or would affect the amount of capital
required or expected to be maintained by any Secured Party or any Person controlling such Secured
Party, and such Secured Party determines (in good faith but in its sole and absolute discretion)
that as a result thereof the rate of return on its or such controlling Person’s capital as a
consequence of the Commitments or the Credit Extensions made, or the Letters of Credit participated
in, by such Secured Party is reduced to a level below that which such Secured Party or such
controlling Person could have achieved but for the occurrence of any such circumstance, then upon
notice (together with reasonably detailed supporting documentation) from time to time by such
Secured Party to the Borrower, the Borrower shall within five Business Days following receipt of
such notice pay directly to such Secured Party additional amounts sufficient to compensate such
Secured Party or such controlling Person for such reduction in rate of return. A statement in
reasonable detail of such Secured Party as to any such additional amount or amounts shall, in the
absence of manifest error, constitute prima facie evidence thereof and shall be binding on the
Borrower. In determining such amount, such Secured Party may use any method of averaging and
attribution that it (in its sole and absolute discretion) shall deem applicable.
SECTION 4.6 Taxes. The Borrower covenants and agrees as follows with respect to
Taxes.
(a) Any and all payments by the Borrower under each Loan Document shall be made without
setoff, counterclaim or other defense, and free and clear of, and without deduction or withholding
for or on account of, any Taxes. In the event that any Taxes are imposed and required to be
deducted or withheld from any payment required to be made by any Obligor to or on behalf of any
Secured Party under any Loan Document, then:
(i) subject to clause (f), if such Taxes are Non-Excluded Taxes, the amount of
such payment shall be increased as may be necessary so that such payment is made, after
withholding or deduction for or on account of such Taxes, in an amount that is not less than
the amount provided for in such Loan Document; and
(ii) the Borrower shall withhold the full amount of such Taxes from such payment (as
increased pursuant to clause (a)(i)) and shall pay such amount to the Governmental
Authority imposing such Taxes in accordance with applicable law.
(b) In addition, the Borrower shall pay all Other Taxes imposed to the relevant Governmental
Authority imposing such Other Taxes in accordance with applicable law.
(c) Upon the written request of the Administrative Agent, as promptly as practicable after the
payment of any Taxes or Other Taxes, and in any event within 45 days of any such written request,
the Borrower shall furnish to the Administrative Agent a copy of an official
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receipt (or a certified copy thereof) evidencing the payment of such Taxes or Other Taxes.
The Administrative Agent shall make copies thereof available to any Lender upon request therefor.
(d) Subject to clause (f), the Borrower shall indemnify each Secured Party for any
Non-Excluded Taxes and Other Taxes levied, imposed or assessed on (and whether or not paid directly
by) such Secured Party whether or not such Non-Excluded Taxes or Other Taxes are correctly or
legally asserted by the relevant Governmental Authority; provided that if the Borrower
reasonably believes that such Taxes were not correctly or legally asserted, such Secured Party will
use reasonable efforts to cooperate with the Borrower to obtain a refund of such Taxes so long as
such efforts would not, in the sole determination of such Secured Party, result in any additional
costs, expenses or risks or be otherwise disadvantageous to it. Promptly upon having knowledge
that any such Non-Excluded Taxes or Other Taxes have been levied, imposed or assessed, and promptly
upon notice thereof by any Secured Party, the Borrower shall pay such Non-Excluded Taxes or Other
Taxes directly to the relevant Governmental Authority (provided that, no Secured Party
shall be under any obligation to provide any such notice to the Borrower). In addition, the
Borrower shall indemnify each Secured Party for any incremental Taxes that may become payable by
such Secured Party as a result of any failure of the Borrower to pay any Taxes when due to the
appropriate Governmental Authority or to deliver to the Administrative Agent, pursuant to
clause (c), documentation evidencing the payment of Taxes or Other Taxes (other than
incidental taxes resulting directly as a result of the willful misconduct or gross negligence of
the Administrative Agent or a respective Secured Party); provided that if the Secured Party
or Administrative Agent, as applicable, fails to give notice to the Borrower of the imposition of
any Non-Excluded Taxes or Other Taxes within 120 days following its receipt of actual written
notice of the imposition of such Non-Excluded Taxes or Other Taxes, there will be no obligation for
the Borrower to pay interest or penalties attributable to the period beginning after such 120th day
and ending seven days after the Borrower receives notice from the Secured Party or the
Administrative Agent as applicable. With respect to indemnification for Non-Excluded Taxes and
Other Taxes actually paid by any Secured Party or the indemnification provided in the immediately
preceding sentence, such indemnification shall be made within 30 days after the date such Secured
Party makes written demand therefor (together with supporting documentation in reasonable detail).
The Borrower acknowledges that any payment made to any Secured Party or to any Governmental
Authority in respect of the indemnification obligations of the Borrower provided in this clause
shall constitute a payment in respect of which the provisions of clause (a) and this clause
shall apply.
(e) Each Non-U.S. Lender, on or prior to the date on which such Non-U.S. Lender becomes a
Lender hereunder (and from time to time thereafter upon the request of the Borrower or the
Administrative Agent, but only for so long as such non-U.S. Lender is legally entitled to do so),
shall deliver to the Borrower and the Administrative Agent either (i) two duly completed copies of
either (x) Internal Revenue Service Form W-8BEN claiming eligibility of the Non-U.S. Lender for
benefits of an income tax treaty to which the United States is a party or (y) Internal Revenue
Service Form W-8ECI, or in either case an applicable successor form; or (ii) in the case of a
Non-U.S. Lender that is not legally entitled to deliver either form listed in
clause (e)(i), (x) a certificate to the effect that such Non-U.S. Lender is not (A) a
“bank” within the meaning of Section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of
the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (C) a controlled foreign
corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of
the Code (referred
52
to as an “Exemption Certificate”) and (y) two duly completed copies of Internal
Revenue Service Form W-8BEN or applicable successor form.
(f) Any Lender that is a United States Person, as defined in Section 7701(a)(30) of the Code,
shall (unless such Lender may be treated as an exempt recipient based on the indicators described
in Treasury Regulation Section 1.6049-4(c)(1)(ii)(A)) deliver to the Borrower and the
Administrative Agent, at the times specified in clause (e), two duly completed copies of Internal
Revenue Service Form W-9, or any successor form that such Person is entitled to provide at such
time, in order to qualify for an exemption from United States back-up withholding requirements.
(g) The Borrower shall not be obligated to pay any additional amounts to any Lender pursuant
to clause (a)(i), or to indemnify any Lender pursuant to clause (d), in respect of
United States federal withholding taxes to the extent imposed as a result of (i) the failure of
such Lender to deliver to the Borrower the form or forms and/or an Exemption Certificate, as
applicable to such Lender, pursuant to clause (e) or clause (f), (ii) such form or
forms and/or Exemption Certificate not establishing a complete exemption from U.S. federal
withholding tax or the information or certifications made therein by the Lender being untrue or
inaccurate on the date delivered in any material respect, or (iii) the Lender designating a
successor lending office at which it maintains its Loans which has the effect of causing such
Lender to become obligated for tax payments in excess of those in effect immediately prior to such
designation; provided that the Borrower shall be obligated to pay additional amounts to any
such Lender pursuant to clause (a)(i) and to indemnify any such Lender pursuant to
clause (d), in respect of United States federal withholding taxes if (i) any such failure
to deliver a form or forms or an Exemption Certificate or the failure of such form or forms or
Exemption Certificate to establish a complete exemption from U.S. federal withholding tax or
inaccuracy or untruth contained therein resulted from a change in any applicable statute, treaty,
regulation or other applicable law or any interpretation of any of the foregoing occurring after
the Restatement Effective Date, which change rendered such Lender no longer legally entitled to
deliver such form or forms or Exemption Certificate or otherwise ineligible for a complete
exemption from U.S. federal withholding tax, or rendered the information or certifications made in
such form or forms or Exemption Certificate untrue or inaccurate in a material respect, (ii) the
redesignation of the Lender’s lending office was made at the request of the Borrower or (iii) the
obligation to pay any additional amounts to any such Lender pursuant to clause (a)(i) or to
indemnify any such Lender pursuant to clause (d) is with respect to an Eligible Assignee
that becomes an assignee Lender as a result of an assignment made at the request of the Borrower.
(h) If the Administrative Agent or a Lender determines in its sole, good faith discretion that
amounts recovered or refunded are a recovery or refund of any Non-Excluded Taxes or Other Taxes as
to which it has been indemnified by the Borrower pursuant to clause (d), or to which the
Borrower has paid additional amounts pursuant to clause (a)(i), it shall pay over such
refund to the Borrower (but only to the extent of indemnity payments made, or additional amounts
paid, by the Borrower under this Section 4.6 with respect to the Non-Excluded Taxes or
Other Taxes that give rise to such refund), net of all reasonable out-of-pocket expenses of the
Administrative Agent or such Lender and without interest (other than any interest paid by the
relevant Governmental Authority with respect to such refund); provided that in no event
will any Lender be required to pay an amount to the Borrower that would place such Lender in a less
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favorable net after-tax position than such Lender would have been in if the additional amounts
giving rise to such refund of any Non-Excluded Taxes or Other Taxes had never been paid, and
provided further that the Borrower, upon the written request of the Administrative
Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties,
interest, or other charges imposed by the relevant Governmental Authority unless the Governmental
Authority assessed such penalties, interest, or other charges due to the gross negligence or
willful misconduct of the Administrative Agent or such Lender) to the Administrative Agent or such
Lender in the event the Administrative Agent or such Lender is required to repay such refund to the
Governmental Authority. Nothing in this Section 4.6(h) shall require any Lender to make
available its tax returns or any other information related to its taxes that it deems confidential.
SECTION 4.7 Payments, Computations; Proceeds of Collateral, etc. (a) Unless
otherwise expressly provided in a Loan Document, all reductions of the Revolving Loan Commitments
and all payments by the Borrower pursuant to each Loan Document shall be made by the Borrower to
the Administrative Agent for the pro rata account of the Secured Parties entitled to receive such
reduction or payment. All payments shall be made without setoff, deduction or counterclaim not
later than 11:00 a.m. on the date due in same day or immediately available funds to such account as
the Administrative Agent (or in the case of a reimbursement obligation, the applicable Issuer)
shall specify from time to time by notice to the Borrower. Funds received after that time shall be
deemed to have been received by the Administrative Agent on the next succeeding Business Day. The
Administrative Agent shall promptly remit in same day funds to each Secured Party its share, if
any, of such payments received by the Administrative Agent for the account of such Secured Party.
All interest (including interest on LIBO Rate Loans) and fees shall be computed on the basis of the
actual number of days (including the first day but excluding the last day) occurring during the
period for which such interest or fee is payable over a year comprised of 360 days (or, in the case
of interest on a Base Rate Loan (calculated at other than the Federal Funds Rate), 365 days or, if
appropriate, 366 days). Payments due on other than a Business Day shall be made on the next
succeeding Business Day and such extension of time shall be included in computing interest and fees
in connection with that payment.
(b) All amounts received as a result of the exercise of remedies under the Loan Documents
(including from the proceeds of collateral securing the Obligations) or under applicable law shall
be applied upon receipt to the Obligations as follows: (i) first, to the payment of all Obligations
owing to the Agents, in their capacity as Agents (including the fees and expenses of counsel to the
Agents), (ii) second, after payment in full in cash of the amounts specified in
clause (b)(i), to the ratable payment of all interest (including interest accruing after
the commencement of a proceeding in bankruptcy, insolvency or similar law, whether or not permitted
as a claim under such law) and fees owing under the Loan Documents (including all amounts owing
under Section 3.3.4), and all costs and expenses owing to the Secured Parties pursuant to the terms
of the Loan Documents, until paid in full in cash, (iii) third, after payment in full in cash of
the amounts specified in clauses (b)(i) and (b)(ii), to the ratable payment of the
principal amount of the Loans then outstanding, the aggregate Reimbursement Obligations then owing,
the aggregate amount of OA Payment Obligations then owing, the Cash Collateralization for
contingent liabilities under Letter of Credit Outstandings, amounts owing to Secured Parties under
Rate Protection Agreements and the aggregate amount of Cash Management Obligations then owing, (iv)
fourth, after payment in full in cash of the amounts specified in clauses (b)(i)
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through (b)(iii), to the ratable payment of all other Obligations owing to the Secured
Parties, and (v) fifth, after payment in full in cash of the amounts specified in
clauses (b)(i) through (b)(iv), and following the Termination Date, to each
applicable Obligor or any other Person lawfully entitled to receive such surplus. For purposes of
clause (b)(iii), the “amounts owing” at any time to any Secured Party with respect to a
Rate Protection Agreement to which such Secured Party is a party shall be determined at such time
by the terms of such Rate Protection Agreement or, if not set forth therein, in accordance with the
customary methods of calculating credit exposure under similar arrangements by the counterparty to
such arrangements, taking into account potential interest rate (or, if applicable, currency or
commodities) movements and the respective termination provisions and notional principal amount and
term of such Rate Protection Agreement.
SECTION 4.8 Sharing of Payments. If any Secured Party shall obtain any payment or
other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account
of any Credit Extension or Reimbursement Obligation (other than pursuant to the terms of
Sections 4.3, 4.4, 4.5 or 4.6) in excess of its pro
rata share of payments obtained by all Secured Parties, such Secured Party shall purchase
(in Dollars) from the other Secured Parties such participations in Credit Extensions made by them
as shall be necessary to cause such purchasing Secured Party to share the excess payment or other
recovery ratably (to the extent such other Secured Parties were entitled to receive a portion of
such payment or recovery) with each of them; provided that, if all or any portion of the
excess payment or other recovery is thereafter recovered from such purchasing Secured Party, the
purchase shall be rescinded and each Secured Party which has sold a participation to the purchasing
Secured Party shall repay to the purchasing Secured Party the purchase price to the ratable extent
of such recovery together with an amount equal to such selling Secured Party’s ratable share
(according to the proportion of (a) the amount of such selling Secured Party’s required repayment
to the purchasing Secured Party to (b) total amount so recovered from the purchasing
Secured Party) of any interest or other amount paid or payable by the purchasing Secured Party in
respect of the total amount so recovered. The Borrower agrees that any Secured Party purchasing a
participation from another Secured Party pursuant to this Section may, to the fullest extent
permitted by law, exercise all its rights of payment (including pursuant to Section 4.9)
with respect to such participation as fully as if such Secured Party were the direct creditor of
the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency
or other similar law any Secured Party receives a secured claim in lieu of a setoff to which this
Section applies, such Secured Party shall, to the extent practicable, exercise its rights in
respect of such secured claim in a manner consistent with the rights of the Secured Parties
entitled under this Section to share in the benefits of any recovery on such secured claim.
SECTION 4.9 Setoff. Each Secured Party shall, upon the occurrence and during the
continuance of any Event of Default described in clauses (a) through (d) of
Section 8.1.9 or, with the consent of the Required Lenders, upon the occurrence and during
the continuance of any other Event of Default, have the right to appropriate and apply to the
payment of the Obligations owing to it (if then due and payable), and (as security for such
Obligations) the Borrower hereby grants to each Secured Party a continuing security interest in,
any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter
maintained with such Secured Party (other than payroll, trust or tax accounts); provided
that, any such appropriation and application shall be subject to the provisions of Section
4.8. Each
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Secured Party agrees promptly to notify the Borrower and the Administrative Agent after any
such appropriation and application made by such Secured Party; provided that, the failure
to give such notice shall not affect the validity of such setoff and application. The rights of
each Secured Party under this Section are in addition to other rights and remedies (including other
rights of setoff under applicable law or otherwise) which such Secured Party may have.
SECTION 4.10 Mitigation. Each Lender agrees that if it makes any demand for payment
under Sections 4.3 or 4.6, it will use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions and so long as such efforts would not be
disadvantageous to it, as determined in its sole discretion) to designate a different lending
office if the making of such a designation would reduce or obviate the need for the Borrower to
make payments under Section 4.3 or 4.6.
SECTION 4.11 Removal of Lenders. If any Lender (an “Affected Lender”) (i)
fails to consent to an election, consent, amendment, waiver or other modification to this Agreement
or other Loan Document (a “Non-Consenting Lender”) that requires the consent of a greater
percentage of the Lenders than the Required Lenders and such election, consent, amendment, waiver
or other modification is otherwise consented to by Non-Defaulting Lenders holding more than 50% of
the Total Exposure Amount of all Non-Defaulting Lenders, (ii) makes a demand upon the Borrower for
(or if the Borrower is otherwise required to pay) amounts pursuant to Section 4.3,
4.5 or 4.6, or gives notice pursuant to Section 4.1 requiring a conversion
of such Affected Lender’s LIBO Rate Loans to Base Rate Loans or any change in the basis upon which
interest is to accrue in respect of such Affected Lender’s LIBO Rate Loans or suspending such
Lender’s obligation to make Loans as, or to convert Loans into, LIBO Rate Loans or (iii) becomes a
Defaulting Lender the Borrower may, at its sole cost and expense, within 90 days of receipt by the
Borrower of such demand or notice (or the occurrence of such other event causing Borrower to be
required to pay such compensation) or within 90 days of such Lender becoming a Non-Consenting
Lender or a Defaulting Lender, as the case may be, give notice (a “Replacement Notice”) in
writing to the Administrative Agent and such Affected Lender of its intention to cause such
Affected Lender to sell all or any portion of its Loans, Commitments and/or Notes to another
financial institution or other Person (a “Replacement Lender”) designated in such
Replacement Notice; provided that no Replacement Notice may be given by the Borrower if (A)
such replacement conflicts with any applicable law or regulation or (B) prior to any such
replacement, such Lender shall have taken any necessary action under Section 4.5 or
4.6 (if applicable) so as to eliminate the continued need for payment of amounts owing
pursuant to Section 4.5 or 4.6 and withdrew its request for compensation under
Section 4.3, 4.5 or 4.6. If the Administrative Agent shall, in the
exercise of its reasonable discretion and within 30 days of its receipt of such Replacement Notice,
notify the Borrower and such Affected Lender in writing that the Replacement Lender is reasonably
satisfactory to the Administrative Agent (such consent not being required where the Replacement
Lender is already a Lender), then such Affected Lender shall, subject to the payment of any amounts
due pursuant to Section 4.4, assign, in accordance with Section 10.11, the portion
of its Commitments, Loans, Notes (if any) and other rights and obligations under this Agreement and
all other Loan Documents (including Reimbursement Obligations, if applicable) designated in the
Replacement Notice to such Replacement Lender; provided that (A) such assignment shall be
without recourse, representation or warranty and shall be on terms and conditions reasonably
satisfactory to such Affected Lender and such Replacement Lender, and (B) the purchase price paid
by such
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Replacement Lender shall be in the amount of such Affected Lender’s Loans designated in the
Replacement Notice and/or its Percentage of outstanding Reimbursement Obligations, as applicable,
together with all accrued and unpaid interest and fees in respect thereof, plus all other amounts
(including the amounts demanded and unreimbursed under Sections 4.3, 4.5 and
4.6), owing to such Affected Lender hereunder. Upon the effective date of an assignment
described above, the Replacement Lender shall become a “Lender” for all purposes under the Loan
Documents. Each Lender hereby grants to the Administrative Agent an irrevocable power of attorney
(which power is coupled with an interest) to execute and deliver, on behalf of such Lender as
assignor, any assignment agreement necessary to effectuate any assignment of such Lender’s
interests hereunder in the circumstances contemplated by this Section.
SECTION 4.12 Limitation on Additional Amounts, etc. Notwithstanding anything to the
contrary contained in Sections 4.3 or 4.5 of this Agreement, unless a Lender gives
notice to the Borrower that it is obligated to pay an amount under any such Section within 90 days
after the later of (i) the date the Lender incurs the respective increased costs, loss, expense or
liability, reduction in amounts received or receivable or reduction in return on capital or (ii)
the date such Lender has actual knowledge of its incurrence of their respective increased costs,
loss, expense or liability, reductions in amounts received or receivable or reduction in return on
capital, then such Lender shall only be entitled to be compensated for such amount by the Borrower
pursuant to Sections 4.3 or 4.5, as the case may be, to the extent the costs, loss,
expense or liability, reduction in amounts received or receivable or reduction in return on capital
are incurred or suffered on or after the date which occurs 90 days prior to such Lender giving
notice to the Borrower that it is obligated to pay the respective amounts pursuant to Sections
4.3 or 4.5, as the case may be. This Section shall have no applicability to any
Section of this Agreement other than Sections 4.3 and 4.5.
SECTION 4.13 Defaulting Lenders. Notwithstanding any provision of this Agreement to
the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply
for so long as such Lender is a Defaulting Lender:
(a) if any Swing Line Exposure, Letter of Credit Outstandings or any OA Payment
Outstandings exists at the time a Lender becomes a Defaulting Lender then:
(i) all or any part of such Swing Line Exposure, Letter of Credit Outstandings
and OA Payment Outstandings shall be reallocated among the Non Defaulting Lenders in
accordance with their respective Revolving Loan Percentages but only to the extent
(x) the sum of all Non Defaulting Lenders’ Revolving Exposures plus such
Defaulting Lender’s Revolving Loan Percentage of (A) Swing Line Exposure, (B) Letter
of Credit Outstandings and (C) OA Payment Outstandings does not exceed the total of
all Non Defaulting Lenders’ Commitments and (y) the conditions set forth in
Section 5.2 are satisfied at such time; and
(ii) if the reallocation described in clause (i) above cannot, or can only
partially, be effected, the Borrower shall within one Business Day following notice
by the Administrative Agent (x) first, prepay such Swing Line Exposure and (y)
second, Cash Collateralize such Defaulting Lender’s Revolving Loan
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Percentage of the Letter of Credit Outstandings and OA Payment Outstandings
(after giving effect to any partial reallocation pursuant to clause (i) above) for
so long as such Letter of Credit Outstandings is outstanding.
(iii) if the Borrower Cash Collateralizes any portion of such Defaulting
Lender’s Revolving Loan Percentage of the Letter of Credit Outstandings or OA
Payment Outstandings pursuant to this paragraph (a), the Borrower shall not be
required to pay any fees to such Defaulting Lender pursuant to Section 3.3.3
or Section 3.3.4 with respect to such Defaulting Lender’s Revolving Loan
Percentage of the Letter of Credit Outstandings and OA Payment Outstandings during
the period such Defaulting Lender’s Revolving Loan Percentage of the Letter of
Credit Outstandings or OA Payment Outstandings is cash collateralized;
(iv) if the Revolving Loan Percentages of the Letter of Credit Outstandings and
OA Payment Outstandings of the Non Defaulting Lenders is reallocated pursuant to
this paragraph (a), then the fees payable to the Lenders pursuant to Section
3.3.3 and Section 3.3.4 shall be adjusted in accordance with such Non
Defaulting Lenders’ Revolving Loan Percentages; or
(v) if any Defaulting Lender’s Letter of Credit Outstandings and OA Payment
Outstandings is neither cash collateralized nor reallocated pursuant to this
paragraph (a), then, without prejudice to any rights or remedies of the Issuers or
any Lender hereunder, all Letter of Credit fees and Open Account Agreement payments
payable under Section 3.3.3 and Section 3.3.4 with respect to such
Defaulting Lender’s Revolving Loan Percentage of the Letter of Credit Outstandings
and OA Payment Outstandings shall be payable to the Issuer or applicable Open
Account Discount Purchaser, as the case may be, until such Letter of Credit
Outstandings and OA Payment Outstandings are cash collateralized and/or reallocated.
(b) so long as any Lender is a Defaulting Lender, the Swing Line Lender shall not be
required to fund any Swing Line Loans and the Issuer shall not be required to issue, amend
or increase any Letter of Credit, unless it is satisfied that the related exposure will be
100% covered by the Commitments of the Non Defaulting Lenders and/or cash collateral will
be provided by the Borrower in accordance with paragraph (a) of this Section, and
participating interests in any such newly issued or increased Letter of Credit or newly made
Swing Line Loan shall be allocated among Non Defaulting Lenders in a manner consistent with
clause (i) of paragraph (a) of this Section (and Defaulting Lenders shall not participate
therein); and
(c) any amount otherwise payable to such Defaulting Lender hereunder (whether on
account of principal, interest, fees or otherwise and including any amount that would
otherwise be payable to such Defaulting Lender pursuant to Section 4.8 but excluding
Section 4.11) shall, in lieu of being distributed to such Defaulting Lender, be
retained by the Administrative Agent in a segregated account and, subject to any applicable
requirements of law, be applied at such time or times as may be determined by the
Administrative Agent (i) first, to the payment of any amounts owing by such
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Defaulting Lender to the Administrative Agent hereunder, (ii) second, pro rata,
to the payment of any amounts owing by such Defaulting Lender to the Issuer or Swing Line
Lender or any Open Account Discount Purchaser hereunder, (iii) third, if so
determined by the Administrative Agent or requested by the Issuer or Swing Line Lender or
any Open Account Discount Purchaser, held in such account as cash collateral for future
funding obligations of the Defaulting Lender in respect of any existing or future
participating interest in any Swing Line Loan or Letter of Credit or Open Account Discount
Agreement, (iv) fourth, to the funding of any Loan in respect of which such
Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as
determined by the Administrative Agent, (v) fifth, if so determined by the
Administrative Agent and the Borrower, held in such account as cash collateral for future
funding obligations of the Defaulting Lender in respect of any Loans under this Agreement,
(vi) sixth, to the payment of any amounts owing to the Lenders or an Issuing Bank or
Swing Line Lender or Open Account Discount Purchaser as a result of any judgment of a court
of competent jurisdiction obtained by any Lender or such Issuer or Swing Line Lender or Open
Account Discount Purchaser against such Defaulting Lender as a result of such Defaulting
Lender’s breach of its obligations under this Agreement, (vii) seventh, to the
payment of any amounts owing to the Borrower as a result of any judgment of a court of
competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result
of such Defaulting Lender’s breach of its obligations under this Agreement, and (viii)
eighth, to such Defaulting Lender or as otherwise directed by a court of competent
jurisdiction; provided, with respect to this clause (viii), that if such payment is
(x) a prepayment of the principal amount of any Loans or Reimbursement Obligations in which
a Defaulting Lender has funded its participation obligations and (y) made at a time when the
conditions set forth in Section 5.02 are satisfied, such payment shall be applied solely to
prepay the Loans of, and Reimbursement Obligations owed to, all Non Defaulting Lenders pro
rata prior to being applied to the prepayment of any Loans, or Reimbursement Obligations
owed to, any Defaulting Lender.
(d) In the event that the Administrative Agent, the Borrower, the Issuer, the Swing
Line Lender and any Open Account Discount Purchaser each agrees that a Defaulting Lender has
adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the
Revolving Loan Percentages of the Non Defaulting Lenders shall be readjusted to reflect the
inclusion of such Lender’s Commitment and on such date such Lender shall purchase at par
such of the Loans of the other Lenders as the Administrative Agent shall determine may be
necessary in order for such Lender to hold such Loans in accordance with its Revolving Loan
Percentage.
ARTICLE V
CONDITIONS TO CREDIT EXTENSIONS
CONDITIONS TO CREDIT EXTENSIONS
SECTION 5.1 Initial Credit Extension. Subject to Section 7.1.11, the
obligations of the Lenders to make the initial Credit Extension shall be subject to the prior or
concurrent satisfaction (or waiver) in all material respects of each of the conditions precedent
set forth in this Article.
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SECTION 5.1.1 Resolutions, etc. The Agents shall have received from each Obligor, as
applicable, (i) a copy of a good standing certificate, dated a date reasonably close to the
Restatement Effective Date, for each such Obligor from its jurisdiction of organization and (ii) a
certificate, dated as of the Restatement Effective Date, duly executed and delivered by such
Obligor’s Secretary or Assistant Secretary, managing member or general partner, as applicable, as
to
(a) resolutions of each such Obligor’s Board of Directors (or other managing body, in
the case of other than a corporation) then in full force and effect authorizing, to the
extent relevant, all aspects of the Transaction applicable to such Obligor and the
execution, delivery and performance of each Loan Document to be executed by such Obligor and
the transactions contemplated hereby and thereby;
(b) the incumbency and signatures of those of its officers, managing member or general
partner, as applicable, authorized to act with respect to each Loan Document to be executed
by such Obligor; and
(c) the full force and validity of each Organic Document of such Obligor and copies
thereof;
upon which certificates each Secured Party may conclusively rely until it shall have received a
further certificate of the Secretary, Assistant Secretary, managing member or general partner, as
applicable, of any such Obligor canceling or amending the prior certificate of such Obligor.
SECTION 5.1.2 Closing Date Certificate. The Agents shall have received the Closing
Date Certificate, dated as of the Restatement Effective Date and duly executed and delivered by an
Authorized Officer of the Borrower, in which certificate the Borrower shall agree and acknowledge
and certify that the statements made therein are, true and correct representations and warranties
of the Borrower as of such date, and, at the time each such certificate is delivered, such
statements shall in fact be true and correct. All documents and agreements (including Transaction
Documents) required to be appended to the Closing Date Certificate shall be in form and substance
reasonably satisfactory to the Lead Arrangers, shall have been executed and delivered by the
requisite parties, and shall be in full force and effect.
SECTION 5.1.3 Consummation of Transaction. The Agents shall have received evidence
reasonably satisfactory to it that all actions necessary to consummate the Transaction shall have
been taken in accordance in all material respects with all applicable law and in accordance with
the terms of each applicable Transaction Document, without amendment or waiver of any material
provision thereof, unless approved by the Lead Arrangers in their reasonable discretion.
SECTION 5.1.4 PATRIOT Act Disclosures. Within five Business Days’ prior to the
Restatement Effective Date, the Lenders or the Agents shall have received copies of all PATRIOT Act
Disclosures as reasonably requested by the Lenders or the Lead Arrangers.
SECTION 5.1.5 Delivery of Notes. The Administrative Agent shall have received, for
the account of each Lender that has requested a Note, such Lender’s Notes duly executed and
delivered by an Authorized Officer of the Borrower.
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SECTION 5.1.6 Financial Information, etc. The Agents shall have received,
(a) audited consolidated balance sheets and related statements of income, stockholders’
equity and cash flows of the Borrower and its Subsidiaries for the stub period of 2006 (from
July 2, 2006 to December 30, 2006) and Fiscal Years 2007 and 2008;
(b) unaudited consolidated balance sheets and related statements of income,
stockholders’ equity and cash flows for each of the first three Fiscal Quarters of 2008 and
of 2009;
(c) all other financial statements for completed or pending acquisitions that may be
required under Regulation S-X of the Securities Act of 1933, as amended (“Regulation
S-X”); and
(d) detailed projected financial statements of the Borrower and its Subsidiaries for
the five Fiscal Years ended after the Restatement Effective Date, which projections shall
include quarterly projections for the first Fiscal Year after the Restatement Effective
Date.
SECTION 5.1.7 Solvency Certificate. The Agents shall have received a Solvency
Certificate dated the date of the initial Credit Extension, duly executed (and with all schedules
thereto duly completed) and delivered by the chief financial or accounting Authorized Officer of
the Borrower.
SECTION 5.1.8 Guaranty. The Agents shall have received counterparts of the Guaranty,
dated as of the Restatement Effective Date, duly executed and delivered by an Authorized Officer of
each U.S. Subsidiary.
SECTION 5.1.9 Security Agreement. The Administrative Agent shall have received
executed counterparts of the Security Agreement, dated as of the Restatement Effective Date, duly
executed, authorized or delivered by each Obligor, as applicable, together with
(a) certificates (in the case of Capital Securities that are securities (as defined in
the UCC)) evidencing all of the issued and outstanding Capital Securities owned by each
Obligor in its U.S. Subsidiaries and, subject to Section 7.1.11, 65% of the issued
and outstanding Voting Securities (to the extent certificated and permitted by applicable
law to be removed from any particular jurisdiction) of each Foreign Subsidiary (together
with all the issued and outstanding non-voting Capital Securities (to the extent
certificated and permitted by applicable law to be removed from any particular jurisdiction)
of such Foreign Subsidiary) directly owned by each Obligor, which certificates in each case
shall be accompanied by undated instruments of transfer duly executed in blank, or, if any
Capital Securities (in the case of Capital Securities that are uncertificated securities (as
defined in the UCC)), confirmation and evidence reasonably satisfactory to the Lead
Arrangers that the security interest therein has been transferred to and perfected by the
Collateral Agent for the benefit of the Secured Parties in accordance with Articles 8 and 9
of the UCC and all U.S. laws otherwise applicable to the perfection of the pledge of such
Capital Securities;
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(b) Filing Statements suitable in form and naming each Obligor as a debtor and the
Collateral Agent as the secured party, or other similar instruments or documents to be filed
under the UCC of all jurisdictions as may be necessary or, in the opinion of the Lead
Arrangers, desirable to perfect the security interests of the Collateral Agent pursuant to
the Security Agreement;
(c) UCC Form UCC-3 termination statements, if any, necessary to release all Liens and
other rights of any Person in any collateral described in any security agreement previously
granted by any Person, together with such other UCC Form UCC-3 termination statements as the
Lead Arrangers may reasonably request from such Obligors; and
(d) certified copies of UCC Requests for Information or Copies (Form UCC-11), or a
similar search report certified by a party reasonably acceptable to the Lead Arrangers,
dated a date reasonably near to the Closing Date, listing all effective financing statements
which name any Obligor (under its present legal name) as the debtor, together with copies of
such financing statements (none of which shall evidence a Lien on any collateral described
in any Loan Document, other than a Permitted Lien).
SECTION 5.1.10 Intellectual Property Security Agreements. The Administrative Agent
shall have received a Patent Security Agreement, a Copyright Security Agreement and a Trademark
Security Agreement, as applicable, each dated as of the Closing Date, duly executed and delivered
by each Obligor that, pursuant to the Security Agreement, is required to provide such intellectual
property security agreements to the Collateral Agent.
SECTION 5.1.11 Filing Agent, etc. All Uniform Commercial Code financing statements or
other similar financing statements and Uniform Commercial Code (Form UCC-3) termination statements
(collectively, the “Filing Statements”) required pursuant to the Loan Documents shall have
been delivered by counsel to the Lead Arrangers to CT Corporation System or another similar filing
service company acceptable to the Lead Arrangers (the “Filing Agent”). The Filing Agent
shall have acknowledged in a writing satisfactory to the Lead Arrangers and their counsel (i) the
Filing Agent’s receipt of all Filing Statements, (ii) that the Filing Statements required pursuant
to the Loan Documents have either been submitted for filing in the appropriate filing offices or
will be submitted for filing in the appropriate offices within ten days following the Restatement
Effective Date and (iii) that the Filing Agent will notify the Agents and their counsel of the
results of such submissions and will provide recorded copies of the same within 30 days following
the Restatement Effective Date.
SECTION 5.1.12 Insurance. The Collateral Agent shall have received, certificates of
insurance in form and substance reasonably satisfactory to the Collateral Agent, evidencing
coverage required to be maintained pursuant to each Loan Document and naming the Collateral Agent
as loss payee or additional insured, as applicable.
SECTION 5.1.13 Opinions of Counsel. The Agents shall have received opinions, dated the
Restatement Effective Date and addressed to the Lead Arrangers, the Agents and all Lenders, from
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(a) Kirkland & Ellis LLP, counsel to the Obligors, in form and substance reasonably
satisfactory to the Lead Arrangers; and
(b) Maryland counsel to the Borrower, in form and substance, and from counsel,
reasonably satisfactory to the Lead Arrangers.
SECTION 5.1.14 Closing Fees, Expenses, etc. Each Lead Arranger and each Agent shall
have received for its own account, or for the account of each Lender, as the case may be, all fees,
costs and expenses due and payable pursuant to Sections 3.3 and, if then invoiced,
10.3.
SECTION 5.1.15 [Reserved].
SECTION 5.1.16 Litigation. There shall exist no action, suit, investigation or other
proceeding pending or threatened in writing in any court or before any arbitrator or governmental
or regulatory agency or authority that could reasonably be expected to have a Material Adverse
Effect.
SECTION 5.1.17 Approval. All material and necessary governmental and third party
consents and approvals shall have been obtained (without the imposition of any material and adverse
conditions that are not reasonably acceptable to the Lenders) and shall remain in effect and all
applicable waiting periods shall have expired without any material and adverse action being taken
by any competent authority. The Agents shall be reasonably satisfied that the 2016 Senior Notes
shall be issued and will be in accordance with applicable laws and governmental regulations.
SECTION 5.1.18 Debt Rating. The Borrower shall have obtained a senior secured debt
rating (of any level) in respect of the Loans from each of S&P and Moody’s, which ratings (of any
level) shall remain in effect on the Restatement Effective Date.
SECTION 5.1.19 Satisfactory Legal Form. All documents executed or submitted pursuant
hereto by or on behalf of any Obligor on or before the Restatement Effective Date shall be
reasonably satisfactory in form and substance to the Agents, and the Agents shall have received all
information, approvals, opinions, documents or instruments as the Lead Arrangers or their counsel
may reasonably request.
SECTION 5.2 All Credit Extensions. The obligation of each Lender and each Issuer to
make any Credit Extension shall be subject to the satisfaction of each of the conditions precedent
set forth below.
SECTION 5.2.1 Compliance with Warranties, No Default, etc. Both before and after
giving effect to any Credit Extension (but, if any Default of the nature referred to in Section
8.1.5 shall have occurred with respect to any other Indebtedness, without giving effect to the
application, directly or indirectly, of the proceeds thereof) the following statements shall be
true and correct:
(a) the representations and warranties set forth in each Loan Document shall, in each
case, be true and correct in all material respects with the same effect as if then made
(unless stated to relate solely to an earlier date, in which case such representations
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and warranties shall be true and correct in all material respects as of such earlier
date); and
(b) no Default shall have then occurred and be continuing.
SECTION 5.2.2 Credit Extension Request, etc. Subject to Section 2.3.2, the
Administrative Agent shall have received a Borrowing Request if Loans are being requested, or an
Issuance Request if a Letter of Credit is being requested or extended. Each of the delivery of a
Borrowing Request or Issuance Request and the acceptance by the Borrower of the proceeds of such
Credit Extension shall constitute a representation and warranty by the Borrower that on the date of
such Credit Extension (both immediately before and after giving effect to such Credit Extension and
the application of the proceeds thereof) the statements made in Section 5.2.1 are true and
correct.
ARTICLE
VI
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES
In order to induce the Secured Parties to enter into this Agreement and to make Credit
Extensions hereunder, the Borrower represents and warrants to each Secured Party as set forth in
this Article.
SECTION 6.1 Organization, etc. Each Obligor (i) is validly organized and existing and
in good standing under the laws of the state or jurisdiction of its incorporation or organization,
(ii) is duly qualified to do business and is in good standing as a foreign entity in each
jurisdiction where the nature of its business requires such qualification, except where the failure
to be so qualified or in good standing could not reasonably be expected to have a Material Adverse
Effect and (iii) has full organizational power and authority and holds all requisite governmental
licenses, permits and other approvals to enter into and perform its Obligations under each Loan
Document to which it is a party, and except to the extent the failure to do so could not reasonably
be expected to have a Material Adverse Effect, to (a) own and hold under lease its property and (b)
to conduct its business substantially as currently conducted by it.
SECTION 6.2 Due Authorization, Non-Contravention, etc. The execution, delivery and
performance by each Obligor of each Loan Document executed or to be executed by it, each Obligor’s
participation in the consummation of all aspects of the Transaction, and the execution, delivery
and performance by the Borrower or (if applicable) any Obligor of the agreements executed and
delivered by it in connection with the Transaction are in each case within such Person’s powers,
have been duly authorized by all necessary action, and do not
(a) contravene any (i) Obligor’s Organic Documents, (ii) court decree or order binding
on or affecting any Obligor or (iii) law or governmental regulation binding on or affecting
any Obligor; or
(b) result in (i) or require the creation or imposition of, any Lien on any Obligor’s
properties (except as permitted by this Agreement) or (ii) a default under any material
contractual restriction binding on or affecting any Obligor.
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SECTION 6.3 Government Approval, Regulation, etc. No authorization or approval or
other action by, and no notice to or filing with, any Governmental Authority or other Person (other
than those that have been, or on the Restatement Effective Date will be, duly obtained or made and
which are, or on the Restatement Effective Date will be, in full force and effect) is required for
the consummation of the Transaction or the due execution, delivery or performance by any Obligor of
any Loan Document to which it is a party, or for the due execution, delivery and/or performance of
Transaction Documents, in each case by the parties thereto or the consummation of the Transaction.
Neither the Borrower nor any of its Subsidiaries is an “investment company” within the meaning of
the Investment Company Act of 1940, as amended.
SECTION 6.4 Validity, etc. Each Obligor has duly executed and delivered each of the
Loan Documents and each of the Transaction Documents to which it is a party, and each Loan Document
and each Transaction Document to which any Obligor is a party constitutes the legal, valid and
binding obligations of such Obligor, enforceable against such Obligor in accordance with their
respective terms (except, in any case, as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally and by
principles of equity).
SECTION 6.5 Financial Information. The financial statements of the Borrower and its
Subsidiaries furnished to the Administrative Agent and each Lender pursuant to Section
5.1.6 (other than forecasts, projections, budgets and forward-looking information) have been
prepared in accordance with GAAP consistently applied (except where specifically so noted on such
financial statements), and present fairly in all material respects the consolidated financial
condition of the Persons covered thereby as at the dates thereof and the results of their
operations for the periods then ended. All balance sheets, all statements of income and of cash
flow and all other financial information of each of the Borrower and its Subsidiaries furnished
pursuant to Section 7.1.1 have been and will for periods following the Restatement
Effective Date be prepared in accordance with GAAP consistently applied with the financial
statements delivered pursuant to Section 5.1.6, and do or will present fairly in all
material respects the consolidated financial condition of the Persons covered thereby as at the
dates thereof and the results of their operations for the periods then ended. Notwithstanding
anything contained herein to the contrary, it is hereby acknowledged and agreed by the
Administrative Agent, each Lead Arranger and each Lender that (i) any financial or business
projections furnished to the Administrative Agent, any Lead Arranger or any Lender by the Borrower
or any of its Subsidiaries under any Loan Document are subject to significant uncertainties and
contingencies, which may be beyond the Borrower’s and/or its Subsidiaries’ control, (ii) no
assurance is given by any of the Borrower or its Subsidiaries that the results forecast in any such
projections will be realized and (iii) the actual results may differ from the forecast results set
forth in such projections and such differences may be material.
SECTION 6.6 No Material Adverse Change. There has been no material adverse change in
the business, financial condition, operations, performance or assets of the Borrower and its
Subsidiaries, taken as a whole, since January 3, 2009.
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SECTION 6.7 Litigation, Labor Controversies, etc. There is no pending or, to the
knowledge of the Borrower or any of its Subsidiaries, threatened (in writing) litigation, action,
proceeding, labor controversy or investigation:
(a) affecting the Borrower any of its Subsidiaries or any other Obligor, or any of
their respective properties, businesses, assets or revenues, which could reasonably be
expected to have a Material Adverse Effect; or
(b) which purports to affect the legality, validity or enforceability of any Loan
Document, the Transaction Documents or the Transaction.
SECTION 6.8 Subsidiaries. The Borrower has no Subsidiaries, except those Subsidiaries
which are (a) identified in Item 6.8 of the Disclosure Schedule or (b) permitted to have been
organized or acquired in accordance with Sections 7.2.5 or 7.2.10.
SECTION 6.9 Ownership of Properties. The Borrower and each of its Subsidiaries (other
than a Receivables Subsidiary) owns (a) in the case of owned real property, good and legal title
to, (b) in the case of owned personal property, good and valid title to, and (c) in the case of
leased real or personal property, valid and enforceable (subject to bankruptcy, insolvency,
reorganization or similar laws) leasehold interests (as the case may be) in, all of its properties
and assets, tangible and intangible, of any nature whatsoever, free and clear in each case of all
Liens or claims, except for Permitted Liens. Set forth in Item 6.9(a) of the Disclosure Schedule
is a true and complete list of each Mortgaged Property. Set forth in Item 6.9(b) of the Disclosure
Schedule is a true and complete list of each parcel of real property owned by any Obligor in the
United States on the Restatement Effective Date with a fair market value (as determined by the
Borrower in good faith) in excess of $2,000,000 on the Restatement Effective Date.
SECTION 6.10 Taxes. The Borrower and each of its Subsidiaries has filed all material
tax returns and reports required by law to have been filed by it and has paid all Taxes thereby
shown to be due and owing, except any such Taxes which are being diligently contested in good faith
by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been
set aside on its books or except to the extent such failure could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 6.11 Pension and Welfare Plans. During the twelve-consecutive-month period
prior to the Restatement Effective Date and prior to the date of any Credit Extension hereunder, no
steps have been taken to terminate any Pension Plan which has caused or could reasonably be
expected to cause Borrower or any Subsidiary to incur any liability, and no contribution failure
has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section
302(f) of ERISA with respect to any assets of Borrower or any Subsidiary. No condition exists or
event or transaction has occurred with respect to any Pension Plan which might result in the
incurrence by the Borrower of any material liability, fine or penalty.
SECTION 6.12 Environmental Warranties.
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(a) All facilities and property (including underlying groundwater) owned or leased by
the Borrower or any of its Subsidiaries have been, and continue to be, owned or leased by
the Borrower and its Subsidiaries in compliance with all Environmental Laws, except for any
such noncompliance which could not reasonably be expected to have a Material Adverse Effect;
(b) there have been no past, and there are no pending or, to the Borrower’s knowledge
(after due inquiry), threatened (in writing) (i) claims, complaints, notices or requests for
information received by the Borrower or any of its Subsidiaries with respect to any alleged
violation of any Environmental Law, or (ii) complaints, notices or inquiries to the Borrower
or any of its Subsidiaries regarding potential liability under any Environmental Law except
for claims, complaints, notices, requests for information or inquiries with respect to
violations of or potential liability under any Environmental Laws that could not reasonably
be expected to have a Material Adverse Effect;
(c) there have been no Releases of Hazardous Materials at, on or under any property now
or previously owned, operated or leased by the Borrower or any of its Subsidiaries that have
had, or could reasonably be expected to have, a Material Adverse Effect;
(d) the Borrower and its Subsidiaries have been issued and are in compliance with all
permits, certificates, approvals, licenses and other authorizations relating to
environmental matters, except for any such non-issuance or any such noncompliance which
could not reasonably be expected to have a Material Adverse Effect;
(e) no property now or, to the Borrower’s knowledge (after due inquiry), previously
owned, operated or leased by the Borrower or any of its Subsidiaries is listed or proposed
for listing (with respect to owned, operated property only) on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring
investigation or clean-up, which listing could reasonably be expected to have a Material
Adverse Effect;
(f) there are no underground storage tanks, active or abandoned, including petroleum
storage tanks, on or under any property now or previously owned, operated or leased by the
Borrower or any of its Subsidiaries that, singly or in the aggregate, have, or could
reasonably be expected to have, a Material Adverse Effect;
(g) neither the Borrower nor any Subsidiary has directly transported or directly
arranged for the transportation of any Hazardous Material to any location which is listed or
proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or
on any similar state list or which is the subject of federal, state or local enforcement
actions or other investigations which could reasonably be expected to lead to material
claims against the Borrower or such Subsidiary for any remedial work, damage to natural
resources or personal injury, including claims under CERCLA which, if adversely resolved
could, in any of the foregoing cases, reasonably be expected to have a Material Adverse
Effect;
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(h) there are no polychlorinated biphenyls or friable asbestos present at any property
now or previously owned, operated or leased by the Borrower or any Subsidiary that, singly
or in the aggregate, have, or could reasonably be expected to have, a Material Adverse
Effect; and
(i) no conditions exist at, on or under any property now or, to the knowledge of the
Borrower (after due inquiry), previously owned, operated or leased by the Borrower which,
with the passage of time, or the giving of notice or both, would give rise to liability
under any Environmental Law, except for such liability that could not reasonably be expected
to have a Material Adverse Effect.
SECTION 6.13 Accuracy of Information. None of the factual information (other than
projections, forecasts, budgets and forward-looking information) heretofore or contemporaneously
furnished in writing to any Secured Party by or on behalf of any Obligor in connection with any
Loan Document or any transaction contemplated hereby (including the Transaction) (taken as a whole)
contains any untrue statement of a material fact, or omits to state any material fact necessary to
make any such information not materially misleading as of the date such information was furnished;
provided, however (i) any financial or business projections furnished to the
Administrative Agent, any Lead Arranger or any Lender by the Borrower or any of its Subsidiaries
under any Loan Document are subject to significant uncertainties and contingencies, which may be
beyond the Borrower’s and/or its Subsidiaries’ control, (ii) no assurance is given by any of the
Borrower or its Subsidiaries that the results forecast in any such projections will be realized and
(iii) the actual results may differ from the forecast results set forth in such projections and
such differences may be material.
SECTION 6.14 Regulations U and X. No Obligor is engaged in the business of extending
credit for the purpose of buying or carrying margin stock, and no proceeds of any Credit Extensions
will be used to purchase or carry margin stock or otherwise for a purpose which violates, or would
be inconsistent with, F.R.S. Board Regulation U or Regulation X. Terms for which meanings are
provided in F.R.S. Board Regulation U or Regulation X or any regulations substituted therefor, as
from time to time in effect, are used in this Section with such meanings.
SECTION 6.15 Compliance with Contracts, Laws, etc. The Borrower and each of its
Subsidiaries have performed their obligations under agreements to which the Borrower or a
Subsidiary is a party and have complied with all applicable laws, rules, regulations and orders
except were the failure to do so could not reasonably be expected to have a Material Adverse
Effect. The Borrower and each of its Subsidiaries (a) are not listed on the “Specially Designated
Nationals and Blocked Person List” maintained by the Office of Foreign Assets Control
(“OFAC”), the Department of the Treasury, or included in any executive orders relating
thereto and (b) have used the proceeds of the Credit Extensions without violating in any material
respect any of the foreign asset control regulations of OFAC or any enabling statute or executive
order relating thereto having the force of law.
SECTION 6.16 Solvency. The Borrower and its Subsidiaries (taken as a whole), both
before and after giving effect to any Credit Extensions, are Solvent.
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ARTICLE
VII
COVENANTS
COVENANTS
SECTION 7.1 Affirmative Covenants. The Borrower agrees with each Lender, each Issuer
and each Agent that until the Termination Date has occurred, the Borrower will, and will cause its
Subsidiaries to, perform or cause to be performed the obligations set forth below.
SECTION
7.1.1 Financial Information, Reports, Notices, etc. The Borrower will furnish
each Lender and the Administrative Agent copies of the following financial statements, reports,
notices and information:
(a) within the earlier of (i) 45 days after the end of each of the first three Fiscal
Quarters of each Fiscal Year and (ii) so long as the Borrower is a public reporting company
at such time, such earlier date as the SEC requires the filing of such information (or if
the Borrower is required to file such information on a Form 10-Q with the SEC, promptly
following such filing), an unaudited consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of such Fiscal Quarter and consolidated statements of income and
cash flow of the Borrower and its Subsidiaries for such Fiscal Quarter and for the period
commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal
Quarter, and including (in each case), in comparative form, the figures for the
corresponding Fiscal Quarter in, and year to date portion of, the immediately preceding
Fiscal Year, certified as complete and correct in all material respects (subject to audit,
normal year-end adjustments and the absence of footnote disclosure) by the chief financial
officer, chief executive officer, president, treasurer or assistant treasurer of the
Borrower;
(b) within the earlier of (i) 90 days after the end of each Fiscal Year and (ii) so
long as the Borrower is a public reporting company at such time, such earlier date as the
SEC requires the filing of such information (or if the Borrower is required to file such
information on a Form 10-K with the SEC, promptly following such filing), (i) a copy of the
consolidated balance sheet of the Borrower and its Subsidiaries, and the related
consolidated statements of income and cash flow of the Borrower and its Subsidiaries for
such Fiscal Year, setting forth in comparative form the figures for the immediately
preceding Fiscal Year, audited (without any Impermissible Qualification) by Pricewaterhouse
Coopers LLP or such other independent public accountants selected by the Borrower and
reasonably acceptable to the Administrative Agent, which shall include a calculation of the
financial covenants set forth in Section 7.2.4 and stating that, in performing the
examination necessary to deliver the audited financial statements of the Borrower, no
knowledge was obtained of any Event of Default with respect to financial matters and (ii) a
consolidated budget (within level of detail comparable to the quarterly financial statements
delivered pursuant to clause (a)) for the following Fiscal Year including a
projected consolidated balance sheet and related statements of projected operations and cash
flows as of the end of and for such following Fiscal Year;
(c) promptly following the delivery of the financial information pursuant to
clauses (a) and (b) of this Section 7.1.1, a Compliance Certificate,
executed by the chief
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financial officer, chief executive officer, president, treasurer or assistant treasurer
of the Borrower, (i) showing compliance with the financial covenants set forth in
Section 7.2.4 and stating that no Default has occurred and is continuing (or, if a
Default has occurred, specifying the details of such Default and the action that the
Borrower or an Obligor has taken or proposes to take with respect thereto), (ii) stating
that no Subsidiary has been formed or acquired since the delivery of the last Compliance
Certificate (or, if a Subsidiary has been formed or acquired since the delivery of the last
Compliance Certificate, a statement that such Subsidiary has complied with Section
7.1.8 if applicable) and (iii) in the case of a Compliance Certificate delivered
concurrently with the financial information pursuant to clause (b), a calculation of
Excess Cash Flow; provided that such Compliance Certificate shall be furnished no
later than seven days following, and within the time periods required for, delivery of the
financial information pursuant to clauses (a) and (b) of this Section
7.1.1.
(d) as soon as possible and in any event within three Business Days after the Borrower
or any other Obligor obtains knowledge of the occurrence of a Default, a statement of an
Authorized Officer on behalf of the Borrower setting forth details of such Default and the
action which the Borrower or such Obligor has taken and proposes to take with respect
thereto;
(e) as soon as possible and in any event within three Business Days after the Borrower
or any other Obligor obtains knowledge of (i) the commencement of any litigation, action,
proceeding or labor controversy of the type and materiality described in Section 6.7
or (ii) any other event, change or circumstance that has had, or could reasonably be
expected to have, a Material Adverse Effect, notice thereof and, to the extent the
Administrative Agent requests, copies of all documentation relating thereto, if any;
(f) promptly upon becoming aware of (i) the institution of any steps by any Person to
terminate any Pension Plan, (ii) the failure to make a required contribution to any Pension
Plan if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA,
(iii) the taking of any action with respect to a Pension Plan which could result in the
requirement that any Obligor furnish a bond or other security to the PBGC or such Pension
Plan, or (iv) the occurrence of any event with respect to any Pension Plan which could
reasonably be expected to result in the incurrence by any Obligor of any material liability,
fine or penalty, notice thereof and copies of all documentation relating thereto;
(g) promptly upon receipt thereof, copies of all final “management letters” submitted
to the Borrower or any other Obligor by the independent public accountants referred to in
clause (b) in connection with each audit made by such accountants;
(h) promptly following the mailing or receipt of any notice or report (other than
identical reports or notices delivered hereunder) delivered under the terms of the 2016
Senior Note Documents or the 2014 Senior Note Documents, copies of such notice or report;
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(i) all PATRIOT Act Disclosures, to the extent reasonably requested by the
Administrative Agent or any Lender; and
(j) such other financial and other information as any Lender or Issuer through the
Administrative Agent may from time to time reasonably request (including information and
reports in such detail as the Administrative Agent may request with respect to the terms of
and information provided pursuant to the Compliance Certificate).
Information required to be delivered pursuant to this Section 7.1.1 shall be deemed
to have been delivered to the Administrative Agent on the date on which such information is
available on the Internet via the EDGAR system of the SEC. Information required to be
delivered pursuant to this Section 7.1.1 may also be delivered by electronic
communication pursuant to procedures approved by the Administrative Agent pursuant to
Section 9.11.
SECTION 7.1.2 Maintenance of Existence; Material Obligations; Compliance with Contracts,
Laws, etc. The Borrower will, and will cause each of its Subsidiaries to, preserve and
maintain its legal existence, rights (charter and statutory), franchises, permits, licenses and
approvals (in each case, except as otherwise permitted by Section 7.2.10), perform in all
respects their obligations, including obligations under agreements to which the Borrower or a
Subsidiary is a party, and comply in all respects with all applicable laws, rules, regulations and
orders, including the payment (before the same become delinquent), of all obligations, including
all Taxes imposed upon the Borrower or its Subsidiaries or upon their property except to the extent
being diligently contested in good faith by appropriate proceedings and for which adequate reserves
in accordance with GAAP have been set aside on the books of the Borrower or its Subsidiaries, as
applicable except, in each case, where the failure to do so could not reasonably be expected to
have a Material Adverse Effect.
SECTION 7.1.3 Maintenance of Properties. Except to the extent that the failure to do
so could not reasonably be expected to have a Material Adverse Effect the Borrower will, and will
cause each of its Subsidiaries to, maintain, preserve, protect and keep its and their respective
properties in good repair, working order and condition (ordinary wear and tear, casualty and
condemnation excepted), and make necessary repairs, renewals and replacements so that the business
carried on by the Borrower and its Subsidiaries may be properly conducted at all times, unless the
Borrower or such Subsidiary determines in good faith that the continued maintenance of such
property is no longer economically desirable, necessary or useful to the business of the Borrower
or any of its Subsidiaries or the Disposition of such property is otherwise permitted by
Section 7.2.10 or Section 7.2.11.
SECTION 7.1.4 Insurance. The Borrower will, and will cause each of its Subsidiaries
to maintain:
(a) insurance on its property with financially sound and reputable insurance companies
against loss and damage in at least the amounts (and with only those deductibles)
customarily maintained, and against such risks as are typically insured against in the same
general area, by Persons of comparable size engaged in the same or similar business as the
Borrower and its Subsidiaries; and
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(b) all worker’s compensation, employer’s liability insurance or similar insurance as
may be required under the laws of any state or jurisdiction in which it may be engaged in
business.
Without limiting the foregoing, all insurance policies required pursuant to this Section shall (i)
name the Collateral Agent on behalf of the Secured Parties as mortgagee (in the case of property
insurance) or additional insured (in the case of liability insurance), as applicable, and provide
that no cancellation or modification of the policies will be made without thirty days’ prior
written notice to the Collateral Agent and (ii) without duplication, be in addition to any
requirements to maintain specific types of insurance contained in the other Loan Documents.
SECTION 7.1.5 Books and Records. The Borrower will, and will cause each of its
Subsidiaries to, keep books and records in accordance with GAAP which accurately reflect in all
material respects all of its business affairs and transactions and permit each Secured Party or any
of their respective representatives, at reasonable times during normal business hours and intervals
upon reasonable notice to the Borrower and except after the occurrence and during the continuance
of an Event of Default not more frequently than once per Fiscal Year, to visit each Obligor’s
offices, to discuss such Obligor’s financial matters with its officers and employees, and its
independent public accountants (provided that management of the Borrower shall be notified
and allowed to be present at all such meetings and the Borrower hereby authorizes such independent
public accountant to discuss each Obligor’s financial matters with each Secured Party or their
representatives) and to examine (and photocopy extracts from) any of its books and records. The
Borrower shall pay any reasonable fees of such independent public accountant incurred in connection
with any Secured Party’s exercise of its rights pursuant to this Section.
SECTION 7.1.6 Environmental Law Covenant. The Borrower will, and will cause each of
its Subsidiaries to:
(a) use and operate all of its and their facilities and properties in compliance with
all Environmental Laws, keep all permits, approvals, certificates, licenses and other
authorizations required under Environmental Laws in effect and remain in compliance
therewith, and handle all Hazardous Materials in compliance with all applicable
Environmental Laws, in each case except where failure to do so could not reasonably be
expected to have a Material Adverse Effect; and
(b) promptly notify the Administrative Agent and provide copies upon receipt of all
written claims, complaints, notices or inquiries relating to the condition of its facilities
and properties in respect of, or as to compliance with, Environmental Laws, the subject
matter of which could reasonably be expected to have a Material Adverse Effect, and shall
promptly resolve any non-compliance with Environmental Laws (except as could not reasonably
be expected to have a Material Adverse Effect) and keep its property free of any Lien
imposed by any Environmental Law, unless such Lien is a Permitted Lien.
SECTION 7.1.7 Use of Proceeds. The Borrower will apply the proceeds of the Credit
Extensions as follows:
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(a) to finance, in part, the Transaction and to pay the fees, costs and expenses
related to the Transaction;
(b) for working capital and general corporate purposes of the Borrower and its
Subsidiaries; and
(c) for issuing Letters of Credit for the account of the Borrower and its Subsidiaries
for purposes referred to in clause (b) above.
SECTION 7.1.8 Future Guarantors, Security, etc. Subject to Section 7.1.11,
the Borrower will, and will cause each U.S. Subsidiary (other than HBI Playtex Bath LLC, a Delaware
limited liability company “Playtex Bath”) to, execute any documents, authorize the filing
of Filing Statements, execute agreements and instruments, and take all commercially reasonable
further action (including filing Mortgages to the extent required hereby) that may be required
under applicable law, or that the Administrative Agent may reasonably request, in order to
effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve,
protect and perfect the validity and first priority (subject to Permitted Liens) of the Liens
created or intended to be created by the Loan Documents. The Borrower will cause any subsequently
acquired or organized U.S. Subsidiary (other than Playtex Bath) to execute a supplement (in form
and substance reasonably satisfactory to the Administrative Agent) to the Guaranty and each other
applicable Loan Document in favor of the Secured Parties. In addition, from time to time, the
Borrower will, at its own cost and expense, promptly secure the Obligations by pledging or
creating, or causing to be pledged or created, perfected Liens with respect to such of its assets
and properties as the Administrative Agent or the Required Lenders shall designate, it being agreed
that it is the intent of the parties that the Obligations shall be secured by, among other things,
substantially all the assets of the Borrower and its U.S. Subsidiaries (other than Playtex Bath)
and personal property acquired subsequent to the Restatement Effective Date; provided that
(a) neither the Borrower nor its U.S. Subsidiaries shall be required to pledge more than 65% of the
Voting Securities of any Foreign Subsidiary that is directly owned by any Obligor, (b) neither the
Borrower nor any U.S. Subsidiary shall be required to create or perfect any security interest in
any leased real property or any owned real property with a fair market value (as determined by the
Borrower in good faith) less than $2,000,000, (c) to the extent the Organic Documents of a Foreign
Subsidiary prohibit the creation or perfection of a security interest in the Capital Securities of
such Foreign Subsidiary, no Obligor will be required to create or perfect a security interest in
such Capital Securities and (d) the Borrower will not be required to execute and deliver any
Foreign Pledge Agreement with respect to any Foreign Subsidiary (i) whose assets are valued (as
reasonably determined by the Borrower) at less than $25,000,000 or (ii) if the Borrower and the
Administrative Agent reasonably determine that it is commercially impractical to deliver a Foreign
Pledge Agreement in such jurisdiction. Such Liens will be created under the Loan Documents in form
and substance reasonably satisfactory to the Agents, and the Borrower shall deliver or cause to be
delivered to the Agents all such instruments and documents (including legal opinions, title
insurance policies and lien searches) as the Administrative Agent shall reasonably request to
evidence compliance with this Section.
SECTION 7.1.9 Rate Protection Agreements. Within 60 days following the Restatement
Effective Date, the Borrower will enter into interest rate swap, cap, collar or similar
73
arrangements with a Lender or any other Person reasonably acceptable to the Lenders designed
to protect the Borrower against fluctuations in interest rates for a period of at least three years
from the Restatement Effective Date, in an amount reasonably satisfactory to the Agents and in any
event that would cause an amount equal to not less than 50% of the Indebtedness outstanding under
the Loan Documents, the 2016 Senior Note Documents and the 2014 Senior Note Documents to bear
interest at a fixed rate.
SECTION 7.1.10 Maintenance of Ratings. The Borrower will use its commercially
reasonable efforts to cause (a) a senior secured credit rating with respect to the Loans from each
of S&P and Moody’s and (b) a corporate credit rating and corporate family rating from S&P and
Moody’s respectively, to be available at all times until the Stated Maturity Date for the New Term
Loans.
SECTION 7.1.11 Post-Closing Obligations.
(a) Foreign Pledge Agreement Amendments. Within 90 days after the Restatement
Effective Date (or such later dates from time to time as consented to by the Administrative
Agent in its reasonable discretion), the Agents shall have received amendments to each
Foreign Pledge Agreement (giving effect to the appointment of JPMorgan Chase Bank, N.A., as
successor Collateral Agent and the entering into of this Agreement) and each Foreign Pledge
Agreement shall remain in full force and effect, and all Liens granted to the Collateral
Agent thereunder shall be duly perfected to provide the Collateral Agent with a security
interest in and Lien on all collateral granted thereunder free and clear of other Liens,
except to the extent reasonably consented to by the Administrative Agent; provided
that the Administrative Agent may waive the requirement to perfect a pledge on the Capital
Securities of any Foreign Subsidiary otherwise required to be pledged hereunder if they
determine, in their reasonable discretion, that the value of the assets owned by such
Foreign Subsidiary or the EBITDA generated by such Foreign Subsidiary, is immaterial when
taken as a whole.
(b) Mortgage Amendments. Subject to the limitation in clause (d) of
Section 7.1.8, within 90 days after the Restatement Effective Date (or such later
dates from time to time as consented to by the Administrative Agent in its reasonable
discretion), the Agents shall have received amendments to each Mortgage (giving effect to
the appointment of JPMorgan Chase Bank, N.A., as successor Collateral Agent and the entering
into of this Agreement) with respect to a Mortgaged Property, duly executed and delivered by
the applicable Obligor, together with:
(i) evidence of the completion (or reasonably satisfactory arrangements for the
completion) of all recordings and filings of each Mortgage amendment as necessary to
continue a valid, perfected first priority (subject to Permitted Liens) Lien against
the properties purported to be covered thereby;
(ii) down-dated mortgagee’s title insurance policies in favor of the Collateral
Agent for the benefit of the Secured Parties in amounts not exceeding the fair
market value of the insured property and in form and substance and issued by
insurers, reasonably satisfactory to the Lead Arrangers, with respect to the
74
property purported to be covered by each Mortgage, insuring that title to such
property is marketable and that the interests created by each Mortgage continue to
constitute valid first Liens thereon (subject to Permitted Liens), and shall be
accompanied by evidence of the payment in full of all premiums thereon; and
(iii) mortgage releases releasing any mortgage in favor of any other Person on
any Mortgaged Property (except to the extent the same constitute a Permitted Lien
pursuant to Section 7.2.3);
(c) Mortgages on Excluded Properties. To the extent the Excluded Properties
have not been sold by the Obligors within 120 days after the Restatement Effective Date, the
Agents shall receive Mortgages with respect to the Excluded Properties within 150 days of
the Restatement Effective Date, duly executed and delivered by the applicable Obligor,
together with such other customary documents and evidence as the Agents may reasonably
request (including local opinions, maps or plats of an as-built survey of the sites of such
Excluded Properties, a mortgagee’s title insurance policy (or policies) or marked up
unconditional binder for such insurance and flood insurance policies).
(d) Foreign Stock Certificates. Within 30 Business Days following the
Restatement Effective Date (or such later dates from time to time as consented to by the
Administrative Agent in its reasonable discretion), the Borrower agrees to deliver to the
Collateral Agent certificates (in each case accompanied by undated instruments of transfer
duly executed in blank) evidencing 65% of the issued and outstanding Voting Securities (to
the extent certificated and permitted by applicable law to be removed from any particular
jurisdiction) of each Foreign Subsidiary (together with all the issued and outstanding
non-voting Capital Securities (to the extent certificated and permitted by applicable law to
be removed from any particular jurisdiction) of such Foreign Subsidiary) directly owned by
each Obligor to the extent not previously delivered, together with a revised Schedule I to
the Security Agreement accurately reflecting the newly delivered certificates.
SECTION 7.2 Negative Covenants. The Borrower covenants and agrees with each Lender,
each Issuer and each Agent that until the Termination Date has occurred, the Borrower will, and
will cause its Subsidiaries to, perform or cause to be performed the obligations set forth below.
SECTION 7.2.1 Business Activities; Fiscal Year. The Borrower will not, and will not
permit any of its Subsidiaries to, engage in any business activity except those business activities
engaged in on the date of this Agreement and activities reasonably related, supportive,
complementary, ancillary or incidental thereto or reasonable extensions thereof (each, a
“Permitted Business”). The Borrower will not change the ending dates with respect to its
Fiscal Year.
SECTION 7.2.2 Indebtedness. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or permit to exist any Indebtedness, other than:
(a) Indebtedness in respect of the Obligations;
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(b) unsecured Indebtedness of the Obligors (i) under the 2016 Senior Note Documents in
an aggregate principal amount not to exceed $500,000,000, as such amount is reduced on or
after the Restatement Effective Date in accordance with the terms hereof, (ii) under the
2014 Senior Note Documents in a net aggregate principal amount not to exceed $493,680,000
and (iii) under senior notes whether issued pursuant to a supplement to the 2014 Senior Note
Indenture, the 2016 Senior Note Indenture or any other senior note indenture, the terms of
which are reasonably satisfactory to the Administrative Agent, so long as (x) the aggregate
principal amount allowed thereunder does not exceed $1,000,000,000 and (y) the proceeds
therefore are applied to repay Loans in accordance with clause (g) of Section 3.1.1;
(c) Indebtedness existing as of the Restatement Effective Date which is identified in
Item 7.2.2(c) of the Disclosure Schedule, and refinancings, refundings,
reallocations, renewals or extensions of such Indebtedness in a principal amount not in
excess of that which is outstanding on the Restatement Effective Date (as such amount has
been reduced following the Restatement Effective Date);
(d) unsecured Indebtedness (i) incurred in the ordinary course of business of the
Borrower and its Subsidiaries (including open accounts extended by suppliers on normal trade
terms in connection with purchases of goods and services which are not overdue for a period
of more than 90 days or, if overdue for more than 90 days, as to which a dispute exists and
adequate reserves in conformity with GAAP have been established on the books of the Borrower
or such Subsidiary) and (ii) in respect of performance, surety or appeal bonds provided in
the ordinary course of business, but excluding (in each case), Indebtedness incurred through
the borrowing of money or Contingent Liabilities of borrowed money;
(e) Indebtedness (i) in respect of industrial revenue bonds or other similar
governmental or municipal bonds, (ii) evidencing the deferred purchase price of newly
acquired property or incurred to finance the acquisition of equipment of the Borrower and
its Subsidiaries (pursuant to purchase money mortgages or otherwise, whether owed to the
seller or a third party) used in the ordinary course of business of the Borrower and its
Subsidiaries (provided that, such Indebtedness is incurred within 270 days of the
acquisition of such property) and (iii) in respect of Capitalized Lease Liabilities;
provided that, the aggregate amount of all Indebtedness outstanding pursuant to this
clause shall not at any time exceed $150,000,000;
(f) Indebtedness of an Obligor owing to any other Obligor;
(g) unsecured Indebtedness of an Obligor owing to a Subsidiary that is not a Subsidiary
Guarantor; provided that, in each case, all such Indebtedness of any Obligor owed to
a Subsidiary that is not a Subsidiary Guarantor shall be subordinated to the Obligations of
such Obligor on customary terms.
(h) Indebtedness of a Foreign Subsidiary to the Borrower or any other Obligor in an
aggregate amount (when aggregated with the amount of Investments made by the
76
Borrower and the Subsidiary Guarantors in Foreign Subsidiaries under clause (l) of
Section 7.2.5) not to exceed $300,000,000 plus Available Retained Excess Cash Flow;
(i) Indebtedness of a Person existing at the time such Person became a Subsidiary of
the Borrower, but only if such Indebtedness was not created or incurred in contemplation of
such Person becoming a Subsidiary and the aggregate amount of all Indebtedness incurred
pursuant to this clause does not exceed $250,000,000 over the term of this Agreement;
(j) Indebtedness incurred pursuant to a Permitted Securitization and Standard
Securitization Undertakings and Permitted Factoring Facilities;
(k) unsecured Indebtedness of the Borrower and its Subsidiaries incurred to (i) finance
Permitted Acquisitions (including obligations of the Borrower and its Subsidiaries under
indemnification, adjustment of purchase price, earn-out, incentive, non-compete, consulting,
deferred compensation or other similar arrangements incurred by such Person in connection
therewith) or (ii) refinance any other Indebtedness permitted to be incurred under
clauses (a), (b), (e), (i), (j) and (n) of
this Section 7.2.2;
(l) Indebtedness in respect of Hedging Obligations entered into in the ordinary course
of business and not for speculative purposes;
(m) Indebtedness of any Foreign Subsidiary owing to any other Foreign Subsidiary;
(n) Indebtedness (whether unsecured or secured by Liens) of Foreign Subsidiaries in an
aggregate outstanding principal amount not to exceed $300,000,000 at any one time
outstanding and Contingent Liabilities of any Obligor in respect thereof; provided
that Foreign Subsidiaries shall be permitted to incur an additional $75,000,000 of
Indebtedness over the term of this Agreement to the extent such Indebtedness is incurred in
connection with a Permitted Acquisition.
(o) Indebtedness incurred in the ordinary course of business in connection with cash
pooling arrangements, cash management and other Indebtedness incurred in the ordinary course
of business in respect of netting services, overdraft protections and similar arrangements
in each case in connection with cash management and deposit accounts;
(p) Indebtedness consisting of the financing of insurance premiums in the ordinary
course of business;
(q) unsecured Indebtedness of Borrower and its Subsidiaries representing the obligation
of such Person to make payments with respect to the cancellation or repurchase of Capital
Securities of officers, employees or directors (or their estates) of the Borrower or such
Subsidiaries; and
(r) other Indebtedness of the Borrower and its Subsidiaries (other than Indebtedness of
Foreign Subsidiaries owing to the Borrower or Subsidiary Guarantors or
77
of a Receivables Subsidiary) in an aggregate amount at any time outstanding not to
exceed $150,000,000;
provided that, no Indebtedness otherwise permitted by clauses (c), (e),
(i), (k)(i) or (r) shall be assumed, created or otherwise incurred if an
Event of Default has occurred and is then continuing.
SECTION 7.2.3 Liens. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or permit to exist any Lien upon any of its property
(including Capital Securities of any Person), revenues or assets, whether now owned or hereafter
acquired, except the following (collectively “Permitted Liens”):
(a) Liens securing payment of the Obligations;
(b) Liens in connection with a Permitted Securitization or a Permitted Factoring
Facility;
(c) Liens existing as of the Restatement Effective Date and disclosed in Item
7.2.3(c) of the Disclosure Schedule securing Indebtedness described in clause
(c) of Section 7.2.2, and refinancings, refundings, reallocations, renewals or
extensions of such Indebtedness; provided that, no such Lien shall encumber any
additional property (except for accessions to such property and the products and proceeds
thereof) and the amount of Indebtedness secured by such Lien is not increased from that
existing on the Restatement Effective Date;
(d) Liens securing Indebtedness of the type permitted under clause (e) of
Section 7.2.2; provided that, (i) such Lien is granted within 270 days after
such Indebtedness is incurred, (ii) the Indebtedness secured thereby does not exceed the
lesser of the cost or the fair market value of the applicable property, improvements or
equipment at the time of such acquisition (or construction) and (iii) such Lien secures only
the assets that are the subject of the Indebtedness referred to in such clause;
(e) Liens securing Indebtedness permitted by clause (i) of Section
7.2.2; provided that, such Liens existed prior to such Person becoming a
Subsidiary, were not created in anticipation thereof and attach only to specific tangible
assets of such Person;
(f) Liens in favor of carriers, warehousemen, mechanics, repairmen, materialmen,
customs and revenue authorities and landlords and other similar statutory Liens and Liens in
favor of suppliers (including sellers of goods pursuant to customary reservations or
retention of title, in each case) granted in the ordinary course of business for amounts not
overdue for a period of more than 60 days or are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books or with respect to which the failure to make payment could not
reasonably be expected to have a Material Adverse Effect;
(g) (i) Liens incurred or deposits made in the ordinary course of business in
connection with worker’s compensation, unemployment insurance or other forms of
78
governmental insurance or benefits, or to secure performance of tenders, statutory
obligations, bids, leases, trade contracts or other similar obligations (other than for
borrowed money) entered into in the ordinary course of business or to secure obligations on
surety and appeal bonds or performance bonds, performance and completion guarantees and
other obligations of a like nature (including those to secure health, safety and
environmental obligations) incurred in the ordinary course of business and (ii) obligations
in respect of letters of credit or bank guarantees that have been posted to support payment
of the items set forth in the immediately preceding clause (i);
(h) judgment Liens that are being appealed in good faith or with respect to which
execution has been stayed or the payment of which is covered in full (subject to a customary
deductible) by insurance maintained with responsible insurance companies and which do not
otherwise result in an Event of Default under Section 8.1.6;
(i) easements, rights-of-way, covenants, conditions, building codes, restrictions,
reservations, minor defects or irregularities in title and other similar encumbrances and
matters that would be disavowed by a full survey of real property not interfering in any
material respect with the value or use of the affected or encumbered real property to which
such Lien is attached;
(j) Liens securing Indebtedness permitted by clauses (n) or (o) of
Section 7.2.2 or clause (l) of Section 7.2.5;
(k) Liens arising solely by virtue of any statutory or common law provision relating to
banker’s liens, rights of set-off or similar rights and remedies as to deposit accounts or
other funds maintained with a creditor depository institution and Liens attaching to
commodity trading accounts or other commodities brokerage accounts incurred in the ordinary
course of business;
(l) (i) licenses, sublicenses, leases or subleases granted to third Persons in the
ordinary course of business not interfering in any material respect with the business of the
Borrower or any of its Subsidiaries, (ii) other agreements with respect to the use and
occupancy of real property entered into in the ordinary course of business or in connection
with a Disposition permitted under the Loan Documents or (iii) the rights reserved or vested
in any Person by the terms of any lease, license, franchise, grant or permit held by
Borrower or any of its Subsidiaries or by a statutory provision, to terminate any such
lease, license, franchise, grant or permit, or to require annual or periodic payments as a
condition to the continuance thereof;
(m) Liens on the property of the Borrower or any of its Subsidiaries securing (i) the
non-delinquent performance of bids, trade contracts (other than for borrowed money), leases,
licenses and statutory obligations, (ii) Contingent Obligations on surety and appeal bonds,
and (iii) other non-delinquent obligations of a like nature; in each case, incurred in the
ordinary course of business;
79
(n) Liens on Receivables transferred to a Receivables Subsidiary under a Permitted
Securitization or to a Subsidiary who is party to a Permitted Factoring Facility under a
Permitted Factoring Facility;
(o) Liens upon specific items or inventory or other goods and proceeds of the Borrower
or any of its Subsidiaries securing such Person’s obligations in respect of bankers’
acceptances or documentary letters of credit issued or created for the account of such
Person to facilitate the shipment or storage of such inventory or other goods;
(p) Liens (i) (A) on advances of cash or Cash Equivalent Investments in favor of the
seller of any property to be acquired in an Investment permitted pursuant to Section
7.2.5 to be applied against the purchase price for such Investment and (B) consisting of
an agreement to Dispose of any property in a Disposition permitted under Section
7.2.11, in each case under this clause (i), solely to the extent such Investment
or Disposition, as the case may be, would have been permitted on the date of the creation of
such Lien and (ii) on earnest money deposits of cash or Cash Equivalent Investments made by
the Borrower or any of its Subsidiaries in connection with any letter of intent or purchase
agreement permitted hereunder;
(q) Liens arising from precautionary Uniform Commercial Code financing statement
filings (or similar filings under other applicable Law) regarding leases entered into by the
Borrower or any of its Subsidiaries in the ordinary course of business;
(r) Liens (i) arising out of conditional sale, title retention, consignment or similar
arrangements for sale of goods (including under Article 2 of the UCC) and Liens that are
contractual rights of set-off relating to purchase orders and other similar agreements
entered into by the Borrower or any of its Subsidiaries and (ii) relating to the
establishment of depository relations with banks not given in connection with the issuance
of Indebtedness and (iii) relating to pooled deposit or sweep accounts of the Borrower or
any Subsidiary to permit satisfaction of overdraft or similar obligations in each case in
the ordinary course of business and not prohibited by this Agreement;
(s) other Liens securing Indebtedness or other obligations permitted under this
Agreement and outstanding in an aggregate principal amount not to exceed $75,000,000;
(t) ground leases in respect of real property on which facilities owned or leased by
the Borrower or any of its Subsidiaries are located or any Liens senior to any lease,
sub-lease or other agreement under which the Borrower or any of its Subsidiaries uses or
occupies any real property;
(u) Liens constituting security given to a public or private utility or any
Governmental Authority as required in the ordinary course of business;
(v) pledges or deposits of cash and Cash Equivalent Investments securing deductibles,
self-insurance, co-payment, co-insurance, retentions and similar obligations to providers of
insurance in the ordinary course of business;
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(w) Liens on (A) incurred premiums, dividends and rebates which may become payable
under insurance policies and loss payments which reduce the incurred premiums on such
insurance policies and (B) rights which may arise under State insurance guarantee funds
relating to any such insurance policy, in each case securing Indebtedness permitted to be
incurred pursuant to clause (p) of Section 7.2.2;
(x) Liens for Taxes not at the time delinquent or thereafter payable without penalty or
being diligently contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on its books or with respect to
which the failure to make payment could not reasonably be expected to have a Material
Adverse Effect;
(y) Liens in respect of Hedging Obligations; and
(z) non-exclusive licenses of intellectual property rights in the ordinary course of
business.
SECTION 7.2.4 Financial Condition and Operations. The Borrower will not permit any of
the events set forth below to occur.
(a) The Borrower will not permit the Leverage Ratio as of the last day of any Fiscal Quarter
occurring during any period set forth below to be greater than the ratio set forth opposite such
period:
| Period | Leverage Ratio | |
Each Fiscal Quarter ending between October 16, 2009 and
July 15, 2010
|
4.50:1.00 | |
Each Fiscal Quarter ending between July 16, 2010 and
October 15, 2010
|
4.25:1.00 | |
Each Fiscal Quarter ending between October 16, 2010 and
April 15, 2011
|
4:00:1.00 | |
Each Fiscal Quarter ending April 16, 2011 and thereafter
|
3.75:1.00 |
(b) The Borrower will not permit the Interest Coverage Ratio as of the last day of any Fiscal
Quarter occurring during any period set forth below to be less than the ratio set forth opposite
such period:
| Period | Interest Coverage Ratio | |
Each Fiscal Quarter ending between October 16,
2009 and July 15, 2010
|
2.50:1.00 |
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Each Fiscal Quarter ending between July 16, 2010
and October 15, 2010
|
2.75:1.00 | |
Each Fiscal Quarter ending between October 16,
2010 and July 15, 2011
|
3.00:1.00 | |
Each Fiscal Quarter ending July 16, 2011 and
thereafter
|
3.25:1.00 |
SECTION 7.2.5 Investments. The Borrower will not, and will not permit any of its
Subsidiaries to, purchase, make, incur, assume or permit to exist any Investment in any other
Person, except:
(a) Investments existing on the Restatement Effective Date and identified in Item
7.2.5(a) of the Disclosure Schedule, and any amendment, modification, restatement,
extension, renewal, refunding, replacement or refinancing, in whole or in part thereof,
provided that the principal amount of any Investment following any such amendment,
modification, restatement, extension, renewal, refunding, replacement or refinancing
pursuant to this Section 7.2.5(a) shall not exceed the principal amount of such
Investment on the date hereof;
(b) Cash Equivalent Investments;
(c) Investments received in connection with the bankruptcy or reorganization of, or
settlement of delinquent accounts and disputes with, customers and suppliers, in each case
in the ordinary course of business;
(d) Investments consisting of any deferred portion (including promissory notes and
non-cash consideration) of the sales price received by the Borrower or any Subsidiary in
connection with any Disposition permitted under Section 7.2.11;
(e) Investments by way of contributions to capital or purchases of Capital Securities
by an Obligor in any other Obligor;
(f) Investments constituting (i) accounts receivable arising or acquired, (ii) trade
debt granted, or (iii) deposits made in connection with the purchase price of goods or
services, in each case in the ordinary course of business;
(g) Investments by way of the acquisition of Capital Securities or the purchase or
other acquisition of all or substantially all of the assets or business of any Person, or of
assets constituting a business unit, or line of business or division of, such Person, in
each case constituting Permitted Acquisitions; provided that if such Person is not
incorporated or organized under the laws of the United States, the amount expended in such
transaction, when aggregated with the amount expended under clause (b) of
Section 7.2.10, shall not exceed the amount set forth in clause (b) of
Section 7.2.10 during the term of this Agreement;
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(h) Investments constituting Capital Expenditures permitted pursuant to Section
7.2.7;
(i) Investments in a Receivables Subsidiary or a Subsidiary who is party to a Permitted
Factoring Facility or any Investment by a Receivables Subsidiary or a Subsidiary who is
party to a Permitted Factoring Facility in any other Person under a Permitted Securitization
or a Permitted Factoring Facility; provided that any Investment in a Receivables
Subsidiary is in the form of a Purchase Money Note, contribution of additional receivables
and related assets or any equity interests;
(j) Investments constituting loans or advances to officers, directors or employees made
in the ordinary course of business (including for travel, entertainment and relocation
expenses) in an aggregate amount not to exceed $10,000,000;
(k) Investments by any Subsidiary that is not a Subsidiary Guarantor in the Borrower or
any other Subsidiary; provided that any intercompany loan made by a any Subsidiary
that is not a Subsidiary Guarantor to an Obligor shall meet the requirements of clause (g)
of Section 7.2.2;
(l) Investments in Foreign Subsidiaries in an aggregate amount not to exceed
$300,000,000 over the term of this Agreement plus Available Retained Excess Cash
Flow;
(m) Investments in the ordinary course of business consisting of (i) endorsements for
collection or deposit, (ii) customary arrangements with customers or (iii) Hedging
Obligations not for speculative purposes;
(n) advances of payroll payments to employees in the ordinary course of business;
(o) Investments in any Person engaged in one or more Permitted Businesses and
supporting ongoing business operations of the Borrower or its Subsidiaries (including
without limitation Persons that are not Subsidiaries of the Borrower) in an aggregate amount
not to exceed $75,000,000 over the term of this Agreement;
(p) other Investments in an amount not to exceed $125,000,000 over the term of this
Agreement plus Available Retained Excess Cash Flow, determined as of the date of
such Investment; and
(q) Investments incurred in the ordinary course of business in connection with cash
pooling arrangements, cash management and other Investments incurred in the ordinary course
of business in respect of netting services, overdraft protections and similar arrangement in
each case in connection with cash management.
provided that (I) any Investment which when made complies with the requirements of the
definition of the term “Cash Equivalent Investment” may continue to be held notwithstanding that
such Investment if made thereafter would not comply with such requirements; and (II) no
83
Investment otherwise permitted by clauses (e) (to the extent such Investment relates to an
Investment in a Foreign Subsidiary), (g) or (n) shall be permitted to be made if
any Event of Default has occurred and is continuing.
SECTION 7.2.6 Restricted Payments, etc. The Borrower will not, and will not permit
any of its Subsidiaries (other than a Receivables Subsidiary) to, declare or make a Restricted
Payment, or make any deposit for any Restricted Payment, other than (a) Restricted Payments made by
Subsidiaries to the Borrower or wholly owned Subsidiaries, (b) cashless exercises of stock options,
(c) cash payments by Borrower in lieu of the issuance of fractional shares upon exercise or
conversion of Equity Equivalents, (d) Restricted Payments in connection with the share repurchases
required by the employee stock ownership programs or required under employee agreements and (e) so
long as (i) no Specified Default has occurred and is continuing or would result therefrom, and (ii)
both before and after giving effect to such Restricted Payment, the Borrower is in pro forma
compliance with Section 7.2.4, Restricted Payments not otherwise permitted by this
Section 7.2.6 in an aggregate amount not to exceed $75,000,000 in any Fiscal Year
plus Available Retained Excess Cash Flow.
SECTION 7.2.7 Capital Expenditures.
(a) Subject (in the case of Capitalized Lease Liabilities), to clause (e) of
Section 7.2.2, the Borrower will not, and will not permit any of its Subsidiaries
to, make or commit to make Capital Expenditures except Capital Expenditures in an aggregate
amount not to exceed $130,000,000 in any Fiscal Year plus Available Retained Excess
Cash Flow; provided that, to the extent that the amount of Capital Expenditures made
by the Borrower and its Subsidiaries during any Fiscal Year is less than the aggregate
amount permitted (including after giving effect to this proviso) for such Fiscal Year, then
such unutilized amount may be carried forward and utilized by the Borrower and its
Subsidiaries to make Capital Expenditures in any succeeding Fiscal Year, provided
further that it is understood and agreed that the Borrower shall be permitted to carry
forward all unused amounts for the 2009 Fiscal Year accumulated pursuant to Section
7.2.7 of the Original Credit Agreement for usage in any succeeding Fiscal Year.
Notwithstanding anything to the contrary with respect to any Fiscal Year of the Borrower
during which a Permitted Acquisition is consummated and for each Fiscal Year subsequent
thereto, the amount of Capital Expenditures permitted under the preceding sentence
applicable to each such Fiscal Year shall be increased by an amount equal to 5% of the
purchase price of each Permitted Acquisition (the “Acquired Permitted Capital
Expenditure Amount”); provided, however, with respect to the Fiscal Year
during which any such Permitted Acquisition occurs, the amount of additional Capital
Expenditures permitted as a result of this sentence shall be an amount equal to the product
of (x) the Acquired Permitted Capital Expenditure Amount and (y) a fraction, the numerator
of which is the number of days remaining in such Fiscal Year after the date such Permitted
Acquisition is consummated and the denominator of which is the actual number of days in such
Fiscal Year.
(b) Notwithstanding anything to the contrary contained in clause (a) above, for
any Fiscal Year, the amount of Capital Expenditures that would otherwise be permitted in
such Fiscal Year pursuant to this Section 7.2.7 (including as a result of the
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carry-forward described in the proviso to the first sentence of clause (a)
above) may be increased by an amount not to exceed $10,000,000 (the “CapEx Pull-Forward
Amount”). The actual CapEx Pull-Forward Amount in respect of any such Fiscal Year shall
reduce, on a dollar-for-dollar basis, the amount of Capital Expenditures that would have
been permitted to be made in the immediately succeeding Fiscal Year (provided that
the Borrower and its Subsidiaries may apply the CapEx Pull-Forward Amount in such
immediately succeeding Fiscal Year).
SECTION 7.2.8 Payments With Respect to Certain Indebtedness. The Borrower will not,
and will not permit any of its Subsidiaries to,
(a) make any payment or prepayment of principal of, or premium or interest on, any
Indebtedness incurred under the 2014 Senior Note Documents or the 2016 Senior Note Documents
(including any redemption or retirement thereof) (i) other than on (or after) the stated,
scheduled date for payment of interest set forth in the applicable 2014 Senior Note
Documents or the 2016 Senior Note Documents, respectively, or (ii) which would violate the
terms of this Agreement, the applicable 2014 Senior Note Documents or the 2016 Senior Note
Documents; provided, however, that the Borrower may prepay Indebtedness
incurred under the 2014 Senior Note Documents or the 2016 Senior Note Documents in an amount
up to $50,000,000 in the aggregate during the term of this Agreement plus any
Available Retained Excess Cash Flow;
(b) except as otherwise permitted by clause (a) above, prior to the Termination
Date, redeem, retire, purchase, defease or otherwise acquire any Indebtedness under the 2014
Senior Note Documents or the 2016 Senior Note Documents (other than with proceeds from the
issuance of the Borrower’s Capital Securities permitted to be used to redeem 2014 Senior
Notes or 2016 Senior Notes in accordance with the terms of the 2014 Senior Note Documents or
2016 Senior Note Documents, respectively);
(c) make any deposit (including the payment of amounts into a sinking fund or other
similar fund) for any of the foregoing purposes; or
(d) make any payment or prepayment of principal of, or premium or interest on, any
Indebtedness (other than intercompany Indebtedness) that is by its express written terms
subordinated to the payment of the Obligations at any time when an Event of Default has
occurred and is continuing.
SECTION 7.2.9 Issuance of Capital Securities. The Borrower will not permit any of its
Subsidiaries (other than a Receivables Subsidiary and any Foreign Subsidiary) to issue any Capital
Securities (whether for value or otherwise) to any Person other than to the Borrower or another
wholly owned Subsidiary (other than any director’s qualifying shares or investments by foreign
nationals mandated by applicable laws).
SECTION 7.2.10 Consolidation, Merger; Permitted Acquisitions, etc. The Borrower will
not, and will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with, or
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merge into or with, any other Person, or purchase or otherwise acquire all or substantially
all of the assets of any Person (or any division or line of business thereof), except
(a) any Subsidiary may liquidate or dissolve voluntarily into, and may merge with and
into, the Borrower or any other Subsidiary (provided that a Subsidiary Guarantor may
only (i) liquidate or dissolve into, or merge with and into, the Borrower or another
Subsidiary Guarantor or (ii) liquidate or dissolve into, or merge with and into a Subsidiary
that is not a Subsidiary Guarantor to the extent such disposition of assets is otherwise
permitted by Section 7.2.11), and the assets or Capital Securities of any Subsidiary may be
purchased or otherwise acquired by the Borrower or any other Subsidiary (provided
that the assets or Capital Securities of any Subsidiary Guarantor may only (i) be purchased
or otherwise acquired by the Borrower or another Subsidiary Guarantor or (ii) be purchased
or otherwise acquired by a Subsidiary that is not a Subsidiary Guarantor to the extent such
disposition is otherwise permitted by Section 7.2.11); provided, further,
that in no event shall any Subsidiary consolidate with or merge with and into any other
Subsidiary (other than a merger that is otherwise permitted by Section 7.2.11) unless after
giving effect thereto, the Collateral Agent shall have a perfected pledge of, and security
interest in and to, at least the same percentage of the issued and outstanding interests of
Capital Securities (on a fully diluted basis) and other assets of the surviving Person as
the Collateral Agent had immediately prior to such merger or consolidation in form and
substance reasonably satisfactory to the Agents, pursuant to such documentation and opinions
as shall be necessary in the opinion of the Agents to create, perfect or maintain the
collateral position of the Secured Parties therein; and
(b) so long as no Event of Default has occurred and is continuing or would occur after
giving effect thereto, the Borrower or any of its Subsidiaries may purchase the Capital
Securities of any Person, all or substantially all of the assets of any Person (or any
division or line of business thereof), or acquire such Person by merger, in each case, if
such purchase or acquisition constitutes a Permitted Acquisition; provided that, if
such Person is not incorporated or organized under the laws of the United States, the cash
amount expended in connection with such transaction, when aggregated with the cash amount
expended under clause (g) of Section 7.2.5, shall not exceed $100,000,000 in
the aggregate during the term of this Agreement plus Available Retained Excess Cash
Flow; provided further that any Capital Securities of the Borrower issued to the
seller in connection with any Permitted Acquisition shall not result in a deduction of
amounts available to consummate Permitted Acquisitions hereunder.
SECTION 7.2.11 Permitted Dispositions. The Borrower will not, and will not permit any
of its Subsidiaries to, Dispose of any of the Borrower’s or such Subsidiaries’ assets (including
accounts receivable and Capital Securities of Subsidiaries) to any Person in one transaction or
series of transactions unless such Disposition is:
(a) inventory or obsolete, no longer used or useful, damaged, worn out or surplus
property Disposed of in the ordinary course of its business (including, the abandonment of
intellectual property which is obsolete, no longer used or useful or that
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in the Borrower’s good faith judgment is no longer material in the conduct of the
Borrower and is Subsidiaries’ business taken as a whole):
(b) permitted by Section 7.2.10;
(c) accounts receivable or any related asset Disposed of pursuant to a Permitted
Securitization or a Permitted Factoring Facility;
(d) of property to the extent that (i) such property is exchanged for credit against
the purchase price of similar replacement property or (ii) the proceeds of such Disposition
are promptly applied to the purchase price of such replacement property;
(e) of property by the Borrower or any Subsidiary; provided that if the
transferor of such property is an Obligor (i) the transferee must be an Obligor or (ii) to
the extent such transaction constitutes an Investment such transaction is permitted under
Section 7.2.5;
(f) of cash or Cash Equivalent Investments;
(g) of accounts receivable in connection with compromise, write down or collection
thereof in the ordinary course of business;
(h) constituting leases, subleases, licenses or sublicenses of property (including
intellectual property) in the ordinary course of business and which do not materially
interfere with the business of the Borrower and its Subsidiaries;
(i) constituting a transfer of property subject to a Casualty Event (i) upon receipt of
Net Casualty Proceeds of such Casualty Event or (ii) to a Governmental Authority as a result
of condemnation;
(j) sales of a non-core assets acquired in connection with a Permitted Acquisition
which are not used or useful or are duplicative in the business of the Borrower or its
Subsidiaries;
(k) a grant of options to purchase, lease or acquire real or personal property in the
ordinary course of business, so long as the Disposition resulting from the exercise of such
option would otherwise be permitted under this Section 7.2.11;
(l) Dispositions of Investments in Foreign Subsidiaries, to the extent required by, or
made pursuant to buy/sell arrangements between, Foreign Subsidiaries;
(m) Dispositions of the property described on Item 7.2.11(m) of the Disclosure
Schedule; or
(n) Dispositions of assets not otherwise permitted pursuant to preceding clauses
(a) — (m) of this Section 7.2.11 so long as (i) each such Disposition is for
fair market value and the consideration received consists of no less than 75% in cash and
Cash Equivalent Investments, (ii) the Senior Secured Leverage Ratio would not exceed
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0.50:1.00 after giving pro forma effect thereto and (iii) the Net Disposition Proceeds
from such Disposition are applied pursuant to Sections 3.1.1 and 3.1.2.
SECTION 7.2.12 Modification of Certain Agreements. The Borrower will not, and will
not permit any of its Subsidiaries to, consent to any amendment, supplement, waiver or other
modification of, or enter into any forbearance from exercising any rights with respect to the terms
or provisions contained in,
(a) the Transaction Documents other than any amendment, supplement, waiver or
modification which would not be materially adverse to the Secured Parties; or
(b) the Organic Documents of the Borrower or any of its Subsidiaries (other than a
Receivables Subsidiary) other than any amendment, supplement, waiver or modification which
would not be materially adverse to the Secured Parties.
SECTION 7.2.13 Transactions with Affiliates. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into or cause or permit to exist any arrangement,
transaction or contract (including for the purchase, lease or exchange of property or the rendering
of services) with any of its other Affiliates, unless such arrangement, transaction or contract is
on fair and reasonable terms not materially less favorable to the Borrower or such Subsidiary than
it could obtain in an arm’s-length transaction with a Person that is not an Affiliate other than
arrangements, transactions or contracts (a) between or among the Borrower and any Subsidiaries, (b)
in connection with the cash management of the Borrower and its Subsidiaries in the ordinary course
of business, (c) in connection with a Permitted Securitization including Standard Securitization
Undertakings or a Permitted Factoring Facility or (d) that is a Transaction Document or an Original
Transaction Document.
SECTION 7.2.14 Restrictive Agreements, etc. The Borrower will not, and will not
permit any of its Subsidiaries (other than a Receivables Subsidiary or a Subsidiary who is party to
a Permitted Factoring Facility) to, enter into any agreement prohibiting
(a) the creation or assumption of any Lien upon its properties, revenues or assets,
whether now owned or hereafter acquired;
(b) the ability of any Obligor to amend or otherwise modify any Loan Document; or
(c) the ability of any Subsidiary (other than a Receivables Subsidiary) to make any
payments, directly or indirectly, to the Borrower, including by way of dividends, advances,
repayments of loans, reimbursements of management and other intercompany charges, expenses
and accruals or other returns on investments (it being understood that (i) the priority of
any preferred stock in receiving dividends or liquidating distributions prior to the
dividends or liquidating distributions being paid on common stock shall not be deemed a
restriction on the ability to make distributions on Capital Securities and (ii) the
subordination of advances or loans made to the Borrower or any Subsidiary to other
Indebtedness incurred by the Borrower or any Subsidiary shall not be deemed a restriction on
the ability to make advances or repay loans).
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The foregoing prohibitions shall not apply to restrictions contained (i) in any Loan Document
(iii) in the cases of clause (a) and (c), in any 2014 Senior Note Document or 2016
Senior Note Document, (iv) in the case of clause (a), any agreement governing any
Indebtedness permitted by clause (n) of Section 7.2.2 as to the assets financed with the
proceeds of such Indebtedness, (v) in the case of clauses (a) and (c), any
agreement of a Foreign Subsidiary governing the Indebtedness permitted to be incurred or permitted
to exist hereunder, (vi) with respect to any Receivables Subsidiary or other Subsidiary who is
party to a Permitted Factoring Facility, in the case of clauses (a) and (c), the
documentation governing any Securitization or Permitted Factoring Facility permitted hereunder,
(vii) solely with respect to clause (a), any arrangement or agreement arising in connection
with a Disposition permitted under this Agreement (but then only with respect to the assets being
so Disposed), (viii) solely with respect to clause (a) and (c), are already binding
on a Subsidiary when it is acquired and (ix) solely with respect to clause (a), customary
restrictions in leases, subleases, licenses and sublicenses.
SECTION 7.2.15 Sale and Leaseback. The Borrower will not, and will not permit any of
its Subsidiaries to, directly or indirectly enter into any agreement or arrangement providing for
the sale or transfer by it of any property (now owned or hereafter acquired) to a Person and the
subsequent lease or rental of such property or other similar property from such Person, except for
agreements and arrangements with respect to property (a) the fair market value (as determined in
good faith by the chief financial officer of the Borrower) of which does not exceed $150,000,000 in
the aggregate following the Restatement Effective Date or (b) the term of which is less than one
year; provided that, in each case, the Net Disposition Proceeds of such agreements and
arrangements are applied pursuant to Sections 3.1.1 and 3.1.2.
ARTICLE VIII
EVENTS OF DEFAULT
EVENTS OF DEFAULT
SECTION 8.1 Listing of Events of Default. Each of the following events or occurrences
described in this Article shall constitute an “Event of Default”.
SECTION 8.1.1 Non-Payment of Obligations. The Borrower shall default in the payment
or prepayment when due of
(a) any principal of any Loan, or any Reimbursement Obligation or any deposit of cash
for collateral purposes pursuant to Section 2.6.4;
(b) any interest on any Loan or any fee described in Article III, and such
default shall continue unremedied for a period of three days after such interest or fee was
due; or
(c) any other monetary Obligation, and such default shall continue unremedied for a
period of 10 Business Days after such amount was due.
SECTION 8.1.2 Breach of Warranty. Any representation or warranty of any Obligor made
or deemed to be made in any Loan Document (including any certificates delivered pursuant to
Article V) is or shall be incorrect in any material respect when made or deemed to have
been made.
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SECTION 8.1.3 Non-Performance of Certain Covenants and Obligations. The Borrower
shall default in the due performance or observance of any of its obligations under Section
7.1.1, Section 7.1.7, Section 7.1.11 or Section 7.2.
SECTION 8.1.4 Non-Performance of Other Covenants and Obligations. Any Obligor shall
default in the due performance and observance of any other agreement contained in any Loan Document
executed by it, and such default shall continue unremedied for a period of 30 days after the
earlier to occur of (a) notice thereof given to the Borrower by any Agent or any Lender or (b) the
date on which any Obligor has knowledge of such default.
SECTION 8.1.5 Default on Other Indebtedness. A default shall occur in the payment of
any amount when due (subject to any applicable grace period), whether by acceleration or otherwise,
of any principal or stated amount of, or interest or fees on, any Indebtedness (other than
Indebtedness described in Section 8.1.1) of the Borrower or any of its Subsidiaries (other
than a Receivables Subsidiary or a Subsidiary who is party to a Permitted Factoring Facility) or
any other Obligor having a principal or stated amount, individually or in the aggregate, in excess
of $50,000,000, or a default shall occur in the performance or observance of any obligation or
condition with respect to such Indebtedness if the effect of such default is to accelerate the
maturity of any such Indebtedness or such default shall continue unremedied for any applicable
period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or
agent for such holders, to cause or declare such Indebtedness to become due and payable or to
require such Indebtedness to be prepaid, redeemed, purchased or defeased, or require an offer to
purchase or defease such Indebtedness to be made, prior to its expressed maturity.
SECTION 8.1.6 Judgments. Any (a) judgment or order for the payment of money
individually or in the aggregate in excess of $50,000,000 (exclusive of any amounts fully covered
by insurance (less any applicable deductible) or an indemnity by any other third party Person and
as to which the insurer or such Person has acknowledged its responsibility to cover such judgment
or order not denied in writing) shall be rendered against the Borrower or any of its Subsidiaries
(other than a Receivables Subsidiary) and such judgment shall not have been vacated or discharged
or stayed or bonded pending appeal within 45 days after the entry thereof or enforcement
proceedings shall have been commenced by any creditor upon such judgment or order or (b)
non-monetary judgment or order that has had, or could reasonably be expected to have, a Material
Adverse Effect.
SECTION 8.1.7 Pension Plans. Any of the following events shall occur with respect to
any Pension Plan
(a) the institution of any steps by the Borrower, any member of its Controlled Group or
any other Person to terminate a Pension Plan if, as a result of such termination, the
Borrower or any such member could be required to make a contribution to such Pension Plan,
or could reasonably expect to incur a liability or obligation to such Pension Plan, in
excess of $50,000,000; or
(b) a contribution failure occurs with respect to any Pension Plan sufficient to give
rise to a Lien in excess of $50,000,000 under Section 302(f) of ERISA.
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SECTION 8.1.8 Change in Control. Any Change in Control shall occur.
SECTION 8.1.9 Bankruptcy, Insolvency, etc. The Borrower, any of its Subsidiaries
(other than a Receivables Subsidiary) or any other Obligor shall
(a) become insolvent or generally fail to pay, or admit in writing its inability or
unwillingness generally to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in the appointment of a trustee, receiver,
sequestrator or other custodian for any substantial part of the property of any thereof, or
make a general assignment for the benefit of creditors;
(c) in the absence of such application, consent or acquiescence in or permit or suffer
to exist the appointment of a trustee, receiver, sequestrator or other custodian for a
substantial part of the property of any thereof, and such trustee, receiver, sequestrator or
other custodian shall not be discharged, stayed, vacated or bonded pending appeal within 60
days; provided that, the Borrower, each Subsidiary and each other Obligor hereby
expressly authorizes each Secured Party to appear in any court conducting any relevant
proceeding during such 60-day period to preserve, protect and defend their rights under the
Loan Documents;
(d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt
arrangement or other case or proceeding under any bankruptcy or insolvency law or any
dissolution, winding up or liquidation proceeding, in respect thereof, and, if any such case
or proceeding is not commenced by the Borrower, any Subsidiary or any Obligor, such case or
proceeding shall be consented to or acquiesced in by the Borrower, such Subsidiary or such
Obligor, as the case may be, or shall result in the entry of an order for relief or shall
remain for 60 days undismissed, undischarged, unstayed or unbonded pending appeal;
provided that, the Borrower, each Subsidiary and each Obligor hereby expressly
authorizes each Secured Party to appear in any court conducting any such case or proceeding
during such 60-day period to preserve, protect and defend their rights under the Loan
Documents; or
(e) take any action authorizing, or in furtherance of, any of the foregoing.
SECTION 8.1.10 Impairment of Security, etc. Any Loan Document or any Lien granted
thereunder (effecting a material portion of the Collateral, taken as a whole) shall (except in
accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be
the legally valid, binding and enforceable obligation of any Obligor party thereto (other than
pursuant to a failure of the Administrative Agent, any collateral agent appointed by the
Administrative Agent or the Lenders to take any action within the sole control of such Person); any
Obligor or any other party shall, directly or indirectly, contest in any manner such effectiveness,
validity, binding nature or enforceability; or, except as permitted under any Loan Document, any
Lien securing any Obligation shall, in whole or in part, cease to be a perfected first priority
Lien or any Obligor shall so assert (other than, in each case, pursuant to a failure of the
Administrative Agent, any collateral agent appointed by the Administrative Agent or the Lenders to
take any action within the sole control of such Person).
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SECTION 8.2 Action if Bankruptcy. If any Event of Default described in clauses
(a) through (d) of Section 8.1.9 with respect to the Borrower shall occur, the
Commitments (if not theretofore terminated) shall automatically terminate and the outstanding
principal amount of all outstanding Loans and all other Obligations (including Reimbursement
Obligations) shall automatically be and become immediately due and payable, without notice or
demand to any Person and each Obligor shall automatically and immediately be obligated to Cash
Collateralize all Letter of Credit Outstandings.
SECTION 8.3 Action if Other Event of Default. If any Event of Default (other than any
Event of Default described in clauses (a) through (d) of Section 8.1.9 with respect to the
Borrower) shall occur for any reason, whether voluntary or involuntary, and be continuing, the
Administrative Agent, upon the direction of the Required Lenders, shall by notice to the Borrower
declare all or any portion of the outstanding principal amount of the Loans and other Obligations
(including Reimbursement Obligations) to be due and payable and/or the Commitments (if not
theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other
Obligations which shall be so declared due and payable shall be and become immediately due and
payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments
shall terminate and the Borrower shall automatically and immediately be obligated to Cash
Collateralize all Letter of Credit Outstandings.
ARTICLE IX
THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT; THE LEAD
ARRANGERS, THE SYNDICATION AGENT AND THE DOCUMENTATION AGENT
THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT; THE LEAD
ARRANGERS, THE SYNDICATION AGENT AND THE DOCUMENTATION AGENT
SECTION 9.1 Actions. Each Lender hereby appoints JPMorgan as its Administrative Agent
and as its Collateral Agent, under and for purposes of each Loan Document. Each Lender authorizes
each Agent to act on behalf of such Lender under each Loan Document and, in the absence of other
written instructions from the Required Lenders received from time to time by such Agent (with
respect to which each Agent agrees that it will comply, except as otherwise provided in this
Section or as otherwise advised by counsel in order to avoid contravention of applicable law), to
exercise such powers hereunder and thereunder as are specifically delegated to or required of such
Agent by the terms hereof and thereof, together with such powers as may be incidental thereto
(including the release of Liens on assets Disposed of in accordance with the terms of the Loan
Documents). Each Lender hereby indemnifies (which indemnity shall survive any termination of this
Agreement) each Agent, pro rata according to such Lender’s proportionate Total
Exposure Amount, from and against any and all liabilities, obligations, losses, damages, claims,
costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred
by, or asserted against, such Agent in any way relating to or arising out of any Loan Document
(including reasonable attorneys’ fees and expenses), and as to which such Agent is not reimbursed
by the Borrower (and without limiting its obligation to do so); provided that no Lender
shall be liable for the payment of any portion of such liabilities, obligations, losses, damages,
claims, costs or expenses which are determined by a court of competent jurisdiction in a final
proceeding to have resulted from such Agent’s gross negligence or willful misconduct. No Agent
shall be required to take any action under any Loan Document, or to prosecute or defend any suit in
respect of any Loan Document, unless it is indemnified hereunder to its reasonable satisfaction.
If any indemnity in favor of any Agent shall be or become, in such Agent’s determination,
inadequate, such Agent may call for additional
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indemnification from the Lenders and cease to do the acts indemnified against hereunder until
such additional indemnity is given.
SECTION 9.2 Funding Reliance, etc. Unless the Administrative Agent shall have been
notified in writing by any Lender by 3:00 p.m. on the Business Day prior to a Borrowing that such
Lender will not make available the amount which would constitute its Percentage of such Borrowing
on the date specified therefor, the Administrative Agent may assume that such Lender has made such
amount available to the Administrative Agent and, in reliance upon such assumption, make available
to the Borrower a corresponding amount. If and to the extent that such Lender shall not have made
such amount available to the Administrative Agent, such Lender and the Borrower severally agree to
repay the Administrative Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date the Administrative Agent made such amount available to the
Borrower to the date such amount is repaid to the Administrative Agent, at the interest rate
applicable at the time to Loans comprising such Borrowing (in the case of the Borrower) and (in the
case of a Lender), at the Federal Funds Rate (for the first two Business Days after which such
amount has not been repaid), and thereafter at the interest rate applicable to Loans comprising
such Borrowing.
SECTION 9.3 Exculpation. Neither any Lead Arranger, any Agent nor any of its
directors, officers, employees, agents or Affiliates shall be liable to any Secured Party for any
action taken or omitted to be taken by it under any Loan Document, or in connection therewith,
except for its own willful misconduct or gross negligence, nor responsible for any recitals or
warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution
of any Loan Document, or the validity, genuineness, enforceability, existence, value or sufficiency
of any collateral security, nor to make any inquiry respecting the performance by any Obligor of
its Obligations. Any such inquiry which may be made by a Lead Arranger or an Agent shall not
obligate it to make any further inquiry or to take any action. Each Lead Arranger and each Agent
shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice,
consent, certificate, statement or writing which such Lead Arranger or such Agent believes to be
genuine and to have been presented by a proper Person.
SECTION 9.4 Successor. Any Agent may resign as such at any time upon at least 30
days’ prior notice to the Borrower and all Lenders. If any Agent at any time shall resign, the
Required Lenders may appoint (subject to, so long as no Event of Default has occurred and is
continuing, the reasonable consent of the Borrower not to be unreasonably withheld or delayed)
another Lender as such Person’s successor Agent which shall thereupon become the applicable Agent
hereunder. If no successor Agent shall have been so appointed by the Required Lenders (and
consented to by the Borrower) and shall have accepted such appointment within 30 days after the
retiring such Agent’s giving notice of resignation, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent, which shall be one of the Lenders or a commercial banking
institution organized under the laws of the United States (or any State thereof) or a United States
branch or agency of a commercial banking institution, and having a combined capital and surplus of
at least $250,000,000; provided that, if, such retiring Agent is unable to find a
commercial banking institution which is willing to accept such appointment and which meets the
qualifications set forth in above, the retiring Agent’s resignation shall nevertheless thereupon
become effective and the Lenders shall assume and perform all of the duties of such Agent hereunder
until such time, if any, as the Required Lenders
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appoint a successor as provided for above. Upon the acceptance of any appointment as an Agent
hereunder by any successor Agent, such successor Agent shall be entitled to receive from the
retiring Agent such documents of transfer and assignment as such successor Agent may reasonably
request, and shall thereupon succeed to and become vested with all rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under the Loan Documents. After any retiring Agent’s resignation hereunder as an
Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was an Agent under the Loan Documents, and Section 10.3 and
Section 10.4 shall continue to inure to its benefit.
SECTION 9.5 Loans by JPMorgan Chase Bank. JPMorgan Chase Bank shall have the same
rights and powers with respect to (a) the Credit Extensions made by it or any of its Affiliates,
and (b) the Notes held by it or any of its Affiliates as any other Lender and may exercise the same
as if it were not an Agent. JPMorgan Chase Bank and its Affiliates may accept deposits from, lend
money to, and generally engage in any kind of business with the Borrower or any Subsidiary or
Affiliate of the Borrower as if JPMorgan Chase Bank were not an Agent hereunder.
SECTION 9.6 Credit Decisions. Each Lender acknowledges that it has, independently of
the Administrative Agent and each other Lender, and based on such Lender’s review of the financial
information of the Borrower, the Loan Documents (the terms and provisions of which being
satisfactory to such Lender) and such other documents, information and investigations as such
Lender has deemed appropriate, made its own credit decision to extend its Commitments. Each Lender
also acknowledges that it will, independently of the Administrative Agent and each other Lender,
and based on such other documents, information and investigations as it shall deem appropriate at
any time, continue to make its own credit decisions as to exercising or not exercising from time to
time any rights and privileges available to it under the Loan Documents.
SECTION 9.7 Copies, etc. Each Agent shall give prompt notice to each Lender of each
notice or request required or permitted to be given to such Agent by the Borrower pursuant to the
terms of the Loan Documents (unless concurrently delivered to the Lenders by the Borrower). Each
Agent will distribute to each Lender each document or instrument received for its account and
copies of all other communications received by such Agent from the Borrower for distribution to the
Lenders by such Agent in accordance with the terms of the Loan Documents. No Agent shall, except
as expressly set forth in the Loan Documents, have any duty to disclose, and shall not be liable
for the failure to disclose, any information relating to the Borrower or any of its Affiliates that
is communicated to or obtained by any Agent or any of its Affiliates in any capacity.
SECTION 9.8 Reliance by Agents. The Agents shall be entitled to rely upon any
certification, notice or other communication (including any thereof by telephone, telecopy,
telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or
on behalf of the proper Person, and upon advice and statements of legal counsel, independent
accountants and other experts selected by such Agent. As to any matters not expressly provided for
by the Loan Documents, the Agents shall in all cases be fully protected in acting, or in refraining
from acting, thereunder in accordance with instructions given by the
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Required Lenders or all of the Lenders as is required in such circumstance, and such
instructions of such Lenders and any action taken or failure to act pursuant thereto shall be
binding on all Secured Parties. For purposes of applying amounts in accordance with this Section,
the Agents shall be entitled to rely upon any Secured Party that has entered into a Rate Protection
Agreement with any Obligor for a determination (which such Secured Party agrees to provide or cause
to be provided upon request of any Agent) of the outstanding Obligations owed to such Secured Party
under any Rate Protection Agreement. Unless it has actual knowledge evidenced by way of written
notice from any such Secured Party and the Borrower to the contrary, the Agents, in acting in such
capacity under the Loan Documents, shall be entitled to assume that no Rate Protection Agreements
or Obligations in respect thereof are in existence or outstanding between any Secured Party and any
Obligor.
SECTION 9.9 Defaults. The Administrative Agent shall not be deemed to have knowledge
or notice of the occurrence of a Default (other than a Default under Section 8.1.1) unless
the Administrative Agent has received a written notice from a Lender or the Borrower specifying
such Default and stating that such notice is a “Notice of Default”. In the event that the
Administrative Agent receives such a notice of the occurrence of a Default, the Administrative
Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall (subject to
Section 10.1) take such action with respect to such Default as shall be directed by the
Required Lenders; provided that, unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default as it shall deem advisable
in the best interest of the Secured Parties except to the extent that this Agreement expressly
requires that such action be taken, or not be taken, only with the consent or upon the
authorization of the Required Lenders or all Lenders.
SECTION 9.10 Lead Arrangers, Syndication Agents and Documentation Agents.
Notwithstanding anything else to the contrary contained in this Agreement or any other Loan
Document, the Lead Arrangers, the Syndication Agents and the Documentation Agents, in their
respective capacities as such, each in such capacity, shall have no duties or responsibilities
under this Agreement or any other Loan Document nor any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or otherwise exist against such Person in such capacity. Each Lead Arranger
shall at all times have the right to receive current copies of the Register and any other
information relating to the Lenders and the Loans that they may request from the Administrative
Agent. Each Lead Arranger shall at all times have the right to receive a current copy of the
Register and any other information relating to the Lenders and the Loans that they may request from
the Administrative Agent.
SECTION 9.11 Posting of Approved Electronic Communications.
(a) The Borrower hereby agrees, unless directed otherwise by the Administrative Agent
or unless the electronic mail address referred to below has not been provided by the
Administrative Agent to the Borrower, that it will, or will cause its Subsidiaries to,
provide to the Administrative Agent all information, documents and other materials that it
is obligated to furnish to the Administrative Agent pursuant to the Loan Documents or to the
Lenders under Section 7.1.1, including all notices, requests,
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financial statements, financial and other reports, certificates and other information
materials, but excluding any such communication that (i) is or relates to a Borrowing
Request, a Continuation/Conversion Notice or an Issuance Request, (ii) relates to the
payment of any principal or other amount due under this Agreement prior to the scheduled
date therefor and (iii) provides notice of any Default (all such non-excluded communications
being referred to herein collectively as “Communications”), by transmitting the
Communications in an electronic/soft medium that is properly identified in a format
reasonably acceptable to the Administrative Agent to an electronic mail address as directed
by the Administrative Agent; provided for the avoidance of doubt the items described
in clauses (i) and (iii) above may be delivered via facsimile transmissions.
In addition, the Borrower agrees, and agrees to cause its Subsidiaries, to continue to
provide the Communications to the Administrative Agent or the Lenders, as the case may be,
in the manner specified in the Loan Documents but only to the extent requested by the
Administrative Agent.
(b) The Borrower further agrees that the Administrative Agent may make the
Communications available to the Lenders by posting the Communications on Intralinks or a
substantially similar secure electronic transmission system (the “Platform”).
(c) THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE”. THE INDEMNIFIED PARTIES DO
NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS OR THE ADEQUACY OF THE
PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR OMISSIONS IN THE COMMUNICATIONS. NO
WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR
FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS IS MADE BY THE INDEMNIFIED PARTIES IN CONNECTION
WITH THE COMMUNICATIONS OR THE PLATFORM. IN NO EVENT SHALL ANY PARTY HERETO HAVE ANY
LIABILITY TO ANY OBLIGOR, ANY LENDER OR ANY OTHER PERSON FOR DAMAGES OF ANY KIND, WHETHER OR
NOT BASED ON STRICT LIABILITY AND INCLUDING DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING
OUT OF ANY OBLIGOR’S OR THE ADMINISTRATIVE AGENT’S TRANSMISSION OF COMMUNICATIONS THROUGH
THE INTERNET, EXCEPT TO THE EXTENT THE LIABILITY OF SUCH PERSON IS FOUND IN A FINAL RULING
BY A COURT OF COMPETENT JURISDICTION TO HAVE RESULTED PRIMARILY FROM SUCH INDEMNIFIED
PARTY’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(d) The Administrative Agent agrees that the receipt of the Communications by the
Administrative Agent at the e-mail address set forth on Schedule II shall constitute
effective delivery of the Communications to the Administrative Agent for purposes of the
Loan Documents. Each Lender agrees that receipt of notice to it (as provided in the next
sentence) specifying that the Communications have been posted to the Platform shall
constitute effective delivery of the Communications to such Lender for purposes of the
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Loan Documents. Each Lender agrees to notify the Administrative Agent in writing
(including by electronic communication) from time to time of such Lender’s e-mail address to
which the foregoing notice may be sent by electronic transmission and that the foregoing
notice may be sent to such e-mail address.
(e) Nothing herein shall prejudice the right of any Agent or any Lender to give any
notice or other communication pursuant to any Loan Document in any other manner specified in
such Loan Document.
ARTICLE X
MISCELLANEOUS PROVISIONS
MISCELLANEOUS PROVISIONS
SECTION 10.1 Waivers, Amendments, etc. The provisions of each Loan Document (other
than Rate Protection Agreements or Letters of Credit, which shall be modified only in accordance
with their respective terms) may from time to time be amended, modified or waived, if such
amendment, modification or waiver is in writing and consented to by the Borrower and the Required
Lenders; provided that, no such amendment, modification or waiver shall:
(a) modify Section 4.7, Section 4.8 (as it relates to sharing of
payments) or this Section, in each case, without the consent of each affected Lender;
(b) increase the aggregate amount of any Loans required to be made by a Lender pursuant
to its Commitments, extend the final Commitment Termination Date of Loans made (or
participated in) by a Lender or extend the final Stated Maturity Date for any Lender’s Loan,
in each case without the consent of such Lender (it being agreed, however, that any vote to
rescind any acceleration made pursuant to Section 8.2 and Section 8.3 of
amounts owing with respect to the Loans and other Obligations shall only require the vote of
the Required Lenders);
(c) reduce (by way of forgiveness), the principal amount of or reduce the rate of
interest on any Lender’s Loan, reduce any fees described in Article III payable to
any Lender or extend the date on which interest, principal or fees are payable in respect of
such Lender’s Loans, in each case without the consent of such Lender (provided that,
the vote of Required Lenders shall be sufficient to waive the payment, or reduce the
increased portion, of interest accruing under Section 3.2.2 and such waiver shall
not constitute a reduction of the rate of interest hereunder);
(d) reduce the percentage set forth in the definition of “Required Lenders” or modify
any requirement hereunder that any particular action be taken by all Lenders without the
consent of all Lenders;
(e) increase the Stated Amount of any Letter of Credit unless consented to by the
Issuer of such Letter of Credit;
(f) except as otherwise expressly provided in a Loan Document, release (i) the Borrower
from its Obligations under the Loan Documents or any Subsidiary
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Guarantor from its obligations under the Guaranty or (ii) all or substantially all of
the collateral under the Loan Documents, in each case without the consent of all Lenders; or
(g) affect adversely the interests, rights or obligations of the Administrative Agent
(in its capacity as the Administrative Agent), the Collateral Agent (in its capacity as the
Collateral Agent) any Issuer (in its capacity as Issuer), or the Swing Line Lender (in its
capacity as Swing Line Lender) unless consented to by such Agent, such Issuer,or such Swing
Line Lender, as the case may be.
No failure or delay on the part of any Secured Party in exercising any power or right under any
Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any
such power or right preclude any other or further exercise thereof or the exercise of any other
power or right. No notice to or demand on any Obligor in any case shall entitle it to any notice
or demand in similar or other circumstances. No waiver or approval by any Secured Party under any
Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar
waiver or approval thereafter to be granted hereunder.
Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with the
written consent of the Required Lenders, and the Borrower (a) to add one or more additional credit
facilities to this Agreement and to permit the extensions of credit from time to time outstanding
thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of
this Agreement and the other Loan Documents with the Obligations and (b) to include appropriately
the Lenders holding such credit facilities in any determination of the Required Lenders.
Further, notwithstanding anything to the contrary contained in Section 10.1, if within
sixty days following the Restatement Effective Date, the Administrative Agent and the Borrower
shall have jointly identified an obvious error or any error or omission of a technical or
immaterial nature, in each case, in any provision of the Loan Documents, then the Administrative
Agent and the Borrower shall be permitted to amend such provision and such amendment shall become
effective without any further action or consent of any other party to any Loan Document if the same
is not objected to in writing by the Required Lenders within five Business Days following receipt
of notice thereof.
SECTION 10.2 Notices; Time. All notices and other communications provided under each
Loan Document shall be in writing or by facsimile (except to the extent provided below in this
Section 10.2 with respect to Issuance Requests and financial information) and addressed,
delivered or transmitted, if to the Borrower, an Agent, a Lender or an Issuer, to the applicable
Person at its address or facsimile number set forth on the signature pages hereto, Schedule
II hereto or set forth in the Lender Assignment Agreement, or at such other address or
facsimile number as may be designated by such party in a notice to the other parties. Any notice,
if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid
courier service, shall be deemed given when received; any notice, if transmitted by facsimile,
shall be deemed given when the confirmation of transmission thereof is received by the transmitter.
Except as set forth in Section 9.11 and below, electronic mail and Internet and intranet
websites may be used only to distribute routine communications by the Administrative
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Agent to the Lender, such as financial statements and other information as provided in
Section 7.1.1, for the distribution and execution of Loan Documents for execution by the
parties thereto and (to the extent provided herein, for the delivery of each Issuance Request) and
may not be used for any other purpose. Notwithstanding the foregoing, the parties hereto agree
that delivery of an executed counterpart of a signature page to this Agreement and each other Loan
Document by facsimile (or other electronic) transmission shall be effective as delivery of an
original executed counterpart of this Agreement or such other Loan Document. Unless otherwise
indicated, all references to the time of a day in a Loan Document shall refer to New York time.
SECTION 10.3 Payment of Costs and Expenses. The Borrower agrees to pay within 20 days
of demand (to the extent invoiced together with reasonably detailed supporting documentation) all
reasonable out-of-pocket expenses of each Lead Arranger and each Agent (including the reasonable
fees and reasonable out-of-pocket expenses of counsel to the Lead Arrangers and Agents and of local
counsel, if any, who may be retained by or on behalf of the Lead Arrangers and Agents) and each
Issuer in connection with
(a) the negotiation, preparation, execution and delivery of each Loan Document,
including schedules and exhibits, and any amendments, waivers, consents, supplements or
other modifications to any Loan Document as may from time to time hereafter be required,
whether or not the transactions contemplated hereby are consummated; and
(b) the filing or recording of any Loan Document (including any Filing Statements) and
all amendments, supplements, amendment and restatements and other modifications to any
thereof, searches made following the Restatement Effective Date in jurisdictions where
Filing Statements (or other documents evidencing Liens in favor of the Secured Parties) have
been recorded and any and all other documents or instruments of further assurance required
to be filed or recorded by the terms of any Loan Document; and
(c) the preparation and review of the form of any document or instrument relevant to
any Loan Document.
The Borrower further agrees to pay, and to save each Secured Party harmless from all liability for,
any stamp or other taxes which may be payable in connection with the execution or delivery of each
Loan Document, the Credit Extensions or the issuance of the Notes. The Borrower also agrees to
reimburse the Agents and the Secured Parties upon demand for all reasonable out-of-pocket expenses
(including reasonable attorneys’ fees and legal out of pocket expenses of counsel to the Agents and
the Secured Parties) incurred by the Agents and the Secured Parties in connection with (A) the
negotiation of any restructuring or “work-out” with the Borrower, whether or not consummated, of
any Obligations and (B) the enforcement of any Obligations; provided that the Borrower
shall not be required to reimburse the legal fees and expenses of more than one outside counsel (in
addition to any local counsel) for all Persons indemnified under this Section 10.3 unless,
as reasonably determined by such Person seeking indemnification hereunder or its counsel,
representation of all such indemnified persons by the same counsel would be inappropriate due to
actual or potential differing interests between them.
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SECTION 10.4 Indemnification. In consideration of the execution and delivery of this
Agreement by each Secured Party, the Borrower hereby indemnifies, exonerates and holds each Secured
Party, each Co-Syndication Agent, each Co-Documentation Agent and each of their respective
officers, directors, employees, agents, trustees, fund advisors and Affiliates (collectively, the
“Indemnified Parties”) free and harmless from and against any and all actions, causes of
action, suits, losses, costs, liabilities and damages, and expenses incurred in connection
therewith (irrespective of whether any such Indemnified Party is a party to the action for which
indemnification hereunder is sought), including reasonable attorneys’ fees and disbursements,
whether incurred in connection with actions between or among the parties hereto or the parties
hereto and third parties (collectively, the “Indemnified Liabilities”), incurred by the
Indemnified Parties or any of them as a result of, or arising out of, or relating to
(a) any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of any Credit Extension, including all Indemnified Liabilities
arising in connection with the Transaction;
(b) the entering into and performance of any Loan Document by any of the Indemnified
Parties (including any action brought by or on behalf of the Borrower as the result of any
determination by the Required Lenders pursuant to Article V not to fund any Credit
Extension, provided that, any such action is resolved in favor of such Indemnified
Party);
(c) any investigation, litigation or proceeding related to any acquisition or proposed
acquisition by any Obligor or any Subsidiary thereof of all or any portion of the Capital
Securities or assets of any Person, whether or not an Indemnified Party is party thereto;
(d) any investigation, litigation or proceeding related to any environmental cleanup,
audit, compliance or other matter relating to the protection of the environment or the
Release by any Obligor or any Subsidiary thereof of any Hazardous Material;
(e) the presence on or under, or the escape, seepage, leakage, spillage, discharge,
emission, discharging or releases from, any real property owned or operated by any Obligor
or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities,
damages, injuries, costs, expenses or claims asserted or arising under any Environmental
Law), regardless of whether caused by, or within the control of, such Obligor or Subsidiary;
or
(f) each Lender’s Environmental Liability (the indemnification herein shall survive
repayment of the Obligations and any transfer of the property of any Obligor or its
Subsidiaries by foreclosure or by a deed in lieu of foreclosure for any Lender’s
Environmental Liability, regardless of whether caused by, or within the control of, such
Obligor or such Subsidiary);
except for Indemnified Liabilities arising for the account of any Indemnified Party by reason of
any Indemnified Party’s gross negligence, bad faith or willful misconduct as finally determined by
a court of competent jurisdiction. The Borrower shall not be required to reimburse the legal
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fees and expenses of more than one outside counsel for all Indemnified Parties with respect to any
matter for which indemnification is sought unless, as reasonably determined by any such Indemnified
Party or its counsel, representation of all such Indemnified Parties would create an actual
conflict of interest. Each Obligor and its successors and assigns hereby waive, release and agree
not to make any claim or bring any cost recovery action against, any Indemnified Party under CERCLA
or any state equivalent, or any similar law now existing or hereafter enacted. It is expressly
understood and agreed that to the extent that any Indemnified Party is strictly liable under any
Environmental Laws, each Obligor’s obligation to such Indemnified Party under this indemnity shall
likewise be without regard to fault on the part of any Obligor with respect to the violation or
condition which results in liability of an Indemnified Party. If and to the extent that the
foregoing undertaking may be unenforceable for any reason, each Obligor agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. To the extent that the Borrower fails to pay an amount required
to be paid by it to an Issuer under Section 10.3 or 10.4, each Revolving Loan
Lender severally agrees to pay to such Issuer such Revolving Loan Lender’s Revolving Loan
Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment
is sought) of such unpaid amount, provided that such unreimbursed expense or indemnified
loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted
against such Issuer in its capacity as such.
SECTION 10.5 Survival. The obligations of the Borrower under Sections 4.3,
4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations
of the Lenders under Section 9.1, shall in each case survive any assignment from one Lender
to another (in the case of Sections 10.3 and 10.4) and the occurrence of the
Termination Date. The representations and warranties made by each Obligor in each Loan Document
shall survive the execution and delivery of such Loan Document.
SECTION 10.6 Severability. Any provision of any Loan Document which is prohibited or
unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the remaining provisions
of such Loan Document or affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 10.7 Headings. The various headings of each Loan Document are inserted for
convenience only and shall not affect the meaning or interpretation of such Loan Document or any
provisions thereof.
SECTION 10.8 Execution in Counterparts, Effectiveness, etc. This Agreement may be
executed by the parties hereto in several counterparts, each of which shall be an original and all
of which shall constitute together but one and the same agreement. This Agreement shall become
effective when counterparts hereof executed on behalf of the Borrower, each Agent and each Lender
(or notice thereof satisfactory to the Administrative Agent), shall have been received by the
Administrative Agent.
SECTION 10.9 Governing Law; Entire Agreement. EACH LOAN DOCUMENT (OTHER THAN THE
LETTERS OF CREDIT, TO THE EXTENT SPECIFIED BELOW AND EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN A
LOAN
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DOCUMENT) WILL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF
THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK). EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO LAWS
OR RULES ARE DESIGNATED, THE INTERNATIONAL STANDBY PRACTICES (ISP98—INTERNATIONAL CHAMBER OF
COMMERCE PUBLICATION NUMBER 590 (THE “ISP RULES”)) AND, AS TO MATTERS NOT GOVERNED BY THE
ISP RULES, THE INTERNAL LAWS OF THE STATE OF NEW YORK. The Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter thereof and supersede any
prior agreements, written or oral, with respect thereto.
SECTION 10.10 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and assigns;
provided that, the Borrower may not assign or transfer its rights or obligations hereunder
without the consent of all Lenders. Each Affiliate of HSBC or any other Lender that has issued a
Letter of Credit hereunder shall be an express third party beneficiary of this Agreement and
entitled to enforce its rights hereunder (and under any other applicable Loan Documents) to the
same extent as if an Issuer party hereto.
SECTION 10.11 Sale and Transfer of Credit Extensions; Participations in Credit Extensions;
Notes. Each Lender may assign, or sell participations in, its Loans, Letters of Credit and
Commitments to one or more other Persons in accordance with the terms set forth below.
(a) Subject to clause (b), any Lender may assign to one or more Eligible Assignees all
or a portion of its rights and obligations under the Loan Documents (including all or a portion of
its Commitments and the Loans at the time owing to it); provided that:
(i) except in the case of (A) an assignment of the entire remaining amount of the
assigning Lender’s Commitments and the Loans at the time owing to it or (B) an assignment to
a Lender, an Affiliate of a Lender or an Approved Fund with respect to a Lender, the
aggregate amount of the Commitments (which for this purpose includes Loans outstanding
thereunder) or principal outstanding balance of the Loans of the assigning Lender subject to
each such assignment (determined as of the date the Lender Assignment Agreement with respect
to such assignment is delivered to the Administrative Agent) shall not be less than
$1,000,000, unless the Administrative Agent and the Borrower, otherwise consent (which
consent shall not be unreasonably withheld or delayed);
(ii) each partial assignment shall be made as an assignment of a proportionate part of
all the assigning Lender’s rights and obligations under this Agreement with respect to the
Loans and the Commitments assigned except that this clause (a)(ii) shall not
prohibit any Lender from assigning all or a portion of its rights and obligations among
separate tranches of Revolving Loans and New Term Loans on a non-pro rata
basis; and
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(iii) the parties to each assignment shall execute and deliver to the Administrative
Agent a Lender Assignment Agreement, together with, if the Eligible Assignee is not already
Lender, administrative details information with respect to such Eligible Assignee and
applicable tax forms.
(b) Any assignment proposed pursuant to clause (a) to any Person shall be subject to
the prior written approval, not to be unreasonably withheld or delayed, of (i) the Administrative
Agent, unless the assignee is a Lender or an Affiliate of a Lender or an Approved Fund, and (ii) in
the case of any assignment of any Revolving Loan Commitment, the Borrower (unless (A) there is an
Event of Default that is continuing or (B) the assignee is a Lender or an Affiliate of a Lender or
an Approved Fund), the Swing Line Lender and each Issuer. If the consent of the Borrower to an
assignment or to an Eligible Assignee is required hereunder (including a consent to an assignment
which does not meet the minimum assignment thresholds specified in this Section), the Borrower
shall be deemed to have given its consent seven Business Days after the date notice thereof has
been delivered by the assigning Lender (through the Administrative Agent) to the Borrower, unless
such consent is expressly refused by the Borrower prior to such seventh Business Day.
(c) Subject to acceptance and recording thereof by the Administrative Agent pursuant to
clause (d), from and after the effective date specified in each Lender Assignment
Agreement, (i) the Eligible Assignee thereunder shall (if not already a Lender) be a party hereto
and, to the extent of the interest assigned by such Lender Assignment Agreement, have the rights
and obligations of a Lender under the Loan Documents, and (ii) the assigning Lender thereunder
shall (subject to Section 10.5) be released from its obligations under the Loan Documents,
to the extent of the interest assigned by such Lender Assignment Agreement (and, in the case of a
Lender Assignment Agreement covering all of the assigning Lender’s rights and obligations under the
Loan Documents, such Lender shall cease to be a party hereto, but shall (as to matters arising
prior to the effectiveness of the Lender Assignment Agreement) continue to be entitled to the
benefits of any provisions of the Loan Documents which by their terms survive the termination of
this Agreement). Any assignment or transfer by a Lender of rights or obligations under this
Agreement that does not comply with the terms of this Section shall be treated for purposes of the
Loan Documents as a sale by such Lender of a participation in such rights and obligations in
accordance with clause (e).
(d) The Administrative Agent shall record each assignment made in accordance with this Section
in the Register pursuant to clause (a) of Section 2.7. The Register shall be
available for inspection by the Borrower and any Lender, at any reasonable time upon reasonable
prior notice to the Administrative Agent.
(e) Any Lender may, without the consent of, or notice to, any Person, sell participations to
one or more Persons (other than individuals) (a “Participant”) in all or a portion of such
Lender’s rights or obligations under the Loan Documents (including all or a portion of its
Commitments or the Loans owing to it); provided that, (i) such Lender’s obligations under
the Loan Documents shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the Borrower, the
Administrative Agent and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender’s rights and obligations under the Loan Documents. Any
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agreement or instrument pursuant to which a Lender sells a participation shall provide that
such Lender shall retain the sole right to enforce the rights and remedies of a Lender under the
Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan
Documents; provided that, such agreement or instrument may provide that such Lender will
not, without the consent of the Participant, take any action of the type described in clauses
(a) through (d) or clause (f) of Section 10.1 with respect to
Obligations participated in by that Participant. Subject to clause (f), the Borrower
agrees that each Participant shall be entitled to the benefits of Sections 4.3,
4.4, 4.5, 4.6, 7.1.1, 10.3 and 10.4 to the same
extent as if it were a Lender and had acquired its interest by assignment pursuant to clause
(c). To the extent permitted by law, each Participant also shall be entitled to the benefits
of Section 4.9 as though it were a Lender, but only if such Participant agrees to be
subject to Section 4.8 as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater payment under Section
4.3, 4.4, 4.5, 4.6, 10.3 or 10.4 than the applicable
Lender would have been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made with the Borrower’s
prior written consent. A Participant that would be a Non-U.S. Lender if it were a Lender shall not
be entitled to the benefits of Section 4.6 unless the Borrower is notified of the
participation sold to such Participant and such Participant agrees, for the benefit of the
Borrower, to comply with the requirements set forth in Section 4.6 as though it were a
Lender. Any Lender that sells a participating interest in any Loan, Commitment or other interest
to a Participant under this Section shall indemnify and hold harmless the Borrower and the
Administrative Agent from and against any taxes, penalties, interest or other costs or losses
(including reasonable attorneys’ fees and expenses) incurred or payable by the Borrower or the
Administrative Agent as a result of the failure of the Borrower or the Administrative Agent to
comply with its obligations to deduct or withhold any Taxes from any payments made pursuant to this
Agreement to such Lender or the Administrative Agent, as the case may be, which Taxes would not
have been incurred or payable if such Participant had been a Non-U.S. Lender that was entitled to
deliver to the Borrower, the Administrative Agent or such Lender, and did in fact so deliver, a
duly completed and valid Form W-8BEN or W-8ECI (or applicable successor form) entitling such
Participant to receive payments under this Agreement without deduction or withholding of any United
States federal taxes.
(g) Any Lender may, without the consent of any other Person, at any time pledge or assign a
security interest in all or any portion of its rights under this Agreement to secure obligations of
such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank or
any central bank; provided that no such pledge or assignment of a security interest shall
release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee
for such Lender as a party hereto.
SECTION 10.12 Other Transactions. Nothing contained herein shall preclude any Agent,
any Issuer or any other Lender from engaging in any transaction, in addition to those contemplated
by the Loan Documents, with the Borrower or any of its Affiliates in which the Borrower or such
Affiliate is not restricted hereby from engaging with any other Person.
104
SECTION 10.13 Forum Selection and Consent to Jurisdiction; Waivers. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, ANY LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE
LENDERS, ANY ISSUER OR THE BORROWER IN CONNECTION HEREWITH OR THEREWITH MAY BE BROUGHT AND
MAINTAINED IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK; PROVIDED THAT, ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE COLLATERAL AGENT’S OPTION, IN THE COURTS OF ANY
JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE
WITHIN OR WITHOUT THE STATE OF NEW YORK AT THE ADDRESS FOR NOTICES SPECIFIED IN SECTION
10.2. EACH PERSON PARTY HERETO HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF
ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY PERSON PARTY HERETO
HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH PERSON HEREBY IRREVOCABLY WAIVES TO THE
FULLEST EXTENT PERMITTED BY LAW SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THE LOAN
DOCUMENTS. EACH AGENT, EACH LENDER, EACH ISSUER AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS THEY MAY HAVE TO CLAIM OR
RECOVER IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN THIS SECTION ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES.
SECTION 10.14 Waiver of Jury Trial. EACH AGENT, EACH LENDER, EACH ISSUER AND THE
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE TO THE FULLEST EXTENT PERMITTED BY
LAW ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, EACH LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SUCH AGENT, SUCH LENDER, SUCH ISSUER
OR THE BORROWER IN CONNECTION THEREWITH. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED
FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN
DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR EACH AGENT,
EACH LENDER AND EACH ISSUER ENTERING INTO THE LOAN DOCUMENTS.
105
SECTION 10.15 Patriot Act. Each Lender that is subject to Section 326 of the Patriot
Act and/or the Agents and/or the Lead Arrangers (each of the foregoing acting for themselves and
not acting on behalf of any of the Lenders) hereby notify the Borrower that pursuant to the
requirements of the Patriot Act, it is required to obtain, verify and record information that
identifies the Borrower, which information includes the name and address of the Borrower and other
information that will allow such Lender, the Agents or the Lead Arrangers, as the case may be, to
identify the Borrower in accordance with the Patriot Act.
SECTION 10.16 Judgment Currency. The Obligations of each Obligor in respect of any
sum due to any Secured Party under or in respect of any Loan Document shall, notwithstanding any
judgment in a currency (the “Judgment Currency”) other than the currency in which such sum
was originally denominated (the “Original Currency”), be discharged only to the extent that
on the Business Day following receipt by such Secured Party or any sum adjudged to be so due in the
Judgment Currency, such Secured Party, in accordance with normal banking procedures, purchases the
Original Currency with the Judgment Currency. If the amount of Original Currency so purchased is
less than the sum originally due to such Secured Party, the Borrower agrees, as a separate
obligation and notwithstanding any such judgment, to indemnify such Lender, such Secured Party, as
the case may be, against such loss, and if the amount of Original Currency so purchased exceeds the
sum originally due to such Secured Party, as the case may be, such Secured Party, as the case may
be, agrees to remit such excess to the Borrower.
SECTION 10.17 No Fiduciary Duty. Each Agent, each Co-Syndication Agent, each
Co-Documentation Agent, each Lead Arranger, each Lender and their Affiliates (collectively, solely
for purposes of this paragraph, the “Lenders”), may have economic interests that conflict
with those of the Borrower, its stockholders and/or its Affiliates. The Borrower agrees that
nothing in the Loan Documents or otherwise will be deemed to create an advisory, fiduciary or
agency relationship or fiduciary or other implied duty between any Lender, on the one hand, and the
Borrower, its stockholders or its Affiliates, on the other. The Obligors acknowledge and agree
that (i) the transactions contemplated by the Loan Documents (including the exercise of rights and
remedies hereunder and thereunder) are arm’s-length commercial transactions between the Lenders, on
the one hand, and the Borrower, on the other, and (ii) in connection therewith and with the process
leading thereto, (x) no Lender has assumed an advisory or fiduciary responsibility in favor of the
Borrower, its stockholders or its Affiliates with respect to the transactions contemplated hereby
(or the exercise of rights or remedies with respect thereto) or the process leading thereto
(irrespective of whether any Lender has advised, is currently advising or will advise the Borrower,
its stockholders or its Affiliates on other matters) or any other obligation to the Borrower except
the obligations expressly set forth in the Loan Documents and (y) each Lender is acting solely as
principal and not as the agent or fiduciary of the Borrower, its management, stockholders,
creditors or any other Person. The Borrower acknowledges and agrees that the Borrower has
consulted its own legal and financial advisors to the extent it deemed appropriate and that it is
responsible for making its own independent judgment with respect to such transactions and the
process leading thereto. The Borrower agrees that it will not claim that any Lender has rendered
advisory services of any nature or respect, or owes a fiduciary or similar duty to the Borrower, in
connection with such transaction or the process leading thereto.
106
SECTION 10.18 Counsel Representation. EACH PARTY HERETO ACKNOWLEDGES AND AGREES
THAT IT HAS BEEN REPRESENTED BY COMPETENT COUNSEL IN THE NEGOTIATION OF THIS AGREEMENT, AND THAT
ANY RULE OR CONSTRUCTION OF LAW ENABLING SUCH PERSON TO ASSERT THAT ANY AMBIGUITIES OR
INCONSISTENCIES IN THE DRAFTING OR PREPARATION OF THE TERMS OF THIS AGREEMENT SHOULD DIMINISH ANY
RIGHTS OR REMEDIES OF ANY OTHER PERSON ARE HEREBY WAIVED.
SECTION 10.19 Confidentiality. Each Secured Party agrees to maintain the
confidentiality of the Information (as defined below), except that Information may be disclosed (a)
to its Affiliates and to its Affiliates’ respective partners, directors, officers, employees,
agents, advisors and representatives (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory authority purporting to
have jurisdiction over it (including any self-regulatory authority, such as the National
Association of Insurance Commissioners), (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process (provided that except to the extent
prohibited by such subpoena or similar legal process, such Secured Party shall notify the Borrower
of such request or disclosure), (d) to any other party hereto, (e) to the extent reasonably
necessary, in connection with the exercise of any remedies hereunder or under any other Loan
Document or any action or proceeding relating to this Agreement or any other Loan Document or the
enforcement of rights hereunder or thereunder or in connection with the administration of any Loan
Document, (f) to market data collectors or other information services in relation to league table
reporting, (g) subject to an agreement containing provisions substantially the same as those of
this Section, to (i) any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement or (ii) any actual or
prospective counterparty (or its advisors) to any swap or derivative transaction relating to the
Borrower and its obligations, (h) with the written consent of the Borrower or (i) to the extent
such Information (i) becomes publicly available other than as a result of a breach of this
Section (or any other confidentiality obligation owed to the Borrower or any Subsidiary or their
Affiliates) or (ii) becomes available to any Secured Party or any of their respective Affiliates on
a nonconfidential basis from a source other than the Borrower or any Subsidiary and not in
violation of any confidentiality obligation owed to the Borrower or any Subsidiary by any Secured
Party or any Affiliate thereof. For purposes of this Section, “Information” means all
information received from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary
or any of their respective businesses, other than any such information that is available to any
Secured Party on a nonconfidential basis prior to disclosure by the Borrower or any Subsidiary.
Any Person required to maintain the confidentiality of Information as provided in this
Section shall be considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such Information as such
Person would accord to its own confidential information and in accordance with applicable law.
SECTION 10.20 Resignation of Citi; Appointment of JPMorgan as Successor Swing Line
Lender. (a) Effective as of the Restatement Effective Date, Citi hereby resigns as
Administrative Agent, Collateral Agent and Swing Line Lender under the Original Credit Agreement
and the other Loan Documents (as defined in the Original Credit Agreement). The Required Lenders
and the Borrower hereby confirm that, on and after the
107
Restatement Effective Date, Citi shall be discharged from all of its duties and obligations as
administrative agent and collateral agent under the Original Credit Agreement and the other Loan
Documents (as defined in the Original Credit Agreement). The Borrower and the Lenders hereby waive
any requirement for prior notice of such resignation pursuant to Section 9.4 of the
Original Credit Agreement. For the avoidance of doubt, the provisions of Article IX of the
Original Credit Agreement shall continue to inure to the benefit of each Agent (as defined in the
Original Credit Agreement) as to any actions taken or omitted to be taken by it while it was an
Agent under the Loan Documents (as defined in the Original Credit Agreement), and Section 10.3 and
10.4 of the Original Credit Agreement shall continue to inure to the benefit of each such Agent,
including with respect to any actions taken or any costs and expenses incurred by Citi or its legal
counsel on or after the Restatement Effective Date (i) to deliver Collateral to the Administrative
Agent and the Collateral Agent under this Agreement and (ii) with respect to Section 7.1.11 of this
Agreement.
(b) Effective as of the Restatement Effective Date, JPMorgan shall replace and succeed to the
rights, duties and benefits of Citi as Swing Line Lender. The Borrower consents to such
appointment of JPMorgan as the successor Swing Line Lender under this Agreement and the other Loan
Documents. The Required Lenders and the Borrower hereby confirm that, on and after the Restatement
Effective Date, JPMorgan shall have all rights, protections, duties and powers of the Swing Line
Lender under this Agreement and the other Loan Documents, and Citi shall be discharged from all of
its duties and obligations as swing line lender under the Original Credit Agreement and the other
Loan Documents (as defined in the Original Credit Agreement).
SECTION 10.21 Effect of Amendment and Restatement. On the Restatement Effective Date,
the Original Credit Agreement shall be amended, restated and superseded in its entirety. The
parties hereto acknowledge and agree that (a) this Agreement and the other Loan Documents, whether
executed and delivered in connection herewith or otherwise, do not constitute a novation, payment
and reborrowing, or termination of the “Obligations” (as defined in the Original Credit Agreement)
under the Original Credit Agreement as in effect prior to the Restatement Effective Date and (b)
such “Obligations” are in all respects continuing (as amended and restated hereby) with only the
terms thereof being modified as provided in this Agreement.
SECTION 10.22 Consent of Required Lenders. By the execution of this Agreement, each
Lender party to this Agreement consents to this amendment and restatement of the Original Credit
Agreement, as set forth herein, and the amendment and restatement, replacement or other
modification to any other Loan Documents, in each case, as so amended, amended and restated,
replaced or otherwise modified on or after the Restatement Effective Date in the form entered into
by the Obligors and the applicable Agent (it being understood and agreed by each of the parties
hereto that the “Revolving Loan Commitments” under the Original Credit Agreement of each “Revolving
Loan Lender” thereunder that is not also a Revolving Loan Lender under this Agreement shall be
terminated in full on and as of the Restatement Effective Date). Upon the receipt of written
consents from the Required Lenders (as defined in the Original Credit Agreement) pursuant to this
Section 10.22 and notwithstanding any provision to the contrary contained in the Original
Credit Agreement, the Original Credit Agreement (including the schedules and exhibits thereto)
shall be amended and restated in its entirety.
108
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their
respective officers thereunto duly authorized as of the day and year first above written.
| HANESBRANDS INC. |
||||
| By: | /s/ Richard D. Moss | |||
| Name: | Richard D. Moss | |||
| Title: | Senior Vice President and Treasurer | |||
| Address: 1000 East Hanes Mill Road Winston-Salem, North Carolina 27105 Facsimile No.: 336-519-2705 Attention: Catherine A. Meeker |
||||
[Signature Page to Credit Agreement]
| JPMORGAN CHASE BANK, N.A., as Administrative Agent, Collateral Agent and as a Lender |
||||
| By: | /s/ James A. Knight | |||
| Name: | James A. Knight | |||
| Title: | Vice President | |||
| J.P. MORGAN SECURITIES INC., as a Joint Lead Arranger and Joint Bookrunner |
||||
| By: | /s/ David W. Dwyer | |||
| Name: | David W. Dwyer | |||
| Title: | Executive Director | |||
[Signature Page to Credit Agreement]
| HSBC SECURITIES (USA) INC., as a Joint Lead Arranger and Joint Bookrunner and a Co-Syndication Agent |
||||
| By: | /s/ Richard Jackson | |||
| Name: | Richard Jackson | |||
| Title: | Leveraged and Acquisition Finance | |||
| HSBC BANK USA, NATIONAL ASSOCIATION, as a Lender |
||||
| By: | /s/ Robert Devir | |||
| Name: | Robert Devir | |||
| Title: | Managing Director | |||
[Signature Page to Credit Agreement]
| BANK OF AMERICA, N.A., as Co-Syndication Agent and as a Lender |
||||
| By: | /s/ Robert Hamman | |||
| Name: | Robert Hamman | |||
| Title: | Vice President | |||
| BANC OF AMERICA SECURITIES LLC, as a Joint Lead Arranger and Joint Bookrunner |
||||
| By: | /s/ E. Mark Hardison | |||
| Name: | Mark Hardison | |||
| Title: | Vice President | |||
[Signature Page to Credit Agreement]
| BARCLAYS BANK PLC, as a Joint Lead Arranger and Joint Bookrunner, a Co-Documentation Agent and as a Lender |
||||
| By: | /s/ Ritam Bhalla | |||
| Name: | Ritam Bhalla | |||
| Title: | Vice President | |||
[Signature Page to Credit Agreement]
| GOLDMAN SACHS CREDIT PARTNERS L.P., as a Co-Documentation Agent and as a Lender |
||||
| By: | /s/ Alexis Maged | |||
| Name: | Alexis Maged | |||
| Title: | Authorized Signatory | |||
[Signature Page to Credit Agreement]
| United Overseas Bank Limited, New York Agency |
||||
| By: | /s/ K. Jin Koh | |||
| Name: | K. Jin Koh | |||
| Title: | General Manager | |||
| By: | /s/ Mario Sheng | |||
| Name: | Mario Sheng | |||
| Title: | AVP | |||
[Signature Page to Credit Agreement]
| ING Capital LLC |
||||
| By: | /s/ Jaron Stern | |||
| Name: | Jaron Stern | |||
| Title: | Vice President | |||
[Signature Page to Credit Agreement]
| PNC BANK, National Association, as a Lender, |
||||
| By: | /s/ John Berry | |||
| Name: | John Berry | |||
| Title: | Vice President | |||
[Signature Page to Credit Agreement]
| NOTHERN TRUST COMPANY |
||||
| By: | /s/ John C. Canty | |||
| Name: | John C. Canty | |||
| Title: | Senior Vice President | |||
[Signature Page to Credit Agreement]
| ISRAEL DISCOUNT BANK OF NEW YORK |
||||
| By: | /s/ David Acosta | |||
| Name: | David Acosta | |||
| Title: | Senior Vice President | |||
| By: | /s/ Mila Rashkovan | |||
| Name: | Mila Rashkovan | |||
| Title: | Assistant Vice President | |||
[Signature Page to Credit Agreement]
| ROYAL BANK OF CANADA, as Lender |
||||
| By: | /s/ G. David Cole | |||
| Name: | G. David Cole | |||
| Title: | Authorized Signatory | |||
[Signature Page to Credit Agreement]
| Raymond James Bank, FSB |
||||
| By: | /s/ Kathy Bennett | |||
| Name: | Kathy Bennett | |||
| Title: | Vice President | |||
[Signature Page to Credit Agreement]
| THE BANK OF NOVA SCOTIA |
||||
| By: | /s/ David Mahmood | |||
| Name: | David Mahmood | |||
| Title: | Managing Director | |||
[Signature Page to Credit Agreement]
| BRANCH BANKING AND TRUST COMPANY |
||||
| By: | /s/ Michael P. Gwyn | |||
| Name: | Michael P. Gwyn | |||
| Title: | Senior Vice President | |||
[Signature Page to Credit Agreement]
| FIFTH THIRD BANK, as a Lender |
||||
| By: | /s/ Mary Ramsay | |||
| Name: | Mary Ramsay | |||
| Title: | Vice President | |||
[Signature Page to Credit Agreement]
| SIEMENS FINANCIAL SERVICES, INC. as a Lender |
||||
| By: | /s/ Douglas Maher | |||
| Name: | Douglas Maher | |||
| Title: | Managing Director | |||
| By: | /s/ Carol Walters | |||
| Name: | Carol Walters | |||
| Title: | Vice President-Documentation | |||
[Signature Page to Credit Agreement]
| Capital One Leverage Financial Group |
||||
| By: | /s/ Paul Dellova | |||
| Name: | Paul Dellova | |||
| Title: | Senior Vice President | |||
[Signature Page to Credit Agreement]
Pursuant to Section 10.20 of the Agreement, the undersigned hereby resign as Administrative
Agent, Collateral Agent and Swing Line Lender.
| CITICORP USA, INC., as resigning Administrative Agent and resigning Swing Line Lender |
||||
| By: | /s/ Patricia Guerra | |||
| Name: | Patricia Guerra | |||
| Title: | Vice President | |||
| CITIBANK, N.A., as resigning Collateral Agent |
||||
| By: | /s/ Patricia Gallagher | |||
| Name: | Patricia Gallagher | |||
| Title: | Vice President | |||
DISCLOSURE SCHEDULES
TO
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of December 10, 2009,
among
HANESBRANDS INC.,
as the Borrower,
as the Borrower,
VARIOUS FINANCIAL INSTITUTIONS AND
OTHER PERSONS FROM TIME TO TIME
PARTY HERETO,
as the Lenders,
OTHER PERSONS FROM TIME TO TIME
PARTY HERETO,
as the Lenders,
BARCLAYS BANK PLC and GOLDMAN SACHS CREDIT PARTNERS L.P.
as the Co-Documentation Agents,
as the Co-Documentation Agents,
BANK OF AMERICA, N.A. and HSBC SECURITIES (USA) INC.
as the Co-Syndication Agents,
as the Co-Syndication Agents,
and
JPMORGAN CHASE BANK, N.A.,
as the Administrative Agent and the Collateral Agent
as the Administrative Agent and the Collateral Agent
J.P. MORGAN SECURITIES INC.,
BANC OF AMERICA SECURITIES LLC,
HSBC SECURITIES (USA) INC.,
and
BARCLAYS CAPITAL,
as Joint Lead Arrangers and Joint Bookrunners
SCHEDULE I
ITEM 6.8
|
Existing Subsidiaries | |
ITEM 6.9(a)
|
Mortgaged Property | |
ITEM 6.9(b)
|
Owned Real Property | |
ITEM 7.2.2(c)
|
Ongoing Indebtedness | |
ITEM 7.2.3(c)
|
Ongoing Liens | |
ITEM 7.2.5(a)
|
Ongoing Investments | |
ITEM 7.2.11(m)
|
Permitted Dispositions | |
SCHEDULE II
|
Percentages, Libor Office; Domestic Office | |
SCHEDULE III
|
Existing Letters of Credit |
ITEM 6.8. Existing Subsidiaries
Domestic Subsidiaries
BA International, L.L.C.
Caribesock, Inc.
Caribetex, Inc.
CASA International, LLC
Ceibena Del, Inc.
Hanes Menswear, LLC
Hanes Puerto Rico, Inc.
Hanesbrands Direct, LLC
Hanesbrands Distribution, Inc.
HBI Branded Apparel Limited, Inc.
HBI Branded Apparel Enterprises, LLC
HbI International, LLC
HBI SOURCING, LLC
Inner Self LLC
Jasper-Costa Rica, L.L.C.
Playtex Dorado, LLC
Playtex Industries, Inc.
Seamless Textiles, LLC
UPCR, Inc.
UPEL, Inc.
Caribesock, Inc.
Caribetex, Inc.
CASA International, LLC
Ceibena Del, Inc.
Hanes Menswear, LLC
Hanes Puerto Rico, Inc.
Hanesbrands Direct, LLC
Hanesbrands Distribution, Inc.
HBI Branded Apparel Limited, Inc.
HBI Branded Apparel Enterprises, LLC
HbI International, LLC
HBI SOURCING, LLC
Inner Self LLC
Jasper-Costa Rica, L.L.C.
Playtex Dorado, LLC
Playtex Industries, Inc.
Seamless Textiles, LLC
UPCR, Inc.
UPEL, Inc.
Foreign Subsidiaries
Bali Dominicana, Inc.
Bali Dominicana Textiles, S.A.
Bal-Mex S. de R.L. de C.V.
Bordados Industriales, S. A. de C.V.
Canadelle Limited Partnership
Canadelle Holding Corporation Limited
Cartex Manufacturera S. de R. L.
CASA International, LLC Holdings S.C.S.
Caysock, Inc.
Caytex, Inc.
Caywear, Inc.
Ceiba Industrial, S. De R.L.
Champion Products S. de R.L. de C.V.
Choloma, Inc.
Confecciones Atlantida S. de R.L.
Confecciones de Nueva Rosita S. de R.L. de C.V.
Confecciones El Pedregal Inc.
Confecciones El Pedregal S.A. de C.V.
Confecciones del Valle, S. de R.L.
Confecciones Jiboa S.A. de C.V.
Confecciones La Caleta, Inc.
Confecciones La Herradura S.A. de C.V.
Confecciones La Libertad, Ltda de C.V.
DFK International Limited
Dos Rios Enterprises, Inc.
Bali Dominicana Textiles, S.A.
Bal-Mex S. de R.L. de C.V.
Bordados Industriales, S. A. de C.V.
Canadelle Limited Partnership
Canadelle Holding Corporation Limited
Cartex Manufacturera S. de R. L.
CASA International, LLC Holdings S.C.S.
Caysock, Inc.
Caytex, Inc.
Caywear, Inc.
Ceiba Industrial, S. De R.L.
Champion Products S. de R.L. de C.V.
Choloma, Inc.
Confecciones Atlantida S. de R.L.
Confecciones de Nueva Rosita S. de R.L. de C.V.
Confecciones El Pedregal Inc.
Confecciones El Pedregal S.A. de C.V.
Confecciones del Valle, S. de R.L.
Confecciones Jiboa S.A. de C.V.
Confecciones La Caleta, Inc.
Confecciones La Herradura S.A. de C.V.
Confecciones La Libertad, Ltda de C.V.
DFK International Limited
Dos Rios Enterprises, Inc.
Hanes Brands Incorporated de Costa Rica, S.A.
Hanes Caribe, Inc.
Hanes Choloma, S. de R. L.
Hanes Colombia, S.A.
Hanes de Centroamerica S.A.
Hanes de El Salvador, S.A. de C.V.
Hanes de Honduras S. de R.L. de C.V. *
Hanes Dominican, Inc.
Hanes Menswear Puerto Rico, Inc.
Hanes Panama Inc.
Hanesbrands Apparel India Private Limited
Hanesbrands Argentina S.A.
Hanesbrands Australia Pty Limited
Hanesbrands Brasil Textil Ltda.
Hanesbrands Canada NS ULC
Hanesbrands Caribbean Logistics, Inc.
Hanesbrands Dominicana, Inc.
Hanesbrands Dos Rios Textiles, Inc.
Hanesbrands El Salvador, Ltda. de C.V.
Hanesbrands Europe GmbH
Hanesbrands Holdings
Hanesbrands International (Shanghai) Co. Ltd.
Hanesbrands Japan Inc.
Hanesbrands (Nanjing) Textile Co., Ltd.
Hanesbrands Philippines Inc.
Hanesbrands Sourcing (India) Private Limited
Hanesbrands (HK) Limited
Hanesbrands ROH Asia Ltd.
Hanesbrands UK Limited
HBI Alpha Holdings, Inc.
Hanesbrands (Vietnam) Company Limited
HBI Beta Holdings, Inc.
HBI Compania de Servicios, S.A. de C.V.
HbI International Holdings S.à r.l.
HBI RH Mexico, S. De R.L. de C.V.
HBI Manufacturing (Thailand) Ltd.
HBI Risk Management Ltd.
HBI Servicios Administrativos de Costa Rica, S.A.
HBI Socks de Honduras, S. de R.L. de C.V.
HBI Sourcing Asia Limited
Indumentaria Andina S.A.
Industrias de Confecciones Poliandy, S.A. *
Industrias El Porvenir, S. de R.L. *
Industria Textilera del Este ITE, S.de R.L.
Industrias Internacionales de San Pedro S. de R.L. de C.V.
Inversiones Bonaventure S.A. de C.V.
J.E. Morgan de Honduras, S.A.
Jasper Honduras, S.A.
Jasper-Salvador, S.A. de C.V. *
Jogbra Honduras, S.A.
Madero Internacional S. de R.L. de C.V.
Manufacturera Ceibena S. de R.L.
Manufacturera Comalapa S.A. de C.V.
Hanes Caribe, Inc.
Hanes Choloma, S. de R. L.
Hanes Colombia, S.A.
Hanes de Centroamerica S.A.
Hanes de El Salvador, S.A. de C.V.
Hanes de Honduras S. de R.L. de C.V. *
Hanes Dominican, Inc.
Hanes Menswear Puerto Rico, Inc.
Hanes Panama Inc.
Hanesbrands Apparel India Private Limited
Hanesbrands Argentina S.A.
Hanesbrands Australia Pty Limited
Hanesbrands Brasil Textil Ltda.
Hanesbrands Canada NS ULC
Hanesbrands Caribbean Logistics, Inc.
Hanesbrands Dominicana, Inc.
Hanesbrands Dos Rios Textiles, Inc.
Hanesbrands El Salvador, Ltda. de C.V.
Hanesbrands Europe GmbH
Hanesbrands Holdings
Hanesbrands International (Shanghai) Co. Ltd.
Hanesbrands Japan Inc.
Hanesbrands (Nanjing) Textile Co., Ltd.
Hanesbrands Philippines Inc.
Hanesbrands Sourcing (India) Private Limited
Hanesbrands (HK) Limited
Hanesbrands ROH Asia Ltd.
Hanesbrands UK Limited
HBI Alpha Holdings, Inc.
Hanesbrands (Vietnam) Company Limited
HBI Beta Holdings, Inc.
HBI Compania de Servicios, S.A. de C.V.
HbI International Holdings S.à r.l.
HBI RH Mexico, S. De R.L. de C.V.
HBI Manufacturing (Thailand) Ltd.
HBI Risk Management Ltd.
HBI Servicios Administrativos de Costa Rica, S.A.
HBI Socks de Honduras, S. de R.L. de C.V.
HBI Sourcing Asia Limited
Indumentaria Andina S.A.
Industrias de Confecciones Poliandy, S.A. *
Industrias El Porvenir, S. de R.L. *
Industria Textilera del Este ITE, S.de R.L.
Industrias Internacionales de San Pedro S. de R.L. de C.V.
Inversiones Bonaventure S.A. de C.V.
J.E. Morgan de Honduras, S.A.
Jasper Honduras, S.A.
Jasper-Salvador, S.A. de C.V. *
Jogbra Honduras, S.A.
Madero Internacional S. de R.L. de C.V.
Manufacturera Ceibena S. de R.L.
Manufacturera Comalapa S.A. de C.V.
Manufacturera de Cartago, S.R.L.
Manufacturera San Pedro Sula, S. de R.L.
Monclova Internacional S. de R.L. de C.V.
Playtex Puerto Rico, Inc.
PT. HBI Sourcing Indonesia
PTX (D.R.), Inc.
Rinplay S. de R.L. de C.V.
Seamless Puerto Rico, Inc.
Servicios de Soporte Intimate Apparel, S. de R.L.
Socks Dominicana S.A.
Texlee El Salvador, Ltda. de C.V.
Textiles S&R, S.A. *
The Harwood Honduras Companies, S. de R.L.
UPEL Chinandega y Compania Limitada
Manufacturera San Pedro Sula, S. de R.L.
Monclova Internacional S. de R.L. de C.V.
Playtex Puerto Rico, Inc.
PT. HBI Sourcing Indonesia
PTX (D.R.), Inc.
Rinplay S. de R.L. de C.V.
Seamless Puerto Rico, Inc.
Servicios de Soporte Intimate Apparel, S. de R.L.
Socks Dominicana S.A.
Texlee El Salvador, Ltda. de C.V.
Textiles S&R, S.A. *
The Harwood Honduras Companies, S. de R.L.
UPEL Chinandega y Compania Limitada
| * | These companies are in the process of liquidation. |
ITEM 6.9(a) Mortgaged Property
| Facility Name | Address | |
Clarksville
|
Cline & Clark Rd Clarksville, AR |
|
Weeks
|
401 Hanes Mill Rd Winston Salem, NC |
|
Eden
|
136 Gant Road Eden, North Carolina |
|
| 328 Gant Road Eden, North Carolina |
||
Oak Summit
|
1000 Hanes Mill Road Winston Salem, NC |
|
Kernersville
|
638 North Main Street Kernersville, NC |
|
Sanford
|
2652 Dalrymple Street Sanford, NC |
|
Advance
|
2016 Cornatzer Road Advance NC |
|
Martinsville VSC
|
380 Beaver Creek Road Martinsville, VA |
ITEM 6.9(b) Owned Real Property
| Facility Name | Address | Estimated Value | ||
Clarksville |
Cline & Clark Rd | |||
| Clarksville, AR | $2.0 million | |||
Weeks |
401 Hanes Mill Rd | |||
| Winston Salem, NC | $4.5 million | |||
Oak Summit |
1000 Hanes Mill Road | |||
| Winston Salem, NC | $30 million | |||
Kernersville |
638 North Main Street | |||
| Kernersville, NC | $4.0 million | |||
Martinsville VSC |
380 Beaver Creek Road | |||
| Martinsville, VA | $7.5 million | |||
Commerce |
219 Commerce Blvd | |||
| Kings Mountain, NC | $8.9 million | |||
Canterbury |
705 Canterbury Rd | |||
| Gastonia, NC | $7.1 million | |||
Northridge |
521 Northridge Park Dr. | |||
| Rural Hall, NC | $23.5 million | |||
ITEM 7.2.2(c) Ongoing Indebtedness
| Lender | Borrower | Total | ||||
HSBC Securities (USA) Inc. — AR Securitization |
Hanesbrands Inc. | $ | 250,000,000.00 | |||
HSBC |
HBI Manufacturing (Thailand) Ltd. | $ | 4,281,000.00 | |||
Citibank |
Hanesbrands International (Shanghai) Co. Ltd | $ | 7,647,000.00 | |||
Citibank |
Hanesbrands El Salvador Ltda de C.V. | $ | 20,960,000.00 | |||
Banamex/Citibank |
Rinplay S. de R.L. de C.V. | $ | 11,868,000.00 | |||
Citibank |
Hanesbrands Japan Inc. | $ | 1,083,000.00 | |||
Kronos Global Payroll Time Clocks |
Hanesbrands Inc. | $ | 409,696.89 | |||
Hitachi Hard Disk Storage Upgrade-Capital Lease |
Hanesbrands Inc. | $ | 64,438.17 | |||
Hitachi Hard Disk Storage |
Hanesbrands Inc. | $ | 302,145.04 | |||
IBM |
Hanesbrands Inc. | $ | 43,482.09 | |||
AIG |
Hanesbrands El Salvador Ltda de C.V. | $ | 418,169.00 | |||
AIG |
Hanesbrands El Salvador Ltda de C.V. | $ | 2,244,601.25 | |||
AIG |
Hanesbrands El Salvador Ltda de C.V. | $ | 1,282,890.72 | |||
Intercompany Debt
| Lender | Borrower | Total | ||||
Canadelle Limited Partnership |
Hanesbrands Inc | $ | 47,853,229.60 | |||
Hanesbrands International, LLC |
Hanesbrands International (Shanghai) Co. Ltd. | $ | 2,500,000.00 | |||
ITEM 7.2.3(c) Ongoing Liens
| 1. | Lien on the shares of H.N. Fibers, Ltd. (an Israeli company owned by HbI International, LLC) pursuant to the H.N. Fibers, Ltd. Memorandum of Articles. |
| 2. | Liens on Hanesbrands Inc.: |
| FILE | ||||||||||
| FILING | NUMBER & | COLLATERAL | ||||||||
| JURISDICTION | TYPE | DATE | DEBTOR | SECURED PARTY | DESCRIPTION | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181283603 10/4/06 |
Hanesbrands Inc. 1000 E. Hanes Mill Road Winston-Salem, NC 27105 |
Raymond Leasing Corporation 20 S. Canal Street Greene, NY 13778 |
Leased equipment. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181283764 10/4/06 |
Hanesbrands Inc. 1000 E. Hanes Mill Road Winston-Salem, NC 27105 |
Raymond Leasing Corporation 20 S. Canal Street Greene, NY 13778 |
Leased equipment. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181288980 11/27/06 |
Hanesbrands Inc. 1000 East Hanes Mill Road Winston-Salem, NC 27105 |
Tubular Textiles Machinery, Inc. P.O. Box 2097 Lexington, NC 27293 |
Leased equipment pursuant to lease agreement C-1497, Secured Party leases to Debtor. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181326115 11/27/07 |
Hanesbrands Inc. 1000 East Hanes Mill Road Winston-Salem, NC 27105 |
JPMorgan Chase Bank, N.A., as Agent Chase Tower, 10 South Dearborn Street Chicago, IL 60603 |
Blanket Lien. | |||||
| Additional Secured | ||||||||||
| Party: | ||||||||||
| HBI Receivables LLC 1000 East Hanes Mill Road Winston-Salem, NC 27105 |
| FILE | ||||||||||
| FILING | NUMBER & | COLLATERAL | ||||||||
| JURISDICTION | TYPE | DATE | DEBTOR | SECURED PARTY | DESCRIPTION | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
ASSIGN | 181326115 4/14/09 |
Hanesbrands Inc. 1000 East Hanes Mill Road Winston-Salem, NC 27105 |
HSBC Securities (USA) Inc., as Agent 425 Fifth Avenue New York, NY 10018 |
Assignment of financing statement no. 181326115 to HSBC Securities (USA) Inc., as Agent. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181332178 1/28/08 |
Hanesbrands Inc. 1000 E. Hanes Mill Road Winston-Salem, NC 27105 |
IKON Financial SVCS 1738 Bass RD Macon, GA 31210-1043 |
Leased equipment pursuant to Schedule No. 1016389A4 of the Master Lease No. 1016389. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181332253 1/28/08 |
Hanesbrands Inc. 1000 E. Hanes Mill Road Winston-Salem, NC 27105 |
IKON Financial SVCS 1738 Bass RD Macon, GA 31210-1043 |
Leased equipment pursuant to Schedule No. 1016389A6 of the Master Lease No. 1016389. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181332261 1/28/08 |
Hanesbrands Inc. 1000 E. Hanes Mill Road Winston-Salem, NC 27105 |
IKON Financial SVCS 1738 Bass RD Macon, GA 31210-1043 |
Leased equipment pursuant to Schedule No. 1016389A7 of the Master Lease No. 1016389. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181332278 1/28/08 |
Hanesbrands Inc. 1000 E. Hanes Mill Road Winston-Salem, NC 27105 |
IKON Financial SVCS 1738 Bass RD Macon, GA 31210-1043 |
Leased equipment pursuant to Schedule No. 1016389A5 of the Master Lease No. 1016389. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181335255 3/4/08 |
Hanesbrands Inc. 1000 W. Hanes Mill Road Winston-Salem, NC 27105 |
IKON Financial SVCS 1738 Bass RD Macon, GA 31210-1043 |
Leased equipment. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
AMEND | 181335255 4/28/08 |
Hanesbrands Inc. 1000 W. Hanes Mill Road Winston-Salem, NC 27105 |
IKON Financial SVCS 1738 Bass RD Macon, GA 31210-1043 |
Amendment to financing statement no. 181335255 restating collateral description. | |||||
| Leased equipment pursuant to Schedule No. 1016389A9 of the Master Lease No. 1016389. |
| FILE | ||||||||||
| FILING | NUMBER & | COLLATERAL | ||||||||
| JURISDICTION | TYPE | DATE | DEBTOR | SECURED PARTY | DESCRIPTION | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181338445 4/3/08 |
Hanesbrands Inc. 1000 W. Hanes Mill Road Winston-Salem, NC 27105 |
IKON Financial SVCS 1738 Bass RD Macon, GA 31210-1043 |
Leased equipment pursuant to Schedule No. 1016389A14 of the Master Lease No. 1016389. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181338692 4/8/08 |
Hanesbrands Inc. 1000 W. Hanes Mill Road Winston-Salem, NC 27105 |
IKON Financial SVCS 1738 Bass RD Macon, GA 31210-1043 |
Leased equipment pursuant to Schedule No. 1016389A16 of the Master Lease No. 1016389. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181339808 4/22/08 |
Hanesbrands Inc. 450 W. Hanes Mill Road Winston-Salem, NC 27105 |
IKON Financial SVCS 1738 Bass RD Macon, GA 31210-1043 |
Leased equipment pursuant to Schedule No. 1016389A17 of the Master Lease No. 1016389. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181340500 4/28/08 |
Hanesbrands Inc. 450 W. Hanes Mill Road Winston-Salem, NC 27105 |
IKON Financial SVCS 1738 Bass RD Macon, GA 31210-1043 |
Leased equipment pursuant to Schedule No. 1016389A18 of the Master Lease No. 1016389. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181344692 6/9/08 |
Hanesbrands Inc. 450 W. Hanes Mill Road Winston-Salem, NC 27105 |
IKON Financial SVCS 1738 Bass RD Macon, GA 31210-1043 |
Leased equipment pursuant to Schedule No. 1016389R12 of the Master Lease No. 1016389. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181345104 6/9/08 |
Hanesbrands Inc. 1000 W. Hanes Mill Road Winston-Salem, NC 27105 |
Brother International Corporation 100 Somerset Corp. Blvd., 8th Fl Bridgewater, NJ 08807 |
Consigned equipment. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181350385 8/13/08 |
Hanesbrands Inc. 1000 E. Hanes Mill Road Winston-Salem, NC 27105 |
NMHG Financial Services, Inc. 44 Old Ridgebury Road Danbury, CT 06810 |
Leased equipment. |
| FILE | ||||||||||
| FILING | NUMBER & | COLLATERAL | ||||||||
| JURISDICTION | TYPE | DATE | DEBTOR | SECURED PARTY | DESCRIPTION | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181351438 8/25/08 |
Hanesbrands Inc. 1000 East Hanes Mill Road Winston-Salem, NC 27105 |
Tubular Textiles Machinery, Inc. 113 Woodside Drive Lexington, NC 27293 |
Leased equipment pursuant to lease agreement C-1518, Secured Party leases to Debtor. | |||||
Department of
Assessments &
Taxation, Maryland
searched thru
11/9/09
|
UCC | 181372068 6/5/09 |
Hanesbrands Inc. P.O. Box 3019 Winston-Salem, NC 27102 |
Hitachi Data Systems Credit Corp. 750 Central Expressway Santa Clara, CA 95050 |
All right, title and interest in, to and under the Master Lease Agreement No. 07LMR-017, Schedule A-3, between the Secured Party, as Lessor and the Debtor, as Lessee. |
ITEM 7.2.5(a) Ongoing Investments
| 1. | Subsidiaries as listed in ITEM 6.8 under the caption “Domestic Subsidiaries” (each of which is a wholly-owned “Subsidiary” as defined in the Credit Agreement) and under the caption “Foreign Subsidiaries,” along with the following companies in the respective percentage listed below: |
| (a) | H.N. Fibers, Ltd. (49% interest) |
| (b) | Playtex Marketing Corporation (50% interest) |
| 2. | Indebtedness as listed in ITEM 7.2.2(c) under the caption “Intercompany Debt” |
ITEM 7.2.11(m) Permitted Dispositions
| Location of property | Description | |
Eden, North Carolina
|
Approximately 913,600 square foot building | |
Winston-Salem, North Carolina
|
Approximately 840,000 square foot building | |
Mountain City, Tennessee
|
Approximately 627,800 square foot building | |
Galax, Virginia
|
Approximately 424,500 square foot building | |
Sanford, North Carolina
|
Approximately 280,800 square foot building | |
Barnwell, South Carolina
|
Approximately 240,500 square foot building | |
Advance, North Carolina
|
Approximately 209,900 square foot building | |
Tamaqua, Pennsylvania
|
Approximately 132,100 square foot building | |
Clemmons, North Carolina
|
Approximately 100,000 square foot building | |
Rural
Hall, North Carolina
|
Approximately 930,500 square foot building | |
Kings
Mountain, North Carolina
|
Approximately 475,700 square foot building | |
Gastonia,
North Carolina
|
Approximately 380,300 square foot building | |
Oak
Summit Business Park, Winston-Salem North Carolina
|
Land-Approximately 8.64 acres |
SCHEDULE II
PERCENTAGES;
NOTICE ADDRESS
NOTICE ADDRESS
| REVOLVING LOAN | NEW TERM LOAN | |||||||||
| NAME OF LENDER | NOTICE ADDRESS | COMMITMENT | COMMITMENT | |||||||
JPMorgan Chase
Bank, N.A.
|
JPMorgan Loan Services | 11.42 | % | 100 | % | |||||
| 21 South Clark, 7th Fl Chicago, Illinois 60603 Attention: Joyce King Tel: (312) 385-7025 Fax: 1-888-292-9533 (f) Email: jpm.agency.servicing.4@jpmchase.com |
||||||||||
Barclays Bank PLC
|
Barclays Capital | 8.75 | % | |||||||
| 745 7th Avenue, 26th Floor New York, NY 10019 Attention: Ritam Bhaila Tel: (212) 526-1819 Fax: (212) 526-5115 Email: ritam.bhaila@barcap.com |
||||||||||
RAYMOND JAMES BANK, FSB
|
Raymond James Bank, FSB | 2.50 | % | |||||||
| P.O. Box 11628 St. Petersburg, FL 33733-1628 Parcel delivery: 710 Carillon Parkway St. Petersburg FL 33716 Attention: Kathy Bennett Tel: (727)-567-4314 Fax: 1-866-205-1396 Email: RJBank-LoanOpsCorp@RaymondJames.com |
||||||||||
Capital One
Leverage Finance Corp.
|
Capital One Leverage Finance Corp. | 2.50 | % | |||||||
| 265 Broadhollow Road Melville, New York 11747 Attention: Jose Gutierrez Tel: (631) 531-2781 Fax: (631) 531-2766 |
||||||||||
Bank of America, N.A.
|
Bank of America | 11.42 | % | |||||||
| 135 S. LaSalle Street, Suite IL4-I35-07-13 Chicago, IL 60603 Attention: Robert Hamman Tel: (312) 904-7621 Fax: (312) 453-3547 Email: robert.hamman@baml.com |
||||||||||
The Bank of Nova
Scotia
|
The Bank of Nova Scotia | 3.75 | % | |||||||
| One Liberty Plaza, 26th Floor New York, NY 10006 Attention: Olivia Braun Tel: (212) 225-5063 Fax: (212-225-5205 Email: olivia_braun@scotiacapital.com |
||||||||||
2
| REVOLVING LOAN | NEW TERM LOAN | |||||||||
| NAME OF LENDER | NOTICE ADDRESS | COMMITMENT | COMMITMENT | |||||||
| |
||||||||||
ING CAPITAL LLC
|
ING CAPITAL LLC | 2.00 | % | |||||||
| 333 South Grand Avenue, Suite 4120 Los Angeles, CA 90071 Attention: John Mattox Tel: (213) 346-3933 Fax: (213) 346-3991 Email: john.mattox@americasing.com |
||||||||||
HSBC Bank USA, N.A.
|
HSBC Bank USA, N.A. | 11.42 | % | |||||||
| 452 Fifth Avenue, 5th Floor New York, NY 10018 |
||||||||||
Goldman Sachs Credit Partners L.P.
|
Goldman Sachs Credit Partners L.P. | 8.75 | % | |||||||
| 30 Hudson Street, 36th Floor Jersey City, NJ 07302 Attention: Barbara Fabbri Tel: (212) 902-5563 Fax: (212-357-4597 |
||||||||||
Israel Discount
Bank of New York
|
Israel Discount Bank of New York | 3.75 | % | |||||||
| 511 Fifth Avenue New York, New York 10017 |
||||||||||
Royal Bank of Canada
|
Royal Bank of Canada | 7.50 | % | |||||||
| 3 World Financial Center, 12th Floor New York, NY 10281-8098 Attention: David Cole Tel: (212) 428-6404 Fax: (212) 428-6460 Email: david.cole@rbccm.com |
||||||||||
The Northern Trust Company
|
Northern Trust Company | 5.00 | % | |||||||
| 50 South La Salle Street — M27 Chicago, IL 60603 Attention: John C. Canty Tel: (312) 444-7729 Fax: (312) 444-7028 Email: jc92@ntrs.com |
||||||||||
Branch Banking and
Trust Company
|
Branch Banking and Trust Company | 7.50 | % | |||||||
| 110 S. Stratford Road Winston-Salem, NC 27104 Attention: Michael P. Gwyn Tel: (336) 733-1119 Fax: (336) 733-1134 Email: mgwyn@BBandT.com |
||||||||||
United Overseas Bank Limited,
|
United Overseas Bank Ltd., New York Agency | 1.87 | % | |||||||
New York Agency
|
592 Fifth Avenue, 10th Floor New York, NY 10036 Attention: Daniel Chang Tel: (212) 382-0088 Ext 37 Fax: (212) 382-1881 Email: Daniel.ChangKC@uobgroup.com |
|||||||||
3
| REVOLVING LOAN | NEW TERM LOAN | |||||||||
| NAME OF LENDER | NOTICE ADDRESS | COMMITMENT | COMMITMENT | |||||||
Siemens Financial Services, Inc.
|
Siemens Financial Services, Inc. | 1.87 | % | |||||||
| 170 Wood Avenue South Iselin, NJ 08830 Attention: Charmaine Robinson Tel: (732) 590-6567 Fax: (919) 374-9105 Email: SFSPOPS.SFS@SIEMENS.COM |
||||||||||
Fifth Third Bank,
|
Fifth Third Bank | 2.50 | % | |||||||
an Ohio banking corporation
|
222 S. Riverside Plaza 30th Floor Chicago, IL 60606 Attention: Mitchell Early Tel: (312) 704-5535 Fax: (312) 704-7365 Email: Mitchell.early@53.com |
|||||||||
PNC Bank, National
Association
|
PNC Bank, National Association | 7.5 | % | |||||||
| 249 Fifth Avenue Pittsburgh, PA 15222 Attention: Jessica Fabrizi Tel: (412) 768-7054 Fax: (412) 762-6484 Email: Jessica.fabrizi@pnc.com |
||||||||||
NOTICE ADDRESS FOR ADMINISTRATIVE AGENT:
JPMorgan Loan Services
10 South Dearborn
Chicago, IL, 60603
Attention: Joyce King
Fax: 312-385-7096
Phone: 312-385-7025
E-mail: jpm.agency.servicing.4@jpmchase.com
10 South Dearborn
Chicago, IL, 60603
Attention: Joyce King
Fax: 312-385-7096
Phone: 312-385-7025
E-mail: jpm.agency.servicing.4@jpmchase.com
NOTICE ADDRESS FOR THE BORROWER:
Hanesbrands Inc.
1000 East Hanes Mill Rd
Winston-Salem, NC 27105
Attn: General Counsel
1000 East Hanes Mill Rd
Winston-Salem, NC 27105
Attn: General Counsel
SCHEDULE III
Existing Letters of Credit
See attached.
Schedule III — Existing Letters of Credit
Trade LC’s
Trade LC’s
| Applicant Name | DC number | Issue date | DC Outstanding amt | Expiry date | ||||||||||
CANADELLE LP |
HKH 692353 | 20090826 | USD | 302.59 | 20091203 | |||||||||
CANADELLE LP |
HKH 692357 | 20091007 | USD | 43,340.14 | 20091224 | |||||||||
CANADELLE LP |
HKH 692356 | 20091007 | USD | 13,141.98 | 20091224 | |||||||||
CANADELLE LP |
HKH 692350 | 20090724 | USD | 138,920.22 | 20091231 | |||||||||
CANADELLE LP |
HKH 692355 | 20091007 | USD | 25,873.86 | 20100107 | |||||||||
CANADELLE LP |
HKH 692354 | 20090915 | USD | 191,425.50 | 20100113 | |||||||||
CANADELLE LP |
HKH 692358 | 20091016 | USD | 23,648.08 | 20100114 | |||||||||
CANADELLE LP |
0 | IBCSLC890198HKH | USD | 50,677.80 | 20091124 | |||||||||
CANADELLE LP |
DC HKH 692353 | BR SLC890652HKH | USD | 10,086.18 | 20091202 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705519 | 20090622 | USD | 152,839.91 | 20091215 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705529 | 20090710 | USD | 108,240.03 | 20091215 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705534 | 20090813 | USD | 114,941.06 | 20091215 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705547 | 20090918 | USD | 34,284.41 | 20091215 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705541 | 20090918 | USD | 450,957.54 | 20091215 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705542 | 20090918 | USD | 111,818.86 | 20091215 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705546 | 20090918 | USD | 37,266.39 | 20091215 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705544 | 20090918 | USD | 81,343.65 | 20091215 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705545 | 20090918 | USD | 37,454.24 | 20091215 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705548 | 20090918 | USD | 9,776.03 | 20091222 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705543 | 20090918 | USD | 1,617,225.82 | 20100115 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705553 | 20091023 | USD | 534,266.74 | 20100115 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705549 | 20091009 | USD | 33,957.00 | 20100115 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705552 | 20091015 | USD | 166,562.18 | 20100115 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705551 | 20091015 | USD | 2,584,982.30 | 20100115 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705540 | 20090831 | USD | 280,051.08 | 20100205 | |||||||||
HANESBRANDS EUROPE GMBH |
HKH 705550 | 20091016 | USD | 66,465.32 | 20100215 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705529 | BR HBI890322HKH | USD | 88,722.09 | 20091126 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705540 | BR HBI890506HKH | USD | 69,167.24 | 20091201 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705543 | BR HBI890508HKH | USD | 222,359.40 | 20091201 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705534 | BR HBI890510HKH | USD | 83,038.72 | 20091201 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705530 | BR HBI890514HKH | USD | 44,821.59 | 20091201 | |||||||||
| Applicant Name | DC number | Issue date | DC Outstanding amt | Expiry date | ||||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705535 | BR HBI890536HKH | USD | 6,198.50 | 20091201 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705535 | BR HBI890588HKH | USD | 14,581.00 | 20091201 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705536 | BR HBI890594HKH | USD | 13,427.28 | 20091201 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705501 | BR HBI890618HKH | USD | 2,440.80 | 20091202 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705545 | BR HBI890733HKH | USD | 20,874.00 | 20091203 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705537 | BR HBI890734HKH | USD | 8,798.70 | 20091203 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705529 | BR HBI890735HKH | USD | 10,089.27 | 20091203 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705519 | BR HBI890736HKH | USD | 2,935.62 | 20091203 | |||||||||
HANESBRANDS EUROPE GMBH |
DC HKH 705536 | BR HBI890757HKH | USD | 13,164.00 | 20091203 | |||||||||
HANESBRANDS
INC-OUTERWEAR DIVISION |
HKH 680344 | 20090625 | USD | 1,941.49 | 20091130 | |||||||||
HANESBRANDS
INC-OUTERWEAR DIVISION |
HKH 680345 | 20091125 | USD | 80,461.62 | 20100224 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684540 | 20091008 | USD | 2,709.61 | 20091128 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684546 | 20091015 | USD | 260.19 | 20091128 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684543 | 20091008 | USD | 1,270.26 | 20091128 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684542 | 20091008 | USD | 905.05 | 20091205 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684547 | 20091015 | USD | 4,698.68 | 20091205 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684541 | 20091008 | USD | 1,586.16 | 20091205 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684544 | 20091015 | USD | 85.78 | 20091212 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684548 | 20091015 | USD | 128,402.09 | 20091212 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684562 | 20091109 | USD | 164,069.96 | 20091212 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684560 | 20091104 | USD | 180,893.29 | 20091212 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684556 | 20091104 | USD | 42,808.80 | 20091212 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684549 | 20091023 | USD | 193,239.00 | 20091219 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684551 | 20091023 | USD | 133,225.21 | 20091219 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684557 | 20091104 | USD | 161,931.94 | 20091219 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684552 | 20091023 | USD | 5,867.04 | 20091219 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684554 | 20091028 | USD | 42,438.36 | 20091226 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684558 | 20091104 | USD | 105,597.21 | 20091226 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684559 | 20091104 | USD | 245,126.87 | 20091226 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684555 | 20091104 | USD | 192,136.51 | 20100102 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684561 | 20091109 | USD | 108,982.59 | 20100102 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684553 | 20091028 | USD | 262,511.55 | 20100102 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684563 | 20091112 | USD | 168,391.80 | 20100102 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684564 | 20091112 | USD | 98,739.96 | 20100109 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684565 | 20091112 | USD | 72,970.80 | 20100109 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684566 | 20091112 | USD | 129,585.16 | 20100109 | |||||||||
| Applicant Name | DC number | Issue date | DC Outstanding amt | Expiry date | ||||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684567 | 20091112 | USD | 310,300.69 | 20100109 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684568 | 20091124 | USD | 188,693.94 | 20100116 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684569 | 20091124 | USD | 138,768.18 | 20100116 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
HKH 684570 | 20091124 | USD | 165,422.23 | 20100116 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
DC HKH 684544 | BR SLC890823HKH | USD | 8,927.20 | 20091203 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
DC HKH 684542 | BR SLC890844HKH | USD | 61,870.24 | 20091203 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
DC HKH 684556 | BR SLC890821HKH | USD | 33,691.20 | 20091204 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
DC HKH 684546 | BR SLC890822HKH | USD | 3,119.84 | 20091204 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
DC HKH 684543 | BR SLC890824HKH | USD | 70,427.84 | 20091204 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
DC HKH 684547 | BR SLC890843HKH | USD | 357,988.00 | 20091204 | |||||||||
HANESBRANDS
INC-UNDERWEAR DIVISION |
DC HKH 684541 | BR SLC890916HKH | USD | 53,726.40 | 20091204 | |||||||||
| Standby LC’s | Beneficiary | |||||||||
HANESBRANDS INC. |
SDCMTN551270 | USD | 6,400,000.00 | AIG | ||||||
HANESBRANDS INC. |
00333982(S-628808) | USD | 500,000.00 | Safety National | ||||||
HANESBRANDS INC. |
SLT343989 | USD | 1,219,000.00 | Travelers Indemnity Co | ||||||
HANESBRANDS INC. |
SLT333983 | USD | 1,600,000.00 | State of Pennsylvania | ||||||
HANESBRANDS INC. |
SLT751117 | USD | 147,000.00 | Arrowood Indemnity Company | ||||||
EXHIBIT A-1
FORM OF REVOLVING NOTE
| $ | [DATE] |
FOR VALUE RECEIVED, HANESBRANDS INC., a Maryland corporation (the “Borrower”),
promises to pay to the order of [Name of Lender] (the “Lender”) on the Stated Maturity Date
the principal sum of up to [ ] ($[ ]) or, if less, the aggregate
unpaid principal amount of all Revolving Loans shown on the schedule attached hereto (and any
continuation thereof) made (or continued) by the Lender pursuant to that certain Amended and
Restated Credit Agreement, dated as of December [ ], 2009 (as amended, supplemented, amended and
restated or otherwise modified from time to time, the “Credit Agreement”), among the
Borrower, the Lenders, Barclays Bank PLC and Goldman Sachs Credit Partners L.P., as the
Co-Documentation Agents, Bank of America, N.A. and HSBC Securities (USA) Inc., as the
Co-Syndication Agents, JPMorgan Chase Bank, N.A., as the Administrative Agent and the Collateral
Agent, and JPMorgan Securities Inc., Banc of America Securities LLC, HSBC Securities (USA) Inc. and
Barclays Capital, as the Joint Lead Arrangers and Joint Bookrunners. Terms used in this Revolving
Note, unless otherwise defined herein, have the meanings provided in the Credit Agreement.
The Borrower also promises to pay interest on the unpaid principal amount hereof from time to
time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and,
after maturity, until paid, at the rates per annum and on the dates specified in the Credit
Agreement.
Payments of both principal and interest are to be made pursuant to the terms of the Credit
Agreement.
This Revolving Note is one of the Revolving Notes referred to in, and evidences Indebtedness
incurred under, the Credit Agreement, to which reference is made for a description of the security
for this Revolving Note and for a statement of the terms and conditions on which the Borrower is
permitted and required to make prepayments and repayments of principal of the Indebtedness
evidenced by this Revolving Note and on which such Indebtedness may be declared to be immediately
due and payable.
All parties hereto, to the extent permitted by applicable law, whether as makers, endorsers or
otherwise, severally waive presentment for payment, demand, protest and notice of dishonor.
THIS REVOLVING NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH
PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
| HANESBRANDS INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
REVOLVING LOANS AND PRINCIPAL PAYMENTS
| Amount of | Amount of Principal | Unpaid Principal | ||||||||||||||||
| Loan Made | Repaid | Balance | ||||||||||||||||
| Alternate | LIBO | Interest | Alternate | LIBO | Alternate | LIBO | Notation | |||||||||||
| Date | Base Rate | Rate | Period | Base Rate | Rate | Base Rate | Rate | Total | Made By | |||||||||
EXHIBIT A-2
FORM OF NEW TERM NOTE
| $ | [DATE] |
FOR VALUE RECEIVED, HANESBRANDS INC., a Maryland corporation (the “Borrower”),
promises to pay to the order of [NAME OF LENDER] (the “Lender”) on the Stated Maturity Date
the principal sum of DOLLARS ($ ) or, if less, the aggregate unpaid
principal amount of all New Term Loans shown on the schedule attached hereto (and any continuation
thereof) made (or continued) by the Lender pursuant to that certain Amended and Restated Credit
Agreement, dated as of December [___], 2009 (as amended, supplemented, amended and restated or
otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the
Lenders, Barclays Bank PLC and Goldman Sachs Credit Partners L.P., as the Co-Documentation Agents,
Bank of America, N.A. and HSBC Securities (USA) Inc., as the Co-Syndication Agents, JPMorgan Chase
Bank, N.A., as the Administrative Agent and the Collateral Agent, and JPMorgan Securities Inc.,
Banc of America Securities LLC, HSBC Securities (USA) Inc. and Barclays Capital, as the Joint Lead
Arrangers and Joint Bookrunners. Terms used in this New Term Note, unless otherwise defined
herein, have the meanings provided in the Credit Agreement.
The Borrower also promises to pay interest on the unpaid principal amount hereof from time to
time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and,
after maturity, until paid, at the rates per annum and on the dates specified in the Credit
Agreement.
Payments of both principal and interest are to be made pursuant to the terms of the Credit
Agreement.
This New Term Note is one of the New Term Notes referred to in, and evidences Indebtedness
incurred under, the Credit Agreement, to which reference is made for a description of the security
for this New Term Note and for a statement of the terms and conditions on which the Borrower is
permitted and required to make prepayments and repayments of principal of the Indebtedness
evidenced by this New Term Note and on which such Indebtedness may be declared to be immediately
due and payable. All parties hereto, to the extent permitted by applicable law, whether as makers,
endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of
dishonor.
THIS LOAN HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (“OID”) FOR PURPOSES OF SECTIONS 1271
ET SEQ. OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE ISSUE DATE OF THIS SECURITY IS
[___], [___]. FOR INFORMATION REGARDING THE ISSUE PRICE, THE YIELD TO MATURITY, THE AMOUNT OF
OID PER $1,000 OF PRINCIPAL AMOUNT AND, IF APPLICABLE, THE COMPARABLE YIELD AND PROJECTED PAYMENT
SCHEDULE, PLEASE CONTACT [___] AT [___], ATTENTION: [___].
THIS NEW TERM NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH
PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
| HANESBRANDS INC. | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
NEW TERM LOANS AND PRINCIPAL PAYMENTS
| Amount of New Term | Amount of Principal | Unpaid Principal | ||||||||||||||||||||||||||||||||||||
| Loan Made | Repaid | Balance | ||||||||||||||||||||||||||||||||||||
| Alternate | LIBO | Interest | Alternate | LIBO | Alternate | LIBO | Notation | |||||||||||||||||||||||||||||||
| Date | Base Rate | Rate | Period | Base Rate | Rate | Base Rate | Rate | Total | Made By | |||||||||||||||||||||||||||||
EXHIBIT A-3
FORM OF SWING LINE NOTE
| $ | [DATE] |
FOR VALUE RECEIVED, the undersigned, HANESBRANDS INC., a Maryland corporation (the
“Borrower”), promises to pay to the order of [NAME OF LENDER] (the “Lender”) on the
Stated Maturity Date for Swing Line Loans the principal sum of DOLLARS
($ ) or, if less, the aggregate unpaid principal amount of all Swing Line Loans made by
the Lender pursuant to the Amended and Restated Credit Agreement, dated as of December [___], 2009
(as amended, supplemented, amended and restated or otherwise modified from time to time, the
“Credit Agreement”), among the Borrower, the Lenders, Barclays Bank PLC and Goldman Sachs
Credit Partners L.P., as the Co-Documentation Agents, Bank of America, N.A. and HSBC Securities
(USA) Inc., as the Co-Syndication Agents, JPMorgan Chase Bank, N.A., as the Administrative Agent
and the Collateral Agent, and JPMorgan Securities Inc., Banc of America Securities LLC, HSBC
Securities (USA) Inc. and Barclays Capital, as the Joint Lead Arrangers and Joint Bookrunners.
Terms used in this Swing Line Note, unless otherwise defined herein, have the meanings provided in
the Credit Agreement.
The Borrower also promises to pay interest on the unpaid principal amount hereof from time to
time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and,
after maturity, until paid, at the rates per annum and on the dates specified in the Credit
Agreement.
Payments of both principal and interest are to be made pursuant to the terms of the Credit
Agreement.
This Swing Line Note is the Swing Line Note referred to in, and evidences Indebtedness
incurred under, the Credit Agreement, to which reference is made for a description of the security
for this Swing Line Note and for a statement of the terms and conditions on which the Borrower is
permitted and required to make prepayments and repayments of principal of the Indebtedness
evidenced by this Swing Line Note and on which such Indebtedness may be declared to be immediately
due and payable.
All parties hereto, to the extent permitted by applicable law, whether as makers, endorsers,
or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor.
THIS SWING LINE NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.
| HANESBRANDS INC. | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
SWING LINE LOANS AND PRINCIPAL PAYMENTS
| Amount of Swing | Amount of Principal | Outstanding | ||||||||||||||||
| Date | Line Loan | Payment | Principal Balance | Notation Made By | ||||||||||||||
EXHIBIT B-1
FORM OF BORROWING REQUEST
JPMorgan Chase Bank, N.A.,
as Administrative Agent
JPMorgan Loan Services
10 South Dearborn
Chicago, IL 60603
Attention: Joyce King
Fax: 312-385-7096
Phone: 312-385-7025
E-mail: jpm.agency.servicing.4@jpmchase.com
as Administrative Agent
JPMorgan Loan Services
10 South Dearborn
Chicago, IL 60603
Attention: Joyce King
Fax: 312-385-7096
Phone: 312-385-7025
E-mail: jpm.agency.servicing.4@jpmchase.com
HANESBRANDS INC.
Ladies and Gentlemen:
This Borrowing Request is delivered to you pursuant to Section 2.3 of the Amended and Restated
Credit Agreement, dated as of December [___], 2009 (as amended, supplemented, amended and restated
or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the
Lenders, Barclays Bank PLC and Goldman Sachs Credit Partners L.P., as the Co-Documentation Agents,
Bank of America, N.A. and HSBC Securities (USA) Inc., as the Co-Syndication Agents, JPMorgan Chase
Bank, N.A., as the Administrative Agent and the Collateral Agent, and JPMorgan Securities Inc.,
Banc of America Securities LLC, HSBC Securities (USA) Inc. and Barclays Capital, as the Joint Lead
Arrangers and Joint Bookrunners. Terms used herein, unless otherwise defined herein, have the
meanings provided in the Credit Agreement.
The Borrower hereby requests that a [Revolving Loan] [New Term Loan] [Swing Line Loan] be made
in the aggregate principal amount of $[_____________] on _____, ___as a [Base Rate
Loan] [LIBO Rate Loan having an Interest Period of ___[months] [weeks]].
The Borrower hereby acknowledges that, pursuant to Section 5.2.2 of the Credit Agreement, each
of the delivery of this Borrowing Request and the acceptance by the Borrower of the proceeds of the
Loans requested hereby constitutes a representation and warranty by the Borrower that, on the date
of the making of such Loans, and both before and after giving effect thereto, all statements set
forth in Section 5.2.1 of the Credit Agreement are true and correct.
The Borrower agrees that if prior to the time of the Borrowing requested hereby any matter
certified to herein by it will not be true and correct to the extent set forth in Section 5.2.1 of
the Credit Agreement at such time as if then made, it will promptly so notify the Administrative
Agent. Except to the extent, if any, that prior to the time of the Borrowing requested hereby the
Administrative Agent shall receive written notice to the contrary from the Borrower, each matter
certified to herein shall be deemed once again to be certified as true and
correct to the extent set forth in Section 5.2.1 of the Credit Agreement at the date of such
Borrowing as if then made.
Please wire transfer the proceeds of the Borrowing to the accounts of the following persons at
the financial institutions indicated respectively:
| Person to be Paid | ||||||||
| Amount to | Name, Address, etc. | |||||||
| be Transferred | Name | Account No. | Of Transferee Lender | |||||
$
|
||||||||
| Attention: | ||||||||
$ |
||||||||
| Attention: | ||||||||
$
|
||||||||
| Attention: | ||||||||
Balance of such
proceeds
|
The Borrower | |||||||
| Attention: | ||||||||
IN WITNESS WHEREOF, the Borrower has caused this Borrowing Request to be executed and
delivered, and the certifications and warranties contained herein to be made, by its duly
Authorized Officer, solely in such capacity and not as an individual,
this ________day of
__________, ____.
HANESBRANDS INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
EXHIBIT B-2
FORM OF ISSUANCE REQUEST
JPMorgan Chase Bank, N.A.,
as Administrative Agent
Letter of Credit Department
10 South Dearborn
Chicago, IL 60603
Attention: Carolyn Edwards
Fax: 312-732-2729
Phone: 312-732-2621
E-mail: carolyn.x.edwards@jpmchase.com
as Administrative Agent
Letter of Credit Department
10 South Dearborn
Chicago, IL 60603
Attention: Carolyn Edwards
Fax: 312-732-2729
Phone: 312-732-2621
E-mail: carolyn.x.edwards@jpmchase.com
HSBC Bank USA, National Association
as an Issuer
[ ]
[ ]
Attention: [ ]
Fax: [ ]
Phone: [ ]
Email: [ ]1
as an Issuer
[ ]
[ ]
Attention: [ ]
Fax: [ ]
Phone: [ ]
Email: [ ]1
[NAME OF ANY ADDITIONAL ISSUER,
as an Issuer
[ ]
[ ]
Attention: [ ]
Fax: [ ]
Phone: [ ]
Email: [ ]]
as an Issuer
[ ]
[ ]
Attention: [ ]
Fax: [ ]
Phone: [ ]
Email: [ ]]
HANESBRANDS INC.
Ladies and Gentlemen:
This Issuance Request is delivered to you pursuant to Section 2.6 of that certain Amended and
Restated Credit Agreement, dated as of December [___], 2009 (as amended, supplemented, amended and
restated or otherwise modified from time to time, the “Credit Agreement”), among the
Borrower, the Lenders, Barclays Bank PLC and Goldman Sachs Credit Partners L.P., as the
Co-Documentation Agents, Bank of America, N.A. and HSBC Securities (USA) Inc., as the
Co-Syndication Agents, JPMorgan Chase Bank, N.A., as the Administrative Agent and the Collateral
Agent, and JPMorgan Securities Inc., Banc of America Securities LLC,
| 1 | To obtain proper contact information. |
HSBC Securities (USA) Inc. and Barclays Capital, as the Joint Lead Arrangers and Joint
Bookrunners. Terms used herein, unless otherwise defined herein, have the meanings provided in the
Credit Agreement.
The Borrower hereby requests that on
___,
(the “Date of Issuance”),2
[NAME OF ISSUER] (the “Issuer”), [issue a [Standby]
[Commercial] Letter of Credit in the initial Stated Amount of $
with a Stated Expiry
Date (as defined therein) of
___,
] [extend the Stated Expiry Date
3,4
(as defined under Letter of Credit No. ___, issued on
___,
, in the initial
Stated Amount of $
)
to a revised Stated Expiry Date (as defined therein) of
___,
].
The beneficiary of the requested Letter of
Credit will be
, and such
Letter of Credit will be in support of
.
The Borrower hereby acknowledges that, pursuant to Section 5.2.2 of the Credit Agreement, each
of the delivery of this Issuance Request and the acceptance by the Borrower of the [issuance]
[extension] of the Letter of Credit requested hereby constitutes a representation and warranty by
the Borrower that, on the date of such [issuance] [extension], and both before and after giving
effect thereto, all statements set forth in Section 5.2.1 of the Credit Agreement are true and
correct in all material respects (unless stated to relate solely to an earlier date, in which case
such representations and warranties shall be true and correct in all material respects as of such
earlier date).
The Borrower agrees that if prior to the time of the [issuance] [extension] of the Letter of
Credit requested hereby any matter certified to herein by it will not be true and correct in all
material respects at such time as if then made, it will promptly so notify the Administrative
Agent. Except to the extent, if any, that prior to the time of the [issuance] [extension] of the
Letter of Credit requested hereby the Administrative Agent shall receive written notice to the
contrary from the Borrower, each matter certified to herein shall be deemed once again to be
certified as true and correct in all material respects at the date of such [issuance] [extension]
as if then made.
| 2 | Insert date of Issuance Request which shall be on or before 10:00 a.m. on a Business Day, not less than three nor more than ten Business Days’ notice, in the case of an initial issuance of a Letter of Credit and not less than three Business Days’ prior notice, in the case of a request for the extension of the Stated Expiry Date of a Standby Letter of Credit (in each case, unless a shorter notice period is agreed to by the relevant Issuer, in its sole discretion) | |
| 3 | Each Standby Letter of Credit shall by its terms be stated to expire no later than the earlier to occur of (i) five Business Days prior to the Revolving Loan Commitment Termination Date or (ii) unless otherwise agreed to by the Issuer, in its sole discretion, one year from the date of issuance (provided that each Standby Letter of Credit may, with the consent of the Issuer in its sole discretion, provide for automatic renewals for one year periods (which in no event shall extend beyond the Revolving Loan Commitment Termination Date). | |
| 4 | Each Commercial Letter of Credit shall by its terms be stated to expire on a date no later than the earlier to occur of (i) five Business Days prior to the Revolving Loan Commitment Termination Date or (ii) unless otherwise agreed to by the Issuer, in its sole discretion, 180 days from the date of its issuance. |
IN WITNESS WHEREOF, the Borrower has caused this Issuance Request to be executed and
delivered, and the certifications and warranties contained herein to be made, by its duly
Authorized Officer, solely in such capacity and not as an individual, this day of
, .
| HANESBRANDS INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
EXHIBIT C
FORM OF CONTINUATION/CONVERSION NOTICE
JPMorgan Chase Bank, N.A.,
as Administrative Agent
JPMorgan Loan Services
10 South Dearborn
Chicago, IL 60603
Attention: Joyce King
Fax: 312-385-7096
Phone: 312-385-7025
E-mail: jpm.agency.servicing.4@jpmchase.com
as Administrative Agent
JPMorgan Loan Services
10 South Dearborn
Chicago, IL 60603
Attention: Joyce King
Fax: 312-385-7096
Phone: 312-385-7025
E-mail: jpm.agency.servicing.4@jpmchase.com
HANESBRANDS INC.
Ladies and Gentlemen:
This Continuation/Conversion Notice is delivered to you pursuant to Section 2.4 of the Amended
and Restated Credit Agreement, dated as of December [ ], 2009 (as amended, supplemented, amended
and restated or otherwise modified from time to time, the “Credit Agreement”), among the
Borrower, the Lenders, Barclays Bank PLC and Goldman Sachs Credit Partners L.P., as the
Co-Documentation Agents, Bank of America, N.A. and HSBC Securities (USA) Inc., as the
Co-Syndication Agents, JPMorgan Chase Bank, N.A., as the Administrative Agent and the Collateral
Agent, and JPMorgan Securities Inc., Banc of America Securities LLC, HSBC Securities (USA) Inc. and
Barclays Capital, as the Joint Lead Arrangers and Joint Bookrunners. Terms used herein, unless
otherwise defined herein, have the meanings provided in the Credit Agreement.
The Borrower hereby requests that on ___, ___5,
(1) $ 6 of the presently outstanding principal amount of the
[Revolving Loans] [New Term Loans] originally made on ___, ___, presently
being maintained as [Base Rate Loans] [LIBO Rate Loans],
(2) be [converted into] [continued as],
| 5 | Insert date of Continuation/Conversion Notice which shall be on or before 10:00 a.m. on a Business Day and not less than three nor more than five Business Days’ notice, (A) to convert any Base Rate Loan into one or more LIBO Rate Loans or (B) before the last day of the then current Interest Period with respect thereto, to continue any LIBO Rate Loan as a LIBO Rate Loan; provided that in the absence of prior notice as required above (which notice may be delivered telephonically followed by written confirmation within 24 hours thereafter by delivery of a Continuation/Conversion Notice), with respect to any LIBO Rate Loan at least three Business Days before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan. | |
| 6 | Minimum of $1,000,000 and integral multiples of $1,000,000. |
(3) [LIBO Rate Loans having an Interest Period of ___[weeks] [months]]7
[Base Rate Loans].
[The undersigned hereby certifies that no Event of Default has occurred and is
continuing on the date of the proposed [conversion] [continuation]]8
| 7 | Insert appropriate interest rate option and, if applicable, the number of weeks (one or two) if available, or months (one, two, three or six, or if available nine or twelve) with respect to LIBO Rate Loans. | |
| 8 | Insert this sentence only in the event of a conversion from a Base Rate Loan to a LIBO Rate Loan or a continuation of a LIBO Rate Loan. |
IN WITNESS WHEREOF, the Borrower has caused this Continuation/Conversion Notice to be executed
and delivered by its duly Authorized Officer, solely in such capacity and not as an individual,
this ___day of , ___.
| HANESBRANDS INC. |
||||
| By | ||||
| Name: | ||||
| Title: | ||||
EXHIBIT D
FORM OF LENDER ASSIGNMENT AGREEMENT
[DATE]
HANESBRANDS INC.,
as the Borrower
1000 East Hanes Mill Rd
Winston Salem, NC 27105
Attn: General Counsel
as the Borrower
1000 East Hanes Mill Rd
Winston Salem, NC 27105
Attn: General Counsel
JPMorgan Chase Bank, N.A.,
as Administrative Agent
JPMorgan Loan Services
10 South Dearborn
Chicago, IL 60603
Attention: Joyce King
Fax: 312-385-7096
Phone: 312-385-7025
E-mail: jpm.agency.servicing.4@jpmchase.com
as Administrative Agent
JPMorgan Loan Services
10 South Dearborn
Chicago, IL 60603
Attention: Joyce King
Fax: 312-385-7096
Phone: 312-385-7025
E-mail: jpm.agency.servicing.4@jpmchase.com
HANESBRANDS INC.
Ladies and Gentlemen:
This Lender Assignment Agreement (this “Assignment and Acceptance”) is dated as of the
Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the
“Assignor”) and [Insert name of Assignee] (the “Assignee”). Capitalized terms used
but not defined herein shall have the meanings given to them in the Credit Agreement identified
below, receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and
Conditions set forth in Annex 1 attached hereto (the “Standard Terms and
Conditions”) are hereby agreed to be incorporated herein by reference and made a part of this
Assignment and Acceptance.
For
an agreed consideration, the Assignor hereby irrevocably sells and assigns to the
Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to
and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the
Effective Date inserted by the Administrative Agent (as defined below) as contemplated below (i)
all of the Assignor’s rights, benefits, obligations, liabilities and indemnities in its capacity as
a Lender under (and in connection with) the Credit Agreement and any other Loan Documents to the
extent related to the amount and percentage interest identified below of all of such outstanding
rights and obligations of the Assignor under the respective facilities identified below (including
without limitation any Letters of Credit Outstanding and Swing Line Loans) and (ii) to the extent
permitted to be assigned under applicable law, all claims, suits, causes of
action and any other right of the Assignor (in its capacity as a Lender) against any Person,
whether known or unknown, arising under or in connection with the Credit Agreement, the other Loan
Documents or in any way based on or related to any of the foregoing, including, but not limited to,
contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or
in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the
rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to
herein collectively as, the “Assigned Interest”). Such sale and assignment is without
recourse to the Assignor and, except as expressly provided in this Assignment and Acceptance,
without representation or warranty by the Assignor.
This Assignment and Acceptance shall be effective as of the Effective Date [upon the written
consent of the Administrative Agent]1 [, each Issuer, the Swing Line Lender]2
[and the Borrower (as defined below); provided that the Borrower shall be deemed to have
given its consent seven Business Days after the date notice thereof has been delivered by the
Assignor (through the Administrative Agent) to the Borrower, unless such consent is expressly
refused by the Borrower prior to such seventh Business Day]3 being subscribed in the
space indicated below.
1.
|
Assignor: | |||||
2.
|
Assignee: | |||||
| [and is an Affiliate/Approved Fund of [identify Lender] 4] | ||||||
3.
|
Borrower: | HANESBRANDS INC. (the “Borrower”) | ||
4.
|
Administrative Agent: | JPMORGAN CHASE BANK, N.A., as the administrative agent under the Credit Agreement (the “Administrative Agent”) | ||
5.
|
Credit Agreement: | Amended and Restated Credit Agreement, dated as of December [___], 2009 (as amended, supplemented, amended and restated or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the Lenders, Barclays Bank PLC and Goldman Sachs Credit Partners L.P., as the Co-Documentation Agents, Bank of America, N.A. and |
| 1 | Administrative Agent consent required for assignments (i) to an Eligible Assignee that is not a Lender, an Approved Fund or an Affiliate of a Lender and (ii) pursuant to clause (a)(i) of Section 10.11 of the Credit Agreement. | |
| 2 | Consent of each Issuer and the Swing Line Lender is required for assignments of Revolving Loan Commitments to an Eligible Assignee that is not a Lender, an Approved Fund or an Affiliate of a Lender. | |
| 3 | Borrower consent required (i) pursuant to clause (a)(i) of Section 10.11 of the Credit Agreement and (ii) so long as no Event of Default has occurred and is continuing, for assignments of Revolving Loan Commitments to an Eligible Assignee that is not a Lender, an Approved Fund or an Affiliate of a Lender. | |
| 4 | Select as applicable. |
| HSBC Securities (USA) Inc., as the Co-Syndication Agents, JPMorgan Chase Bank, N.A., as the Administrative Agent and the Collateral Agent, and JPMorgan Securities Inc., Banc of America Securities LLC, HSBC Securities (USA) Inc. and Barclays Capital, as the Joint Lead Arrangers and Joint Bookrunners. |
6. Assigned Interest:
| Aggregate Amount of | Amount of | |||||||||||
| Commitment/Loans | Commitment/Loans | Percentage Assigned | ||||||||||
| Facility Assigned | for all Lenders | Assigned | of Commitment/Loans | |||||||||
[Revolving Loan Commitment/Revolving Loans] |
$ | $ | % | |||||||||
[New Term Loan]
|
$ | $ | % | |||||||||
Effective Date:
|
[DATE] |
The terms set forth in this Assignment and Acceptance are hereby agreed to as of the Effective
Date:
| ASSIGNOR [NAME OF ASSIGNOR] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| ASSIGNEE [NAME OF ASSIGNEE] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Consented to and] Accepted:
JPMORGAN CHASE BANK, N.A.,
as the Administrative Agent [and the Swing Line Lender]
JPMORGAN CHASE BANK, N.A.,
as the Administrative Agent [and the Swing Line Lender]
| By: | ||||
| Name: | ||||
| Title: | ||||
| [Consented to: HANESBRANDS INC., as the Borrower |
||||
| By: | ||||
| Name: | ||||
| Title:] | ||||
| [Consented to: HSBC Bank USA, National Association, as an Issuer |
||||
| By: | ||||
| Name: | ||||
| Title:] | ||||
| [[NAME OF ANY ADDITIONAL ISSUER], as an Issuer |
||||
| By: | ||||
| Name: | ||||
| Title:] | ||||
ANNEX 1
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ACCEPTANCE
ASSIGNMENT AND ACCEPTANCE
1. Representations and Warranties.
1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and
beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any
lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken
all action necessary, to execute and deliver this Assignment and Acceptance and to consummate the
transactions contemplated hereby; and (b) except as provided in clause (a) above, assumes no
responsibility with respect to (i) any statements, warranties or representations made in or in
connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral
thereunder, (iii) the financial condition of the Borrower or any of its Subsidiaries or Affiliates
or any other Person obligated in respect of any Loan Document or (iv) the performance or observance
by the Borrower or any of its Subsidiaries or Affiliates or any other Person of any of their
respective obligations under any Loan Document.
1.2 Assignee. The Assignee (a) represents and warrants that (i) it has full power and
authority, and has taken all action necessary, to execute and deliver this Assignment and
Acceptance and to consummate the transactions contemplated hereby and to become a Lender under the
Credit Agreement, (ii) it is an Eligible Assignee under the Credit Agreement (subject to receipt of
such consents as may be required under the Credit Agreement), (iii) from and after the Effective
Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to
the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has
received a copy of the Credit Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 5.1.6 or 7.1.1 thereof, as applicable, and such other
documents and information as it has deemed appropriate to make its own credit analysis and decision
to enter into this Assignment and Acceptance and to purchase the Assigned Interest on the basis of
which it has made such analysis and decision independently and without reliance on the
Administrative Agent or any other Lender, and (v) if it is a Non-U.S. Lender, attached to this
Assignment and Acceptance is any documentation required to be delivered by it pursuant to the terms
of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it
will, independently and without reliance on the Administrative Agent, the Collateral Agent, the
Assignor or any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or not taking action
under the Loan Documents, and (ii) it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to be performed by it as a
Lender.
2. Payments. From and after the Effective Date, the Administrative Agent shall make
all payments in respect of the Assigned Interest (including payments of principal, interest, fees
and other amounts) to the Assignor for amounts which have accrued to but excluding the
Effective Date and to the Assignee for amounts which have accrued from and after the Effective
Date.
3. General Provisions. This Assignment and Acceptance shall be binding upon, and inure
to the benefit of, the parties hereto and their respective successors and assigns. This Assignment
and Acceptance may be executed in any number of counterparts, which together shall constitute one
instrument. Delivery of an executed counterpart of a signature page of this Assignment and
Acceptance by telecopy or facsimile (or other electronic) transmission shall be effective as
delivery of a manually executed counterpart of this Assignment and Acceptance. This Assignment and
Acceptance shall be deemed to be a contract made under, governed by, and construed in accordance
with, the laws of the State of New York (including for such purposes Sections 5-1401 and 5-1402 of
the General Obligations Law of the State of New York) without regard to conflicts of laws
principles.
EXHIBIT E
FORM
OF COMPLIANCE CERTIFICATE
HANESBRANDS INC.
HANESBRANDS INC.
This Compliance Certificate is delivered pursuant to clause (c) of Section 7.1.1 of the
Amended and Restated Credit Agreement, dated as of December [___], 2009 (as amended, supplemented,
amended and restated or otherwise modified from time to time, the “Credit Agreement”),
among the Borrower, the Lenders, Barclays Bank PLC and Goldman Sachs Credit Partners L.P., as the
Co-Documentation Agents, Bank of America, N.A. and HSBC Securities (USA) Inc., as the
Co-Syndication Agents, JPMorgan Chase Bank, N.A., as the Administrative Agent and the Collateral
Agent, and JPMorgan Securities Inc., Banc of America Securities LLC, HSBC Securities (USA) Inc. and
Barclays Capital, as the Joint Lead Arrangers and Joint Bookrunners. Terms used herein that are
defined in the Credit Agreement, unless otherwise defined herein, have the meanings provided (or
incorporated by reference) in the Credit Agreement.
The Borrower hereby certifies, represents and warrants as follows in respect of the period
(the “Computation Period”) commencing on
,
and ending
on
,
(such latter date being the “Computation Date”) and with respect to the Computation Date:
1. Defaults. As of the Computation Date, no Default had occurred and was continuing.
1
2. Financial Covenants.
a. Leverage Ratio. The Leverage Ratio on the Computation Date was , as
computed on Attachment 1 hereto. The maximum Leverage Ratio permitted pursuant to clause
(a) of Section 7.2.4 of the Credit Agreement on the Computation Date was .
b. Interest Coverage Ratio. The Interest Coverage Ratio on the Computation Date was
, as computed on Attachment 2 hereto. The minimum Interest Coverage Ratio
permitted pursuant to clause (b) of Section 7.2.4 of the Credit Agreement on the Computation Date
was .
3. 2 [Excess Cash Flow: The Excess Cash Flow was $ ,
as computed on Attachment 3 hereto.] Such amount multiplied by the Applicable
Percentage (which is % based on the Leverage Ratio set forth above) is $ . Such amount minus
the
| 1 | If a Default has occurred, specify the details of such default and the action that the Borrower or other Obligor has taken or proposes to take with respect thereto. | |
| 2 | Use in the case of a Compliance Certificate delivered pursuant to clause (c) of Section 7.1.1 of the Credit Agreement if applicable. |
aggregate amount of all voluntary prepayments of Loans (but including Revolving Loans and
Swing Line Loans only to the extent there was a corresponding reduction of the Revolving Loan
Commitment Amount pursuant to Section 2.2.1 of the Credit Agreement) made during the Computation
Period (which was $ ) is equal to $ . As a result, 3[we are required to make a
mandatory prepayment in such amount] 4[we are not required to make a mandatory
prepayment of Excess Cash Flow].
4. Subsidiaries: Except as set forth below, no Subsidiary has been formed or acquired
since the delivery of the last Compliance Certificate. The formation and/or acquisition of such
Subsidiary was in compliance with Section 7.1.8 of the Credit Agreement.
[Insert names of any new entities.]
5. Neither the Borrower nor any Obligor has changed its legal name or jurisdiction of
organization, during the Computation Period, except as indicated on Attachment 4 hereto.
| 3 | Use if amount is positive. | |
| 4 | Use if amount is zero or less. |
IN WITNESS WHEREOF, the Borrower has caused this Compliance Certificate to be executed and
delivered, and the certification and warranties contained herein to be made, by the treasurer,
chief financial or accounting Authorized Officer of the Borrower, solely in such capacity and not
as an individual, as of
,
20 .
| HANESBRANDS INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Attachment 1
(to
__/__/__ Compliance
Certificate)
Certificate)
LEVERAGE RATIO
on
(the “Computation Date”)
on
(the “Computation Date”)
Leverage Ratio:
1.
|
Total Debt: on the Computation Date, in each case exclusive of (a) intercompany Indebtedness between the Borrower and its Subsidiaries, (b) any Contingent Liability in respect of any of the foregoing, (c) any Permitted Factoring Facility, (d) any Commercial Letter of Credit, (e) any Letter of Credit or other credit support relating to the termination of agreements with respect to Hedging Obligations, in each case under this clause (e), incurred in connection with or as a result of the Transaction and (f) any Open Account Paying Agreements, the outstanding principal amount of all Indebtedness of the Borrower and its Subsidiaries, comprised of: |
(a)
|
all obligations of such Person for borrowed money or advances and all obligations of such Person evidenced by bonds, debentures, notes or similar instruments | $
|
||||
(b)
|
all monetary obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker’s acceptances issued for the account of such Person | $
|
||||
(c)
|
all Capitalized Lease Liabilities of such Person | $
|
||||
(d)
|
monetary obligations arising under Synthetic Leases | $
|
||||
(e)
|
all obligations of such Person pursuant to any Permitted Securitization (other than Standard Securitization Undertakings) or any Permitted Factoring Facility. | |||||
(f)
|
TOTAL DEBT: The sum of Item 1(a) through 1(e) | $
|
||||
2.
|
Net Income (the aggregate of all amounts which would be included as net income on the consolidated financial statements of the Borrower and its Subsidiaries for the Computation Period) | $
|
||||
3.
|
to the extent deducted in determining Net Income, amounts | $
|
| attributable to amortization (including amortization of goodwill and other intangible assets) | ||||||
4.
|
to the extent deducted in determining Net Income, Federal, state, local and foreign income withholding, franchise, state single business unitary and similar Tax expense | $
|
||||
5.
|
to the extent deducted in determining Net Income, Interest Expense (the aggregate interest expense (both, without duplication, when accrued or paid and net of interest income paid during such period to the Borrower and its Subsidiaries) of the Borrower and its Subsidiaries for such applicable period, including the portion of any payments made in respect of Capitalized Lease Liabilities allocable to interest expense but excluding interest expense attributable to a Permitted Factoring Facility) | $
|
||||
6.
|
to the extent deducted in determining Net Income, depreciation of assets | $
|
||||
7.
|
to the extent deducted in determining Net Income, all non-cash charges, including all non-cash charges associated with announced restructurings, whether announced previously or in the future | $
|
||||
8.
|
to the extent deducted in determining Net Income, net cash restructuring charges associated with or related to any contemplated restructurings in an aggregate amount not to exceed $120,000,000 since September 5, 2006 | $
|
||||
9.
|
to the extent deducted in determining Net Income, all amounts in respect of extraordinary losses | $
|
||||
10.
|
to the extent deducted in determining Net Income, non-cash compensation expense, or other non-cash expenses or charges, arising from the sale of stock, the granting of stock options, the granting of stock appreciation rights and similar arrangements (including any repricing, amendment, modification, substitution or change of any such stock, stock option, stock appreciation rights or similar arrangements) | $
|
||||
11.
|
to the extent included in determining Net Income, any financial advisory fees, accounting fees, legal fees and other similar advisory and consulting fees, cash charges in respect of strategic market reviews, management bonuses and early retirement of Indebtedness, and related out-of-pocket expenses incurred by the Borrower or any of its Subsidiaries as a result of the Transaction, including fees and expesnes in connection with the issuance, redemption or exchange of the | $
|
2016 Senior Notes, all
determined in accordance with GAAP |
||||||
| 12. | to the extent included in determining Net
Income, non-cash or unrealized losses on
agreements with respect to Hedging Obligations
|
$ | ||||
| 13. | to the extent included in determining Net
Income and to the extent non-recurring and not
capitalized, any financial advisory fees,
accounting fees, legal fees and similar
advisory and consulting fees and related costs
and expenses of the Borrower and its
Subsidiaries incurred as a result of Permitted
Acquisitions, Investments, Restricted
Payments, Dispositions permitted under the
Credit Agreement and the issuance of Capital
Securities or Indebtedness permitted under the
Credit Agreement, all determined in accordance
with GAAP and in each case eliminating any
increase or decrease in income resulting from
non-cash accounting adjustments made in
connection with the related Permitted
Acquisition or Dispositions
|
$ | ||||
| 14. | to the extent included in determining Net
Income, unrealized losses on agreements with
respect to Hedging Obligations and the related
tax losses and any costs, fees and expenses
related to the termination thereof, in each
case incurred in connection with or as a
result of the Transaction |
|||||
| 15. | to the extent included in determining Net
Income, and to the extent the related loss is
not added back pursuant to Item 22 , all
proceeds of business interruption insurance
policies
|
$ | ||||
| 16. | to the extent included in determining Net
Income, expenses incurred by the Borrower or
any Subsidiary to the extent reimbursed in
cash by a third party
|
$ | ||||
| 17. | to the extent included in determining Net
Income, extraordinary, unusual or
non-recurring cash charges not to exceed
$10,000,000 in any Fiscal Year
|
$ | ||||
| 18. | to the extent included in determining Net
Income, all amounts in respect of
extraordinary gains
|
$ | ||||
| 19. | to the extent included in determining Net
Income, non-cash gains on agreements with
respect to Hedging Obligations
|
$ | ||||
| 20. | to the extent included in determining Net
Income, reversals (in whole or in part) of any
restructuring charges previously treated as
Non-Cash Restructuring Charges in any prior
period
|
$ | ||||
| 21. | to the extent included in determining Net
Income, gains on agreements with respect to
Hedging Obligations and any |
releated tax
gains, in each case incurred in connection
with or as a result of the Transaction |
||||||
| 22. | to the extent included in determining Net
Income, non-cash items increasing such Net
Income for such period, other than (A) the
accrual of revenue consistent with past
practice and (B) the reversal in such period
of an accrual of, or cash reserve for, cash
expenses in a prior period, to the extent such
accrual or reserve did not increase EBITDA in
a prior period
|
$ | ||||
| 23. | EBITDA: The sum of Items 2 through 17
minus Items 18 through 22
|
$ | ||||
| 23. | LEVERAGE RATIO: ratio of Item 1 to Item 23
|
:1.00 |
Attachment 2
(to __/__/__ Compliance
Certificate)
(to __/__/__ Compliance
Certificate)
INTEREST COVERAGE RATIO
on
(the “Computation Date”)
on
(the “Computation Date”)
Interest Coverage Ratio:
| 1. | EBITDA
(see Item 22 of Attachment 1)
|
$ | ||||
| 2. | Interest Expense of the Borrower and its
Subsidiaries (see Item 5 of Attachment 1)
|
$ | ||||
| 3. | INTEREST
COVERAGE RATIO: ratio of Item 1 to Item 2
|
:1.00 | ||||
Attachment 3
(to __/__/__ Compliance
Certificate)
(to __/__/__ Compliance
Certificate)
EXCESS
CASH FLOW17
on the Computation Date
on the Computation Date
| 1. | EBITDA
(see Item 22 of Attachment 1)
|
$ | |||
| 2. | Interest Expense actually paid in cash by the Borrower and
its Subsidiaries
|
$ | |||
| 3. | scheduled principal repayments with respect to the
permanent reduction of Indebtedness, to the extent actually
made under the Credit Agreement
|
$ | |||
| 4. | all Federal, state, local and foreign income withholding,
franchise, state single business unitary and similar Taxes
actually paid in cash or payable (only to the extent related
to Taxes associated with such Fiscal Year) by the Borrower and
its Subsidiaries
|
$ | |||
| 5. | Capital Expenditures to the extent (x) actually made by the
Borrower and its Subsidiaries in such Fiscal Year or (y)
committed to be made by the Borrower and its Subsidiaries and
that are permitted to be carried forward to the next
succeeding Fiscal Year pursuant to Section 7.2.7 of the Credit
Agreement18
|
$ | |||
| 6. | the portion of the purchase price paid in cash with respect
to Permitted Acquisitions to the extent such Permitted
Acquisition was made in connection with the Borrower’s
offshore migration of its supply chain
|
$ | |||
| 7. | to the extent permitted to be included in the calculation
of EBITDA for such Fiscal Year, the amount of Cash
Restructuring Charges actually so included in such calculation
|
$ | |||
| 8. | without
duplication to any amounts deducted in preceding
Item 2 through Item 7, all items added back to EBITDA pursuant
to clause (b) of the definition of EBITDA in the Credit
Agreement |
| 17 | Use in the case of a Compliance Certificate delivered concurrently with the financial information pursuant to clause (b) of Section 7.1.1 of the Credit Agreement. | |
| 18 | The amounts deducted from Excess Cash Flow pursuant to clause (y) of Item 5 shall not thereafter be deducted in the determination of Excess Cash Flow for the Fiscal Year during which such payments were actually made. |
that represent amounts actually paid in cash
|
$ | ||||
| 9. | The
sum of Items 2 through 8
|
$ | |||
| 10. | EXCESS
CASH FLOW: Item 1 less Item 9
|
$ |
Attachment 4
(to __/__/__ Compliance
Certificate)
(to __/__/__ Compliance
Certificate)
CHANGE OF LEGAL NAME OR JURISDICTION OF INCORPORATION
Name of Borrower or Other Obligor
|
New Legal Name or Jurisdiction of
Incorporation |
EXHIBIT F
FORM OF
AMENDED AND RESTATED GUARANTY
AMENDED AND RESTATED GUARANTY
This AMENDED AND RESTATED GUARANTY (as amended, supplemented, amended and restated or
otherwise modified from time to time, this “Guaranty”), dated as of December [ ], 2009 is
made by HANESBRANDS INC., a Maryland corporation (the “Borrower”) and each U.S. Subsidiary
of the Borrower, from time to time party to this Guaranty (each individually, a “Subsidiary
Guarantor” and, together with the Borrower, each individually, a “Guarantor” and
collectively, the “Guarantors”), in favor of JPMORGAN CHASE BANK, N.A., as administrative
agent (together with its successor(s) thereto in such capacity, the “Administrative Agent”)
for each of the Secured Parties (capitalized terms used herein have the meanings set forth in or
incorporated by reference in Article I).
WHEREAS, the Borrower, Citicorp USA, Inc., as administrative agent, and the other agents and
lenders party thereto entered into that certain Credit Agreement dated as of September 5, 2006 (the
“Existing Credit Agreement”);
WHEREAS, pursuant to the Existing Credit Agreement, a Guaranty (the “Existing
Guaranty”), dated as of September 5, 2006, was entered into among the Borrower, the other
guarantors party thereto and Citicorp USA, Inc., as the administrative agent for the secured
parties referred to therein;
WHEREAS, pursuant to an Amended and Restated Credit Agreement, dated as of December [ ],
2009 and (as amended, supplemented, amended and restated or otherwise modified from time to time,
the “Credit Agreement”), among the Borrower, the Lenders, Barclays Bank PLC and Goldman
Sachs Credit Partners L.P., as the Co-Documentation Agents, Bank of America, N.A. and HSBC
Securities (USA) Inc., as the Co-Syndication Agents, the Administrative Agent, the Collateral
Agent, and J.P. Morgan Securities Inc., Bank of America Securities LLC, HSBC Securities (USA) Inc.
and Barclays Capital as the Joint Lead Arrangers and Joint Bookrunners, the Lenders and the Issuers
have extended Commitments to make Credit Extensions to the Borrower; and
WHEREAS, as a condition precedent to the making of the Credit Extensions under the Credit
Agreement, each Guarantor is required to execute and deliver this Guaranty;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor agrees, for the benefit of each Secured Party, that the
Existing Guaranty is hereby amended and restated as of the Restatement Effective Date to read in
its entirety as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when
used in this Guaranty, including its preamble and recitals, shall have the following meanings (such
definitions to be equally applicable to the singular and plural forms thereof):
“Administrative Agent” is defined in the preamble.
“Borrower” is defined in the preamble.
“Credit Agreement” is defined in the third recital.
“Existing Credit Agreement” is defined in the first recital.
“Existing Guaranty” is defined in the second recital.
“Guarantor” and “Guarantors” are defined in the preamble.
“Guaranty” is defined in the preamble.
“Non-USD Currency” means a currency other than U.S. Dollars.
“Secured Obligations” means, collectively, the Obligations, the Cash Management
Obligations and all Indebtedness of any Foreign Subsidiary or Obligor, as applicable, permitted
under clause (n) of Section 7.2.2 of the Credit Agreement owing to a Foreign Capital Lender.
SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Guaranty, including its preamble and recitals, have
the meanings provided in the Credit Agreement.
ARTICLE II
GUARANTY PROVISIONS
SECTION 2.1. Guaranty. Each Guarantor hereby jointly and severally absolutely,
unconditionally and irrevocably
SECTION 2.1.1 guarantees the full and punctual payment when due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all
Secured Obligations of the Borrower and its Subsidiaries now or hereafter existing, whether
for principal, interest (including interest accruing at the then applicable rate provided in
the Credit Agreement after the occurrence of any Event of Default set forth in Section 8.1.9
of the Credit Agreement, whether or not a claim for post-filing or post-petition interest is
allowed under applicable law following the institution of a
2
proceeding under bankruptcy, insolvency or similar laws), fees, Reimbursement
Obligations, expenses or otherwise (including all such amounts which would become due but
for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy
Code, 11 U.S.C. §362(a), and the operation of Sections 502(b) and 506(b) of the United
States Bankruptcy Code, 11 U.S.C. §502(b) and §506(b)); and
SECTION 2.1.2 indemnifies and holds harmless each Secured Party for any and all costs
and reasonable out-of-pocket expenses (including reasonable attorneys’ fees) incurred by
such Secured Party in enforcing any rights under this Guaranty (in each case to the same
extent the Secured Parties are indemnified and held harmless pursuant to Sections
10.3 and 10.4 of the Credit Agreement);
provided, however, that each Guarantor shall only be liable under this Guaranty for
the maximum amount of such liability that can be hereby incurred without rendering this Guaranty,
as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or
fraudulent transfer, and not for any greater amount. This Guaranty constitutes a guaranty of
payment when due and not of collection, and each Guarantor specifically agrees that to the extent
permitted by applicable law it shall not be necessary or required that any Secured Party exercise
any right, assert any claim or demand or enforce any remedy whatsoever against the Borrower or any
of its Subsidiaries or any other Person before or as a condition to the obligations of such
Guarantor hereunder.
SECTION 2.2. Reinstatement, etc. Each Guarantor hereby jointly and severally agrees
that this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any
time any payment (in whole or in part) of any of the Secured Obligations is invalidated, declared
to be fraudulent or preferential, set aside, rescinded or must otherwise be restored by any Secured
Party, including upon the occurrence of any Default set forth in Section 8.1.9 of the Credit
Agreement or otherwise, all as though such payment had not been made.
SECTION 2.3. Guaranty Absolute, etc. To the extent permitted by applicable law, this
Guaranty shall in all respects be a continuing, absolute, unconditional and irrevocable guaranty of
payment, and shall remain in full force and effect until the Termination Date has occurred. Each
Guarantor jointly and severally guarantees that the Secured Obligations will be paid strictly in
accordance with the terms of each Loan Document or other applicable agreement under which they
arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of any Secured Party with respect thereto. The liability
of each Guarantor under this Guaranty shall be joint and several, absolute, unconditional and
irrevocable to the extent permitted by applicable law irrespective of:
SECTION 2.3.1 any lack of validity, legality or enforceability of any Loan Document or
other applicable agreement under which such Secured Obligations arise;
SECTION 2.3.2 the failure of any Secured Party
(a) to assert any claim or demand or to enforce any right or remedy against the
Borrower or any of its Subsidiaries or any other Person (including any
3
other guarantor) under the provisions of any Loan Document or other applicable
agreement under which such Secured Obligations arise or otherwise, or
(b) to exercise any right or remedy against any other guarantor (including any
Guarantor) of, or collateral securing, any Secured Obligations;
SECTION 2.3.3 any change in the time, manner or place of payment of, or in any other
term of, all or any part of the Secured Obligations, or any other extension, compromise or
renewal of any Secured Obligation;
SECTION 2.3.4 any reduction, limitation, impairment or termination of any Secured
Obligations for any reason (other than the occurrence of the Termination Date), including
any claim of waiver, release, surrender, alteration or compromise, and shall not be subject
to (and each Guarantor hereby waives to the extent permitted by law, any right to or claim
of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of
the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of,
or any other event or occurrence affecting, any Secured Obligations or otherwise (other than
the occurrence of the Termination Date);
SECTION 2.3.5 any amendment to, rescission, waiver, or other modification of, or any
consent to or departure from, any of the terms of any Loan Document or other applicable
agreement under which such Secured Obligations arise;
SECTION 2.3.6 any addition, exchange or release of any collateral or of any Person that
is (or will become) a guarantor (including a Guarantor hereunder) of the Secured
Obligations, or any surrender or non-perfection of any collateral, or any amendment to or
waiver or release or addition to, or consent to or departure from, any other guaranty held
by any Secured Party securing any of the Secured Obligations;
SECTION 2.3.7 any law, regulation, decree or order of any jurisdiction, or any other
event, affecting any term of any Secured Obligation or any Secured Party’s rights with
respect thereto, including (i) the application of any such law, regulation, decree or order,
including any prior approval, which would prevent the remittance of funds outside of such
jurisdiction or the unavailability of Dollars in any legal exchange market in such
jurisdiction in accordance with normal commercial practice, (ii) a declaration of banking
moratorium or any suspension of payments by banks in such jurisdiction or the imposition by
such jurisdiction or any Governmental Authority thereof of any moratorium on, the required
rescheduling or restructuring of, or required approval of payments on, any indebtedness in
such jurisdiction, (iii) any expropriation, confiscation, nationalization or requisition by
such country or any Governmental Authority that directly or indirectly deprives any
Guarantor of any assets or their use or of the ability to operate its business or a material
part thereof, or (iv) any war (whether or not declared), insurrection, revolution, hostile
act, civil strife or similar events occurring in such jurisdiction which has the same effect
as the events described in clause (i), (ii) or (iii) above (in each
of the cases contemplated in clauses (i) through (iv) above, to the extent
occurring or existing on or at any time after the date of this Guaranty); or
4
SECTION 2.3.8 any other circumstance which might otherwise constitute a defense
available to, or a legal or equitable discharge of, the Borrower or any of its Subsidiaries,
any surety or any guarantor (other than payment or performance of the Secured Obligations,
in each case in full and, with respect to payments, in cash).
SECTION 2.4. Setoff. Each Secured Party shall, upon the occurrence and during the
continuance of any Event of Default described in clauses (a) through (d) of Section 8.1.9 of the
Credit Agreement or, with the consent of the Required Lenders, upon the occurrence and during the
continuance of any other Event of Default, have the right to appropriate and apply to the payment
of the Secured Obligations owing to it (if then due and payable), any and all balances, credits,
deposits, accounts or moneys of such Guarantor then or thereafter maintained with such Secured
Party (other than payroll, trust or tax accounts); provided that, any such appropriation
and application shall be subject to the provisions of Section 4.8 of the Credit Agreement. Each
Secured Party agrees promptly to notify the applicable Guarantor and the Administrative Agent after
any such appropriation and application made by such Secured Party; provided that, the
failure to give such notice shall not affect the validity of such setoff and application. The
rights of each Secured Party under this Section are in addition to other rights and remedies
(including other rights of setoff under applicable law or otherwise) which such Secured Party may
have.
SECTION 2.5. Waiver, etc. Each Guarantor hereby waives, to the extent permitted by
law, promptness, diligence, notice of acceptance and any other notice with respect to any of the
Secured Obligations and this Guaranty and any requirement that any Secured Party protect, secure,
perfect or insure any Lien, or any property subject thereto, or exhaust any right or take any
action against the Borrower or any of its Subsidiaries or any other Person (including any other
guarantor) or entity or any collateral securing the Secured Obligations, as the case may be.
SECTION 2.6. Postponement of Subrogation, etc. Each Guarantor agrees that it will, to
the extent permitted by law, not exercise any rights which it may acquire by way of rights of
subrogation under any Loan Document or other applicable agreement under which such Secured
Obligations arise to which it is a party, nor shall any Guarantor seek any contribution or
reimbursement from the Borrower or any of its Subsidiaries in respect of any payment made under any
Loan Document or other applicable agreement under which such Secured Obligations arise or
otherwise, until following the Termination Date. Any amount paid to any Guarantor on account of
any such subrogation rights prior to the Termination Date shall be held in trust for the benefit of
the Secured Parties and shall immediately be paid and turned over to the Administrative Agent for
the benefit of the Secured Parties in the exact form received by such Guarantor (duly endorsed in
favor of the Administrative Agent, if required), to be credited and applied against the outstanding
Secured Obligations, in accordance with Section 2.7; provided, however,
that if any Guarantor has made payment to the Secured Parties of all or any part of the Secured
Obligations and the Termination Date has occurred, then at such Guarantor’s request, the
Administrative Agent (on behalf of the Secured Parties) will, at the expense of such Guarantor,
execute and deliver to such Guarantor appropriate documents (without recourse and without
representation or warranty) necessary to evidence the transfer by subrogation to such Guarantor of
an interest in the Secured Obligations resulting from such payment. In furtherance of the
foregoing, at all times prior to the Termination Date, each Guarantor shall refrain from taking any
action or commencing any proceeding against the Borrower or any of its Subsidiaries (or its
successors or assigns, whether in connection with a bankruptcy proceeding or otherwise)
5
to recover any amounts in respect of payments made under this Guaranty to any Secured Party
other than as required by applicable law to preserve such rights.
SECTION 2.7. Payments; Application. Each Guarantor hereby agrees with each Secured
Party as follows to the extent permitted by applicable law:
SECTION 2.7.1 Each Guarantor agrees that all payments made by such Guarantor hereunder
will be made to the Administrative Agent, without set-off, counterclaim or other defense
(other than the defense of payment or performance) and in accordance with Sections 4.6 and
4.7 of the Credit Agreement, free and clear of and without deduction for any Taxes, each
Guarantor hereby agreeing to comply with and be bound by the provisions of Sections 4.6 and
4.7 of the Credit Agreement in respect of all payments made by it hereunder and the
provisions of which Sections are hereby incorporated into and made a part of this Guaranty
by this reference as if set forth herein; provided, that references to the
“Borrower” in such Sections shall also be deemed to be references to each Subsidiary
Guarantor.
SECTION 2.7.2 All payments made hereunder shall be applied upon receipt as set forth in
Section 4.7 of the Credit Agreement.
SECTION 2.8. Place and Currency of Payment. Each Guarantor agrees that all payments
made by such Guarantor hereunder will be made to the Administrative Agent in Dollars at 399 Park
Avenue, New York, New York or such other location as the Administrative Agent shall so designate
from time to time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
In order to induce the Secured Parties to enter into the Credit Agreement and make Credit
Extensions thereunder, and to induce the Secured Parties to enter into Rate Protection Agreements
and provide services giving rise to Cash Management Obligations, each Guarantor represents and
warrants to each Secured Party as set forth below.
SECTION 3.1. Credit Agreement Representations and Warranties. The representations and
warranties contained in Article VI of the Credit Agreement, insofar as the representations and
warranties contained therein are applicable to any Guarantor and its properties, are true and
correct in all material respects as of the date hereof, unless stated to relate solely to an
earlier date, each such representation and warranty set forth in such Article (insofar as
applicable as aforesaid) and all other terms of the Credit Agreement to which reference is made
therein, together with all related definitions and ancillary provisions, being hereby incorporated
into this Guaranty by this reference as though specifically set forth in this Article.
SECTION 3.2. Financial Condition, etc. Each Guarantor has knowledge of each other
Obligor’s financial condition and affairs and that it has adequate means to obtain from each such
Obligor on an ongoing basis information relating thereto and to such Obligor’s ability to pay and
perform the Secured Obligations, and agrees to assume the responsibility for keeping, and to keep,
so informed for so long as this Guaranty is in effect. Each Guarantor acknowledges and
6
agrees that the Secured Parties shall have no obligation to investigate the financial
condition or affairs of any Obligor for the benefit of such Guarantor nor to advise such Guarantor
of any fact respecting, or any change in, the financial condition or affairs of any other Obligor
that might become known to any Secured Party at any time, whether or not such Secured Party knows
or believes or has reason to know or believe that any such fact or change is unknown to such
Guarantor, or might (or does) materially increase the risk of such Guarantor as a guarantor, or
might (or would) affect the willingness of such Guarantor to continue as a guarantor of the Secured
Obligations.
SECTION 3.3. Best Interests. It is in the best interests of each Guarantor (other
than the Borrower) to execute this Guaranty inasmuch as such Guarantor will, as a result of being a
Subsidiary of the Borrower, derive substantial direct and indirect benefits from the Credit
Extensions made from time to time to the Borrower by the Lenders and the Issuers pursuant to the
Credit Agreement and the execution and delivery of Rate Protection Agreements between the Borrower,
other Obligors and certain Secured Parties, and each Guarantor agrees that the Secured Parties are
relying on this representation in agreeing to make Credit Extensions to the Borrower.
ARTICLE IV
COVENANTS, ETC.
Each Guarantor covenants and agrees that, at all times prior to the Termination Date, it will
perform, comply with and be bound by all of the agreements to which it is a party, covenants and
obligations contained in the Credit Agreement which are applicable to such Guarantor or its
properties, each such agreement, covenant and obligation contained in the Credit Agreement and all
other terms of the Credit Agreement to which reference is made in this Article, together with all
related definitions and ancillary provisions, being hereby incorporated into this Guaranty by this
reference as though specifically set forth in this Article.
ARTICLE V
MISCELLANEOUS PROVISIONS
SECTION 5.1. Loan Document. This Guaranty is a Loan Document executed pursuant to the
Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered
and applied in accordance with the terms and provisions thereof, including Article X thereof.
SECTION 5.2. Binding on Successors, Transferees and Assigns; Assignment. This
Guaranty shall remain in full force and effect until the Termination Date has occurred, shall be
jointly and severally binding upon each Guarantor and its successors, transferees and assigns and
shall inure to the benefit of and be enforceable by each Secured Party and its successors,
transferees and permitted assigns; provided, however, that no Guarantor may (unless
otherwise permitted under the terms of the Credit Agreement) assign any of its obligations
hereunder without the prior written consent of all Lenders.
7
SECTION 5.3. Amendments, etc. No amendment to or waiver of any provision of this
Guaranty, nor consent to any departure by any Guarantor from its obligations under this Guaranty,
shall in any event be effective unless the same shall be in writing and signed by the
Administrative Agent (on behalf of the Lenders or the Required Lenders, as the case may be,
pursuant to Section 10.1 of the Credit Agreement) and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which given.
SECTION 5.4. Notices. All notices and other communications provided for hereunder
shall be in writing or by facsimile and addressed, delivered or transmitted to the appropriate
party at the address or facsimile number of such party (in the case of any Subsidiary Guarantor, in
care of the Borrower) set forth on Schedule II to the Credit Agreement or at such other address or
facsimile number as may be designated by such party in a notice to the other party. Any notice, if
mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid
courier service, shall be deemed given when received; any such notice, if transmitted by facsimile,
shall be deemed given when the confirmation of transmission thereof is received by the transmitter.
SECTION 5.5. Additional Guarantors. Upon the execution and delivery by any other
Person of a supplement in the form of Annex I hereto, such Person shall become a
“Guarantor” hereunder with the same force and effect as if it were originally a party to this
Guaranty and named as a “Guarantor” hereunder. The execution and delivery of such supplement shall
not require the consent of any other Guarantor hereunder (except to the extent a consent has been
obtained), and the rights and obligations of each Guarantor hereunder shall remain in full force
and effect notwithstanding the addition of any new Guarantor as a party to this Guaranty.
SECTION 5.6. Release of Guarantor. Upon the occurrence of the Termination Date, this
Guaranty and all obligations of each Guarantor hereunder shall terminate, without delivery of any
instrument or performance of any act by any party. In addition, at the request of the Borrower,
and at the sole expense of the Borrower, a Subsidiary Guarantor shall be automatically released
from its obligations hereunder in the event that the Capital Securities of such Subsidiary
Guarantor are Disposed of in a transaction permitted by the Credit Agreement; provided,
that the Borrower shall have delivered to the Administrative Agent, prior to the date of the
proposed release, a written request for release identifying the relevant Subsidiary Guarantor. The
Administrative Agent agrees to deliver to the Borrower, at the Borrower’s sole expense, such
documents as the Borrower may reasonably request to evidence such termination and release.
SECTION 5.7. No Waiver; Remedies. In addition to, and not in limitation of,
Sections 2.3 and 2.5, no failure on the part of any Secured Party to exercise, and
no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 5.8. Section Captions. Section captions used in this Guaranty are for
convenience of reference only, and shall not affect the construction of this Guaranty.
8
SECTION 5.9. Severability. Wherever possible each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Guaranty shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Guaranty.
SECTION 5.10. Judgment Currency. The Secured Obligations of each Guarantor in respect
of any sum due to any Secured Party under or in respect of this Guaranty shall, notwithstanding any
judgment in a currency (the “Judgment Currency”) other than the currency in which such sum
was originally denominated (the “Original Currency”), be discharged only to the extent that
on the Business Day following receipt by such Secured Party of any sum adjudged to be so due in the
Judgment Currency, such Secured Party, in accordance with normal banking procedures, purchases the
Original Currency with the Judgment Currency. If the amount of Original Currency so purchased is
less than the sum originally due to such Secured Party, such Guarantor agrees, as a separate
obligation and notwithstanding any such judgment, to indemnify such Secured Party against such
loss, and if the amount of Original Currency so purchased exceeds the sum originally due to such
Secured Party, such Secured Party agrees to remit such excess to such Guarantor.
SECTION 5.11. Governing Law, Entire Agreement, etc. THIS GUARANTY WILL BE DEEMED TO
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR
SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
This Guaranty and the other Loan Documents constitute the entire understanding among the parties
hereto with respect to the subject matter hereof and thereof and supersede any prior agreements,
written or oral, with respect thereto.
SECTION 5.12. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, ANY LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE
AGENT, THE LENDERS, THE ISSUER OR ANY GUARANTOR IN CONNECTION HEREWITH OR THEREWITH MAY BE BROUGHT
AND MAINTAINED IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT’S
OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.
EACH GUARANTOR IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID,
OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK AT THE ADDRESS FOR NOTICES SPECIFIED
FOR THE BORROWER IN SECTION 10.2 OF THE CREDIT AGREEMENT. EACH GUARANTOR HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR
HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED
TO ABOVE AND ANY CLAIM THAT
9
ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT ANY
GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID
OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH GUARANTOR HEREBY
IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THE LOAN DOCUMENTS.
SECTION 5.13. Waiver of Jury Trial. THE ADMINISTRATIVE AGENT (ON BEHALF OF ITSELF AND
EACH OTHER SECURED PARTY) AND EACH GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, EACH LOAN DOCUMENT,
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE
ADMINISTRATIVE AGENT, SUCH LENDER, THE ISSUER OR SUCH GUARANTOR IN CONNECTION THEREWITH. EACH
GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS
PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT, EACH LENDER AND THE ISSUER
ENTERING INTO THE LOAN DOCUMENTS.
SECTION 5.14. Counterparts. This Guaranty may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of which shall
constitute together but one and the same agreement. Delivery of an executed counterpart of a
signature page to this Guaranty by facsimile (or other electronic transmission) shall be effective
as delivery of a manually executed counterpart of this Guaranty.
10
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly executed and delivered
by its Authorized Officer, solely in such capacity and not as an individual, as of the date first
above written.
HANESBRANDS INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HBI BRANDED APPAREL LIMITED, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HANESBRANDS DIRECT, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| UPEL, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| CARIBETEX, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Signature Page to Guaranty]
SEAMLESS TEXTILES, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| BA INTERNATIONAL, L.L.C. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HBI INTERNATIONAL, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HBI BRANDED APPAREL ENTERPRISES, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| CASA INTERNATIONAL, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| UPCR, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Signature Page to Guaranty]
HBI SOURCING, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| CEIBENA DEL, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HANESBRANDS DISTRIBUTION, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| CARIBESOCK, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HANES PUERTO RICO, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| PLAYTEX INDUSTRIES, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Signature Page to Guaranty]
INNER SELF LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| PLAYTEX DORADO, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HANES MENSWEAR, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| JASPER-COSTA RICA, L.L.C. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Signature Page to Guaranty]
| ACCEPTED AND AGREED FOR ITSELF AND ON BEHALF OF THE SECURED PARTIES: JPMORGAN CHASE BANK, N.A., as Administrative Agent |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Signature Page to Guaranty]
ANNEX I to
the Guaranty
the Guaranty
THIS
SUPPLEMENT, dated as of , (this “Supplement”), is to the
Amended and Restated Guaranty, dated as of December [ ], 2009 (as amended, supplemented, amended
and restated or otherwise modified from time to time, the “Guaranty”), among the Guarantors
(such capitalized term, and other terms used in this Supplement, to have the meanings set forth or
incorporated by reference in Article I of the Guaranty) from time to time party thereto, in favor
of JPMORGAN CHASE BANK, N.A., as administrative agent (together with its successor(s) thereto in
such capacity, the “Administrative Agent”) for each of the Secured Parties.
W I T N E S S E T H:
WHEREAS, pursuant to the provisions of Section 5.5 of the Guaranty, each of the undersigned is
becoming a Subsidiary Guarantor under the Guaranty; and
WHEREAS, each of the undersigned desires to become a “Guarantor” under the Guaranty in order
to induce the Secured Parties to continue to extend Credit Extensions under the Credit Agreement;
NOW, THEREFORE, in consideration of the premises, and for other consideration (the receipt and
sufficiency of which is hereby acknowledged), each of the undersigned agrees, for the benefit of
each Secured Party, as follows.
(i) Party to Guaranty, etc. In accordance with the terms of the Guaranty, by its
signature below, each of the undersigned hereby irrevocably agrees to become a Subsidiary Guarantor
under the Guaranty with the same force and effect as if it were an original signatory thereto and
each of the undersigned hereby (a) agrees to be bound by and comply with all of the terms and
provisions of the Guaranty applicable to it as a Subsidiary Guarantor and (b) represents and
warrants that the representations and warranties made by it as a Subsidiary Guarantor thereunder
are true and correct in all material respects as of the date hereof, unless stated to relate solely
to an earlier date. In furtherance of the foregoing, each reference to a “Guarantor” and/or
“Guarantors” in the Guaranty shall be deemed to include each of the undersigned.
(ii) Representations. Each of the undersigned hereby represents and warrants that
this Supplement has been duly authorized, executed and delivered by it and that this Supplement and
the Guaranty constitute the legal, valid and binding obligation of each of the undersigned,
enforceable (except, in any case, as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors’ rights generally and by principles
of equity) against it in accordance with its terms.
(iii) Full Force of Guaranty. Except as expressly supplemented hereby, the Guaranty
shall remain in full force and effect in accordance with its terms.
(iv) Severability. Wherever possible each provision of this Supplement shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Supplement shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Supplement or the Guaranty.
(v) Indemnity; Fees and Expenses, etc. Without limiting the provisions of any other
Loan Document, each of the undersigned agrees to reimburse the Administrative Agent for its
reasonable out-of-pocket expenses incurred in connection with this Supplement, including reasonable
attorney’s fees and out-of-pocket expenses of the Administrative Agent’s counsel.
(vi) Governing Law, Entire Agreement, etc. THIS SUPPLEMENT WILL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH
PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). This
Supplement and the other Loan Documents constitute the entire understanding among the parties
hereto with respect to the subject matter hereof and thereof and supersede any prior agreements,
written or oral, with respect thereto.
(vii) Counterparts. This Supplement may be executed by the parties hereto in several
counterparts, each of which shall be deemed to be an original and all of which shall constitute
together but one and the same agreement. Delivery of an executed counterpart of a signature page
to this Supplement by facsimile (or other electronic transmission) shall be effective as delivery
of a manually executed counterpart of this Supplement.
2
IN WITNESS WHEREOF, each of the undersigned has caused this Supplement to be duly executed and
delivered by its Authorized Officer as of the date first above written.
| [NAME OF ADDITIONAL SUBSIDIARY] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| [NAME OF ADDITIONAL SUBSIDIARY] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| [NAME OF ADDITIONAL SUBSIDIARY] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
ACCEPTED AND AGREED FOR ITSELF
AND ON BEHALF OF THE SECURED PARTIES:
AND ON BEHALF OF THE SECURED PARTIES:
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent
as Administrative Agent
| By: | |||
| Name: | |||
| Title: | |||
EXHIBIT G
FORM OF
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
This AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT, dated as of December [ ], 2009 (as
amended, supplemented, amended and restated or otherwise modified from time to time, this
“Security Agreement”), is made by HANESBRANDS INC., a Maryland corporation (the
“Borrower”), and each Subsidiary Guarantor (terms used in the preamble and the recitals
have the definitions set forth in or incorporated by reference in Article I) from time to
time a party to this Security Agreement (each individually a “Grantor” and collectively,
the “Grantors”), in favor of JPMORGAN CHASE BANK, N.A., a national banking association
organized under the laws of the United States, as the administrative and the collateral agent
(together with its successor(s) thereto in such capacities, the “Administrative Agent” and
the “Collateral Agent”, respectively) for each of the Secured Parties.
WHEREAS, the Borrower, Citicorp USA, Inc., as administrative agent, and the other agents and
lenders party thereto entered into that certain Credit Agreement dated as of September 5, 2006 (the
“Existing Credit Agreement”);
WHEREAS, pursuant to the Existing Credit Agreement, a Pledge and Security Agreement (the
“Existing Security Agreement”), dated as of September 5, 2006, was entered into among the
Borrower, the other grantors party thereto and Citicorp USA, Inc., as the administrative agent and
Citibank, N.A. as the collateral agent for each of the secured parties referred to therein;
WHEREAS, pursuant to an Amended and Restated Credit Agreement, dated as of December [ ],
2009 (as further amended, supplemented, amended and restated or otherwise modified from time to
time, the “Credit Agreement”), among the Borrower, the Lenders, Barclays Bank PLC and
Goldman Sachs Credit Partners L.P. as the Co-Documentation Agents, Bank of America, N.A. and HSBC
Securities (USA) Inc., as the Co-Syndication Agents, the Administrative Agent, the Collateral
Agent, and J.P. Morgan Securities Inc., Bank of America Securities LLC, HSBC Securities (USA) Inc.
and Barclays Capital as the Joint Lead Arrangers and Joint Bookrunners, the Lenders and the Issuers
have extended Commitments to make Credit Extensions to the Borrower; and
WHEREAS, as a condition precedent to the making of the Credit Extensions under the Credit
Agreement, each Grantor is required to execute and deliver this Security Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, each Grantor agrees, for the benefit of each Secured Party, that the Existing
Security Agreement is hereby amended and restated as of the Restatement Effective Date to read in
its entirety as follows:
ARTICLE I
DEFINITIONS
DEFINITIONS
SECTION 1.1. Certain Terms. The following terms (whether or not underscored) when
used in this Security Agreement, including its preamble and recitals, shall have the following
meanings (such definitions to be equally applicable to the singular and plural forms thereof):
“Administrative Agent” is defined in the preamble.
“Borrower” is defined in the preamble.
“Collateral” is defined in Section 2.1.
“Collateral Account” is defined in clause (b) of Section 4.3.
“Collateral Agent” is defined in the preamble.
“Computer Hardware and Software Collateral” means all of the Grantors’ right, title
and interest in and to:
(a) all computer and other electronic data processing hardware, integrated computer
systems, central processing units, memory units, display terminals, printers, features,
computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical
supply hardware, generators, power equalizers, accessories and all peripheral devices and
other related computer hardware, including all operating system software, utilities and
application programs in whatsoever form;
(b) all software programs (including both source code, object code and all related
applications and data files), designed for use on the computers and electronic data
processing hardware described in clause (a) above;
(c) all firmware associated therewith;
(d) all documentation (including flow charts, logic diagrams, manuals, guides,
specifications, training materials, charts and pseudo codes) with respect to such hardware,
software and firmware described in the preceding clauses (a) through (c);
and
(e) all rights with respect to all of the foregoing, including copyrights, licenses,
options, warranties, service contracts, program services, test rights, maintenance rights,
support rights, improvement rights, renewal rights and indemnifications and any
substitutions, replacements, improvements, error corrections, updates, additions or model
conversions of any of the foregoing;
provided that the foregoing shall not include Excluded Collateral.
“Control Agreement” means an authenticated record in form and substance reasonably
satisfactory to the Collateral Agent that provides for the Collateral Agent to have “control” (as
defined in the UCC) over certain Collateral as provided herein.
2
“Copyright Collateral” means all of the Grantors’ right, title and interest in and to:
(a) all U.S. copyrights, registered or unregistered and whether published or
unpublished, now or hereafter in force including copyrights registered or applied for in the
United States Copyright Office, and registrations and recordings thereof and all
applications for registration thereof, whether pending or in preparation and all extensions
and renewals of the foregoing (“Copyrights”), including the Copyrights which are the
subject of a registration or application referred to in Item A of Schedule
V;
(b) all express or implied Copyright licenses and other agreements for the grant by or
to such Grantor of any right to use any items of the type referred to in clause (a) above
(each a “Copyright License”), including each Copyright License referred to in
Item B of Schedule V;
(c) the right to sue for past, present and future infringements of any of the
Copyrights owned by such Grantor, and for breach or enforcement of any Copyright License;
and
(d) all proceeds of, and rights associated with, the foregoing (including Proceeds,
licenses, royalties, income, payments, claims, damages and proceeds of infringement suits);
provided that the foregoing shall not include Excluded Collateral.
“Credit Agreement” is defined in the third recital.
“Distributions” means all dividends paid on Capital Securities, liquidating dividends
paid on Capital Securities, shares (or other designations) of Capital Securities resulting from (or
in connection with the exercise of) stock splits, reclassifications, warrants, options, non-cash
dividends, mergers, consolidations, and all other distributions on or with respect to any Capital
Securities constituting Collateral.
“Excluded Accounts” means payroll accounts, petty cash accounts, pension fund
accounts, 401(k) accounts, zero-balance accounts and other accounts that any Grantor may hold in
trust for others.
“Excluded Collateral” is defined in Section 2.1.
“Existing Credit Agreement” is defined in the first recital.
“Existing Security Agreement” is defined in the second recital.
“General Intangibles” means all “general intangibles” and all “payment intangibles”,
each as defined in the UCC, and shall include all interest rate or currency protection or hedging
arrangements, all tax refunds, all licenses, permits, concessions and authorizations and all
Intellectual Property Collateral (in each case, regardless of whether characterized as general
intangibles under the UCC).
3
“Grantor” and “Grantors” are defined in the preamble.
“Intellectual Property” means Trademarks, Patents, Copyrights, Trade Secrets and all
other similar types of intellectual property under any law, statutory provision or common law
doctrine in the United States.
“Intellectual Property Collateral” means, collectively, the Computer Hardware and
Software Collateral, the Copyright Collateral, the Patent Collateral, the Trademark Collateral and
the Trade Secrets Collateral.
“Owned Intellectual Property Collateral” means all Intellectual Property Collateral
that is owned by the Grantors.
“Patent Collateral” means all of the Grantors’ right, title and interest in and to:
(a) inventions and discoveries, whether patentable or not, all letters patent and
applications for United States letters patent, including all United States patent
applications in preparation for filing, including all reissues, divisions, continuations,
continuations-in-part, extensions, renewals and reexaminations of any of the foregoing,
including all patents issued by, or patent applications filed with, the United States Patent
and Trademark Office (“Patents”), including each Patent and Patent application
referred to in Item A of Schedule III;
(b) all Patent licenses, and other agreements for the grant by or to such Grantor of
any right to use any items of the type referred to in clause (a) above (each a
“Patent License”), including each Patent License referred to in Item B of
Schedule III;
(c) the right to sue third parties for past, present and future infringements of any
Patent or Patent application, and for breach or enforcement of any Patent License; and
(d) all proceeds of, and rights associated with, the foregoing (including Proceeds,
licenses, royalties, income, payments, claims, damages and proceeds of infringement suits);
provided that the foregoing shall not include Excluded Collateral.
“Permitted Liens” means all Liens permitted by Section 7.2.3 of the Credit Agreement
or any other Loan Document.
“Secured Obligations” means, collectively, the Obligations, the Cash Management
Obligations and all Indebtedness of any Foreign Subsidiary or Obligor, as applicable, permitted
under clause (n) of Section 7.2.2 of the Credit Agreement owing to a Foreign Working Capital
Lender.
“Securities Act” is defined in clause (a) of Section 6.2.
“Security Agreement” is defined in the preamble.
4
“Trademark Collateral” means all of the Grantors’ right, title and interest in and to:
(a) (i) all United States trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, certification marks,
collective marks, logos and other source or business identifiers, and all goodwill of the
business associated therewith, now existing or hereafter adopted or acquired, whether
currently in use or not, all registrations and recordings thereof and all applications in
connection therewith, whether pending or in preparation for filing, including registrations,
recordings and applications in the United States Patent and Trademark Office, and all
common-law rights relating to the foregoing, and (ii) the right to obtain all reissues,
extensions or renewals of the foregoing (collectively referred to as “Trademarks”),
including those Trademarks referred to in Item A of Schedule IV;
(b) all Trademark licenses and other agreements for the grant by or to such Grantor of
any right to use any Trademark (each a “Trademark License”), including each
Trademark License referred to in Item B of Schedule IV; and
(c) all of the goodwill of the business connected with the use of, and symbolized by
the Trademarks described in clause (a) and, to the extent applicable, clause
(b);
(d) the right to sue third parties for past, present and future infringements or
dilution of the Trademarks described in clause (a) and, to the extent applicable,
clause (b) or for any injury to the goodwill associated with the use of any such
Trademark or for breach or enforcement of any Trademark License; and
(e) all proceeds of, and rights associated with, the foregoing (including Proceeds,
licenses, royalties, income, payments, claims, damages and proceeds of infringement suits);
provided that the foregoing shall not include Excluded Collateral.
“Trade Secrets Collateral” means all of the Grantors’ right, title and interest
throughout the world in and to (a) all common law and statutory trade secrets and all other
confidential, proprietary or useful information and all know how (collectively referred to as
“Trade Secrets”) obtained by or used in or contemplated at any time for use in the business
of a Grantor, whether or not such Trade Secret has been reduced to a writing or other tangible
form, including all Documents and things embodying, incorporating or referring in any way to such
Trade Secret, (b) all Trade Secret licenses and other agreements for the grant by or to such
Grantor of any right to use any Trade Secret (each a “Trade Secret License”) including the
right to sue for and to enjoin and to collect damages for the actual or threatened misappropriation
of any Trade Secret and for the breach or enforcement of any such Trade Secret License, and (d) all
proceeds of, and rights associated with, the foregoing (including Proceeds, licenses, royalties,
income, payments, claims, damages and proceeds of infringement suits);
provided that the foregoing shall not include Excluded Collateral.
5
SECTION 1.2. Credit Agreement Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Security Agreement, including its preamble and
recitals, have the meanings provided in the Credit Agreement.
SECTION 1.3. UCC Definitions. When used herein the terms Account, Certificate of
Title, Certificated Securities, Chattel Paper, Commercial Tort Claim, Commodity Account, Commodity
Contract, Deposit Account, Document, Electronic Chattel Paper, Equipment, Goods, Instrument,
Inventory, Investment Property, Letter-of-Credit Rights, Payment Intangibles, Proceeds, Promissory
Notes, Securities Account, Security Entitlement, Supporting Obligations and Uncertificated
Securities have the meaning provided in Article 8 or Article 9, as applicable, of the UCC. Letters
of Credit has the meaning provided in Section 5-102 of the UCC.
ARTICLE II
SECURITY INTEREST
SECURITY INTEREST
SECTION 2.1. Grant of Security Interest. Each Grantor hereby grants to the Collateral
Agent, for its benefit and the ratable benefit of each other Secured Party, a continuing security
interest in all of such Grantor’s right, title and interest in and to the following property,
whether now or hereafter existing, owned or acquired by such Grantor, and wherever located,
(collectively, the “Collateral”):
(a) Accounts;
(b) Chattel Paper;
(c) Commercial Tort Claims listed on Item I of Schedule II (as such
schedule may be amended or supplemented from time to time);
(d) Deposit Accounts;
(e) Documents;
(f) General Intangibles;
(g) Goods;
(h) Instruments;
(i) Investment Property;
(j) Letter-of-Credit Rights and Letters of Credit;
(k) Supporting Obligations;
(l) all books, records, writings, databases, information and other property relating
to, used or useful in connection with, evidencing, embodying, incorporating or referring to,
any of the foregoing in this Section;
6
(m) all Proceeds and products of the foregoing and, to the extent not otherwise
included, all payments under insurance (whether or not the Collateral Agent is the loss
payee thereof); and
(n) all other property and rights of every kind and description and interests therein.
Notwithstanding the foregoing, the term “Collateral” shall not include the following
(collectively, the “Excluded Collateral”):
(i) any General Intangibles, healthcare insurance receivables or other rights
arising under any contracts, instruments, licenses or other documents as to which
the grant of a security interest would (A) constitute a violation of a valid and
enforceable restriction in favor of a third party on such grant, unless any required
consent shall have been obtained, (B) give any other party to such contract,
instrument, license or other document the right to terminate its obligations
thereunder, or (C) otherwise cause such Grantor to lose material rights thereunder;
(ii) Investment Property consisting of Capital Securities of a direct Foreign
Subsidiary of such Grantor, in excess of 65% of the total combined voting power of
all Capital Securities of each such direct Foreign Subsidiary, except that such 65%
limitation shall not apply to a direct Foreign Subsidiary that (x) is treated as a
partnership under the Code or (y) is not treated as an entity that is separate from
(A) such Grantor; (B) any Person that is treated as a partnership under the Code or
(C) any “United States person” (as defined in Section 7701(a)(30) of the Code);
(iii) any Investment Property (other than Equity Interests of a Subsidiary) of
any of the Grantors to the extent that applicable law or the organizational
documents or other applicable agreements among the investors of such Person with
respect to any such Investment Property (A) does not permit the grant of a security
interest in such interest or an assignment of such interest or requires the consent
of any third party to permit such grant of a security interest or assignment or (B)
would, following the grant of a security interest or assignment hereunder, would
cause any other Person (other than the Borrower or any of its Subsidiaries) to have
the right to purchase such Investment Property;
(iv) any real or personal property, the granting of a security interest in
which would be void or illegal under any applicable governmental law, rule or
regulation, or pursuant thereto would result in, or permit the termination of, such
asset;
(v) any real or personal property subject to a Permitted Lien (other than Liens
in favor of the Collateral Agent) to the extent that the grant of other Liens on
such asset (A) would result in a breach or violation of, or constitute a default
under, the agreement or instrument governing such Permitted Lien, (B)
7
would result in the loss of use of such asset, (C) would permit the holder of
such Permitted Lien to terminate such Grantor’s use of such asset or (D) would
otherwise result in a loss of material rights of such Grantor in such asset;
(vi) any Excluded Accounts; or
(vii) any applications for United States trademark registration pursuant to IS
U.S.L. §1051(b) (i.e., an intent-to-use application), until such time as such
registration is granted or, if earlier, the date of first use of the trademark, at
which point such application or registration shall constitute Collateral.
SECTION 2.2. Security for Secured Obligations. This Security Agreement and the
Collateral in which the Collateral Agent for the benefit of the Secured Parties is granted a
security interest hereunder by the Grantors secure the payment and performance of all of the
Secured Obligations.
SECTION 2.3. Grantors Remain Liable. Anything herein to the contrary notwithstanding,
to the extent permitted by applicable law:
(a) the Grantors will remain liable under the contracts and agreements included in the
Collateral to the extent set forth therein, and will perform all of their duties and
obligations under such contracts and agreements to the same extent as if this Security
Agreement had not been executed;
(b) the exercise by the Collateral Agent of any of its rights hereunder will not
release any Grantor from any of its duties or obligations under any such contracts or
agreements included in the Collateral; and
(c) no Secured Party will have any obligation or liability under any contracts or
agreements included in the Collateral by reason of this Security Agreement, nor will any
Secured Party be obligated to perform any of the obligations or duties of any Grantor
thereunder or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION 2.4. Distributions on Pledged Shares. In the event that any Distribution with
respect to any Capital Securities pledged hereunder is permitted to be paid (in accordance with
Section 7.2.6 of the Credit Agreement), such Distribution or payment may be paid directly to the
applicable Grantor. If any Distribution is made in contravention of Section 7.2.6 of the Credit
Agreement, such Grantor shall hold the same segregated and for the benefit of the Collateral Agent
until paid to the Collateral Agent in accordance with Section 4.1.5.
SECTION 2.5. Security Interest Absolute, etc. To the extent permitted by applicable
law, this Security Agreement shall in all respects be a continuing, absolute, unconditional and
irrevocable grant of security interest, and shall remain in full force and effect until the
Termination Date. To the extent permitted by applicable law, all rights of the Secured Parties and
the security interests granted to the Collateral Agent (for its benefit and the ratable benefit of
each other Secured Party) hereunder, and all obligations of the Grantors hereunder, shall, in each
case, be absolute, unconditional and irrevocable, irrespective of:
8
(a) any lack of validity, legality or enforceability of any Loan Document or other
applicable agreement under which such Secured Obligations arise;
(b) the failure of any Secured Party (i) to assert any claim or demand or to enforce
any right or remedy against the Borrower or any of its Subsidiaries or any other Person
(including any other Grantor) under the provisions of any Loan Document or other applicable
agreement under which such Secured Obligations arise or otherwise, or (ii) to exercise any
right or remedy against any other guarantor (including any other Grantor) of, or Collateral
securing, any Secured Obligations;
(c) any change in the time, manner or place of payment of, or in any other term of, all
or any part of the Secured Obligations, or any other extension, compromise or renewal of any
Secured Obligations;
(d) any reduction, limitation, impairment or termination of any Secured Obligations for
any reason (other than the occurrence of the Termination Date), including any claim of
waiver, release, surrender, alteration or compromise, and shall not be subject to (and each
Grantor hereby waives (to the extent permitted by law) any right to or claim of) any defense
or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other
event or occurrence affecting, any Secured Obligations or otherwise;
(e) any amendment to, rescission, waiver, or other modification of, or any consent to
or departure from, any of the terms of any Loan Document or other applicable agreement under
which such Secured Obligations arise;
(f) any addition, exchange or release of any Collateral or of any Person that is (or
will become) a Grantor (including the Grantors hereunder) of the Secured Obligations, or any
surrender or non-perfection of any Collateral, or any amendment to or waiver or release or
addition to, or consent to or departure from, any other guaranty held by any Secured Party
securing any of the Secured Obligations; or
(g) any other circumstance (other than payment or performance of the Secured
Obligations, in each case in full and, with respect to payments, in cash) which might
otherwise constitute a defense available to, or a legal or equitable discharge of, the
Borrower or any of its Subsidiaries, any surety or any guarantor.
SECTION 2.6. Postponement of Subrogation. Each Grantor agrees that it will not
exercise any rights against another Grantor which it may acquire by way of rights of subrogation
under any Loan Document or other applicable agreement under which such Secured Obligations arise to
which it is a party until the Termination Date. No Grantor shall seek any contribution or
reimbursement from the Borrower or any of its Subsidiaries, in respect of any payment made under
any Loan Document or other applicable agreement under which such Secured Obligations arise or
otherwise, until following the Termination Date. Any amount paid to such Grantor on account of any
such subrogation rights prior to the Termination Date shall be held in trust for the benefit of the
Secured Parties and shall immediately be paid and turned over to the Collateral Agent for the
benefit of the Secured Parties in the exact form received by such Grantor (duly
9
endorsed in favor of the Collateral Agent, if required), to be credited and applied against
the outstanding Secured Obligations in accordance with Section 6.1; provided that
if such Grantor has made payment to the Secured Parties of all or any part of the Secured
Obligations and the Termination Date has occurred, then upon such Grantor’s notice to the
Collateral Agent of such payment and request, the Collateral Agent (on behalf of the Secured
Parties) will, at the expense of such Grantor, execute and deliver to such Grantor appropriate
documents (without recourse and without representation or warranty) necessary to evidence the
transfer by subrogation to such Grantor of an interest in the Secured Obligations resulting from
such payment. In furtherance of the foregoing, at all times prior to the Termination Date, such
Grantor shall refrain from taking any action or commencing any proceeding against the Borrower or
any of its Subsidiaries (or its successors or assigns, whether in connection with a bankruptcy
proceeding or otherwise) to recover any amounts in respect of payments made under this Security
Agreement to any Secured Party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES
In order to induce the Secured Parties to enter into the Credit Agreement and make Credit
Extensions thereunder, and to induce the Secured Parties to enter into Rate Protection Agreements
and provide services giving rise to Cash Management Obligations, after giving effect to the
Transaction, the Grantors represent and warrant to each Secured Party as set forth below.
SECTION 3.1. As to Capital Securities of the Subsidiaries, Investment Property.
(a) With respect to any direct U.S. Subsidiary of any Grantor that is
(i) a corporation, business trust, joint stock company or similar Person, all
Capital Securities issued by such Subsidiary is duly authorized and validly issued,
fully paid and non-assessable; and
(ii) a partnership or limited liability company, no Capital Securities issued
by such Subsidiary (A) is dealt in or traded on securities exchanges or in
securities markets, (B) expressly provides that such Capital Securities is a
security governed by Article 8 of the UCC or (C) is held in a Securities Account,
except, with respect to this clause (a)(ii), Capital Securities (x) for
which the the Collateral Agent is the registered owner or (y) with respect to which
the issuer has agreed in an authenticated record with such Grantor and the
Collateral Agent to comply with any written instructions of the Collateral Agent
without the consent of such Grantor; provided that the Grantor shall have
the right to provide instructions to such issuer until such issuer receives notice
of sole control from the Collateral Agent during the continuance of an Event of
Default; provided further that upon the cure or waiver of all Events
of Default, the Grantor shall have the right to give instructions to the issuer.
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(b) Subject to Section 7.1.11 of the Credit Agreement, each Grantor has delivered all
Certificated Securities constituting Collateral held by such Grantor on the Restatement
Effective Date to the Collateral Agent, together with duly executed undated blank stock
powers, or other equivalent instruments of transfer reasonably acceptable to the Collateral
Agent.
(c) Subject to the permitted update to Schedule I pursuant to Section 7.1.11 of
the Credit Agreement, as of the Restatement Effective Date, the percentage of the issued and
outstanding Capital Securities of each Subsidiary pledged by each Grantor hereunder is as
set forth on Schedule I.
SECTION 3.2. Grantor Name, Location, etc.
(a) As of the Restatement Effective Date, the jurisdiction in which each Grantor is
located for purposes of Sections 9-301 and 9-307 of the UCC is set forth in Item A
of Schedule II.
(b) As of the Restatement Effective Date, each Grantor’s organizational identification
number is set forth in Item B of Schedule II.
(c) During the four months preceding the Restatement Effective Date, no Grantor has
been known by any legal name different from the one set forth on the signature page hereto,
nor has such Grantor been the subject of any merger or other corporate reorganization,
except as set forth in Item C of Schedule II hereto.
(d) As of the Restatement Effective Date, each Grantor’s federal taxpayer
identification number is (and, during the four months preceding the date hereof, such
Grantor has not had a federal taxpayer identification number different from that) set forth
in Item D of Schedule II hereto.
(e) As of the Restatement Effective Date, no Grantor is a party to any federal, state
or local government contract with a value individually in excess of $2,000,000, except as
set forth in Item E of Schedule II hereto.
(f) As of the Restatement Effective Date, no Grantor maintains any Deposit Accounts
(other than Excluded Accounts), Securities Accounts or Commodity Accounts with any Person,
in each case, except as set forth on Item F of Schedule II.
(g) As of the Restatement Effective Date, no Grantor is the beneficiary of any Letters
of Credit, except as set forth on Item G of Schedule II.
(h) As of the Restatement Effective Date, no Grantor has Commercial Tort Claims (x) in
which a suit has been filed by such Grantor and (y) where the amount of damages reasonably
expected to be claimed individually exceeds $2,000,000, except as set forth on Item
H of Schedule II.
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(i) As of the Restatement Effective Date, the name set forth on the signature page
attached hereto is the true and correct legal name (as defined in the UCC) of each Grantor.
SECTION 3.3. Ownership, No Liens, etc. Each Grantor owns its Collateral free and
clear of any Lien, except for any security interest (a) created by this Security Agreement and (b)
in the case of Collateral other than Certificated Securities, a Permitted Lien. No effective UCC
financing statement or other filing similar in effect covering all or any part of the Collateral is
on file in any recording office, except those filed in favor of the Collateral Agent relating to
this Security Agreement, those filed pursuant to the Existing Security Agreement (which shall have
been amended to be in favor of the Collateral Agent for the benefit of the Secured Parties),
Permitted Liens, filings which have not been authorized by the applicable Grantor or as to which a
duly authorized termination statement relating to such UCC financing statement or other instrument
has been delivered to the Collateral Agent on the Restatement Effective Date.
SECTION 3.4. Possession of Inventory, Control; etc.
(a) Each Grantor has, and agrees that it will maintain, exclusive possession of its
Documents, Instruments, Promissory Notes (not otherwise delivered to the Collateral Agent),
Goods, Equipment and Inventory maintained in the U.S., other than (i) Equipment and
Inventory in transit or out for repair or refurbishing in the ordinary course of business,
(ii) Equipment and Inventory that is in the possession or control of a consignee,
warehouseman, bailee agent or other Person (other than an Affiliate of such Grantor) located
in the United States in the ordinary course of business; provided that, to the
extent the fair market value (as determined in good faith by an Authorized Officer of the
applicable Grantor) in any U.S. location exceeds $5,000,000 and following notice from the
Collateral Agent (at the request of the Required Lenders) following the occurrence and
during the continuance of an Event of Default such Grantor shall promptly notify such
Persons of the security interest created in favor of the Secured Parties pursuant to this
Security Agreement, and such Grantor shall use commercially reasonable efforts to cause such
party to authenticate a record acknowledging that it holds possession of such Collateral for
the Secured Parties’ benefit and waives or subordinates any Lien held by it against such
Collateral, (iii) Instruments or Promissory Notes that have been delivered to the Collateral
Agent pursuant to Section 3.5 or are not otherwise required to be delivered
hereunder and (iv) such other Documents, Instruments, Promissory Notes, Goods, Equipment and
Inventory with a fair market value (as determined in good faith by an Authorized Officer of
the applicable Grantor) of $2,000,000 in the aggregate. To each Grantor’s knowledge as of
the date hereof, in the case of Equipment or Inventory described in clause (ii)
above, no lessor or warehouseman of any premises or warehouse upon or in which such
Equipment or Inventory is located has (A) issued any warehouse receipt or other receipt in
the nature of a warehouse receipt in respect of any such Equipment or Inventory, (B) issued
any Document for any such Equipment or Inventory, (C) received notification of any Secured
Party’s interest (other than the security interest granted hereunder) in any such Equipment
or Inventory or (D) received notification of any Lien on any such Equipment or Inventory
(other than Permitted Liens).
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(b) Each Grantor is the sole entitlement holder of its Accounts and no other Person
(other than the Collateral Agent pursuant to this Security Agreement or any other Person
with respect to Permitted Liens) has control or possession of, or any other interest in, any
of its Accounts or any other securities or property credited thereto.
SECTION 3.5. Negotiable Documents, Instruments and Chattel Paper. Each Grantor has
delivered to the Collateral Agent possession of all originals of all Documents, Instruments,
Promissory Notes, and tangible Chattel Paper with an individual fair market value (as determined in
good faith by an Authorized Officer of the applicable Grantor) of at least $2,000,000 owned or held
by the Grantor on the Restatement Effective Date.
SECTION 3.6. Intellectual Property Collateral.
(a) In respect of the Intellectual Property Collateral as of the Restatement Effective
Date:
(i) set forth in Item A of Schedule III hereto is a complete
and accurate list of all issued and applied-for U.S. Patents owned by the Grantors
and set forth in Item B of Schedule III hereto is a complete and
accurate list of all Patent Licenses;
(ii) set forth in Item A of Schedule IV hereto is a complete
and accurate list all U.S. registered and applied-for U.S. Trademarks owned by the
Grantors, including those that are registered, or for which an application for
registration has been made, with the United States Patent and Trademark Office and
set forth in Item B of Schedule IV hereto is a complete and accurate
list all Trademark Licenses; and
(iii) set forth in Item A of Schedule V hereto is a complete
and accurate list of all registered and applied-for U.S. Copyrights owned by the
Grantors, and set forth in Item B of Schedule V hereto is a complete
and accurate list of all Copyright Licenses and a complete and accurate list of all
Copyright Licenses that are exclusive licenses granted to the Grantors in respect of
any Copyright that is registered with the United States Copyright Office.
(b) Except as disclosed on Schedules III through V, in respect of each
Grantor:
(i) the Owned Intellectual Property Collateral is valid, subsisting, unexpired
and enforceable (except, in any case, as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors’ rights generally and by principles of equity) and has not been abandoned
or adjudged invalid or unenforceable (except, in any case, as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors’ rights generally and by principles of equity), in whole or in
part, except where the loss or expiration of such Owned Intellectual Property
Collateral would not be expected to have a Material Adverse Effect;
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(ii) such Grantor is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to the Owned Intellectual Property
Collateral (except for the Permitted Liens) and no written claim which has a
reasonable likelihood of an adverse determination and if adversely determined
against any Grantor would reasonably be expected to have a Material Adverse Effect,
has been made that such Grantor is or may be, in conflict with, infringing,
misappropriating, diluting, misusing or otherwise violating any of the rights of any
third party or that challenges the ownership, use, protectability, registerability,
validity, enforceability of any Owned Intellectual Property Collateral or, to such
Grantor’s knowledge, any other Intellectual Property Collateral and, to such
Grantor’s knowledge neither such Grantor nor the Intellectual Property Collateral
conflict with, infringe, misappropriate or dilute or otherwise violate the rights of
any third party;
(iii) such Grantor has made all necessary filings and recordations (in its
reasonable business judgment) to protect its interest in any Owned Intellectual
Property Collateral that is material to the operations or business of such Grantor,
including recordations of its interests in the United States Patents, the United
States registered Trademarks and applications thereof and the United States
registered Copyrights and applications thereof in the United States Patent and
Trademark Office and the United States Copyright Office, and has used proper
statutory notice, as applicable, in connection with its use of any Patent, Trademark
or Copyright;
(iv) such Grantor has taken all commercially reasonable steps to safeguard its
Trade Secrets and to its knowledge (A) none of the Trade Secrets of such Grantor has
been used, divulged, disclosed or appropriated for the benefit of any other Person
other than such Grantor which could reasonably be expected to result in a Material
Adverse Effect; (B) no employee, independent contractor or agent of such Grantor has
misappropriated any Trade Secrets of any other Person in the course of the
performance of his or her duties as an employee, independent contractor or agent of
such Grantor which could reasonably be expected to result in a Material Adverse
Effect; and (C) no employee, independent contractor or agent of such Grantor is in
default or breach of any term of any employment agreement, non-disclosure agreement,
assignment of inventions agreement or similar agreement or contract relating in any
way to the protection, ownership, development, use or transfer of such Grantor’s
Intellectual Property Collateral, which could reasonably be expected to result in a
Material Adverse Effect;
(v) no action by such Grantor is currently pending or threatened in writing
which asserts that any third party is infringing, misappropriating, diluting,
misusing or voiding any Owned Intellectual Property Collateral and, to such
Grantor’s knowledge, no third party is infringing upon, misappropriating, diluting,
misusing or voiding any Intellectual Property owned or used by such Grantor in any
material respect, in each case except as would not have a Material Adverse Effect;
14
(vi) no settlement or consents, covenants not to sue, nonassertion assurances,
or releases have been entered into by such Grantor or to which such Grantor is bound
that adversely affects its rights to own or use any material Intellectual Property
Collateral;
(vii) except for the Permitted Liens, such Grantor has not made a previous
assignment, sale, transfer or agreement constituting a present or future assignment,
sale or transfer of any material Intellectual Property Collateral for purposes of
granting a security interest or as collateral that has not been terminated or
released or, subject to Section 4.5(g), will be terminated or released on the
Restatement Effective Date;
(viii) such Grantor has executed and delivered to the Collateral Agent,
Intellectual Property Collateral security agreements for all United States
registered and applied for Copyrights, Patents and Trademarks owned by such Grantor
that constitute Collateral, including all Copyrights, Patents and Trademarks on
Schedules III, IV or V (as such schedules may be amended or
supplemented from time to time);
(ix) such Grantor uses adequate standards of quality in the manufacture,
distribution, and sale of all products sold and in the provision of all services
rendered under or in connection with any Trademarks and has taken all commercially
reasonable action necessary to ensure that all licensees of any Trademarks owned by
such Grantor use such adequate standards of quality, in each case except as would
not have a Material Adverse Effect;
(x) the consummation of the transactions contemplated by the Credit Agreement
and this Security Agreement will not result in the termination or material
impairment of any of the Intellectual Property Collateral necessary for the conduct
of such Grantor’s business;
(xi) all employees, independent contractors and agents who have contributed to
the creation or development of any Owned Intellectual Property Collateral have been
a party to an enforceable assignment agreement with such Grantor in accordance with
applicable laws, according and granting exclusive ownership of such Owned
Intellectual Property Collateral to such Grantor, in each case except as could not
reasonably be expected to have a Material Adverse Effect; and
(xii) such Grantor owns directly or is entitled to use by license or otherwise,
all Intellectual Property Collateral with respect to any of the foregoing reasonably
necessary for such Grantor’s business, in each case except as could not reasonably
be expected to have a Material Adverse Effect.
SECTION 3.7. Validity, etc.
(a) This Security Agreement creates a valid security interest in the Collateral
securing the payment of the Secured Obligations.
15
(b) Each Grantor has filed or caused to be filed all UCC-1 financing statements and has
amended or caused to be amended all UCC-1 financing statements previously filed in
connection with the Existing Credit Agreement, in each case listing the Collateral Agent as
“Secured Party”, in the filing office for each Grantor’s jurisdiction of organization listed
in Item A of Schedule II (collectively, the “Filing Statements”) (or
has authorized the Administrative Agent to file the Filing Statements suitable for timely
and proper filing in such offices) and has taken all other actions necessary to obtain
control of the Collateral (to the extent required herein or in the Credit Agreement) as
provided in Sections 9-104, 9-105, 9-106 and 9-107 of the UCC.
(c) Upon the filing of the Filing Statements with the appropriate agencies therefor the
security interests created under this Security Agreement shall constitute a perfected
security interest in the Collateral described on such Filing Statements in favor of the
Collateral Agent on behalf of the Secured Parties to the extent that a security interest
therein may be perfected by filing pursuant to the relevant UCC, prior to all other Liens,
except for Permitted Liens.
SECTION 3.8. Authorization, Approval, etc. Except as have been obtained or made and
are in full force and effect, no authorization, approval or other action by, and no notice to or
filing with, any Governmental Authority or any other third party is required either
(a) for the grant by the Grantors of the security interest granted hereby or for the
execution, delivery and performance of this Security Agreement by the Grantors;
(b) for the perfection or maintenance of the security interests hereunder including the
first priority (subject to Permitted Liens) nature of such security interest to the extent
each Grantor is required to perfect a security interest hereunder in such Collateral (except
with respect to the Filing Statements or, with respect to Owned Intellectual Property
Collateral, the recordation of any agreements with the United States Patent and Trademark
Office or the United States Copyright Office) or the exercise by the Collateral Agent of its
rights and remedies hereunder; or
(c) for the exercise by the Collateral Agent of the voting or other rights provided for
in this Security Agreement, or, except (i) with respect to any securities issued by a
Subsidiary of the Grantors, as may be required in connection with a disposition of such
securities by laws affecting the offering and sale of securities generally, the remedies in
respect of the Collateral pursuant to this Security Agreement, (ii) any “change of control”
or similar filings required by state licensing agencies and (iii) with respect to any
interest in a limited liability company, as may be required to become a member and/or vote
such interest.
SECTION 3.9. Best Interests. It is in the best interests of each Grantor (other than
the Borrower) to execute this Security Agreement inasmuch as such Grantor will, as a result of
being a Subsidiary of the Borrower, derive substantial direct and indirect benefits from the Credit
Extensions made from time to time to the Borrower by the Lenders and the Issuer pursuant to the
Credit Agreement, and each Grantor acknowledges that the Secured Parties are relying on this
16
representation in agreeing to make such Credit Extensions pursuant to the Credit Agreement to
the Borrower.
ARTICLE IV
COVENANTS
COVENANTS
Each Grantor covenants and agrees that, until the Termination Date, such Grantor will perform,
comply with and be bound by the obligations set forth below.
SECTION 4.1. As to Investment Property, etc.
SECTION 4.1.1. Capital Securities of Subsidiaries. No Grantor will allow any of its
U.S. Subsidiaries:
(a) that is a corporation, business trust, joint stock company or similar Person, after
the date hereof to issue Uncertificated Securities;
(b) that is a partnership or limited liability company, to (i) issue Capital Securities
that are to be dealt in or traded on securities exchanges or in securities markets, (ii) expressly provide in its Organic Documents that its Capital Securities are
securities governed by Article 8 of the UCC unless such Capital Securities have been
delivered to the Collateral Agent on the Restatement Effective Date or, to the extent such
Organic Documents are modified to provide that such Capital Securities are securities
governed by Article 8 of the UCC such Capital Securities, together with duly executed
undated blank instruments of transfer reasonably acceptable to the Collateral Agent, are
delivered to the Collateral Agent on or prior to the date of such modification, or
(iii) place such Subsidiary’s Capital Securities in a Securities Account unless such
Securities Account is subject to a Control Agreement; and
(c) to issue Capital Securities in addition to or in substitution for the Capital
Securities pledged hereunder, except to such Grantor (and such Capital Securities are
immediately pledged and delivered to the Collateral Agent pursuant to the terms of this
Security Agreement).
SECTION 4.1.2. Investment Property (other than Certificated Securities).
(a) Other than Excluded Accounts, with respect to any Deposit Accounts, Securities
Accounts, Commodity Accounts, Commodity Contracts or Security Entitlements constituting
Investment Property owned or held by any Grantor with an intermediary who is not a Secured
Party, such Grantor will, upon notice from the Collateral Agent (at the request of the
Required Lenders) following the occurrence and during the continuance of an Event of
Default, take commercially reasonable efforts to cause the intermediary maintaining such
Investment Property to execute a Control Agreement relating to such Investment Property
pursuant to which such intermediary agrees to comply with the Collateral Agent’s
instructions with respect to such Investment Property upon the Collateral Agent’s notice of
sole control following the occurrence and
17
during the continuance of an Event of Default; provided that the Administrative
Agent agrees to instruct the Collateral Agent to promptly rescind such notice upon the cure
or waiver of all Events of Default.
(b) With respect to any Uncertificated Securities (other than Uncertificated Securities
credited to a Securities Account and any Capital Securities in a Foreign Subsidiary which
are uncertificated) constituting Investment Property owned or held by any Grantor, at the
request of the Aministrative Agent, such Grantor will take commercially reasonable efforts
to cause the issuer of such securities to either (i) register the Collateral Agent as the
registered owner thereof on the books and records of the issuer or (ii) execute a Control
Agreement relating to such Investment Property pursuant to which the issuer agrees to comply
with the Collateral Agent’s instructions with respect to such Uncertificated Securities upon
notice of sole control following the occurrence and during the continuance of an Event of
Default; provided that the Administrative Agent agrees to instruct the Collateral
Agent to promptly rescind such notice upon the cure or waiver of all Events of Default.
SECTION 4.1.3. Certificated Securities (Stock Powers). Subject to Section 7.1.11 of
the Credit Agreement and applicable local law regarding the retention of certificates representing
Equity Interests in the appropriate jurisdiction, each Grantor agrees that all Certificated
Securities, including the Capital Securities delivered by such Grantor pursuant to this Security
Agreement, will be accompanied by duly executed undated blank stock powers, or other equivalent
instruments of transfer reasonably acceptable to the Collateral Agent.
SECTION 4.1.4. Continuous Pledge. Subject to Section 7.1.11 of the Credit Agreement
and applicable local law regarding the retention of certificates representing Equity Interests in
the appropriate jurisdiction, each Grantor will (subject to the terms of the Credit Agreement and
the requirements hereunder) deliver to the Collateral Agent and at all times keep pledged to the
Collateral Agent pursuant hereto, on a first-priority, perfected basis (subject to Permitted Liens)
in accordance with all applicable U.S. laws, all Investment Property, all Dividends and
Distributions with respect thereto, all Payment Intangibles to the extent they are evidenced by a
Document, Instrument, Promissory Note or Chattel Paper, and all interest and principal with respect
to such Payment Intangibles, and all Proceeds and rights from time to time received by or
distributable to such Grantor in respect of any of the foregoing, in each case to the extent such
asset constitutes Collateral. Each Grantor agrees that it will, promptly following receipt
thereof, deliver to the Collateral Agent possession of all originals of negotiable Documents,
Instruments, Promissory Notes and Chattel Paper that it acquires following the Restatement
Effective Date to the extent otherwise required hereunder.
SECTION 4.1.5. Voting Rights; Dividends, etc. Each Grantor agrees promptly upon
receipt of notice from the Administrative Agent of the Administrative Agent’s or Collateral Agent’s
intent to seek remedies under this Section 4.1.5 after the occurrence and continuance of a
Specified Default:
(a) so long as such Specified Default shall continue, to deliver (properly endorsed
where required hereby or requested by the Administrative Agent) to the Collateral Agent all
Dividends and Distributions with respect to Investment Property
18
constituting Collateral, all interest, principal, other cash payments on Payment
Intangibles, and all Proceeds of the Collateral, in each case thereafter received by such
Grantor, all of which shall be held by the Collateral Agent as additional Collateral; and
(b) with respect to Collateral consisting of general partner interests or limited
liability company interests, upon the occurrence and continuance of a Specified Default and
so long as the Collateral Agent has notified such Grantor of the Collateral Agent’s
intention to exercise its voting power (pursuant to the written direction of the
Administrative Agent) under this clause,
(i) that the Collateral Agent may exercise (to the exclusion of such Grantor)
the voting power and all other incidental rights of ownership with respect to any
Investment Property constituting Collateral and such Grantor hereby grants the
Collateral Agent an irrevocable proxy, exercisable under such circumstances, to vote
such Investment Property; and
(ii) to promptly deliver to the Collateral Agent such additional proxies and
other documents as may be necessary to allow the Collateral Agent to exercise such
voting power.
All dividends, Distributions, interest, principal, cash payments, Payment Intangibles and Proceeds
that may at any time and from time to time be held by such Grantor, but which such Grantor is then
obligated to deliver to the Collateral Agent, shall, until delivery to the Collateral Agent, be
held by such Grantor separate and apart from its other property for the benefit of the Collateral
Agent. The Collateral Agent agrees that unless a Specified Default shall have occurred and be
continuing and the Collateral Agent shall have given the notice referred to in clause (b),
such Grantor will have the exclusive voting power with respect to any Investment Property
constituting Collateral and the Collateral Agent will, upon the written request of such Grantor,
promptly deliver such proxies and other documents, if any, as shall be reasonably requested by such
Grantor which are necessary to allow such Grantor to exercise that voting power; provided
that no vote shall be cast, or consent, waiver, or ratification given, or action taken by such
Grantor that would impair any such Collateral (except to the extent expressly permitted by the
Credit Agreement) or be inconsistent with or violate any provision of any Loan Document. After any
and all Events of Default have been cured or waived, (i) each Grantor shall have the right to
exercise the voting, managerial and other consensual rights and powers that it would otherwise be
entitled to pursuant to this Section 4.1.5 and receive the payments, proceeds, dividends,
distributions, monies, compensation, property, assets, instruments or rights which it would be
authorized to receive and retain pursuant to this Section 4.1.5 and (ii) within ten
Business Days after notice of such cure or waiver, the Collateral Agent shall repay and deliver to
each Grantor all cash and monies that such Grantor is entitled to retain pursuant to this
Section 4.1.5 which was not applied in repayment of the Secured Obligations.
SECTION 4.2. Change of Name, etc. No Grantor will change its legal name, place of
incorporation or organization, federal taxpayer identification number or organizational
identification number except upon 15 days’ prior written notice to the Collateral Agent.
SECTION 4.3. As to Accounts.
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(a) Each Grantor shall have the right to collect all Accounts so long as (i) no
Specified Default shall have occurred and be continuing and (ii) notice pursuant to
clause (b) has not been delivered.
(b) Upon (i) the occurrence and continuance of a Specified Default and (ii) the
delivery of notice by the Collateral Agent to each Grantor, all Proceeds of Collateral
received by such Grantor shall be delivered in kind to the Collateral Agent for deposit in a
Deposit Account of such Grantor maintained with the Collateral Agent (together with any
other Accounts pursuant to which any portion of the Collateral is deposited with the
Collateral Agent, the “Collateral Accounts”), and such Grantor shall not commingle
any such Proceeds, and shall hold separate and apart from all other property, all such
Proceeds for the benefit of the Collateral Agent until delivery thereof is made to the
Collateral Agent.
(c) Following the delivery of notice pursuant to clause (b)(ii), the Collateral
Agent shall apply any amount in the Collateral Account in accordance with Section 4.7 of the
Credit Agreement.
(d) With respect to each of the Collateral Accounts, it is hereby confirmed and agreed
that (i) deposits in such Collateral Account are subject to a security interest as
contemplated hereby, (ii) such Collateral Account shall be under the control of the
Collateral Agent and (iii) the Collateral Agent shall have the sole right of withdrawal over
such Collateral Account.
SECTION 4.4. As to Grantors Use of Collateral.
(a) Subject to clause (b), each Grantor (i) may in the ordinary course of its
business, at its own expense, subject to Section 7.2.11 of the Credit Agreement, dispose of
and use any Collateral, (ii) subject to the applicable terms of the Credit Agreement, will,
at its own expense, endeavor to collect, as and when due, all amounts due with respect to
any of the Collateral, including the taking of such action with respect to such collection
as the Collateral Agent may reasonably request following the occurrence and continuance of a
Specified Default or, in the absence of such request, as such Grantor may deem advisable,
and (iii) may grant, in the ordinary course of business, to any party obligated on any of
the Collateral, any rebate, refund, set off or allowance to which such party may be lawfully
entitled or which may lawfully be allowed by such Grantor.
(b) At any time following the occurrence and during the continuance of a Specified
Default, whether before or after the maturity of any of the Secured Obligations, the
Collateral Agent may, acting at the direction of the Required Lenders, (i) revoke any or all
of the rights of each Grantor set forth in clause (a), (ii) with two Business Days
prior notice to the applicable Grantor, notify any parties obligated on any of the
Collateral to make payment to the Collateral Agent of any amounts due or to become due
thereunder and (iii) with two Business Days prior notice to the applicable Grantor, enforce
collection of any of the Collateral by suit or otherwise and surrender, release, or exchange
all or any part thereof, or compromise or extend or renew for any period
20
(whether or not longer than the original period) any indebtedness thereunder or
evidenced thereby.
(c) Upon the reasonable request of the Administrative Agent following the occurrence
and during the continuance of a Specified Default, each Grantor will, at its own expense,
promptly notify any parties obligated on any of the Collateral to make payment to the
Collateral Agent of any amounts due or to become due thereunder.
(d) At any time following the occurrence and during the continuation of a Specified
Default, the Collateral Agent may endorse, in the name of such Grantor, any item, howsoever
received by the Collateral Agent, representing any payment on or other Proceeds of any of
the Collateral.
SECTION 4.5. As to Intellectual Property Collateral. Each Grantor covenants and
agrees to comply with the following provisions as such provisions relate to any Intellectual
Property Collateral (except for the tangible components of the Computer Hardware and Software
Collateral) material to the operations or business of such Grantor:
(a) such Grantor will not, and will not knowingly permit any third party or licensee
to, (i) do or permit any act or knowingly omit to do any act whereby any of the Patent
Collateral may lapse or become abandoned or dedicated to the public or unenforceable except
upon expiration of the end of an unrenewable term of a registration thereof or as otherwise
permitted by the Credit Agreement, (ii) fail to maintain as in the past the quality of
products and services offered under the Trademark Collateral, (iii) fail to employ the
Trademark Collateral registered with any federal or state or foreign authority with an
appropriate notice of such registration, (iv) do or permit any act or knowingly omit to do
any act whereby any of the Trademark Collateral may lapse or become invalid or
unenforceable, or (v) do or permit any act or knowingly omit to do any act whereby any of
the Copyright Collateral or any of the Trade Secrets Collateral may lapse or become invalid
or unenforceable or placed in the public domain except upon expiration of the end of an
unrenewable term of a registration thereof, unless, in the case of any of the foregoing
requirements in clauses (i) through (v), (x) such Grantor shall reasonably
and in good faith determine that any of such Intellectual Property Collateral is of
negligible economic value to such Grantor or (y) the loss of such Intellectual Property
Collateral would not have a Material Adverse Effect;
(b) such Grantor shall not permit any third party or licensee to adopt or use any other
Trademark which is confusingly similar or a colorable imitation of any of the Trademark
Collateral unless, (x) such Grantor shall reasonably and in good faith determine that any of
such Intellectual Property Collateral is of negligible economic value to such Grantor or (y)
the loss of such Intellectual Property Collateral would not have a Material Adverse Effect;
(c) unless otherwise permitted by the Credit Agreement, such Grantor shall promptly
notify the Collateral Agent if it knows that any application or registration relating to any
material item of the Intellectual Property Collateral (except for the tangible components of
the Computer Hardware and Software Collateral) has a
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reasonable likelihood of becoming abandoned or dedicated to the public or placed in the
public domain or invalid or unenforceable, or of any adverse determination (including the
institution of, or any such determination or development in, any proceeding in the United
States Patent and Trademark Office, the United States Copyright Office) regarding such
Grantor’s ownership of any Intellectual Property Collateral, its right to register the same
or to keep and maintain and enforce the same;
(d) concurrently with the delivery of a Compliance Certificate pursuant to clause (c)
of Section 7.1.1 of the Credit Agreement, each Grantor that has, since the date the
Compliance Certificate was last delivered, (i) filed an application for the registration of
any Patent or Trademark with the United States Patent and Trademark Office or (ii) received,
as owner or exclusive licensee, a Copyright registration with the United States Copyright,
in each case to the extent such Intellectual Property constitutes Collateral, shall inform
the Administrative Agent, and upon request of the Administrative Agent, promptly execute and
deliver an Intellectual Property Security Agreement substantially in the form set forth as
Exhibits A, B and C hereto and other documents as the Administrative
Agent may reasonably request to evidence the Collateral Agent’s security interest in such
Intellectual Property Collateral;
(e) such Grantor will take all commercially reasonable steps, including in any
proceeding before the United States Patent and Trademark Office the United States Copyright
Office, to maintain and pursue any application (and to obtain the relevant registration)
filed with respect to, and to maintain any registration of, the Owned Intellectual Property
Collateral, including the filing of applications for renewal, affidavits of use, affidavits
of incontestability and opposition, interference and cancellation proceedings and the
payment of fees and taxes (except to the extent that dedication, abandonment or invalidation
is permitted under the Credit Agreement or under the foregoing clause (a) or
(b)); and
(f) concurrently with the delivery of a Compliance Certificate pursuant to clause (c)
of Section 7.1.1 of the Credit Agreement, each Grantor that has obtained, since the date the
Compliance Certificate was last delivered, an ownership interest in any United States
registered or applied for Patent, Copyright or Trademark, in each case to the extent such
Intellectual Property constitutes Collateral, shall execute and deliver to the Collateral
Agent a Patent Security Agreement, Copyright Security Agreement or a Trademark Security
Agreement in the form of Exhibit A, Exhibit B or Exhibit C, as
applicable, and in each case such Grantor shall execute and deliver to the Collateral Agent
any other document required to acknowledge or register, record or perfect the Collateral
Agent’s security interest in any part of such item of Intellectual Property unless such
Grantor shall otherwise determine in good faith using its commercially reasonable business
judgment that any such Intellectual Property is not material.
(g) within 60 days from the Restatement Effective Date (or such later date as shall be
acceptable to the Collateral Agent in its sole discretion), each Grantor agrees to use
commercially reasonable efforts to file all appropriate and necessary documents with the
United States Patent and Trademark Office and the United States Copyright Office required to
evidence that the Trademarks, Patents and Copyrights listed on Schedules III,
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IV and V hereto are free and clear of any security interest (other than any security
interest created under this Agreement) recorded in such offices in respect of such
Trademarks, Patents and Copyrights.
SECTION 4.6. As to Letter-of-Credit Rights.
(a) Each Grantor, by granting a security interest in its Letter-of-Credit Rights to the
Collateral Agent, intends to (and hereby does) collaterally assign to the Collateral Agent
its rights (including its contingent rights ) to the Proceeds of all individual
Letter-of-Credit Rights in excess of $2,000,000 of which it is or hereafter becomes a
beneficiary or assignee. Such Grantor will promptly use its commercially reasonable efforts
to cause the issuer of each such Letter of Credit and each nominated person (if any) with
respect thereto to consent to such assignment of the Proceeds thereof in a consent agreement
in form and substance reasonably satisfactory to the Collateral Agent and deliver written
evidence of such consent to the Collateral Agent.
(b) Upon the occurrence and during the continuance of a Specified Default, such Grantor
will, promptly upon request by the Administrative Agent, (i) notify (and such Grantor hereby
authorizes the Administrative Agent to notify) the issuer and each nominated person with
respect to each of the Letters of Credit that the Proceeds thereof have been assigned to the
Collateral Agent hereunder and any payments due or to become due in respect thereof are to
be made directly to the Collateral Agent and (ii) use commercially reasonable effort to
arrange for the Collateral Agent to become the transferee beneficiary Letter of Credit.
SECTION 4.7. As to Commercial Tort Claims. Each Grantor covenants and agrees that,
until the occurrence of the Termination Date, with respect to any Commercial Tort Claim in excess
of $2,000,000 individually hereafter arising, it shall promptly deliver to the Collateral Agent a
revised Item H of Schedule II identifying such new Commercial Tort Claims.
SECTION 4.8. Electronic Chattel Paper and Transferable Records. If any Grantor at any
time holds or acquires an interest in any electronic chattel paper or any “transferable record,” as
that term is defined in Section 201 of the U.S. Federal Electronic Signatures in Global and
National Commerce Act, or in Section 16 of the U.S. Uniform Electronic Transactions Act as in
effect in any relevant jurisdiction, with a value in excess of $2,000,000, such Grantor shall
promptly notify the Administrative Agent thereof and, at the reasonable request of the
Administrative Agent, shall take such action as the Administrative Agent may request to vest in the
Collateral Agent control under Section 9-105 of the UCC of such electronic chattel paper or control
under Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or, as
the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such
jurisdiction, of such transferable record. The Collateral Agent agrees with such Grantor that the
Collateral Agent will allow, pursuant to procedures reasonably satisfactory to the Collateral Agent
and so long as such procedures will not result in the Collateral Agent’s loss of control, the
Grantor to make alterations to the electronic chattel paper or transferable record permitted under
Section 9-105 of the UCC or, as the case may be, Section 201 of the U.S. Federal Electronic
Signatures in Global and National Commerce Act or Section 16 of the U.S. Uniform Electronic
Transactions Act for a party in control to allow without loss of control,
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unless an Event of Default has occurred and is continuing or would occur after taking into
account any action by such Grantor with respect to such electronic chattel paper or transferable
record.
SECTION 4.9. Further Assurances, etc. Each Grantor agrees that, from time to time at
its own expense, it will promptly execute and deliver all further instruments and documents, and
take all further action, that is necessary, in order to perfect, preserve and protect any security
interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise
and enforce its rights and remedies hereunder with respect to any Collateral, except that with
respect to Patents, Trademarks and Copyrights, such obligations are limited to the United States.
Without limiting the generality of the foregoing, such Grantor will
(a) from time to time upon the reasonable request of the Administrative Agent or the
Collateral Agent, (i) promptly deliver to the Collateral Agent such stock powers,
instruments and similar documents, reasonably satisfactory in form and substance to the
Administrative Agent, with respect to such Collateral as the Administrative Agent may
request and (ii) after the occurrence and during the continuance of any Specified Default,
transfer any securities constituting Collateral into the name of any nominee designated by
the Collateral Agent; if any Collateral shall be evidenced by an Instrument, negotiable
Document, Promissory Note or tangible Chattel Paper and such Collateral, individually, has a
fair market value (as determined in good faith by an Authorized Officer of the applicable
Grantor) in excess of $2,000,000, promptly deliver and pledge to the Collateral Agent
hereunder such Instrument, negotiable Document, Promissory Note or tangible Chattel Paper
duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in
form and substance reasonably satisfactory to the Collateral Agent;
(b) file (and hereby authorize the Administrative Agent to file) such Filing Statements
or continuation statements, or amendments thereto, and such other instruments or notices
(including any assignment of claim form under or pursuant to the federal assignment of
claims statute, 31 U.S.C. § 3726, any successor or amended version thereof or any regulation
promulgated under or pursuant to any version thereof), as shall be necessary that the
Administrative Agent may reasonably request in order to perfect and preserve the security
interests and other rights granted or purported to be granted to the Collateral Agent
hereby;
(c) promptly deliver to the Collateral Agent and, subject to the terms of the Credit
Agreement and the requirements hereunder, at all times keep pledged to the Collateral Agent
pursuant hereto, on a first-priority, perfected basis (subject to Permitted Liens), at the
request of the Administrative Agent, all Investment Property constituting Collateral, all
Dividends and Distributions with respect thereto, and all interest and principal with
respect to Promissory Notes, and all Proceeds and rights from time to time received by or
distributable to such Grantor in respect of any of the foregoing Collateral;
(d) not take or omit to take any action the taking or the omission of which would
result in any impairment or alteration of any obligation of the maker of any
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Payment Intangible or other Instrument constituting Collateral, except as provided in
Section 4.4 or in the Credit Agreement;
(e) upon the reasonable request of the Administrative Agent, place a legend reasonably
acceptable to the Administrative Agent indicating that the Collateral Agent has a security
interest in any tangible Chattel Paper;
(f) furnish to the Collateral Agent, from time to time at the Administrative Agent’s
reasonable request, statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the Administrative
Agent may reasonably request, all in reasonable detail; and
(g) comply with the reasonable requests of the Collateral Agent and the Administrative
Agent in accordance with this Security Agreement in order to enable the Collateral Agent to
have and maintain control over the Collateral consisting of Investment Property, Deposit
Accounts, Letter-of-Credit-Rights and Electronic Chattel Paper to the extent required
herein.
With respect to the foregoing and the grant of the security interest hereunder, each Grantor
hereby authorizes the Administrative Agent or Collateral Agent to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of the Collateral; and
to make all relevant filings with the United States Patent and Trademark Office and the United
States Copyright Office in respect of the Intellectual Property Collateral, in each case naming the
Collateral Agent as “Secured Party” (or other similar term). Each Grantor agrees that a carbon,
photographic or other reproduction of this Security Agreement or any UCC financing statement
covering the Collateral or any part thereof shall be sufficient as a UCC financing statement where
permitted by law. Each Grantor hereby authorizes the Administrative Agent to file financing
statements describing as the collateral covered thereby “all of the debtor’s personal property or
assets”, “all assets”, “all personal property” or words to that effect, notwithstanding that such
wording may be broader in scope than the Collateral described in this Security Agreement.
SECTION 4.10. Deposit Accounts. Promptly following the occurrence and during the
continuance of a Specified Default, at the request of the Collateral Agent (at the direction of the
Administrative Agent), such Grantor will maintain all of its Deposit Accounts only with the
Collateral Agent or with any depositary institution that has entered into a Control Agreement in
favor of the Collateral Agent. Such Control Agreements shall permit the Collateral Agent (at the
written instructions of the Administrative Agent) to deliver a notice of sole exclusive control
during the continuance of an Event of Default. To the extent the Collateral Agent (at the written
instructions of the Administrative Agent) has delivered a notice of sole control with respect to
any such Deposit Accounts pursuant to a Control Agreement, the Administrative Agent agrees promptly
to notify (no later than 2 Business Days) all such depository banks that the notice of exclusive
control has been rescinded and the applicable Grantor shall have the right to withdraw funds from
such Deposit Account(s) following the cure or waiver of all Specified Defaults.
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ARTICLE V
THE COLLATERAL AGENT
THE COLLATERAL AGENT
SECTION 5.1. Collateral Agent Appointed Attorney-in-Fact. Until the
Termination Date, each Grantor hereby irrevocably appoints the Collateral Agent as its
attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of
such Grantor or otherwise, from time to time as directed by the Administrative Agent, following the
occurrence and during the continuance of a Specified Default, to take any action and to execute any
instrument which is necessary to accomplish the purposes of this Security Agreement, including:
(a) with two Business Days prior notice to the applicable Grantor, to ask,
demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for
moneys due and to become due under or in respect of any of the Collateral;
(b) to receive, endorse, and collect any drafts or other Instruments,
Documents and Chattel Paper, in connection with clause (a) above;
(c) to file any claims or take any action or institute any proceedings which
the Administrative Agent may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of the Collateral Agent with respect to any of
the Collateral; and
(d) to perform the affirmative obligations of such Grantor hereunder.
Each Grantor hereby acknowledges, consents and agrees that the power of attorney granted pursuant
to this Section is irrevocable and coupled with an interest.
SECTION 5.2. Collateral Agent May Perform. If any Grantor fails to perform
any agreement contained herein and the Administrative Agent provides prior notice to such Grantor
of such failure, within three days of such notice, the Grantor shall perform, cause to be performed
or agree to perform (and thereafter actually perform within seven days after such notice) such
agreement, the Collateral Agent may (but shall have not obligation to) itself perform, or cause
performance of, such agreement, and the expenses of the Collateral Agent incurred in connection
therewith shall be payable by such Grantor pursuant to Section 10.3 of the Credit Agreement.
SECTION 5.3. Collateral Agent Has No Duty. The powers conferred on the
Collateral Agent hereunder are solely to protect its interest (on behalf of the Secured Parties) in
the Collateral and shall not impose any duty on it to exercise any such powers. Except for
reasonable care of any Collateral in its possession, the accounting for moneys actually received by
it hereunder and, except to the extent of the gross negligence, bad faith or willful misconduct of
the Collateral Agent or any of its respective officers, directors, employees or agents, the
Collateral Agent shall have no duty as to any Collateral or responsibility for
(a) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Investment Property, whether
or not the Collateral Agent has or is deemed to have knowledge of such matters, or
26
(b) taking any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral.
SECTION 5.4. Reasonable Care. The Collateral Agent is required to exercise
reasonable care in the custody and preservation of any of the Collateral in its possession;
provided that the Collateral Agent shall be
deemed to have exercised reasonable care in the custody and preservation of any of the
Collateral, if (i) such Collateral is accorded treatment substantially equal to that which the
Collateral Agent accords its own property or (ii) it takes such action for that purpose as each
Grantor reasonably requests in writing at times other than upon the occurrence and during the
continuance of any Specified Default, but failure of the Collateral Agent to comply with any such
request at any time shall not in itself be deemed a failure to exercise reasonable care.
SECTION 5.5. Liability.
(a) No provision of this Security Agreement shall require the Collateral
Agent to expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its rights or
powers and the Collateral Agent shall not be liable or responsible for any loss or
diminution in the value of any of the Collateral.
(b) In no event shall the Collateral Agent be responsible or liable for
special, indirect, or consequential loss or damage of any kind whatsoever (including, but
not limited to, loss of profit) irrespective of whether the Collateral Agent has been
advised of the likelihood of such loss or damage and regardless of the form of action.
SECTION 5.6. Force Majeure. In no event shall the Collateral Agent be
responsible or liable for any failure or delay in the performance of its obligations hereunder
arising out of or caused by, directly or indirectly, forces beyond its control, including, without
limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military
disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or
malfunctions of utilities, communications or computer (software and hardware) services; it being
understood that the Collateral Agent shall use reasonable efforts which are consistent with
accepted practices in the banking industry to resume performance as soon as practicable under the
circumstances.
ARTICLE VI
REMEDIES
REMEDIES
SECTION 6.1. Certain Remedies. If any Specified Default shall have occurred
and be continuing and the Administrative Agent shall have given written notice to the relevant
Grantor of the Collateral Agent’s intent to exercise its corresponding rights pursuant to this
Section:
(a) The Collateral Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a Secured Party on default under the UCC (whether or not the UCC
applies to the affected Collateral) and also may to the extent permitted by applicable law:
27
(i) take possession of any Collateral not already in its possession
without demand and without legal process;
(ii) require each Grantor to, and each Grantor hereby agrees that it
will, at its expense and upon request of the Collateral Agent forthwith, assemble
all or part of the Collateral as directed by the Collateral Agent and make it
available to the Collateral Agent at a place to be designated by the Collateral
Agent that is reasonably convenient to both parties;
(iii) enter onto the property where any Collateral is located and
take possession thereof without demand and without legal process; and
(iv) without notice except as specified below and to the extent
permitted by applicable law, lease, or license, sell or otherwise dispose of the
Collateral or any part thereof in one or more parcels at public or private sale, at
any of the Collateral Agent’s offices or elsewhere,
for cash, on credit or for future delivery, and upon such other terms as the
Collateral Agent may deem commercially reasonable. Each Grantor agrees that, to the
extent notice of sale shall be required by law, at least ten days’ prior notice to
such Grantor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. The Collateral
Agent shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Collateral Agent may adjourn any public or private sale
from time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it was so
adjourned.
(b) All cash Proceeds received by the Collateral Agent in respect of any sale
of, collection from, or other realization upon, all or any part of the Collateral shall be
applied by the Collateral Agent in accordance with Section 4.7 of the Credit Agreement.
(c) The Collateral Agent may
(i) transfer all or any part of the Collateral into the name of the
Collateral Agent or its nominee, with or without disclosing that such Collateral is
subject to the Lien hereunder;
(ii) with two Business Days prior notice to the applicable Grantor,
notify the parties obligated on any of the Collateral to make payment to the
Collateral Agent of any amount due or to become due thereunder;
(iii) withdraw, or cause or direct the withdrawal, of all funds with
respect to the Collateral Account to repay the Secured Obligations or otherwise
apply such funds in accordance with Section 4.7 of the Credit Agreement;
(iv) enforce collection of any of the Collateral by suit or
otherwise, and surrender, release or exchange all or any part thereof, or compromise
or extend or
28
renew for any period (whether or not longer than the original period)
any obligations of any nature of any party with respect thereto;
(v) endorse any checks, drafts, or other writings in any Grantor’s
name to allow collection of the Collateral;
(vi) take control of any Proceeds of the Collateral; and
(vii) execute (in the name, place and stead of any Grantor)
endorsements, assignments, stock powers and other instruments of conveyance or
transfer with respect to all or any of the Collateral;
(d) Without limiting the foregoing, in respect of the Intellectual Property
Collateral:
(i) upon the request of the Administrative Agent, such Grantor shall
execute and deliver to the Collateral Agent an assignment or assignments of the
Intellectual Property Collateral, subject (in the case of any licenses thereunder)
to any valid and enforceable requirements to obtain consents from any third parties,
and such other documents as are necessary or appropriate to carry out the intent and
purposes hereof;
(ii) the Administrative Agent shall have the right, in its sole
discretion, (which right shall take precedence over any right or action of any
Grantor) to file applications and maintain registrations for the protection of the
Intellectual Property Collateral and/or bring suit in the name of such Grantor, the
Collateral Agent or any Secured Party to enforce the Intellectual Property
Collateral and any licenses thereunder and, upon the request of the Administrative
Agent, such
Grantor shall use all commercially reasonable efforts to assist with such
filing or enforcement (including the execution of relevant documents); and
(iii) in the event that the Collateral Agent elects not to make any
filing or bring any suit as set forth in clause (ii), such Grantor shall, upon the
request of Collateral Agent, use all commercially reasonable efforts, whether
through making appropriate filings or bringing suit or otherwise, to protect,
enforce and prevent the infringement, misappropriation, dilution, unauthorized use
or other violation of the Intellectual Property Collateral.
Notwithstanding the foregoing provisions of this Section 6.1, for the purposes of this
Section 6.1, “Collateral” and “Intellectual Property Collateral” shall include any “intent
to use” trademark application only to the extent (i) that the business of such Grantor, or portion
thereof, to which that mark pertains is also included in the Collateral and (ii) that such business
is ongoing and existing.
SECTION 6.2. Securities Laws. If the Collateral Agent, at the direction of
the Administrative Agent, shall determine to exercise its right to sell all or any of the
Collateral that are Capital Securities pursuant to Section 6.1, each Grantor agrees that,
upon request of the Administrative Agent, each Grantor will, at its own expense:
29
(a) use commercially reasonable efforts to execute and deliver, and cause
(or, with respect to any issuer which is not a Subsidiary of such Grantor, use its
commercially reasonable efforts to cause) each issuer of the Collateral contemplated to be
sold and the directors and officers thereof to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts and things, as may be necessary
or, in the opinion of the Administrative Agent, advisable to register such Collateral under
the provisions of the Securities Act of 1933, as from time to time amended (the
“Securities Act”), and use commercially reasonable efforts to cause the registration
statement relating thereto to become effective and to remain effective for such period as
prospectuses are required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectus which, in the opinion of the Administrative Agent, are
necessary or advisable, all in conformity with the requirements of the Securities Act and
the rules and regulations of the SEC applicable thereto;
(b) use its commercially reasonable efforts to exempt the Collateral under
the state securities or “Blue Sky” laws and to obtain all necessary governmental approvals
for the sale of the Collateral, as requested by the Administrative Agent;
(c) cause (or, with respect to any issuer that is not a Subsidiary of such
Grantor, use its commercially reasonable efforts to cause) each such issuer to make
available to its security holders, as soon as practicable, an earnings statement that will
satisfy the provisions of Section 11(a) of the Securities Act; and
(d) do or use commercially reasonable efforts to cause to be done all such
other acts and things as may be necessary to make such sale of the Collateral or any part
thereof valid and binding and in compliance with applicable law.
Each Grantor acknowledges the impossibility of ascertaining the amount of damages that would be
suffered by the Collateral Agent or the Secured Parties by reason of the failure by such Grantor to
perform any of the covenants contained in this Section and consequently agrees that, if such
Grantor shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as
a penalty, an amount equal to the value (as determined by the Collateral Agent) of such Collateral
on the date the Collateral Agent shall demand compliance with this Section.
SECTION 6.3. Compliance with Restrictions. Each Grantor agrees that in any
sale of any of the Collateral whenever a Specified Default shall have occurred and be continuing,
the Collateral Agent is hereby authorized to comply with any limitation or restriction in
connection with such sale as it may be advised by counsel is necessary in order to avoid any
violation of applicable law (including compliance with such procedures as may restrict the number
of prospective bidders and purchasers, require that such prospective bidders and purchasers have
certain qualifications, and restrict such prospective bidders and purchasers to Persons who
will represent and agree that they are purchasing for their own account for investment and not with
a view to the distribution or resale of such Collateral), or in order to obtain any required
approval of the sale or of the purchaser by any Governmental Authority or official, and such
Grantor further agrees that such compliance shall not result in such sale being considered or
deemed not to have been made in a commercially reasonable manner, nor shall the Collateral Agent be
liable
30
nor accountable to such Grantor for any discount allowed by the reason of the fact that such
Collateral is sold in compliance with any such limitation or restriction.
SECTION 6.4. Protection of Collateral. The Collateral Agent may from time
to time, at the direction of the Administrative Agent, perform any act which any Grantor fails,
within three days following the request by the Collateral Agent, to perform or agree to perform
(and thereafter actually perform within seven days following notice of requested performance) (it
being understood that no such request need be given after the occurrence and during the continuance
of a Specified Default) and the Collateral Agent may from time to time take any other action which
the Administrative Agent deems necessary for the maintenance, preservation or protection of any of
the Collateral or of its security interest therein.
ARTICLE VII
MISCELLANEOUS PROVISIONS
MISCELLANEOUS PROVISIONS
SECTION 7.1. Loan Document. This Security Agreement is a Loan Document
executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein)
be construed, administered and applied in accordance with the terms and provisions thereof,
including Article X thereof.
SECTION 7.2. Binding on Successors, Transferees and Assigns; Assignment.
This Security Agreement shall remain in full force and effect until the Termination Date has
occurred, shall be binding upon the Grantors and their successors, transferees and assigns and
shall inure to the benefit of and be enforceable by each Secured Party and its successors,
transferees and assigns; provided that no Grantor may (unless otherwise permitted under the
terms of the Credit Agreement or this Security Agreement) assign any of its obligations hereunder
without the prior written consent of all Lenders.
SECTION 7.3. Amendments, etc. No amendment to or waiver of any provision of
this Security Agreement, nor consent to any departure by any Grantor from its obligations under
this Security Agreement, shall in any event be effective unless the same shall be in writing and
signed by the Collateral Agent (at the direction of the Administrative Agent) and the
Administrative Agent (on behalf of the Lenders or the Required Lenders, as the case may be,
pursuant to Section 10.1 of the Credit Agreement) and the Grantors and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose for which given.
SECTION 7.4. Notices. All notices and other communications provided for
hereunder shall be in writing or by facsimile and addressed, delivered or transmitted to the
appropriate party at the address or facsimile number of such party specified in the Credit
Agreement or at such other address or facsimile number as may be designated by such party in a
notice to the other party. Any notice or other communication, if mailed and properly addressed
with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed
given when received; any such notice or other communication, if transmitted by facsimile, shall be
deemed given when transmitted and electronically confirmed.
31
SECTION 7.5. Release of Liens. Upon (a) the Disposition of Collateral in
accordance with the Credit Agreement or (b) the occurrence of the Termination Date, the security
interests granted herein shall automatically terminate with respect to (i) such Collateral (in the
case of clause (a)) or (ii) all Collateral (in the case of clause (b)). Upon any
such Disposition or termination, the Collateral Agent will, at the Grantors’ sole expense, promptly
deliver to the Grantors, without any representations, warranties or recourse of any kind
whatsoever, all Collateral held by the Collateral Agent hereunder, and execute and deliver to the
Grantors such documents as the Grantors shall reasonably request to evidence such termination.
SECTION 7.6. Additional Grantors. Upon the execution and delivery by any
other Person of a supplement in the form of Annex I hereto, such U.S. Person shall become a
“Grantor” hereunder with the same force and effect as if it were originally a party to this
Security Agreement and named as a “Grantor” hereunder. The execution and delivery of such
supplement shall not require the consent of any other Grantor hereunder (except to the extent
already obtained), and the rights and obligations of each Grantor hereunder shall remain in full
force and effect notwithstanding the addition of any new Grantor as a party to this Security
Agreement.
SECTION 7.7. No Waiver; Remedies. In addition to, and not in limitation of
Section 2.4, no failure on the part of any Secured Party to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 7.8. Headings. The various headings of this Security Agreement are
inserted for convenience only and shall not affect the meaning or interpretation of this Security
Agreement or any provisions thereof.
SECTION 7.9. Severability. Any provision of this Security Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such provision and such
jurisdiction, be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Security Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 7.10. Governing Law, Entire Agreement, etc. THIS SECURITY AGREEMENT
SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE
STATE OF NEW YORK), EXCEPT TO THE EXTENT THAT THE PERFECTION, EFFECT OF PERFECTION OR
NONPERFECTION, AND PRIORITY OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW
YORK. This Security Agreement and the other Loan Documents constitute the entire understanding
among the parties hereto with respect to the subject matter hereof and thereof and supersede any
prior agreements, written or oral, with respect thereto.
32
SECTION 7.11. Counterparts. This Security Agreement may be executed by the
parties hereto in several counterparts, each of which shall be deemed to be an original and all of
which shall constitute together but one and the same agreement. Delivery of an executed
counterpart of a signature page to this Security Agreement by facsimile (or other electronic)
transmission shall be effective as delivery of a manually executed counterpart of this Security
Agreement.
SECTION 7.12. Foreign Pledge Agreements. Without limiting any of the
rights, remedies, privileges or benefits provided hereunder to the Collateral Agent for its benefit
and the ratable benefit of the other Secured Parties, each Grantor and the Collateral Agent hereby
agree that the terms and provisions of this Security Agreement in respect of any Collateral subject
to the pledge or other Lien of a Foreign Pledge Agreement are, and shall be deemed to be,
supplemental and in addition to the rights, remedies, privileges and benefits provided to the
Collateral Agent and the other Secured Parties under such Foreign Pledge Agreement and under
applicable law to the extent consistent with applicable law; provided that, in the event
that the terms of this Security Agreement conflict or are inconsistent with the applicable Foreign
Pledge Agreement or applicable law governing such Foreign Pledge Agreement, (i) to the extent that
the provisions of such Foreign Pledge Agreement or applicable foreign law are, under applicable
foreign law, necessary for the creation, perfection or priority of the security interests in the
Collateral subject to such Foreign Pledge Agreement, the terms of such Foreign Pledge Agreement or
such applicable law shall be controlling and (ii) otherwise, the terms hereof shall be controlling.
33
IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be
duly executed and delivered by its Authorized Officer, solely in such capacity and not as an
individual, as of the date first above written.
| HANESBRANDS INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HBI BRANDED APPAREL LIMITED, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HANESBRANDS DIRECT, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| UPEL, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| CARIBETEX, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Signature Page to Pledge and Security Agreement]
| SEAMLESS TEXTILES, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| BA INTERNATIONAL, L.L.C. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HBI INTERNATIONAL, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HBI BRANDED APPAREL ENTERPRISES, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| CASA INTERNATIONAL, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| UPCR, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Signature Page to Pledge and Security Agreement]
| HBI SOURCING, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| CEIBENA DEL, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HANESBRANDS DISTRIBUTION, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| CARIBESOCK, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HANES PUERTO RICO, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| PLAYTEX INDUSTRIES, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Signature Page to Pledge and Security Agreement]
| INNER SELF LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| PLAYTEX DORADO, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HANES MENSWEAR, LLC |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| JASPER-COSTA RICA, L.L.C. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Signature Page to Pledge and Security Agreement]
| JPMORGAN CHASE BANK, N.A., as Administrative Agent and as Collateral Agent |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
[Signature Page to Pledge and Security Agreement]
SCHEDULE I
to Security Agreement
to Security Agreement
Name of Grantor:
| Common Stock | ||||||||||
| Authorized | Outstanding | |||||||||
| Issuer (corporate) | Cert. # | # of Shares | Shares | Shares | % of Shares Pledged | |||||
| Limited Liability Company Interests | ||||
| Issuer (limited | % of Limited Liability | Type of Limited Liability | ||
| liability company) | Company Interests Pledged | Company Interests Pledged | ||
| Partnership Interests | ||||
| % of Partnership | % of Partnership | |||
| Issuer (partnership) | Interests Owned | Interests Pledged | ||
SCHEDULE II
to Security Agreement
to Security Agreement
| Item A. | Location of each Grantor. |
Name
of Grantor:
|
Location for purposes of UCC: | |
[GRANTOR] |
||
| Item B. | Organizational identification number. |
Name of Grantor: |
||
[GRANTOR] |
| Item C. | Merger or other corporate reorganization. |
Name of Grantor:
|
Merger or other corporate reorganization: | |
[GRANTOR] |
| Item D. | Taxpayer ID numbers. |
Name of Grantor:
|
Taxpayer ID numbers: | |
[GRANTOR] |
Item E. Government Contracts.
Name of Grantor:
|
Description of Contract: | |
[GRANTOR]
|
Item F. Deposit Accounts and Securities Accounts.
Name of Grantor:
|
Description of Deposit Accounts and Securities Accounts: | |
[GRANTOR]
|
Item G. Letter of Credit Rights.
Name of Grantor:
|
Description of Letter of Credit Rights: | |
[GRANTOR] |
Item H. Commercial Tort Claims.
Name of Grantor:
|
Description of Commercial Tort Claims: | |
[GRANTOR]
|
SCHEDULE III
to Security Agreement
to Security Agreement
Item A. Patents
| Issued Patents | ||||
| Patent No. | Issue Date | Title | ||
| Pending Patent Applications | ||||
| Serial No. | Filing Date | Title | ||
Item B. Patent Licenses
| Effective | Expiration | |||||||
| Patent | Licensor | Licensee | Date | Date | ||||
SCHEDULE IV
to Security Agreement
to Security Agreement
Item A.
Trademarks
| Registered Trademarks | ||||
| Trademark | Registration No. | Registration Date | ||
| Pending Trademark Applications | ||||
| Trademark | Serial No. | Filing Date | ||
Item B. Trademark Licenses
| Effective | Expiration | |||||||
| Trademark | Licensor | Licensee | Date | Date | ||||
SCHEDULE V
to Security Agreement
to Security Agreement
Item A. Copyrights/Mask Works
| Registered Copyrights/Mask Works | ||||||
| Registration No. | Registration Date | Author(s) | Title | |||
Copyright/Mask Work Pending Registration Applications
Serial No.
Item B. Copyright/Mask Work Licenses (including an all exclusive Copyright Licenses for U.S.
registered Copyrights)
| Effective | Expiration | |||||||
| Copyright | Licensor | Licensee | Date | Date | ||||
EXHIBIT A
to Security Agreement
to Security Agreement
AMENDED AND RESTATED PATENT SECURITY AGREEMENT
This AMENDED AND RESTATED PATENT SECURITY AGREEMENT, dated as of ______, ___ 200___(this
“Agreement”), is made by [NAME OF GRANTOR], a _________(the “Grantor”), in
favor of JPMORGAN CHASE BANK, N.A., as the collateral agent (together with its successor(s) thereto
in such capacity, the “Collateral Agent”) for each of the Secured Parties.
WHEREAS, pursuant to an Amended and Restated Credit Agreement, dated as of December [ ],
2009 (as amended, supplemented, amended and restated or otherwise modified from time to time, the
“Credit Agreement”), among the Borrower, the Lenders, Barclays Bank PLC and Goldman Sachs
Credit Partners L.P. as the Co-Documentation Agents, Bank of America, N.A. and HSBC Securities
(USA) Inc., as the Co-Syndication Agents, the Administrative Agent, the Collateral Agent, and J.P.
Morgan Securities Inc., Bank of America Securities LLC, HSBC Securities (USA) Inc. and Barclays
Capital as the Joint Lead Arrangers and Joint Bookrunners, the Lenders and the Issuers have
extended Commitments to make Credit Extensions to the Borrower;
WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered an
Amended and Restated Pledge and Security Agreement, dated as of December [ ], 2009 (as amended,
supplemented, amended and restated or otherwise modified from time to time, the “Security
Agreement”);
WHEREAS, pursuant to the Existing Security Agreement, the Grantor entered into a Patent
Security Agreement, dated September 5, 2006 (the “Existing IP Agreement”), in favor of
Citibank, N.A., and the Existing IP Agreement was recorded at the Patent Division of the United
States Patent and Trademark Office on November 22, 2006, at Reel/Frame [___];
WHEREAS, pursuant to the Credit Agreement and pursuant to Section 4.5 of the Security
Agreement, the Grantor is required to execute and deliver this Agreement and to grant to the
Collateral Agent a continuing security interest in all of the Patent Collateral (as defined below)
to secure all Secured Obligations; and
WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this
Agreement; and
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Grantor agrees, for the benefit of each Secured Party, as follows:
SECTION 1. Definitions. Unless otherwise defined herein or the context
otherwise requires, terms used in this Agreement, including its preamble and recitals, have the
meanings provided (or incorporated by reference) in the Security Agreement.
SECTION 2. Grant of Security Interest. The Grantor hereby grants to the
Collateral Agent, for its benefit and the ratable benefit of each other Secured Party, a continuing
security interest in all of the Grantor’s right, title and interest, whether now or hereafter
existing or acquired by the Grantor, in and to the following (the “Patent Collateral”):
(a) inventions and discoveries, whether patentable or not, all letters patent
and applications for letters patent, including all patent applications in preparation for
filing, including all reissues, divisions, continuations, continuations-in-part, extensions,
renewals and reexaminations of any of the foregoing, including all patents issued by, or
patent applications filed with, the United States Patent and Trademark Office
(“Patents”), including each Patent and Patent application referred to in Item
A of Schedule I;
(b) all United States Patent licenses, and other agreements for the grant by
or to the Grantor of any right to use any items of the type referred to in clause
(a) above (each a “Patent License”), including each Patent License referred to
in Item B of Schedule I;
(c) the right to sue third parties for past, present and future infringements
of any Patent or Patent application, and for breach or enforcement of any Patent License;
and
(d) all proceeds of, and rights associated with, the foregoing (including
Proceeds, licenses, royalties, income, payments, claims, damages and proceeds of
infringement suits).
Notwithstanding the foregoing, Patent Collateral shall not include any Excluded Collateral.
SECTION 3. Purpose. This Agreement has been executed and delivered by the
Grantor for the purpose of recording the grant of security interest of the Collateral Agent in the
Patent Collateral with the United States Patent and Trademark Office. The security interest
granted hereby has been granted as a supplement to, and not in limitation of, the security interest
granted to the Collateral Agent for its benefit and the ratable benefit of each other Secured Party
under the Security Agreement. The Security Agreement (and all rights and remedies of the
Collateral Agent and each Secured Party thereunder) shall remain in full force and effect in
accordance with its terms.
SECTION 4. Release of Liens. Upon (i) the Disposition of Patent Collateral
in accordance with the Credit Agreement or (ii) the occurrence of the Termination Date, the
security interests granted herein shall automatically terminate with respect to (A) such Patent
Collateral (in the case of clause (i)) or (B) all Patent Collateral (in the case of
clause (ii)). Upon any such Disposition or termination, the Collateral Agent will, at the
Grantor’s sole request and expense, deliver to the Grantor, without any representations, warranties
or recourse of any kind whatsoever, all Patent Collateral held by the Collateral Agent hereunder,
and execute and deliver to the Grantor such Documents as the Grantor shall reasonably request to
evidence such termination.
A-2
SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge and
affirm that the rights and remedies of the Collateral Agent with respect to the security interest
in the Patent Collateral granted hereby are more fully set forth in the Security Agreement, the
terms and provisions of which (including the remedies provided for therein) are incorporated by
reference herein as if fully set forth herein. In the event of any conflict between the terms of
this Agreement and the terms of the Security Agreement, the terms of the Security Agreement shall
govern.
SECTION 6. Loan Document. This Agreement is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions thereof, including
Article X thereof.
SECTION 7. Counterparts. This Agreement may be executed by the parties
hereto in several counterparts, each of which shall be deemed to be an original and all of which
shall constitute together but one and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by facsimile (or other electronic) transmission shall be effective
as delivery of a manually executed counterpart of this Agreement.
* * * * *
A-3
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed
and delivered by its Authorized Officer, solely in such capacity and not as an individual, as of
the date first above written.
| [NAME OF GRANTOR] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| JPMORGAN CHASE BANK, N.A., as Collateral Agent |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
SCHEDULE I
to Patent Security Agreement
to Patent Security Agreement
Item A. Patents
|
||||||||
| Issued Patents | ||||||||
| Patent No. | Issue Date | Title | ||||||
| Pending Patent Applications | ||||||||
| Serial No. | Filing Date | Title | ||||||
| Item B. Patent Licenses | ||||||||||
| Patent | Licensor | Licensee | Effective Date |
Expiration Date |
||||||
EXHIBIT B
to Security Agreement
to Security Agreement
AMENDED AND RESTATED TRADEMARK SECURITY AGREEMENT
This AMENDED AND RESTATED TRADEMARK SECURITY AGREEMENT, dated as of ___, 200___(this
“Agreement”), is made by [NAME OF GRANTOR], a ___(the “Grantor”), in
favor of JPMORGAN CHASE BANK, N.A., as the collateral agent (together with its successor(s) thereto
in such capacity, the “Collateral Agent”) for each of the Secured Parties.
WHEREAS, pursuant to an Amended and Restated Credit Agreement, dated as of December [ ],
2009 (as amended, supplemented, amended and restated or otherwise modified from time to time, the
“Credit Agreement”), among the Borrower, the Lenders, Barclays Bank PLC and Goldman Sachs
Credit Partners L.P. as the Co-Documentation Agents, Bank of America, N.A. and HSBC Securities
(USA) Inc., as the Co-Syndication Agents, the Administrative Agent, the Collateral Agent, and J.P.
Morgan Securities Inc., Bank of America Securities LLC, HSBC Securities (USA) Inc. and Barclays
Capital as the Joint Lead Arrangers and Joint Bookrunners, the Lenders and the Issuers have
extended Commitments to make Credit Extensions to the Borrower;
WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered an
Amended and Restated Pledge and Security Agreement, dated as of December [ ], 2009 (as amended,
supplemented, amended and restated or otherwise modified from time to time, the “Security
Agreement”);
WHEREAS, pursuant to the Existing Security Agreement, the Grantor entered into a Trademark
Security Agreement, dated September 5, 2006 (the “Existing IP Agreement”), in favor of
Citibank, N.A., and the Existing IP Agreement was recorded at the Trademark Division of the United
States Patent and Trademark Office on September 18, 2006, at Reel/Frame [___];
WHEREAS, pursuant to the Credit Agreement and pursuant to Section 4.5 of the Security
Agreement, the Grantor is required to execute and deliver this Agreement and to grant to the
Collateral Agent a continuing security interest in all of the Trademark Collateral (as defined
below) to secure all Secured Obligations; and
WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this
Agreement; and
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Grantor agrees, for the benefit of each Secured Party, as follows:
SECTION 1. Definitions. Unless otherwise defined herein or the context otherwise
requires, terms used in this Agreement, including its preamble and recitals, have the meanings
provided (or incorporated by reference) in the Security Agreement.
SECTION 2. Grant of Security Interest. The Grantor hereby grants to the Collateral
Agent, for its benefit and the ratable benefit of each other Secured Party, a continuing security
interest in all of the Grantor’s right, title and interest, whether now or hereafter existing or
acquired by the Grantor, in and to the following (the “Trademark Collateral”):
(a)
(i) all United States trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, certification marks,
collective marks, logos and other source or business identifiers, and all goodwill of the
business associated therewith, now existing or hereafter adopted or acquired, whether
currently in use or not, all registrations and recordings thereof and all applications in
connection therewith, whether pending or in preparation for filing, including registrations,
recordings and applications (except for any such applications filed pursuant to 15 U.S.C. §
1051(b) unless and until a “Statement of Use” has been filed in respect of such application)
in the United States Patent and Trademark Office, and all common-law rights relating to the
foregoing, and (ii) the right to obtain all reissues, extensions or renewals of the
foregoing (collectively referred to as “Trademarks”), including those Trademarks
referred to in Item A of Schedule I;
(b) all Trademark licenses and other agreements for the grant by or to the Grantor of
any right to use any Trademark (each a “Trademark License”), including each
Trademark License referred to in Item B of Schedule I;
(c) all of the goodwill of the business connected with the use of, and symbolized by
the Trademarks described in clause (a) and, to the extent applicable, clause
(b);
(d) the right to sue third parties for past, present and future infringements or
dilution of the Trademarks described in clause (a) and, to the extent applicable,
clause (b) or for any injury to the goodwill associated with the use of any such
Trademark or for breach or enforcement of any Trademark License; and
(e) all proceeds of, and rights associated with, the foregoing (including Proceeds,
licenses, royalties, income, payments, claims, damages and proceeds of infringement suits).
Notwithstanding the foregoing, Trademark Collateral shall not include any Excluded Collateral.
SECTION 3. Purpose. This Agreement has been executed and delivered by the Grantor for
the purpose of recording the grant of security interest of the Collateral Agent in the Trademark
Collateral with the United States Patent and Trademark Office. The security interest granted
hereby has been granted as a supplement to, and not in limitation of, the security interest granted
to the Collateral Agent for its benefit and the ratable benefit of each other Secured Party under
the Security Agreement. The Security Agreement (and all rights and remedies of the Collateral
Agent and each Secured Party thereunder) shall remain in full force and effect in accordance with
its terms.
B-2
SECTION 4. Release of Liens. Upon (i) the Disposition of Trademark Collateral in
accordance with the Credit Agreement or (ii) the occurrence of the Termination Date, the security
interests granted herein shall automatically terminate with respect to (A) such Trademark
Collateral (in the case of clause (i)) or (B) all Trademark Collateral (in the case of
clause (ii)). Upon any such Disposition or termination, the Collateral Agent will, at the
Grantor’s sole request and expense, deliver to the Grantor, without any representations, warranties
or recourse of any kind whatsoever, all Trademark Collateral held by the Collateral Agent
hereunder, and execute and deliver to the Grantor such Documents as the Grantor shall reasonably
request to evidence such termination.
SECTION 5. Acknowledgment. The Grantor does hereby further acknowledge and affirm
that the rights and remedies of the Collateral Agent with respect to the security interest in the
Trademark Collateral granted hereby are more fully set forth in the Security Agreement, the terms
and provisions of which (including the remedies provided for therein) are incorporated by reference
herein as if fully set forth herein. In the event of any conflict between the terms of this
Agreement and the terms of the Security Agreement, the terms of the Security Agreement shall
govern.
SECTION 6. Loan Document. This Agreement is a Loan Document executed pursuant to the
Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered
and applied in accordance with the terms and provisions thereof, including Article X thereof.
SECTION 7. Counterparts. This Agreement may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of which shall
constitute together but one and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by facsimile (or other electronic) transmission shall be effective
as delivery of a manually executed counterpart of this Agreement.
* * * * *
B-3
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed
and delivered by Authorized Officer, solely in such capacity and not as an individual, as of the
date first above written.
| [NAME OF GRANTOR] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| JPMORGAN CHASE BANK, N.A., as Collateral Agent |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
SCHEDULE I
to Trademark Security Agreement
to Trademark Security Agreement
Item A. Trademarks
Registered Trademarks
| Trademark | Registration No. | Registration Date |
Pending Trademark Applications
| Trademark | Serial No. | Filing Date |
Item B. Trademark Licenses
| Effective | Expiration | |||||||
| Trademark | Licensor | Licensee | Date | Date | ||||
EXHIBIT C
to Security Agreement
to Security Agreement
AMENDED AND RESTATED COPYRIGHT SECURITY AGREEMENT
This
AMENDED AND RESTATED COPYRIGHT SECURITY AGREEMENT, dated as of
, 200___ (this
“Agreement”), is made by [NAME OF
GRANTOR], a (the “Grantor”), in
favor of JPMORGAN CHASE BANK, N.A., as the collateral agent (together with its successor(s) thereto
in such capacity, the “Collateral Agent”) for each of the Secured Parties.
WHEREAS,
pursuant to an Amended and Restated Credit Agreement, dated as of
December [ ],
2009 (as amended, supplemented, amended and restated or otherwise modified from time to time, the
“Credit Agreement”), among the Borrower, the Lenders, Barclays Bank PLC and Goldman Sachs
Credit Partners L.P. as the Co-Documentation Agents, Bank of America, N.A. and HSBC Securities
(USA) Inc., as the Co-Syndication Agents, the Administrative Agent, the Collateral Agent, and J.P.
Morgan Securities Inc., Bank of America Securities LLC, HSBC Securities (USA) Inc. and Barclays
Capital as the Joint Lead Arrangers and Joint Bookrunners, the Lenders and the Issuers have
extended Commitments to make Credit Extensions to the Borrower;
WHEREAS, in connection with the Credit Agreement, the Grantor has executed and delivered an
Amended and Restated Pledge and Security Agreement, dated as of
December [ ], 2009 (as amended,
supplemented, amended and restated or otherwise modified from time to time, the “Security
Agreement”);
WHEREAS, pursuant to the Existing Security Agreement, the Grantor entered into a Copyright
Security Agreement, dated September 5, 2006 (the “Existing IP Agreement”), in favor of
Citibank, N.A., and the Existing IP Agreement was recorded at the United States Copyright Office on
September 5, 2006, at Volume/Document [ ];
WHEREAS, pursuant to the Credit Agreement and pursuant to Section 4.5 of the Security
Agreement, the Grantor is required to execute and deliver this Agreement and to grant to the
Collateral Agent a continuing security interest in all of the Copyright Collateral (as defined
below) to secure all Secured Obligations; and
WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this
Agreement; and
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Grantor agrees, for the benefit of each Secured Party, as follows:
SECTION 8. Definitions. Unless otherwise defined herein or the context otherwise
requires, terms used in this Agreement, including its preamble and recitals, have the meanings
provided (or incorporated by reference) in the Security Agreement.
SECTION 9. Grant of Security Interest. The Grantor hereby grants to the Collateral
Agent, for its benefit and the ratable benefit of each other Secured Party, a continuing security
interest in all of the Grantor’s right, title and interest, whether now or hereafter existing or
acquired by the Grantor, in and to the following (the “Copyright Collateral”):
(a) all United States copyrights, registered or unregistered and whether published or
unpublished, now or hereafter in force including copyrights registered or applied for in the
United States Copyright Office, and registrations and recordings thereof and all
applications for registration thereof, whether pending or in preparation and all extensions
and renewals of the foregoing (“Copyrights”), including the Copyrights which are the
subject of a registration or application referred to in Item A of Schedule
I;
(b) all express or implied Copyright licenses and other agreements for the grant by or
to the Grantor of any right to use any items of the type referred to in clause (a) above
(each a “Copyright License”), including each Copyright License referred to in
Item B of Schedule I;
(c) the right to sue for past, present and future infringements of any of the
Copyrights owned by the Grantor, and for breach or enforcement of any Copyright License and
all extensions and renewals of any thereof; and
(d) all proceeds of, and rights associated with, the foregoing (including Proceeds,
licenses, royalties, income, payments, claims, damages and proceeds of infringement suits).
Notwithstanding the foregoing, Copyright Collateral shall not include any Excluded Collateral.
SECTION 10. Purpose. This Agreement has been executed and delivered by the Grantor for
the purpose of recording the grant of security interest of the Collateral Agent in the Copyright
Collateral with the United States Copyright Office. The security interest granted hereby has been
granted as a supplement to, and not in limitation of, the security interest granted to the
Collateral Agent for its benefit and the ratable benefit of each other Secured Party under the
Security Agreement. The Security Agreement (and all rights and remedies of the Collateral Agent
and each Secured Party thereunder) shall remain in full force and effect in accordance with its
terms.
SECTION 11. Release of Liens. Upon (i) the Disposition of Copyright Collateral in
accordance with the Credit Agreement or (ii) the occurrence of the Termination Date, the security
interests granted herein shall automatically terminate with respect to (A) such Copyright
Collateral (in the case of clause (i)) or (B) all Copyright Collateral (in the case of
clause (ii)). Upon any such Disposition or termination, the Collateral Agent will, at the
Grantor’s sole request and expense, deliver to the Grantor, without any representations, warranties
or recourse of any kind whatsoever, all Copyright Collateral held by the Collateral Agent
hereunder, and execute
C-2
and deliver to the Grantor such Documents as the Grantor shall reasonably request to evidence
such termination.
SECTION 12. Acknowledgment. The Grantor does hereby further acknowledge and affirm
that the rights and remedies of the Collateral Agent with respect to the security interest in the
Copyright Collateral granted hereby are more fully set forth in the Security Agreement, the terms
and provisions of which (including the remedies provided for therein) are incorporated by reference
herein as if fully set forth herein. In the event of any conflict between the terms of this
Agreement and the terms of the Security Agreement, the terms of the Security Agreement shall
govern.
SECTION 13. Loan Document. This Agreement is a Loan Document executed pursuant to the
Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered
and applied in accordance with the terms and provisions thereof, including Article X thereof.
SECTION 14. Counterparts. This Agreement may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of which shall
constitute together but one and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by facsimile (or other electronic) transmission shall be effective
as delivery of a manually executed counterpart of this Agreement.
* * * * *
C-3
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed
and delivered by its Authorized Officer, solely in such capacity and not as an individual, as of
the date first above written.
| [NAME OF GRANTOR] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| JPMORGAN CHASE BANK, N.A., as Collateral Agent |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
SCHEDULE I
to Copyright Security Agreement
to Copyright Security Agreement
Item A. Copyrights/Mask Works
| Registered Copyrights/Mask Works | ||||
| Registration No. | Registration Date | Title | ||
Item B. Copyright/Mask Work Licenses (including an all exclusive Copyright Licenses for U.S.
registered Copyrights)
| Effective | Expiration | |||||||
| Copyright | Licensor | Licensee | Date | Date | ||||
ANNEX I
to Security Agreement
to Security Agreement
SUPPLEMENT TO
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
This SUPPLEMENT, dated as of , (this “Supplement”), is to the
Amended and Restated Pledge and Security Agreement, dated as of December [ ], 2009 (as amended,
supplemented, amended and restated or otherwise modified from time to time, the “Security
Agreement”), among the Grantors (such term, and other terms used in this Supplement, to have
the meanings set forth in or incorporated by reference in Article I of the Security Agreement) from
time to time party thereto, in favor of JPMORGAN CHASE BANK, N.A., as the collateral agent
(together with its successor(s) thereto in such capacity, the “Collateral Agent”) for each
of the Secured Parties.
WHEREAS, pursuant to an Amended and Restated Credit Agreement, dated as of December [ ],
2009 (as amended, supplemented, amended and restated or otherwise modified from time to time, the
“Credit Agreement”), among the Borrower, the Lenders, Barclays Bank PLC and Goldman Sachs
Credit Partners L.P. as the Co-Documentation Agents, Bank of America, N.A. and HSBC Securities
(USA) Inc., as the Co-Syndication Agents, the Administrative Agent, the Collateral Agent, and J.P.
Morgan Securities Inc., Bank of America Securities LLC, HSBC Securities (USA) Inc. and Barclays
Capital as the Joint Lead Arrangers and Joint Bookrunners, the Lenders and the Issuers have
extended Commitments to make Credit Extensions to the Borrower; and
WHEREAS, pursuant to the provisions of Section 7.6 of the Security Agreement, each of the
undersigned is becoming a Grantor under the Security Agreement; and
WHEREAS, each of the undersigned desires to become a “Grantor” under the Security Agreement in
order to induce the Secured Parties to continue to extend Loans and issue Letters of Credit under
the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, each of the undersigned agrees, for the benefit of each Secured Party, as
follows.
SECTION 15. Party to Security Agreement, etc. In accordance with the terms of the
Security Agreement, by its signature below each of the undersigned hereby irrevocably agrees to
become a Grantor under the Security Agreement with the same force and effect as if it were an
original signatory thereto and each of the undersigned hereby (a) agrees to be bound by and comply
with all of the terms and provisions of the Security Agreement applicable to it as a Grantor and
(b) represents and warrants that the representations and warranties made by it as a Grantor
thereunder are true and correct in all material respects as of the date hereof, unless stated to
relate solely to an earlier date, in which case such representations and warranties shall be true
and correct in all material respects as of such earlier date. In furtherance of the foregoing,
each
reference to a “Grantor” and/or “Grantors” in the Security Agreement shall be deemed to
include each of the undersigned.
SECTION 16. Representations. Each of the undersigned Grantor hereby represents and
warrants that this Supplement has been duly authorized, executed and delivered by it and that this
Supplement and the Security Agreement constitute the legal, valid and binding obligation of each of
the undersigned, enforceable (except, in any case, as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights
generally and by principles of equity) against it in accordance with its terms.
SECTION 17. Full Force of Security Agreement. Except as expressly supplemented
hereby, the Security Agreement shall remain in full force and effect in accordance with its terms.
SECTION 18. Severability. Wherever possible each provision of this Supplement shall
be interpreted in such manner as to be effective and valid under applicable law, but if any
provision of this Supplement shall be prohibited by or invalid under such law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Supplement or the Security Agreement.
SECTION 19. Governing Law, Entire Agreement, etc. THIS SUPPLEMENT SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR
SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
This Supplement and the other Loan Documents constitute the entire understanding among the parties
hereto with respect to the subject matter thereof and supersede any prior agreements, written or
oral, with respect thereto.
SECTION 20. Counterparts. This Supplement may be executed by the parties hereto in
several counterparts, each of which shall be deemed to be an original and all of which shall
constitute together but one and the same agreement. Delivery of an executed counterpart of a
signature page to this Supplement by facsimile (or other electronic) transmission shall be
effective as delivery of a manually executed counterpart of this Supplement.
* * * * *
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed
and delivered by its Authorized Officer, solely in such capacity and not as an individual, as of
the date first above written.
| [NAME OF ADDITIONAL SUBSIDIARY] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| [NAME OF ADDITIONAL SUBSIDIARY] |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| ACCEPTED AND AGREED FOR ITSELF AND ON BEHALF OF THE SECURED PARTIES: JPMORGAN CHASE BANK, N.A., as Collateral Agent |
|||
| By: | |||
| Name: | |||
| Title: | |||
[COPY SCHEDULES FROM SECURITY AGREEMENT]
EXHIBIT H
FORM OF CLOSING DATE CERTIFICATE
HANESBRANDS INC.
December [ ], 2009
This certificate is delivered pursuant to Section 5.1.2 of the Amended and Restated Credit
Agreement, dated as of December [ ], 2009 (as amended, supplemented, amended and restated or
otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the
Lenders, Barclays Bank PLC and Goldman Sachs Credit Partners L.P., as the Co-Documentation Agents,
Bank of America, N.A. and HSBC Securities (USA) Inc., as the Co-Syndication Agents, JPMorgan Chase
Bank, N.A., as the Administrative Agent and the Collateral Agent, and JPMorgan Securities Inc.,
Banc of America Securities LLC, HSBC Securities (USA) Inc. and Barclays Capital, as the Joint Lead
Arrangers and Joint Bookrunners. Capitalized terms used herein that are defined in the Credit
Agreement, unless otherwise defined herein, have the meanings provided (or incorporated by
reference) in the Credit Agreement.
The undersigned Authorized Officer, solely in such capacity and not as an individual, hereby
certifies, represents and warrants that, as of the Restatement Effective Date:
1. Consummation of Transactions. (a) All actions necessary to consummate the
Transaction have been taken in accordance in all material respects with all applicable law and in
accordance with the terms of each applicable Transaction Document, without amendment or waiver of
any material provision thereof, unless approved by the Lead Arrangers in their reasonable
discretion.
(b) Attached hereto as Annex I are true and correct copies of the material 2016
Senior Note Documents which are in full force and effect and pursuant to which the Borrower will
receive net cash proceeds of $[ ] in connection with the issuance of senior unsecured notes
thereunder on the Restatement Effective Date.
2. Litigation, etc. There exists no action, suit, investigation, litigation or
proceeding pending or, to the knowledge of the Borrower or any of its Subsidiaries, threatened in
writing in any court or before any arbitrator or governmental or regulatory agency or authority
that could reasonably be expected to have a Material Adverse Effect.
3. Approval. All material and necessary governmental and third party consents and
approvals have been obtained (without the imposition of any material and adverse conditions that
are not reasonably acceptable to the Lenders) and remain in effect and all applicable waiting
periods have expired without any material and adverse action being taken by any competent
authority.
4. Debt Ratings. The Borrower has obtained a senior secured debt rating (of any
level) in respect of the Loans from each of S&P and Moody’s and such ratings (of any level) are in
effect as of the date hereof.
5. Compliance with Warranties, No Default, etc. The following statements are
true and correct as of the date hereof (after giving effect to the making of the initial
Credit Extension):
(a) the representations and warranties set forth in each Loan Document are, in
each case, true and correct in all material respects (unless stated to relate solely
to an earlier date, in which case such representations and warranties were true and
correct in all material respects as of such earlier date); and
(b) no Default has occurred and is continuing.
IN WITNESS WHEREOF, the undersigned has caused this Closing Date Certificate to be executed
and delivered, and the certification, representations and warranties contained herein, by its
Authorized Officer, are made solely in such capacity and not as an individual, as of the date first
written above.
| HANESBRANDS INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
Annex I
Material 2016 Senior Note Documents
EXHIBIT I
FORM OF SOLVENCY CERTIFICATE
HANESBRANDS INC.
December [ ], 2009
This Solvency Certificate is delivered pursuant to Section 5.1.7 of the Amended and Restated
Credit Agreement, dated as of December [___], 2009 (as amended, supplemented, amended and restated
or otherwise modified from time to time, the “Credit Agreement”), among the Borrower, the
Lenders, Barclays Bank PLC and Goldman Sachs Credit Partners L.P., as the Co-Documentation Agents,
Bank of America, N.A. and HSBC Securities (USA) Inc., as the Co-Syndication Agents, JPMorgan Chase
Bank, N.A., as the Administrative Agent and the Collateral Agent, and JPMorgan Securities Inc.,
Banc of America Securities LLC, HSBC Securities (USA) Inc. and Barclays Capital, as the Joint Lead
Arrangers and Joint Bookrunners. Terms used herein that are defined in the Credit Agreement,
unless otherwise defined herein, have the meanings provided (or incorporated by reference) in the
Credit Agreement.
1. I am a duly elected, qualified and acting Treasurer of the Borrower.
2. I have reviewed and am familiar with the contents of this Solvency Certificate.
3. I have made, or have caused to be made under my supervision, such examination or
investigation as is necessary to enable me to express an informed opinion as to the matters
referred to herein.
4. Based upon my review and examination described in paragraph 3 above, I certify that on the
Restatement Effective Date, before and after giving effect to the consummation of the Transaction,
(i) the fair value of the property (on a going-concern basis) of the Borrower and its Subsidiaries
on a consolidated basis is greater than the total amount of liabilities, including contingent
liabilities, of the Borrower and its Subsidiaries on a consolidated basis, (ii) the present fair
salable value of the assets (on a going-concern basis) of the Borrower and its Subsidiaries on a
consolidated basis is not less than the amount that will be required to pay the probable liability
of the Borrower and its Subsidiaries on a consolidated basis on their debts as they become absolute
and matured in the ordinary course of business, (iii) the Borrower does not intend to, and does not
believe that it or its Subsidiaries will, incur debts or liabilities beyond the ability of the
Borrower and its Subsidiaries to pay as such debts and liabilities mature in the ordinary course of
business (including through refinancings, asset sales and other capital market transactions), and
(iv) the Borrower and its Subsidiaries on a consolidated basis are not engaged in business or a
transaction, and the Borrower and its Subsidiaries on a consolidated basis are not about to engage
in a business or a transaction, for which the property of the Borrower and its Subsidiaries on a
consolidated basis would constitute an unreasonably small capital.
IN WITNESS WHEREOF, the undersigned has executed this Solvency Certificate on the date first
stated above.
| Name: | ||||
| Title: | ||||
Exhibit 10.39
EXECUTION COPY
AMENDMENT NO. 4
TO
RECEIVABLES PURCHASE AGREEMENT
TO
RECEIVABLES PURCHASE AGREEMENT
THIS AMENDMENT NO. 4 TO RECEIVABLES PURCHASE AGREEMENT (this “Amendment”), dated as of
December 10, 2009, is entered into among HBI RECEIVABLES LLC, as seller (“Seller”),
HANESBRANDS INC., in its capacity as servicer (in such capacity, the “Servicer”), the
Committed Purchasers party hereto, the Conduit Purchasers party hereto, the Managing Agents party
hereto, and HSBC SECURITIES (USA) INC. (“HSBC”), as assignee of JPMORGAN CHASE BANK, N.A.,
as agent (in such capacity, the “Agent”). Capitalized terms used herein without definition
shall have the meanings ascribed thereto in the “Purchase Agreement” referred to below.
PRELIMINARY STATEMENTS
A. Reference is made to that certain Receivables Purchase Agreement dated as of November 27,
2007 among Seller, Servicer, the Committed Purchasers, the Conduit Purchasers, the Managing Agents
and the Agent (as amended prior to the date hereof and as the same may be further amended,
restated, supplemented or modified from time to time, the “Purchase Agreement”).
B. For good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto have agreed to amend certain provisions of the Purchase Agreement
upon the terms and conditions set forth herein.
SECTION 1. Amendment. Subject to the satisfaction of the condition precedent set
forth in Section 3 hereof, the parties hereto hereby agree to amend the Purchase Agreement
as follows:
(a) Section 9.1 of the Purchase Agreement is hereby amended to delete paragraph
(h) in its entirety and replace it with the following:
(h) (i) As of the last day of any Fiscal Quarter occurring during any period set forth
below, HBI permits the Leverage Ratio to be greater than the ratio set forth opposite such period:
| Period | Leverage Ratio | |
| Each Fiscal Quarter ending between October 16, 2009 and July 15, 2010 | 4.50:1.00 | |
| Each Fiscal Quarter ending between July 16, 2010 and October 15, 2010 | 4.25:1.00 | |
| Each Fiscal Quarter ending between October 16, 2010 and April 15, 2011 | 4:00:1.00 | |
| Each Fiscal Quarter ending April 16, 2011 and thereafter | 3.75:1.00 | |
; or
(ii) As of the last day of any Fiscal Quarter occurring during any period set forth below,
HBI permits the Interest Coverage Ratio to be less than the ratio set forth opposite such period:
| Period | Interest Coverage Ratio | |
| Each Fiscal Quarter ending between October 16, 2009 and July 15, 2010 | 2.50:1.00 | |
| Each Fiscal Quarter ending between July 16, 2010 and October 15, 2010 | 2.75:1.00 | |
| Each Fiscal Quarter ending between October 16, 2010 and July 15, 2011 | 3.00:1.00 | |
| Each Fiscal Quarter ending July 16, 2011 and thereafter | 3.25:1.00 |
; or
(b) EXHIBIT XII of the Purchase Agreement is hereby amended and restated
in its entirety as set forth on Exhibit A hereto.
SECTION 2. Representations and Warranties. Each of the Seller and the Servicer
hereby represents and warrants to each of the other parties hereto, as to itself that:
(a) It has all necessary corporate or company power and authority to execute and
deliver this Amendment and to perform its obligations under the Purchase Agreement as
amended hereby, the execution and delivery of this Amendment and the performance of its
obligations under the Purchase Agreement as amended hereby has been duly authorized by all
necessary corporate or company action on its part and this Amendment constitutes its legal,
valid and binding obligation, enforceable against it in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or
other similar laws relating to or limiting creditors’ rights generally and by general
principles of equity (regardless of whether enforcement is sought in a proceeding in equity
or at law).
(b) On the date hereof, before and after giving effect to this Amendment, (i) no
Amortization Event or Potential Amortization Event has occurred and is continuing and (ii)
the aggregate Purchaser Interests do not exceed 100%.
SECTION 3. Condition Precedent. This Amendment shall become effective on the first
Business Day (the “Effective Date”) on which the Agent or its counsel has received five (5)
counterpart signature pages to this Amendment executed by each of the parties hereto.
SECTION 4. Reference to and Effect on the Transaction Documents.
(a) Upon the effectiveness of this Amendment, (i) each reference in the Purchase
Agreement to “this Receivables Purchase Agreement”, “this Agreement”, “hereunder”, “hereof”,
“herein” or words of like import shall mean and be a reference to the Purchase Agreement as
amended or otherwise modified hereby, and (ii) each reference to the Purchase Agreement in
any other Transaction Document or any other
2
document, instrument or agreement executed and/or delivered in connection therewith,
shall mean and be a reference to the Purchase Agreement as amended or otherwise modified
hereby.
(b) Except as specifically amended, terminated or otherwise modified above, the terms
and conditions of the Purchase Agreement, of all other Transaction Documents and any other
documents, instruments and agreements executed and/or delivered in connection therewith,
shall remain in full force and effect and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall not operate as a
waiver of any right, power or remedy of the Agent, any Managing Agent or any Purchaser under
the Purchase Agreement or any other Transaction Document or any other document, instrument
or agreement executed in connection therewith, nor constitute a waiver of any provision
contained therein.
SECTION 5. Execution in Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument. Delivery of an executed counterpart of a signature
page to this Amendment by facsimile or other electronic format shall be effective as delivery of a
manually executed counterpart of this Amendment.
SECTION 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK.
SECTION 7. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment for any other
purpose.
SECTION 8. Fees and Expenses. Seller hereby confirms its agreement to pay on demand
all reasonable costs and expenses of the Agent, the Managing Agents or Purchasers in connection
with the preparation, execution and delivery of this Amendment and any of the other instruments,
documents and agreements to be executed and/or delivered in connection herewith, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel to the Agent or Purchasers
with respect thereto.
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their
respective officers as of the date first above written.
| HBI RECEIVABLES LLC |
||||
| By: | /s/ Richard D. Moss | |||
| Name: | Richard D. Moss | |||
| Title: | President and Chief Executive Officer | |||
| HANESBRANDS INC., as Servicer |
||||
| By: | /s/ Richard D. Moss | |||
| Name: | Richard D. Moss | |||
| Title: | Senior Vice President and Treasurer | |||
Signature Page
to
Amendment No. 4 to RPA
to
Amendment No. 4 to RPA
| BRYANT PARK FUNDING LLC, as a Conduit Purchaser |
||||
| By: | /s/ Damian Perez | |||
| Name: | Damian Perez | |||
| Title: | Vice President | |||
| HSBC SECURITIES (USA) Inc., as a Managing Agent and Agent |
||||
| By: | /s/ Suzanna Baird | |||
| Name: | Suzanna Baird | |||
| Title: | Vice President | |||
| HSBC BANK USA, NATIONAL ASSOCIATION, as a Committed Purchaser |
||||
| By: | /s/ Robert J. Devir | |||
| Name: | Robert J. Devir | |||
| Title: | Managing Director | |||
Signature Page
to
Amendment No. 4 to RPA
to
Amendment No. 4 to RPA
| MARKET STREET FUNDING LLC, as a Conduit Purchaser | ||||
| By: | /s/ Doris J. Hearn | |||
| Name: | Doris J. Hearn | |||
| Title: | Vice President | |||
| PNC BANK, N.A., as a Committed Purchaser and as a Managing
Agent |
||||
| By: | /s/ William P. Falcon | |||
| Name: | William P. Falcon | |||
| Title: | Vice President | |||
Signature Page
to
Amendment No. 4 to RPA
to
Amendment No. 4 to RPA
EXHIBIT A
EXHIBIT XII
FINANCIAL COVENANT DEFINITIONS
“2016 Senior Notes” means the $500,000,000 8.00% senior unsecured notes due December
15, 2016 issued by HBI.
“Administrative Agent” means the Administrative Agent under the Credit Agreement.
“Business Day” has the meaning set forth in the Credit Agreement.
“Capital Securities” means, with respect to any Person, all shares, interests,
participations or other equivalents (however designated, whether voting or non-voting) of such
Person’s capital, whether now outstanding or issued after the Restatement Effective Date;
provided however, any shares, interests, participations or other equivalents
required to be issued in connection with convertible debt shall not be considered “Capital
Securities” until issued.
“Capitalized Lease Liabilities” means, with respect to any Person, all monetary
obligations of such Person and its Subsidiaries under any leasing or similar arrangement which, in
accordance with GAAP, should be classified as capitalized leases, and for purposes of each Loan
Document the amount of such obligations shall be the capitalized amount thereof, 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 prior to the first date upon which such lease may be
terminated by the lessee without payment of a premium or a penalty; provided, however, any changes
to the treatment or reclassification of operating leases under GAAP or the interpretation of GAAP
that would cause operating leases to be considered capitalized leases under GAAP shall be ignored
as if such treatment or reclassification had never occurred and, for the avoidance of doubt,
operating leases shall not be considered Capitalized Lease Liabilities hereunder.
“Commercial Letter of Credit” has the meaning set forth in the Credit Agreement.
“Contingent Liability” means any agreement, undertaking or arrangement by which any
Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or
indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or
otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the Indebtedness
of any other Person (other than by endorsements of instruments in the course of collection), or
guarantees the payment of dividends or other distributions upon the Capital Securities of any other
Person. The amount of any Person’s obligation under any Contingent Liability shall (subject to any
limitation with respect thereto) be deemed to be the outstanding principal amount of the debt,
obligation or other liability guaranteed thereby.
“Credit Agreement” means that certain Amended and Restated Credit Agreement, dated as
of December 10, 2009, among HBI, the lenders from time to time party thereto, the administrative
agent party thereto, the collateral agent party thereto and the other agents party thereto, as in
effect on the date hereof.
“Credit Extension” means, as the context may require,
(a) the making of a Loan by a Lender; or
(b) the issuance of any Letter of Credit, any amendment to or modification of any Letter of
Credit that increases the face amount thereof, or the extension of any Stated Expiry Date of any
existing Letter of Credit, by an Issuer.
“Disposition” (or similar words such as “Dispose”) means any sale, transfer,
lease (as lessor), contribution or other conveyance (including by way of merger) of, or the
granting of options, warrants or other rights to, any of HBI’s or its Subsidiaries’ assets
(including accounts receivable and Capital Securities of Subsidiaries) to any other Person in a
single transaction or series of transactions other than (i) to another Obligor, (ii) by a Foreign
Subsidiary to any other Foreign Subsidiary, (iii) by a Receivables Subsidiary to any other Person
or (iv) customary derivatives issued in connection with the issuance of convertible debt.
“Dollar” and the sign “$” mean lawful money of the United States.
“EBITDA” means, for any applicable period, the sum of
| (a) | Net Income, plus |
| (b) | to the extent deducted in determining Net Income, the sum of (i) amounts attributable to amortization (including amortization of goodwill and other intangible assets), (ii) federal, state, local and foreign income withholding, franchise, state single business unitary and similar Tax expense, (iii) Interest Expense, (iv) depreciation of assets, (v) all non-cash charges, including all non-cash charges associated with announced restructurings, whether announced previously or in the future (such non-cash restructuring charges being “Non-Cash Restructuring Charges”), (vi) net cash charges associated with or related to any contemplated restructurings (such cost restructuring charges being “Cash Restructuring Charges”) in an aggregate amount not to exceed $120,000,000 since September 5, 2006, (vii) all amounts in respect of extraordinary losses, (viii) non-cash compensation expense, or other non-cash expenses or charges, arising from the sale of stock, the granting of stock options, the granting of stock appreciation rights and similar arrangements (including any repricing, amendment, modification, substitution or change of any such stock, stock option, stock appreciation rights or similar arrangements), (ix) any financial advisory fees, accounting fees, legal fees and other similar advisory and consulting fees, cash charges in respect of strategic market reviews, management bonuses and early retirement of Indebtedness, and related out-of-pocket expenses incurred by HBI or any of its Subsidiaries as a result of the Transaction, including fees and expenses in connection with the issuance, redemption or exchange of the 2016 Senior Notes, all determined in accordance with GAAP, (x) non-cash or unrealized losses on agreements with respect to Hedging Obligations and (xi) to the extent non-recurring and not capitalized, any financial advisory fees, accounting fees, legal fees and similar advisory and consulting fees and related costs and expenses of HBI and its Subsidiaries |
ii
| incurred as a result of Permitted Acquisitions, Investments, Restricted Payments, Dispositions permitted under the Credit Agreement and the issuance of Capital Securities or Indebtedness permitted under the Credit Agreement, all determined in accordance with GAAP and in each case eliminating any increase or decrease in income resulting from non-cash accounting adjustments made in connection with the related Permitted Acquisition or Dispositions, (xii) losses on agreements with respect to Hedging Obligations and any related tax losses and any costs, fees, and expenses related to the termination thereof, in each case incurred in connection with or as a result of the Transaction, (xiii) to the extent the related loss is not added back pursuant to clause (c), all proceeds of business interruption insurance policies, (xiv) expenses incurred by HBI or any Subsidiary to the extent reimbursed in cash by a third party, and (xv) extraordinary, unusual or non-recurring cash charges not to exceed $10,000,000 in any Fiscal Year, minus | |||
| (c) | to the extent included in determining such Net Income, the sum of (i) all amounts in respect of extraordinary gains, (ii) non-cash gains on agreements with respect to Hedging Obligations, (iii) reversals (in whole or in part) of any restructuring charges previously treated as Non-Cash Restructuring Charges in any prior period, (iv) gains on agreements with respect to Hedging Obligations and any related tax gains, in each case incurred in connection with or as a result of the Transaction and (v) non-cash items increasing such Net Income for such period, other than (A) the accrual of revenue consistent with past practice and (B) the reversal in such period of an accrual of, or cash reserve for, cash expenses in a prior period, to the extent such accrual or reserve did not increase EBITDA in a prior period. |
“EMU” means Economic and Monetary Union as contemplated in the Treaty on European
Union.
“EMU Legislation” means legislative measures of the European Council (including
European Council regulations) for the introduction of, changeover to or operation of a single or
unified European currency (whether known as the Euro or otherwise), being in part the
implementation of the third stage of EMU.
“Euros” means the single currency of Participating Member States of the European
Union.
“Fiscal Quarter” means a quarter ending on the Saturday nearest to the last day of
March, June, September or December.
“Fiscal Year” means any period of fifty-two or fifty-three consecutive calendar weeks
ending on the Saturday nearest to December 31; references to a Fiscal Year with a number
corresponding to any calendar year (e.g., the “2009 Fiscal Year”) refer to the Fiscal Year
ending on the Saturday nearest to December 31 of such calendar year.
“Foreign Subsidiary” means any Subsidiary that is not a U.S. Subsidiary or a
Receivables Subsidiary.
iii
“GAAP” has the meaning set forth in the Credit Agreement.
“Governmental Authority” means the government of the United States, any other nation
or any political subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government.
“HBI” means Hanesbrands Inc., a Maryland corporation.
“Hedging Obligations” means, with respect to any Person, all liabilities of such
Person under foreign exchange contracts, commodity hedging agreements, currency exchange
agreements, interest rate swap agreements, interest rate cap agreements and interest rate collar
agreements, and all other agreements or arrangements designed to protect such Person against
fluctuations in interest rates, currency exchange rates or commodity prices.
“Indebtedness” of any Person means, (i) all obligations of such Person for borrowed
money or advances and all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, (ii) all monetary obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker’s acceptances issued for the
account of such Person, (iii) all Capitalized Lease Liabilities of such Person, (iv) for purposes
of Section 8.1.5 of the Credit Agreement only, net Hedging Obligations of such Person, (v) whether
or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay
the deferred purchase price of property or services (excluding trade accounts payable and accrued
expenses in the ordinary course of business which are not overdue for a period of more than 90 days
or, if overdue for more than 90 days, as to which a dispute exists and adequate reserves in
conformity with GAAP have been established on the books of such Person), (vi) indebtedness secured
by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to
be secured by) a Lien on property owned or being acquired by such Person (including indebtedness
arising under conditional sales or other title retention agreements), whether or not such
indebtedness shall have been assumed by such Person or is limited in recourse (provided that in the
event such indebtedness is limited in recourse solely to the property subject to such Lien, for the
purposes of this Exhibit the amount of such indebtedness shall not exceed the greater of the book
value or the fair market value (as determined in good faith by HBI’s board of directors) of the
property subject to such Lien), (vii) monetary obligations arising under Synthetic Leases, (viii)
the full outstanding balance of trade receivables, notes or other instruments sold with full
recourse (and the portion thereof subject to potential recourse, if sold with limited recourse),
other than in any such case any thereof sold solely for purposes of collection of delinquent
accounts and other than in connection with any Permitted Securitization or any Permitted Factoring
Facility, (ix) all obligations (other than intercompany obligations) of such Person pursuant to any
Permitted Securitization (other than Standard Securitization Undertakings) or any Permitted
Factoring Facility, and (x) all Contingent Liabilities of such Person in respect of any of the
foregoing. The Indebtedness of any Person shall include the Indebtedness of any other Person
(including any partnership in which such Person is a general partner) to the extent such Person is
liable therefore as a result of such Person’s ownership interest in or other relationship with such
Person, except to the extent the terms of such Indebtedness provide that such Person is not liable
therefore.
iv
“Interest Coverage Ratio” means, as of the last day of any Fiscal Quarter, the ratio
computed for the period consisting of such Fiscal Quarter and each of the three immediately
preceding Fiscal Quarters of:
| (a) | EBITDA (for all such Fiscal Quarters) |
to
| (b) | the sum (for all such Fiscal Quarters) of Interest Expense. |
“Interest Expense” means, for any applicable period, the aggregate interest expense
(both, without duplication, when accrued or paid and net of interest income paid during such period
to HBI and its Subsidiaries) of HBI and its Subsidiaries for such applicable period, including the
portion of any payments made in respect of Capitalized Lease Liabilities allocable to interest
expense; provided that the term “Interest Expense” shall not include any interest expense
attributable to a Permitted Factoring Facility.
“Investment” means, relative to any Person, (i) any loan, advance or extension of
credit made by such Person to any other Person, including the purchase by such Person of any bonds,
notes, debentures or other debt securities of any other Person, and (ii) any Capital Securities
held by such Person in any other Person. The amount of any Investment shall be the original
principal or capital amount thereof less all returns of principal or equity thereon and shall, if
made by the transfer or exchange of property other than cash, be deemed to have been made in an
original principal or capital amount equal to the fair market value of such property at the time of
such Investment.
“Issuer” has the meaning set forth in the Credit Agreement.
“Lenders” means the various financial institutions and other Persons from time to time
party to the Credit Agreement.
“Letter of Credit” has the meaning set forth in the Credit Agreement.
“Letter of Credit Outstandings” means, on any date, an amount equal to the sum of (i)
the then aggregate amount which is undrawn and available under all issued and outstanding Letters
of Credit, and (ii) the then aggregate amount of all unpaid and outstanding Reimbursement
Obligations.
“Leverage Ratio” means, as of the last day of any Fiscal Quarter, the ratio of
| (a) | Total Debt outstanding on the last day of such Fiscal Quarter |
to
| (b) | EBITDA computed for the period consisting of such Fiscal Quarter and each of the three immediately preceding Fiscal Quarters. |
“Lien” means any security interest, mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in
property, or other priority or preferential arrangement of any kind or nature whatsoever.
v
“Loan Documents” has the meaning set forth in the Credit Agreement.
“Loans” has the meaning set forth in the Credit Agreement.
“Net Income” means, for any period, the aggregate of all amounts which would be
included as net income on the consolidated financial statements of HBI and its Subsidiaries for
such period.
“Non-Cash Restructuring Charges” is defined in the definition of “EBITDA”.
“Obligor” has the meaning set forth in the Credit Agreement.
“Open Account Paying Agreement” has the meaning set forth in the Credit Agreement.
“Participating Member State” means each country so described in any EMU Legislation.
“Permitted Acquisition” has the meaning set forth in the Credit Agreement.
“Permitted Factoring Facility” has the meaning set forth in the Credit Agreement.
“Permitted Securitization” has the meaning set forth in the Credit Agreement.
“Person” means any natural person, corporation, limited liability company,
partnership, joint venture, association, trust or unincorporated organization, Governmental
Authority or any other legal entity, whether acting in an individual, fiduciary or other capacity.
“Receivable” shall mean a right to receive payment arising from a sale or lease of
goods or the performance of services by a Person pursuant to an arrangement with another Person
pursuant to which such other Person is obligated to pay for goods or services under terms that
permit the purchase of such goods and services on credit and shall include, in any event, any items
of property that would be classified as an “account,” “chattel paper,” “payment intangible” or
“instrument” under the UCC and any supporting obligations.
“Receivables Subsidiary” has the meaning set forth in the Credit Agreement.
“Reimbursement Obligation” has the meaning set forth in the Credit Agreement.
“Restatement Effective Date” means December 10, 2009.
“Restricted Payment” means (i) the declaration or payment of any dividend (other than
dividends payable solely in Capital Securities of HBI or any Subsidiary (excluding a Receivables
Subsidiary)) on, or the making of any payment or distribution on account of, or setting apart
assets for a sinking or other analogous fund for the purchase, redemption, defeasance, retirement
or other acquisition of, any class of Capital Securities of
vi
HBI or any warrants, options or other right or obligation to purchase or acquire any such
Capital Securities, whether now or hereafter outstanding, or (ii) the making of any other
distribution in respect of such Capital Securities, in each case either directly or indirectly,
whether in cash, property or obligations of HBI or any Subsidiary or otherwise; provided,
however, that any conversion feature of convertible debt shall not be considered a
“Restricted Payment”.
“Standard Securitization Undertakings” shall mean representations, warranties,
covenants and indemnities entered into by HBI or any Subsidiary which are reasonably customary in a
securitization of Receivables.
“Stated Expiry Date” has the meaning set forth in the Credit Agreement.
“Subsidiary” means, with respect to any Person, any other Person of which more than
50% of the outstanding Voting Securities of such other Person (irrespective of whether at the time
Capital Securities of any other class or classes of such other Person shall or might have voting
power upon the occurrence of any contingency) is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more other Subsidiaries of such Person, or by
one or more other Subsidiaries of such Person. Unless the context otherwise specifically requires,
the term “Subsidiary” shall be a reference to a Subsidiary of HBI (other than a Receivables
Subsidiary).
“Synthetic Lease” means, as applied to any Person, any lease (including leases that
may be terminated by the lessee at any time) of any property (whether real, personal or mixed) (i)
that is not a capital lease in accordance with GAAP and (ii) in respect of which the lessee retains
or obtains ownership of the property so leased for federal income tax purposes, other than any such
lease under which that Person is the lessor.
“Taxes” means all income, stamp or other taxes, duties, levies, imposts, charges,
assessments, fees, deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any Governmental Authority, and all interest, penalties or similar
liabilities with respect thereto.
“Total Debt” means, on any date, the outstanding principal amount of all Indebtedness
of HBI and its Subsidiaries of the type referred to in clause (i) of the definition of
“Indebtedness”, clause (ii) of the definition of “Indebtedness”, clause (iii) of
the definition of “Indebtedness”, clause (vii) of the definition of “Indebtedness” and
clause (ix) of the definition of “Indebtedness”, in each case exclusive of (a) intercompany
Indebtedness between HBI and its Subsidiaries, (b) any Contingent Liability in respect of any of
the foregoing, (c) any Permitted Factoring Facility, (d) any Commercial Letter of Credit, (e) any
Letter of Credit or other credit support relating to the termination of agreements with respect to
Hedging Obligations, in each case under this clause (e), incurred in connection with or as a result
of the Transaction and (f) any Open Account Paying Agreements.
“Transaction” has the meaning set forth in the Credit Agreement.
“Treaty on European Union” means the Treaty of Rome of March 25, 1957, as amended by
the Single European Act 1986 and the Maastricht Treaty (which was signed at Maastricht, the Kingdom
of Netherlands, on February 1, 1992 and came into force on November 1, 1993), as amended from time
to time.
vii
“UCC” has the meaning set forth in the Credit Agreement.
“United States” or “U.S.” means the United States of America, its fifty states
and the District of Columbia.
“U.S. Subsidiary” means any Subsidiary (other than a Receivables Subsidiary) that is
incorporated or organized under the laws of the United States.
“Voting Securities” means, with respect to any Person, Capital Securities of any class
or kind ordinarily having the power to vote for the election of directors, managers or other voting
members of the governing body of such Person.
viii
Exhibit 10.40
EXECUTION COPY
AMENDMENT NO. 5
TO
RECEIVABLES PURCHASE AGREEMENT
TO
RECEIVABLES PURCHASE AGREEMENT
THIS AMENDMENT NO. 5 TO RECEIVABLES PURCHASE AGREEMENT (this “Amendment”), dated as of
December 21, 2009, is entered into among HBI RECEIVABLES LLC, as seller (“Seller”),
HANESBRANDS INC., in its capacity as servicer (in such capacity, the “Servicer”), the
Committed Purchasers party hereto, the Conduit Purchasers party hereto, the Managing Agents party
hereto, and HSBC SECURITIES (USA) INC. (“HSBC”), as assignee of JPMORGAN CHASE BANK, N.A.,
as agent (in such capacity, the “Agent”). Capitalized terms used herein without definition
shall have the meanings ascribed thereto in the “Purchase Agreement” referred to below.
PRELIMINARY STATEMENTS
A. Reference is made to that certain Receivables Purchase Agreement dated as of November 27,
2007 among Seller, Servicer, the Committed Purchasers, the Conduit Purchasers, the Managing Agents
and the Agent (as amended prior to the date hereof and as the same may be further amended,
restated, supplemented or modified from time to time, the “Purchase Agreement”).
B. For good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto have agreed to amend certain provisions of the Purchase Agreement
upon the terms and conditions set forth herein.
SECTION 1. Amendment. Subject to the satisfaction of the conditions precedent set
forth in Section 4 hereof, the parties hereto hereby agree to amend the Purchase Agreement
as follows:
(a) Exhibit I to the Purchase Agreement is hereby amended to delete the
definition of “Dilution Reserve Floor” in its entirety and replace it with the following:
“Dilution Reserve Floor” means 23.0%.
(b) Exhibit I to the Purchase Agreement is hereby amended to delete the
definition of “Excluded Receivable” in its entirety and replace it with the following:
“Excluded Receivable” means (i) any account receivable arising in
connection with the sale of goods by the business operations of HBI which were the
business operations of National Textiles, L.L.C. prior to the merger of National
Textiles, L.L.C. into HBI, and which account receivable is identified on Seller’s
and Servicer’s systems, books and records in the manner specified by Seller pursuant
to Section 7.1(m), (ii) at all times on and after the Additional Obligor
Exclusion Date, any account receivable for which the Obligor is the Additional
Excluded Obligor or any of its affiliates, and (iii) at all times on and
*PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST
after the Wal-Mart Exclusion Date, any present or future account receivable for
which the Obligor is Wal-Mart Stores, Inc. or any of its affiliates.
(c) Exhibit I to the Purchase Agreement is hereby amended to delete the
definition of “Facility Termination Date” in its entirety and replace it with the following:
“Facility Termination Date” means the earliest to occur of (i)
December 20, 2010 and (ii) the Amortization Date.
(d) Exhibit I to the Purchase Agreement is hereby amended to add the following
definitions of “Additional Excluded Obligor”, “Additional Obligor Exclusion Date” and
“Wal-Mart Exclusion Date”, in proper alphabetical order:
“Additional Excluded Obligor” means the single Obligor specified in the
notice delivered in connection with the Additional Obligor Exclusion Date . For the
avoidance of doubt, Seller may designate only a single entity as an Additional
Excluded Obligor during the term of this Agreement.
“Additional Obligor Exclusion Date” means the date designated as
the “Additional Obligor Exclusion Date” in a notice from Seller to the Agent
and each Managing Agent, which notice is delivered at least three (3) Business
Days prior to such designated date, and which shall specify the name of the
Additional Excluded Obligor. For the avoidance of doubt, Seller may designate
only a single Additional Obligor Exclusion Date during the term of this
Agreement.
“Wal-Mart Exclusion Date” means December 21, 2009.
(e) The Purchase Agreement is hereby amended to delete Schedule C in its
entirety and replace it with the new Schedule C attached hereto as Attachment 1.
SECTION 2. Consent to Transfers; Weekly Report Delivery Date.
(a) Consent to Transfers. The Agent, the Managing Agents and the Purchasers
hereby consent to the sale by the Seller to the Originator (x) on the Additional Obligor
Exclusion Date, of the Receivables for which the Obligor is the Additional Excluded Obligor
or any of its affiliates and (y) on the Wal-Mart Exclusion Date, of the Receivables for
which the Obligor is Wal-Mart Stores, Inc. or any of its affiliates; provided that:
(i) in each case such sale will be governed by a Bill of Sale substantially in the form of
Exhibit I attached hereto, (ii) the sale shall be on arm’s-length terms and Seller shall
receive fair value for such Receivables sold by it, and (iii) such consent is conditioned
upon each of the following statements being true and correct as of, and after giving effect
to such sale on, the Additional Obligor Exclusion Date and the Wal-Mart Exclusion Date, as
applicable:
(A) each of the representations and warranties set forth in the Purchase Agreement is true and
correct,
2
(B) no Amortization Event or Potential Amortization Event has occurred and is continuing, and
(C) the Purchaser Interests do not exceed 100%.
(b) Weekly Report Delivery Date. The parties hereto agree that the Weekly
Report required to be delivered on January 6, 2010 pursuant to Section 8.5 of the
Purchase Agreement shall be delivered on January 7, 2010 instead.
SECTION 3. Representations and Warranties. Each of the Seller and the Servicer
hereby represents and warrants to each of the other parties hereto, as to itself that:
(a) It has all necessary corporate or company power and authority to execute and
deliver this Amendment and to perform its obligations under the Purchase Agreement as
amended hereby, the execution and delivery of this Amendment and the performance of its
obligations under the Purchase Agreement as amended hereby has been duly authorized by all
necessary corporate or company action on its part and this Amendment constitutes its legal,
valid and binding obligation, enforceable against it in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or
other similar laws relating to or limiting creditors’ rights generally and by general
principles of equity (regardless of whether enforcement is sought in a proceeding in equity
or at law).
(b) On the date hereof, before and after giving effect to this Amendment, (i) no
Amortization Event or Potential Amortization Event has occurred and is continuing and (ii)
the aggregate Purchaser Interests do not exceed 100%.
SECTION 4. Conditions Precedent. This Amendment shall become effective on the first
Business Day (the “Effective Date”) on which the Agent or its counsel has received (i) five
(5) counterpart signature pages to this Amendment executed by each of the parties hereto and (ii)
five (5) counterpart signature pages to the Fee Letter dated as of the date hereof among the Agent,
the Managing Agents and the Seller, executed by each of the parties thereto.
SECTION 5. Reference to and Effect on the Transaction Documents.
(a) Upon the effectiveness of this Amendment, (i) each reference in the Purchase
Agreement to “this Receivables Purchase Agreement”, “this Agreement”, “hereunder”, “hereof”,
“herein” or words of like import shall mean and be a reference to the Purchase Agreement as
amended or otherwise modified hereby, and (ii) each reference to the Purchase Agreement in
any other Transaction Document or any other document, instrument or agreement executed
and/or delivered in connection therewith, shall mean and be a reference to the Purchase
Agreement as amended or otherwise modified hereby.
(b) Except as specifically amended, terminated or otherwise modified above, the terms
and conditions of the Purchase Agreement, of all other Transaction Documents and any other
documents, instruments and agreements executed and/or delivered in
3
connection therewith, shall remain in full force and effect and are hereby ratified and
confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall not operate as a
waiver of any right, power or remedy of the Agent, any Managing Agent or any Purchaser under
the Purchase Agreement or any other Transaction Document or any other document, instrument
or agreement executed in connection therewith, nor constitute a waiver of any provision
contained therein.
SECTION 6. Execution in Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument. Delivery of an executed counterpart of a signature
page to this Amendment by facsimile or other electronic format shall be effective as delivery of a
manually executed counterpart of this Amendment.
SECTION 7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK.
SECTION 8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment for any other
purpose.
SECTION 9. Fees and Expenses. Seller hereby confirms its agreement to pay on demand
all reasonable costs and expenses of the Agent, the Managing Agents or Purchasers in connection
with the preparation, execution and delivery of this Amendment and any of the other instruments,
documents and agreements to be executed and/or delivered in connection herewith, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel to the Agent, Managing Agents
or Purchasers with respect thereto.
[Remainder of Page Deliberately Left Blank]
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their
respective officers as of the date first above written.
| HBI RECEIVABLES LLC |
||||
| By: | /s/ Richard D. Moss | |||
| Name: | Richard D. Moss | |||
| Title: | President and Chief Executive Officer |
|||
| HANESBRANDS INC., as Servicer |
||||
| By: | /s/ Richard D. Moss | |||
| Name: | Richard D. Moss | |||
| Title: | Senior Vice President and Treasurer |
|||
Signature Page
to
Amendment No. 5 to RPA
to
Amendment No. 5 to RPA
| BRYANT PARK FUNDING LLC, as a
Conduit Purchaser |
||||
| By: | /s/ Damian A. Perez | |||
| Name: | Damian A. Perez | |||
| Title: | Vice President | |||
| HSBC SECURITIES (USA) Inc., as a Managing Agent and Agent |
||||
| By: | /s/ Suzanna Baird | |||
| Name: | Suzanna Baird | |||
| Title: | Vice President | |||
| HSBC BANK USA, NATIONAL ASSOCIATION, as a Committed Purchaser |
||||
| By: | /s/ Alan Vitulich | |||
| Name: | Alan Vitulich | |||
| Title: | Vice President | |||
Signature Page
to
Amendment No. 5 to RPA
to
Amendment No. 5 to RPA
| MARKET STREET FUNDING LLC, as a Conduit Purchaser |
||||
| By: | /s/ Doris J. Hearn | |||
| Name: | Doris J. Hearn | |||
| Title: | Vice President | |||
| PNC BANK, N.A., as a Committed
Purchaser and as a Managing Agent |
||||
| By: | /s/ William P. Falcon | |||
| Name: | William P. Falcon | |||
| Title: | Vice President | |||
Signature Page
to
Amendment No. 5 to RPA
to
Amendment No. 5 to RPA
Attachment 1 to Amendment No. 5 to Receivables Purchase Agreement
SCHEDULE C
SPECIAL CONCENTRATION PERCENTAGES
| Obligor Name | Special Concentration Percentage | |
[****]
|
[****]% | |
[****]
|
[****]% | |
[****]
|
[****]% | |
[****]
|
[****]% | |
[****]
|
[****]% | |
[****]
|
[****]% |
| **** | Omitted pursuant to a confidential treatment request |
EXHIBIT I
Bill of Sale
[Attached]
Form of Bill of Sale and Assignment
The undersigned HBI Receivables LLC, a limited liability company organized under the laws of
the State of Delaware (“Assignor”), on and as of [date], hereby absolutely sells,
transfers, assigns, sets-over, quitclaims and conveys to Hanesbrands Inc., a corporation organized
under the laws of Maryland (“Assignee”), without recourse and without representations or
warranties of any type, kind, character or nature, express or implied, all of Assignor’s right,
title and interest in and to each of the Receivables identified in the Schedule attached hereto,
the Collections with respect thereto and the other Related Security and respect thereto (as each
are defined in the Receivables Sale Agreement, dated as of November 27, 2007, between the Assignee
and the Assignor, as amended, restated, supplemented or modified from time to time, the
“Receivables Sale Agreement”) (the “Transferred Property”). Such Receivables have
an aggregate face amount of $[____________]. The Assignee shall pay the Assignor a purchase price of
$[____________] (“Purchase Price”) for such Transferred Property. A portion of the Purchase Price may
be paid through a reduction in the outstanding principal amount of the Subordinated Note (as
defined in the Receivables Sale Agreement). Each of the Assignor and Assignee agree that the
Purchase Price constitutes a good faith estimate of the amount of the Transferred Property as of
[date], and that after [such date], upon a final determination of the amount of the Transferred
Property sold hereunder by the Assignor to Assignee, the Assignor and Assignee shall reconcile any
overpayment or underpayment hereunder as between themselves.
It is the intention of the Assignor and the Assignee that the transfer and assignment of
Transferred Property contemplated by this Bill of Sale and Assignment shall constitute a sale of
such Transferred Property from the Assignor to the Assignee and the beneficial interest in and
title to such Transferred Property shall not be part of the Assignor’s estate in the event of the
filing of a bankruptcy petition by or against the Assignor under any bankruptcy law.
This Bill of Sale and Assignment shall be binding upon and inure to the benefit of each of the
respective successors and assigns of the Assignor and the Assignee.
THIS BILL OF SALE AND ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK.
* * * *
IN WITNESS WHEREOF, the undersigned have caused this Bill of Sale and Assignment to be duly
executed as of the day and year first above written.
| ASSIGNOR: HBI RECEIVABLES LLC |
||||
| By: | ||||
| Name: Title: |
||||
| ASSIGNEE: HANESBRANDS INC. |
||||
| By: | ||||
| Name: Title: |
||||
RECEIVABLES SCHEDULE
Receivables for which the Obligor is [Wal-Mart Stores, Inc.] [Additional Excluded Obligor] or
any of its affiliates
any of its affiliates
Exhibit 12.1
Hanesbrands Inc.
Ratio of Earnings to Fixed Charges
(Dollars in thousands)
(Unaudited)
Ratio of Earnings to Fixed Charges
(Dollars in thousands)
(Unaudited)
| Six Months | ||||||||||||||||||||||||
| Years Ended | Ended | Years Ended | ||||||||||||||||||||||
| January 2, | January 3, | December 29, | December 30, | July 1, | July 2, | |||||||||||||||||||
| 2010 | 2009 | 2007 | 2006 | 2006 | 2005 | |||||||||||||||||||
Earnings, as defined: |
||||||||||||||||||||||||
Income from continuing operations before income
tax expense, noncontrolling interest and income/loss
from equity investees |
$ | 52,456 | $ | 163,195 | $ | 185,321 | $ | 112,830 | $ | 417,543 | $ | 343,099 | ||||||||||||
Fixed charges |
191,442 | 179,003 | 223,395 | 90,168 | 44,366 | 52,596 | ||||||||||||||||||
Amortization of capitalized interest |
3,722 | 3,632 | 3,676 | 2,024 | 4,227 | 5,000 | ||||||||||||||||||
Distributed income of equity investees |
— | — | — | — | — | 3,030 | ||||||||||||||||||
Interest capitalized |
(6,559 | ) | (4,047 | ) | (2,184 | ) | (1,904 | ) | (4,656 | ) | (1,694 | ) | ||||||||||||
Noncontrolling interest in pre-tax income |
(1,173 | ) | (158 | ) | (1,195 | ) | (910 | ) | (1,224 | ) | (55 | ) | ||||||||||||
Total earnings, as defined |
$ | 239,888 | $ | 341,625 | $ | 409,013 | $ | 202,208 | $ | 460,256 | $ | 401,976 | ||||||||||||
Fixed charges, as defined: |
||||||||||||||||||||||||
Interest expense |
$ | 159,222 | $ | 155,280 | $ | 201,131 | $ | 78,692 | $ | 26,075 | $ | 35,244 | ||||||||||||
Amortized premiums, discounts and capitalized
expenses related to indebtedness |
10,967 | 6,032 | 6,475 | 2,279 | — | — | ||||||||||||||||||
Interest factor in rental expenses |
21,253 | 17,691 | 15,789 | 9,197 | 18,291 | 17,352 | ||||||||||||||||||
Total fixed charges, as defined |
$ | 191,442 | $ | 179,003 | $ | 223,395 | $ | 90,168 | $ | 44,366 | $ | 52,596 | ||||||||||||
Ratio of earnings to fixed charges |
1.25 | 1.91 | 1.83 | 2.24 | 10.37 | 7.64 | ||||||||||||||||||
| Note: | The Ratio of Earnings to Fixed Charges should be read in conjunction with the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-K. The interest expense included in the fixed charges calculation above excludes interest expense relating to the Company’s uncertain tax positions. The percentage of rent included in the calculation is a reasonable approximation of the interest factor. |
Exhibit 21.1
SUBSIDIARIES OF HANESBRANDS INC.
All subsidiaries are wholly-owned, directly or indirectly, by Hanesbrands Inc. (other than
directors’ qualifying shares or similar interests ) unless otherwise indicated
U.S. Subsidiaries
| Name of Subsidiary | Jurisdiction of Formation | |
BA International, L.L.C.
|
Delaware | |
Caribesock, Inc.
|
Delaware | |
Caribetex, Inc.
|
Delaware | |
CASA International, LLC
|
Delaware | |
Ceibena Del, Inc.
|
Delaware | |
Hanes Menswear, LLC
|
Delaware | |
Hanes Puerto Rico, Inc.
|
Delaware | |
Hanesbrands Direct, LLC
|
Colorado | |
Hanesbrands Distribution, Inc.
|
Delaware | |
HBI Branded Apparel Limited, Inc.
|
Delaware | |
HBI Branded Apparel Enterprises, LLC
|
Delaware | |
HBI Playtex BATH LLC
|
Delaware | |
HbI International, LLC
|
Delaware | |
HBI Receivables LLC
|
Delaware | |
HBI Sourcing, LLC
|
Delaware | |
Inner Self LLC
|
Delaware | |
Jasper-Costa Rica, L.L.C.
|
Delaware | |
Playtex Dorado, LLC
|
Delaware | |
Playtex Industries, Inc.
|
Delaware | |
Playtex Marketing Corporation (50%) owned)
|
Delaware | |
Seamless Textiles, LLC
|
Delaware | |
UPCR, Inc.
|
Delaware | |
UPEL, Inc.
|
Delaware |
Non-U.S. Subsidiaries
| Name of Subsidiary | Jurisdiction of Formation | |
Bali Dominicana, Inc.
|
Panama/DR | |
Bali Dominicana Textiles, S.A.
|
Panama/DR | |
Bal-Mex S. de R.L. de C.V.
|
Mexico | |
Bordados Industriales, S. A. de C.V.
|
Honduras | |
Canadelle Limited Partnership
|
Canada | |
Canadelle Holding Corporation Limited
|
Canada | |
Cartex Manufacturera S. de R. L.
|
Costa Rica | |
CASA International, LLC Holdings S.C.S.
|
Luxembourg | |
Caysock, Inc.
|
Cayman Islands | |
Caytex, Inc.
|
Cayman Islands | |
Caywear, Inc.
|
Cayman Islands | |
Ceiba Industrial, S. De R.L.
|
Honduras | |
Champion Products S. de R.L. de C.V.
|
Mexico | |
Choloma, Inc.
|
Cayman Islands | |
Confecciones Atlantida S. de R.L.
|
Honduras | |
Confecciones de Nueva Rosita S. de R.L. de C.V.
|
Mexico |
| Name of Subsidiary | Jurisdiction of Formation | |
Confecciones El Pedregal Inc.
|
Cayman Islands | |
Confecciones El Pedregal S.A. de C.V.
|
El Salvador | |
Confecciones del Valle, S. de R.L.
|
Honduras | |
Confecciones Jiboa S.A. de C.V.
|
El Salvador | |
Confecciones La Caleta, Inc.
|
Cayman Islands | |
Confecciones La Herradura S.A. de C.V.
|
El Salvador | |
Confecciones La Libertad, Ltda de C.V.
|
El Salvador | |
DFK International Limited
|
Hong Kong | |
Dos Rios Enterprises, Inc.
|
Cayman Islands | |
Hanes Brands Incorporated de Costa Rica, S.A.
|
Costa Rica | |
Hanes Caribe, Inc.
|
Cayman Islands | |
Hanes Choloma, S. de R. L.
|
Honduras | |
Hanes Colombia, S.A.
|
Colombia | |
Hanes de Centroamerica S.A.
|
Guatemala | |
Hanes de El Salvador, S.A. de C.V.
|
El Salvador | |
Hanes Dominican, Inc.
|
Cayman Islands | |
Hanes Menswear Puerto Rico, Inc.
|
Puerto Rico | |
Hanes Panama Inc.
|
Panama | |
Hanesbrands Apparel India Private Limited
|
India | |
Hanesbrands Argentina S.A.
|
Argentina | |
Hanesbrands Australia Pty Limited
|
Australia | |
Hanesbrands Brasil Textil Ltda.
|
Brazil | |
Hanesbrands Canada NS ULC
|
Canada | |
Hanesbrands Caribbean Logistics, Inc.
|
Cayman Islands | |
Hanesbrands Dominicana, Inc.
|
Cayman Islands | |
Hanesbrands Dos Rios Textiles, Inc.
|
Cayman Islands | |
Hanesbrands El Salvador, Ltda. de C.V.
|
El Salvador | |
Hanesbrands Europe GmbH
|
Germany | |
Hanesbrands Holdings
|
Mauritius | |
Hanesbrands International (Shanghai) Co. Ltd.
|
China | |
Hanesbrands Japan Inc.
|
Japan | |
Hanesbrands (Nanjing) Textile Co., Ltd.
|
China | |
Hanesbrands Philippines Inc.
|
Philippines | |
Hanesbrands Sourcing (India) Private Limited
|
India | |
Hanesbrands (HK) Limited
|
Hong Kong | |
Hanesbrands ROH Asia Ltd.
|
Thailand | |
Hanesbrands UK Limited
|
United Kingdom | |
HBI Alpha Holdings, Inc.
|
Cayman Islands | |
Hanesbrands (Vietnam) Company Limited
|
Vietnam | |
HBI Beta Holdings, Inc.
|
Cayman Islands | |
HBI Compania de Servicios, S.A. de C.V.
|
El Salvador | |
HbI International Holdings S.à r.l.
|
Luxembourg | |
HBI RH Mexico, S. De R.L. de C.V.
|
Mexico | |
HBI Manufacturing (Thailand) Ltd.
|
Thailand | |
HBI Risk Management Ltd.
|
Bermuda | |
HBI Servicios Administrativos de Costa Rica, S.A.
|
Costa Rica | |
HBI Socks de Honduras, S. de R.L. de C.V.
|
Honduras | |
HBI Sourcing Asia Limited
|
Hong Kong | |
H.N. Fibers Ltd (49%)
|
Israel | |
Indumentaria Andina S.A.
|
Argentina | |
Industria Textilera del Este ITE, S.R.L.
|
Costa Rica | |
Industrias Internacionales de San Pedro S. de R.L. de C.V.
|
Mexico | |
Inversiones Bonaventure S.A. de C.V.
|
El Salvador | |
J.E. Morgan de Honduras, S.A.
|
Honduras | |
Jasper Honduras, S.A.
|
Honduras |
| Name of Subsidiary | Jurisdiction of Formation | |
Jogbra Honduras, S.A.
|
Honduras | |
Madero Internacional S. de R.L. de C.V.
|
Mexico | |
Manufacturera Ceibena S. de R.L.
|
Honduras | |
Manufacturera Comalapa S.A. de C.V.
|
El Salvador | |
Manufacturera de Cartago, S.R.L.
|
Costa Rica | |
Manufacturera San Pedro Sula, S. de R.L.
|
Honduras | |
Monclova Internacional S. de R.L. de C.V.
|
Mexico | |
Playtex Puerto Rico, Inc.
|
Puerto Rico | |
PT. HBI Sourcing Indonesia
|
Indonesia | |
PTX (D.R.), Inc.
|
Cayman Islands | |
Rinplay S. de R.L. de C.V.
|
Mexico | |
Seamless Puerto Rico, Inc.
|
Puerto Rico | |
Servicios de Soporte Intimate Apparel, S. de R.L.
|
Costa Rica | |
Socks Dominicana S.A.
|
Dominican Republic | |
Texlee El Salvador, Ltda. de C.V.
|
El Salvador | |
The Harwood Honduras Companies, S. de R.L.
|
Honduras | |
UPEL Chinandega y Compania Limitada
|
Nicaragua |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No.
333-152733) and Registration Statement on Form S-8 (No. 333-137143) of Hanesbrands Inc. of our
report dated February 9, 2010 relating to the financial statements and the
effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Greensboro, North Carolina
February 9, 2010
Greensboro, North Carolina
February 9, 2010
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Richard A. Noll, certify that:
1. I have reviewed this Annual Report on Form 10-K of Hanesbrands Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
| /s/ Richard A. Noll | ||
| Richard A. Noll Chief Executive Officer |
||
Date:
February 9, 2010 |
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, E. Lee Wyatt Jr., certify that:
1. I have reviewed this Annual Report on Form 10-K of Hanesbrands Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
| /s/ E. Lee Wyatt Jr. | ||
| E. Lee Wyatt Jr. Executive Vice President, Chief Financial Officer |
||
Date:
February 9, 2010 |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Hanesbrands Inc. (“Hanesbrands”) on Form 10-K for the
fiscal year ended January 2, 2010 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), I, Richard A. Noll, Chief Executive Officer of Hanesbrands, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of Hanesbrands.
| /s/ Richard A. Noll | ||
| Richard A. Noll Chief Executive Officer |
||
Date:
February 9, 2010 |
The foregoing certification is being furnished to accompany Hanesbrands Inc.’s Annual Report
on Form 10-K for the fiscal year ended January 2, 2010 (the “Report”) solely pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed as part of the Report or as a
separate disclosure document and shall not be deemed incorporated by reference into any other
filing of Hanesbrands Inc. that incorporates the Report by reference. A signed original of this
written certification required by Section 906 has been provided to Hanesbrands Inc. and will be
retained by Hanesbrands Inc. and furnished to the Securities and Exchange Commission or its staff
upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Hanesbrands Inc. (“Hanesbrands”) on Form 10-K for the
fiscal year ended January 2, 2010 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), I, E. Lee Wyatt, Jr, Chief Financial Officer of Hanesbrands, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of Hanesbrands.
| /s/ E. Lee Wyatt Jr. | ||
| E. Lee Wyatt Jr. Executive Vice President, Chief Financial Officer |
||
Date:
February 9, 2010 |
The foregoing certification is being furnished to accompany Hanesbrands Inc.’s Annual Report
on Form 10-K for the fiscal year ended January 2, 2010 (the “Report”) solely pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed as part of the Report or as a
separate disclosure document and shall not be deemed incorporated by reference into any other
filing of Hanesbrands Inc. that incorporates the Report by reference. A signed original of this
written certification required by Section 906 has been provided to Hanesbrands Inc. and will be
retained by Hanesbrands Inc. and furnished to the Securities and Exchange Commission or its staff
upon request.
Minimum 15 minutes delayed. Source: LSEG