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PUT OPTION AGREEMENT
BY AND AMONG
ALBAHEALTH, LLC,
a Delaware limited liability company,
Alba-Waldensian, Inc.
a Delaware corporation,
Encompass Group, L.L.C.,
a Delaware limited liability company,
AND
GENERAL ELECTRIC CAPITAL CORPORATION,
a Delaware corporation
Dated as of September 6, 2002
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TABLE OF CONTENTS
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ARTICLE I. PUT OPTION 2
Section 1.1. Right to Put Common Units..........................................................2
Section 1.2. Obligations of the Company and Encompass Unconditional.............................7
Section 1.3. Conditions to the Obligations of the Company.......................................8
Section 1.4. Adjustments to EBITDA for Material Adverse Event...................................9
Section 1.5. Failure to Purchase the Put Interests.............................................10
ARTICLE II. COVENANTS 11
Section 2.1. Information Covenants.............................................................11
Section 2.2. Preservation of Existence and Franchises..........................................12
Section 2.3. Conduct of Business...............................................................12
Section 2.4. Alba Designee.....................................................................12
Section 2.5. Books and Records.................................................................13
Section 2.6. Compliance with Law...............................................................13
Section 2.7. Payment of Taxes and Other Indebtedness...........................................13
Section 2.8. Insurance.........................................................................13
Section 2.9. [Intentionally Deleted]...........................................................13
Section 2.10. Performance of Obligations........................................................13
Section 2.11. Audits/Inspections................................................................13
Section 2.12. [Intentionally Deleted]...........................................................14
Section 2.13. Additional Covenants..............................................................14
ARTICLE III. GENERAL PROVISIONS.........................................................................15
Section 3.1. Notices...........................................................................15
Section 3.2. Headings..........................................................................16
Section 3.3. Severability......................................................................17
Section 3.4. Counterparts......................................................................17
Section 3.5. Entire Agreement; No Third Party Beneficiaries; Amendments........................17
Section 3.6. Governing Law.....................................................................17
Section 3.7. Consent to Jurisdiction...........................................................17
Section 3.8. Waiver of Jury Trial..............................................................18
Section 3.9. Specific Performance..............................................................18
Section 3.10. Publicity.........................................................................18
Section 3.11. Assignment........................................................................18
Section 3.12. Subordination Agreement...........................................................19
EXHIBIT A .................................................................................A-1
THIS PUT OPTION AGREEMENT, dated as of September 6, 2002 (as the same
may be amended or modified from time to time, this "AGREEMENT"), is by and among
AlbaHealth, LLC, a Delaware limited liability company (the "COMPANY"),
Alba-Waldensian Inc., a Delaware corporation ("ALBA"), Encompass Group, L.L.C.,
a Delaware limited liability company ("ENCOMPASS"), and General Electric Capital
Corporation, a Delaware corporation ("GE CAPITAL").
WHEREAS, Alba's "Health Products Division" manufactures and sells
certain healthcare products, including anti-embolism stockings and compression
therapy systems, sterile wound dressings, non-adhering dressings and gauze
strips, dressing retainers, diabetic socks and slip resistant slippers (the
"BUSINESS");
WHEREAS, Alba, Encompass and GE Capital desire to enter into a joint
venture pursuant to which the Company will, among other things, operate the
Business;
WHEREAS, the Company, Alba, Encompass and GE Capital have entered into
or, concurrently with this Agreement, will enter into, among other agreements,
the Contribution Agreement (the "CONTRIBUTION AGREEMENT"), and the Limited
Liability Company Agreement of AlbaHealth, LLC (the "OPERATING AGREEMENT"),
pursuant to which each of Alba, Encompass and GE Capital will contribute certain
assets to the capital of the Company in exchange for Common Units of the Company
representing 48.325%, 48.325% and 3.35%, respectively, of the Membership
Interests in the Company; and
WHEREAS, capitalized terms used herein and not otherwise defined shall
have the meaning ascribed to such terms in the Contribution Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I.
PUT OPTION
SECTION 1.1. RIGHT TO PUT COMMON UNITS. Subject to Section 1.3, for a
period of three (3) years commencing on (i) September 6, 2004, in the case of
the Alba Party (as defined below), and (ii) the earlier of September 6, 2004 and
the Termination Date (as defined in the AlbaHealth Credit Agreement), in the
case of the GE Capital Party (as defined below) (each such three (3)-year
period, the "PUT OPTION PERIOD"), each of Alba and its Permitted Transferees (as
defined in the Operating Agreement), on the one hand (collectively, the "ALBA
PARTY"), and GE Capital and its Permitted Transferees, on the other hand
(collectively, the "GE CAPITAL PARTY"), shall have the right (the "PUT OPTION"
and, the party exercising such Put Option, the "PUT EXERCISING MEMBER"), by
giving written notice, in the case of the Alba Party, to the Company, Encompass
and GE Capital and, in the case of the GE Capital Party, to the Company,
Encompass and Alba (the "PUT
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NOTICE"), to sell all, but not less than all, of its Common Units (the "PUT
INTERESTS") to the Company in exchange for the Put Consideration (as defined
below) in accordance with the terms and conditions set forth in this Agreement.
(a) Upon delivery of the Put Notice pursuant to this Section 1.1
and the satisfaction of the Conditions set forth in Section 1.3 hereof (the date
of such delivery and satisfaction of the Conditions, the "PUT DATE"), the
Company will be obligated to purchase (and Encompass shall cause its designees
to the Company's Board of Managers to approve the purchase) from the Put
Exercising Member, and the Put Exercising Member will be obligated to sell to
the Company, all, but not less than all, of the Put Interests, in exchange for
payment of the Put Consideration (as defined and determined in accordance with
the provisions set forth below and, in the event that the Alba Party is the Put
Exercising Member, Exhibit A attached hereto).
(b) The "PUT CONSIDERATION" shall consist of (i) in the event
that the Alba Party is the Put Exercising Member, (A) an initial put payment
(the "INITIAL PUT PAYMENT") equal to the Put Value (as defined below) multiplied
by the percentage set forth under the column "Initial Put Payment" of Exhibit A
corresponding to the year under the column "Put Option Year" of Exhibit A during
which the Put Notice was delivered (the "PUT OPTION YEAR"), (B) periodic put
payments (the "PERIODIC PUT PAYMENTS"), the amount of each of which shall be
determined by applying the applicable percentage set forth in Exhibit A under
the column "Periodic Put Payment" corresponding to the applicable Put Option
Year, to Net Sales (as defined below) for the applicable three (3) - month
period, during the Put Payment Period (as defined below) and (C) to the extent
the sum of (x) the Initial Put Payment and (y) all Periodic Put Payments paid
during the Put Payment Period is less than the Put Value, a final put payment
(the "FINAL PUT PAYMENT" and, together with the Initial Put Payment and Periodic
Put Payments, the "ALBA PUT CONSIDERATION"), the amount of which shall equal the
difference between the Put Value and such sum of the Put Consideration paid and
(ii) in the event that the GE Capital Party is the Put Exercising Member, a put
payment equal to the Put Value ("GE PUT CONSIDERATION"). With respect to the
Alba Put Consideration, the applicable percentages set forth in Exhibit A under
the column "Periodic Put Payment" have been established on the assumption that
the Percentage Interest (as defined below) of the Put Exercising Member would be
48.325% at the time of exercise of the Put Option and shall be adjusted
proportionately to reflect any change in such Percentage Interest as of that
date (e.g., if the Percentage Interest of the Put Exercising Member has
decreased from 48.325% to 38.66%, representing a 20% reduction (i.e.,
9.665%/48.425%=20%), then the percentages set forth under the column "Periodic
Put Payment" also shall be reduced by 20% so that they would equal 4.0% in each
such year).
(c) Subject to the satisfaction of the Conditions set forth in
Section 1.3 hereof, the consummation of the purchase of the Put Interests
pursuant to this Section 1.1 will take place on a date (the "PURCHASE DATE")
mutually agreeable to the parties but in any event not later than ninety (90)
days (or one hundred and five (105) days in the event of an objection to the Put
Payment Calculation as contemplated by Section 1.1(i) below) following the Put
Date. The Company shall pay to the Put Exercising Member (and Encompass shall
cause its designees to the Company's Board of Managers to approve
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such payment) (i) in the event that the Alba Party is the Put Exercising Member,
the Alba Put Consideration in the following manner: (A) the Initial Put Payment
on the Purchase Date, (B) each of the Periodic Put Payments no later than
fifteen (15) days (or forty-five (45) days in the event of an objection to the
Put Payment Calculation as contemplated by Section 1.1(i) below) following the
end of each three (3) - month period during the applicable payment period set
forth in Exhibit A under the column "Put Payment Period" (the "PUT PAYMENT
PERIOD"), which Put Payment Period shall commence on the Put Balance Sheet Date
(as defined below), and (C) the Final Put Payment, if any, at the time the last
Periodic Put Payment is made, against delivery on the Purchase Date by the Put
Exercising Member of the Put Interests, free and clear of any Liens, other than
as contemplated by this Agreement and (ii) in the event that the GE Capital
Party is the Put Exercising Member, fifty percent (50%) of the GE Put
Consideration on the Purchase Date and fifty percent (50%) of the GE Put
Consideration on the one year anniversary of the Purchase Date. All payments of
the Put Consideration shall be made by wire transfer of immediately available
funds to such account(s) as are specified by the Put Exercising Member.
(d) It is expressly understood and agreed that if, at any time
during the period commencing on the Put Date and ending upon the satisfaction in
full by the Company of all of its obligations to pay the Put Consideration in
accordance with the terms and conditions set forth in this Agreement, the
Company, Encompass or any of their respective Affiliates (other than the Alba
Party or the GE Capital Party) enters into, or becomes subject to, an agreement
or other arrangement providing for a Sale Event (as defined below) (an
"ACCELERATION EVENT"), then any and all outstanding amounts of the Put
Consideration (the "ACCELERATED PUT CONSIDERATION") shall become due and payable
on the date on which such Sale Event is consummated. For purposes hereof, the
amount of the Accelerated Put Consideration shall be (x) the Put Value LESS (y)
the aggregate amount of the Put Consideration received by the Put Exercising
Member prior to the date of the Acceleration Event. For purposes of hereof, a
"Sale Event" shall mean a sale of all or substantially all of the assets of the
Company or of all or substantially all of the Units held by Encompass, whether
effected directly or indirectly or through one or a series of transactions.
(e) For purposes of this Section 1.1, "PUT VALUE" shall be the
product of the Percentage Interest subject to the Put Notice multiplied by the
Fair Value of the Company.
Where
"PERCENTAGE INTEREST" means, with respect to any holder of Common Units
as of any date, the ratio (expressed as a percentage) of the aggregate
number of Common Units held by such holder on such date to the aggregate
number of Common Units outstanding on such date. The combined Percentage
Interests of all holders of Common Units shall at all times equal one
hundred percent (100%).
"FAIR VALUE" means the difference between (A) the sum of (x) the EBITDA
Reference Value and (y) the amount of cash and cash equivalents of the
Company
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and its Subsidiaries as of the Put Balance Sheet Date and (B) Debt of
the Company and its Subsidiaries outstanding as of the Put Balance Sheet
Date.
"EBITDA REFERENCE VALUE" means an amount equal to six (6) times the
EBITDA for the latest twelve (12) - month period immediately preceding
the Put Balance Sheet Date (the "LTM" and, such EBITDA for the LTM, the
"LTM EBITDA").
"EBITDA" means, for the applicable period, the sum of the amounts,
without duplication of component amounts, of the Company and its
Subsidiaries for such period of (i) Net Income, (ii) Interest Expense,
(iii) total depreciation expense, (iv) total amortization expense, (v)
all extraordinary losses, including losses arising from the sale or
disposition of assets, (vi) any amounts representing the amortization of
deferred financing expense (to the extent not already included in
Interest Expense), (vii) non-recurring and other one-time non-operating
expenses, (viii) other non-operating non-cash expenses reducing Net
Income LESS other non-operating non-cash income increasing Net Income,
all of the foregoing as determined in conformity with GAAP (except for
items (iv), (vii) and (viii) which shall be determined in a manner
consistent with that traditionally used by the Company).
"INTEREST EXPENSE" means, for the applicable period, total interest
expense (including that portion attributable to capital leases in
accordance with GAAP and capitalized interest) of the Company and its
Subsidiaries with respect to all outstanding Debt, including, without
limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing and
net costs under interest rate agreements.
"NET INCOME" means, for the applicable period, the net income (or loss)
of the Company and its Subsidiaries; PROVIDED that there shall be
excluded (i) any gains or losses attributable to asset sales other than
in the ordinary course of business, (ii) (to the extent not included in
clause (i) above) all extraordinary gains and (iii) any one-time or
nonrecurring gains.
"DEBT" means any indebtedness for borrowed money.
"NET SALES" means net sales of the Company as determined using the same
method used to determine the "net sales" in the audited special purpose
balance sheet as of December 31, 2001 of Alba's Health Products
Division.
(f) As soon as practicable but in no event later than thirty (30)
days following the Put Date, the Company shall deliver to the Put Exercising
Member (i) the balance sheet of the Company for the twelve (12) - month period
ending on the last day of the fiscal quarter immediately preceding the Put Date
(the "PUT BALANCE SHEET DATE") and the related consolidated statements of
operations and cash flows for the twelve months then ended (collectively, the
"ANNUAL PUT FINANCIAL STATEMENTS") and (ii) a statement of the EBITDA of the
Company (the "PUT EBITDA STATEMENT"), and the Company's accountants shall
deliver, and the Company shall cause such accountants to
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deliver, to the Put Exercising Member and the Company a schedule showing (x) the
calculation of the Initial Put Payment (the "INITIAL PUT PAYMENT CALCULATION")
in the case of the Alba Party or (y) the calculation of the GE Put Consideration
(the "GE PUT PAYMENT CALCULATION") in the case of the GE Capital Party.
(g) In the event that the Alba Party is the Put Exercising
Member, as soon as practicable but in no event later than fifteen (15) days
after the end of each three (3) - month period during the applicable Put Payment
Period, the Company shall deliver to the Put Exercising Member (i) an unaudited
balance sheet of the Company as of the last day of such three (3) - month
period, and the related unaudited consolidated statements of operations and cash
flows for the three (3) months then ended, and the footnotes and schedules
thereto (collectively, the "QUARTERLY PUT FINANCIAL STATEMENTS" and, together
with the Annual Put Financial Statements, the "PUT FINANCIAL STATEMENTS") and
(ii) a schedule showing the calculation of the applicable Periodic Put Payment
(the "PERIODIC PUT PAYMENT CALCULATION" and, together with the Initial Put
Payment Calculation, the "ALBA PUT PAYMENT CALCULATION").
(h) The Put Financial Statements shall be prepared in accordance
with GAAP consistently applied during the periods involved, except as otherwise
disclosed in the notes to such financial statements, and fairly present the
financial position of the Company as of their respective dates and the
consolidated results of operations and cash flows for the respective periods
then ended.
(i) If the Put Exercising Member or the Company (the "OBJECTING
PARTY") objects to any of the Put Financial Statements, the Put EBITDA
Statement, the Alba Put Payment Calculation or the GE Put Payment Calculation,
as the case may be, the Objecting Party shall deliver to the non-objecting party
within fifteen (15) days, in the case of the Initial Put Payment or the GE Put
Consideration, and seven (7) days, in the case of Periodic Put Payments, after
receipt of the Put Financial Statements, the Put EBITDA Statement, the Alba Put
Payment Calculation or the GE Put Payment Calculation, as the case may be, a
written statement describing its objections thereto. In the event that the
Objecting Party fails to deliver such written statement within the applicable
periods set forth above in the immediately preceding sentence, the Alba Put
Payment Calculation or the GE Put Payment Calculation, as the case may be, shall
be final, conclusive and binding upon the parties hereto. In the event that the
Objecting Party delivers such written statement within the applicable period set
forth above, the Company and the Put Exercising Member will use commercially
reasonable efforts to resolve any dispute with respect to the Alba Put Payment
Calculation or GE Put Payment Calculation, as the case may be, but if a final
resolution is not obtained within fifteen (15) days after the Objecting Party
has delivered such written statement, the Company shall pay on such date to the
Put Exercising Member the Alba Put Consideration stated in such Alba Put Payment
Calculation or the GE Put Consideration stated in such GE Put Payment
Calculation, as the case may be (the "ESTIMATED PUT PAYMENT CALCULATION"), if
not already paid (and Encompass shall cause its designees to the Company's Board
of Managers to approve such payment), and any unresolved disputes shall be
submitted for resolution to an independent accounting firm mutually approved by
the Objecting Party and the other party (the "ARBITRATING ACCOUNTANTS"), which
firm shall resolve such
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disputes within forty-five (45) days following its selection based solely upon
presentations by the parties and not by any independent review. In resolving any
dispute, the Arbitrating Accountants shall examine only those issues in dispute
and shall not assign a value greater than the highest value claimed by a party
or lower than the lowest value claimed by a party. The Arbitrating Accountants'
determination shall be final, conclusive and binding upon the parties. The
computation of the Alba Put Payment Calculation or the GE Put Payment
Calculation, as the case may be, as finally determined by the Arbitrating
Accountants (the "FINAL PUT PAYMENT CALCULATION") shall be final, conclusive and
binding upon the parties hereto. If the Estimated Put Payment Calculation is
less than the Final Put Payment Calculation, then the Company shall pay to the
Put Exercising Member within two (2) business days following the determination
of the Final Put Payment Calculation such difference (and Encompass shall cause
its designees to the Company's Board of Managers to approve such payment). If
the Final Put Payment Calculation is less than the Estimated Put Payment
Calculation, then the Put Exercising Member shall pay to the Company within two
(2) business days following the determination of the Final Put Payment
Calculation such difference. The procedures set forth above in this Section
1.1(i) for resolving certain objections relating to the Put Option are referred
to herein as "PUT DISPUTE RESOLUTION PROCEDURE."
(j) The Company shall bear the costs of preparation of, and the
Put Exercising Member shall bear its own costs of review of, the Put Financial
Statements, the Put EBITDA Statement and the Alba Put Payment Calculation or GE
Put Payment Calculation, as the case may be; PROVIDED, HOWEVER, the fees,
expenses and costs of the Arbitrating Accountants shall be borne equally by the
Put Exercising Member, on the one hand, and the Company, on the other hand.
(k) Any Put Consideration payments provided for herein which are
not paid to the party entitled to such payment pursuant to the provisions of
this Agreement within the period of time provided for herein shall accrue
interest thereon from such date through the date upon which payment is actually
made at an annual rate of interest of ten percent (10%).
SECTION 1.2. OBLIGATIONS OF THE COMPANY AND ENCOMPASS UNCONDITIONAL.
Provided that the Conditions set forth in Section 1.3 hereof have been
satisfied, the obligations of the Company to pay the Put Consideration (and
Encompass' obligation to cause its designees to the Company's Board of Managers
to approve such payment) in accordance with the terms of this Agreement shall be
unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by:
(a) any change in the corporate existence, structure or ownership
of the Company or any insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Company, Encompass or any of their assets or any
resulting release or discharge of any obligation of the Company or Encompass
contained in this Agreement;
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(b) the existence of any claim, set-off or other rights which the
Company or Encompass may have at any time against the Put Exercising Member or
any other entity or person, whether in connection herewith or any unrelated
transaction;
(c) any invalidity or unenforceability relating to or against the
Company for any reason of this Agreement, or any provision of applicable law or
regulation purporting to prohibit the payment by the Company of the Put
Consideration;
(d) any modification or amendment of this Agreement; or
(e) any other act or omission to act or delay of any kind by the
Company, the Put Exercising Member or any other entity or person or any other
circumstance whatsoever which might, but for the provisions of this paragraph,
constitute a legal or equitable discharge of or defense to the Company's
obligations hereunder.
SECTION 1.3. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
(a) The Company's obligation to purchase any Put Interests
following exercise of the Put Option shall be subject to the following
conditions, and the Company's obligation to pay any installment of the Alba Put
Consideration shall be subject to the Credit Agreement Condition (as defined
below):
(i) After giving effect to the Initial Put Payment or the GE Put
Consideration, as the case may be, the fair value of the
assets of the Company exceeds all liabilities of the Company,
other than liabilities to Members on account of their
Membership Interests and liabilities for which the recourse
of creditors is limited to specified property of the Company
pursuant to Section 18-607 of the Delaware Limited Liability
Company Act (such condition is referred to herein as the
"AVAILABLE CASH CONDITION");
(ii) Both before and after giving effect to a payment of the
applicable Alba Put Consideration or the GE Put
Consideration, as the case may be, there shall not have
occurred or be continuing any default or event of default
under the AlbaHealth Credit Agreement (such condition is
referred to herein as the "CREDIT AGREEMENT CONDITION"); and
(iii) Financing in an amount sufficient to fund the Initial Put
Payment or the GE Put Consideration, as the case may be,
shall be available; provided that, no more than 30% of the
outstanding principal amount of the bank debt of the
Company, inclusive of any new debt required to be incurred
by the Company to fund the Initial Put Payment or the GE Put
Consideration, as the case may be, shall be subject to
interest rates in excess of the London interbank offered
rate ("LIBOR") then in effect plus 4.5% (such condition is
referred to herein as the "FINANCING CONDITION" and,
together with the
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Available Cash Condition and the Credit Agreement Condition,
the "CONDITIONS").
(b) The parties hereby agree that (i) while the Company is unable
to satisfy the Conditions, (A) the Company shall be prohibited from making any
payments or other distributions of cash or cash equivalents to any of its
Members, other than (x) tax distributions to each Member in respect of tax
obligations of such Member as a result of their ownership of Membership
Interests in the Company of an amount equal to 42.5% of such Member's share of
the Company's taxable income or (y) the Put Consideration and (B) the Put Option
Period shall be extended by the number of days during which the Company is
unable to satisfy the Conditions (that is, the Put Option Period shall be
tolled), which, with respect to the application of the Put Consideration Payment
Schedule set forth in Exhibit A, shall have the effect of increasing (by the
number of days the Put Option Period is so extended) the period during which the
percentages and years under the columns "Initial Put Payment," "Periodic Put
Payment" and "Put Payment Period" corresponding to "Year 5" under the column
"Put Option Year" set forth in Exhibit A shall apply, and (ii) once the Company
is able to satisfy the Conditions, the Put Exercising Member shall be entitled
to re-exercise its Put Option at any time during such extended Put Option
Period.
(c) Notwithstanding any provision in this Agreement to the
contrary, the parties hereby further agree that, with respect to the Put Option
exercised by the GE Capital Party, the Company shall not be obligated to pay any
GE Put Consideration so long as the Conditions that would be applicable in the
event of an exercise by the Alba Party of its Put Option are not satisfied.
SECTION 1.4. ADJUSTMENTS TO EBITDA FOR MATERIAL ADVERSE EVENT.
(a) The parties hereby agree that if a Material Adverse Event
occurs at any time within the six (6) -month period prior to the Put Date, the
amount of the EBITDA set forth in the Put EBITDA Statement used to determine the
amount of the Initial Put Payment shall be adjusted to take into account the
Material Adverse Effect to the extent such effect has not already been reflected
therein (the "ESTIMATED EBITDA ADJUSTMENT"), it being the intent of the parties
that the LTM EBITDA which is used to determine the EBITDA Reference Value shall
be adjusted in such a manner that it shall reflect the estimated impact of the
Material Adverse Event as if it occurred and began impacting EBITDA immediately
prior to the commencement of the twelve (12) -month period used to calculate LTM
EBITDA. The determination of the occurrence of a Material Adverse Event and the
amount of the Estimated EBITDA Adjustment shall be made by the Board of Managers
of the Company exercising its reasonable good faith judgment after consultation
with the Put Exercising Member; PROVIDED that, if the Put Exercising Member
objects to such determination within fifteen (15) days after receipt of notice
of same, such dispute shall be settled in accordance with the Put Dispute
Resolution Procedures specified in Section 1.1(i) hereof.
(b) For purposes hereof, (i) a "MATERIAL ADVERSE EFFECT" shall
mean a reduction in the Company's yearly EBITDA by more than twenty percent
(20%) and
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(ii) a "MATERIAL ADVERSE EVENT" shall mean an event or series of related events
which has had, or will have, a Material Adverse Effect.
SECTION 1.5. FAILURE TO PURCHASE THE PUT INTERESTS.
(a) Notwithstanding any provision in this Agreement or the
Operating Agreement to the contrary, in the event of any failure or delay by the
Company to pay any portion of the Put Consideration in accordance with the terms
of this Agreement as and when the same becomes due and payable, other than such
failures or delays caused by the Company's inability to satisfy the Conditions
(a "COMPANY DEFAULT EVENT"), then (i) the Company shall be prohibited from
making any payments or other distributions of cash or cash equivalents to any of
its Members (including, without limitation, such distributions with respect to
tax obligations of the Members as a result of their ownership of the Membership
Interest in the Company), other than the payment of the Put Consideration, and
(ii) following fifteen (15) days' notice to the Company and the Company's
failure to make the required payment within such fifteen (15) - day period, (A)
any and all outstanding Put Consideration (which outstanding amount shall be
calculated using the methods specified herein to determine the Accelerated Put
Consideration in the event of an Acceleration Event) shall become due and
payable immediately. Furthermore, in the event that the Alba Party is the Put
Exercising Member, Encompass shall (i) cause all of its designees (except for
one designee) to the Company's Board of Managers (the "Board") promptly to
resign and the Put Exercising Member shall have the right to appoint designees
to fill the resulting vacancy(ies), the result being that the Put Exercising
Member shall be given control of the seats on the Board while the Company
Default Event continues (the period during which the Put Exercising Member is
given control of the Board as a result of a Company Default Event is hereinafter
referred to as the "COMPANY DEFAULT PERIOD"); and (ii) during the Company
Default Period, the Board shall be authorized to take action on all matters by
majority vote of the entire Board, free of any special voting provisions imposed
by Section 4.1(f) of the Operating Agreement or any other provisions granting
any rights of approval to Encompass or its designees to the Company's Board of
Managers contained in the Contribution Agreement or any exhibit thereto;
PROVIDED, HOWEVER, that upon cure of the Company Default Event, the composition
of the Company's Board of Managers shall be promptly restored to the same
composition as existed prior to the resignation of Encompass' designee(s)
described above, and the provisions of Section 4.1 of the Operating Agreement
shall again control the selection and appointment of designees to said Board.
(b) It is expressly understood and agreed that nothing in this
Section 1.5 shall be construed to limit in any way the rights and remedies of
the Put Exercising Member in the event of any failure or delay by the Company to
pay the Put Consideration in accordance with the terms of this Agreement or to
limit the Company's and Encompass' obligations set forth in this Agreement.
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ARTICLE II.
COVENANTS
The Company and Encompass hereby covenant and agree that, if the Alba Party
exercises its Put Option, from the Put Date and for so long as any portion of
the Alba Put Consideration remains unpaid to the Alba Party, the Company will,
and Encompass will cause the Company to, comply with the following:
SECTION 2.1. INFORMATION COVENANTS. The Company will furnish to the Alba
Party:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in any
event within fifty (50) days after the end of each fiscal year of the Company, a
consolidated balance sheet and income statement of the Company as of the end of
such fiscal year, together with related consolidated statements of operations
and retained earnings and cash flows for such fiscal year, in each case, setting
forth in comparative form consolidated figures for the preceding fiscal year,
all such financial information described above to be audited by independent
certified public accountants of recognized national standing, whose opinion (i)
shall be to the effect that such financial statements have been prepared in
accordance with GAAP (except for changes with which such accountants concur),
(ii) shall not be limited as to the scope of the audit or any other material
exceptions and (iii) shall state that such accountants have reviewed this
Agreement and state further whether, in the course of their audit, they have
become aware of any irregularities, any deviation from GAAP or other accounting
practices of the Company that would have the effect of reducing the amount of
Net Sales as reflected on the financial statements of the Company, specifying
the nature and extent thereof.
(b) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and in
any event within thirty (30) days after the end of each fiscal quarter of the
Company (other than the fourth fiscal quarter, in which case fifty (50) days
after the end thereof) a consolidated balance sheet and income statement of the
Company as of the end of such fiscal quarter, together with related consolidated
statements of operations and retained earnings and cash flows for such fiscal
quarter, in each case setting forth in comparative form consolidated figures for
the corresponding period of the preceding fiscal year, all such financial
information described above to be accompanied by a certificate of the Chief
Financial Officer of the Company to the effect that such quarterly financial
statements fairly present the financial condition of the Company and have been
prepared in accordance with GAAP.
(c) MONTHLY FINANCIAL STATEMENTS. As soon as available, and in
any event within twenty (20) days after the close of each fiscal month of the
Company, a summary of operating statistics, including, without limitation, net
sales, EBITDA and net income, certified by the Chief Financial Officer of the
Company, or an officer of the Company performing a similar function, to be true
and correct.
(d) ANNUAL OPERATING PLAN AND BUDGETS. At least thirty (30) days
prior to the end of each fiscal year of the Company, beginning with the fiscal
year in which the
11
Put Date occurred, an annual operating plan and budget of the Company
containing, among other things, pro forma financial statements for the next
fiscal year.
(e) [INTENTIONALLY DELETED].
(f) AUDITOR'S REPORTS. Promptly upon receipt thereof, a copy of
any other report or "management letter" submitted by independent accountants to
any member of the Company in connection with any annual, interim or special
audit of the books of the Company.
(g) OTHER INFORMATION. With reasonable promptness upon any such
request, such other information regarding the business, properties or financial
condition of the Company as the Alba Party may reasonably request.
SECTION 2.2. PRESERVATION OF EXISTENCE AND FRANCHISES. Except as otherwise
agreed to in writing by the Alba Party, the Company will do, and Encompass will
cause to be done, all things necessary to preserve and keep in full force and
effect the existence, rights, franchises and authority of the Company.
SECTION 2.3. CONDUCT OF BUSINESS. The Company shall carry on its business
and operate its assets in the ordinary course, use its commercially reasonable
efforts to preserve intact the Company's present business organization,
including its officers and employees, and preserve the business relationships
with its customers, suppliers and others having business dealings with the
Company. The Company and Encompass shall not, directly or indirectly, conduct
the Company's business in any way that would be reasonably likely to have a
material adverse effect on current or future Net Sales of the Company,
including, without limitation, decreasing the level of production or sales of
its products or supplying the Company's current or potential customers with
products of Encompass and its Affiliates (other than the Company), including,
without limitation, Encompass' "TechStyles" business division, except as
otherwise expressly set forth in the Purchase and Supply Agreement between
Encompass and the Company. Notwithstanding any provision contained in this
Section 2.3 to the contrary, the Company may contract its business operations in
response to materially adverse business or economic conditions, regulation in
the industry in which the Company operates or the loss of a material amount of
business or customers to the extent such condition, regulation or loss exists,
in each case, so long as such contraction is (i) deemed necessary and
appropriate, in the best interest of the Company, based on the reasonable
business judgment of its Board of Managers in good faith and (ii) not otherwise
conducted for the purpose of circumventing the general purpose of this Section
2.3 of preserving the business and operation of the Company and the current and
future Net Sales of the Company.
SECTION 2.4. ALBA DESIGNEE. From the Put Date and for so long as any
portion of the Alba Put Consideration remains unpaid to the Alba Party,
Encompass and its Permitted Transferees shall cause the Company to have at least
one (1) Manager designated by Alba serving on the Board of the Company at all
times, as contemplated by the Operating Agreement.
12
SECTION 2.5. BOOKS AND RECORDS. The Company will keep complete and
accurate books and records of its transactions in accordance with good
accounting practices on the basis of GAAP (including the establishment and
maintenance of appropriate reserves).
SECTION 2.6. COMPLIANCE WITH LAW. The Company will comply in all material
respects with all laws, rules, regulations and orders, and all applicable
restrictions imposed by any governmental authority, applicable to it and its
properties or assets, whether real, personal or mixed or tangible or intangible
(the "PROPERTIES").
SECTION 2.7. PAYMENT OF TAXES AND OTHER INDEBTEDNESS. The Company will pay
and discharge (a) all taxes, assessments and governmental charges or levies
imposed upon it, or upon its income or profits, or upon any of its Properties,
before they shall become delinquent, (b) all lawful claims (including claims for
labor, materials and supplies) which, if unpaid, might give rise to a Lien upon
any of its Properties, and (c) except as prohibited hereunder, all of its other
indebtedness as it shall become due; PROVIDED, HOWEVER, that the Company shall
not be required to pay any such tax, assessment, charge, levy, claim or
indebtedness (i) which is being contested in good faith by appropriate
proceedings and as to which adequate reserves therefor have been established in
accordance with GAAP or (ii) if the failure to make any such payment (A) would
not give rise to an immediate right to foreclose on a Lien securing such amounts
and (B) would not be reasonably likely to have a material adverse effect on the
business, assets, financial condition or results of operation of the Company.
SECTION 2.8. INSURANCE. The Company will at all times maintain in full
force and effect insurance (including worker's compensation insurance, liability
insurance, casualty insurance and business interruption insurance) with one or
more insurers having a claims paying ability rating from AmBest Company, Inc.
("AMBEST") of no less than "A-," or an equivalent rating by a nationally
recognized rating agency if AmBest ceases publishing claims paying ability
ratings, in such amounts, covering such risks and liabilities and with such
deductibles or self-insurance retentions as are in accordance with normal
practice for organizations of similar size in the Company's industry.
SECTION 2.9. [INTENTIONALLY DELETED].
SECTION 2.10. PERFORMANCE OF OBLIGATIONS. The Company will perform in all
material respects all of its obligations under the terms of all material
agreements, indentures, mortgages, security agreements and other debt
instruments to which it is a party or by which it is bound.
SECTION 2.11. AUDITS/INSPECTIONS. Subject to the Amended and Restated
Non-Disclosure Agreement, dated September 6, 2002, by and among Tefron Ltd.,
Alba, Encompass and the Company, upon reasonable notice and during normal
business hours, the Company will permit representatives of the Alba Party,
including, without limitation, their independent accountants, agents, attorneys
and appraisers ("REPRESENTATIVES") to visit and inspect the Company's property,
including its books and records, its accounts receivable and inventory, its
facilities and its other business assets, and to make
13
photocopies or photographs thereof and to write down and record any information
such representative obtains and shall permit the Alba Party or its
representatives to investigate and verify the accuracy of information provided
to the Alba Party and to discuss all such matters with the Company's officers,
employees and Representatives.
SECTION 2.12. [INTENTIONALLY DELETED].
SECTION 2.13. ADDITIONAL COVENANTS. In addition to any requirements,
obligations or restrictions imposed on the Company and Encompass herein, the
Company shall not effect any of the following without first obtaining the prior
written consent of Alba or, in the alternative, Alba's designee to the Board of
Managers of the Company, which consent shall not be unreasonably delayed or
withheld:
(a) any amendment to this Agreement or any other of the
organizational documents of the Company or any of its Subsidiaries, including
any change in the Company's name;
(b) any issuance, sale, transfer, purchase or redemption by the
Company of Membership Interests or other securities (voting or otherwise) of the
Company or any of its Subsidiaries, except for Membership Interests or
securities issued or issuable to officers, managers, employees or consultants of
the Company pursuant to any employee or consultant stock or Membership Interest
offering, plan or arrangement as approved by the Board; PROVIDED that, such
issuances or redemptions do not involve in excess of twenty percent (20%) of the
outstanding Membership Interests, in the aggregate;
(c) approval of the Company's or any of its Subsidiaries' entry
into any business other than the Business and related businesses;
(d) approval of any reorganization of the Company or any sale or
transaction involving the merger or consolidation of the Company or any of its
Subsidiaries with or into another entity or the sale by the Company or any of
its Subsidiaries of all or any material part (or, whether or not material, in
excess of $1.0 million) of its assets, in all cases, whether effected directly
or indirectly or through one or a series of transactions, other than the sale of
inventory in the ordinary course of business;
(e) approval of any annual and long-term performance objectives,
budgets, operating plans (or other similar plans) and annual financial
statements of the Company and its Subsidiaries, or any modification, amendment
or supplement thereto;
(f) admittance of any new Members to the Company (except to the
extent authorized in Section 2.13(b));
(g) any transaction between the Company and Encompass or any of
its Affiliates or any Member, Manager or Officer of the Company or any Affiliate
thereof (other than with respect to employee compensation), and any
modification, amendment or supplement to any such transaction or any waiver of
any material right of the
14
Company with respect to any of the foregoing, except to the extent the aggregate
transaction value of all such transactions is less than $50,000;
(h) approval of any change in the Company's auditors or any
material change in the accounting policies or procedures of the Company;
(i) any bankruptcy filing by or with respect to the Company or
any of its Subsidiaries or any filing seeking other relief with respect to the
Company's or its Subsidiaries' debts or any assignment for the benefit of the
creditors thereof; and
(j) approval of any liquidation or dissolution of the Company or
any of its Subsidiaries.
ARTICLE III.
GENERAL PROVISIONS
SECTION 3.1 NOTICES. All notices, requests and other communications
hereunder shall be in writing and shall be sent, delivered or mailed, addressed
as follows:
(a) if to Encompass, to: with a copy (which shall not constitute
notice) to:
Winthrop & Weinstine, P.A.
Encompass Group, L.L.C. 0000 Xxxx Xxxxxxxx Xxxxx
000 Xxxxx Xxxxxx 00 Xxxxx Xxxxx Xxxxxx
XxXxxxxxx, Xxxxxxx 00000 Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxxx Attention: Xxxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
(b) if to Alba, to: with a copy (which shall not constitute
notice) to:
Tefron Ltd.
Alba-Waldensian, Inc. 00 Xxxxx Xxxxxx
000 Xx. Xxxxxxx Xxxxxx X.X. Xxxx Xxxx 00000 Israel
Xxxxxxx, Xxxxx Xxxxxxxx 00000 Attention: Xxxxx Xxxxxx
Attention: Xxx Xxxxxx Facsimile: (000) 0-000-0000
Facsimile: (000) 000-0000
and
Xxxxx Xxxxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx, Esq.
Facsimile: (000) 000-0000
15
(c) if to the Company, to:
AlbaHealth, LLC
000 Xx. Xxxxxxx Xxxxxx X.X.
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxx Xxxxxx
Facsimile: (000) 000-0000
(d) if to GE Capital, to: with a copy (which shall not constitute
notice) to:
General Electric Capital Corporation Paul, Hastings, Xxxxxxxx & Xxxxxx LLP
401 Xxxxxxx Seven 0000 Xxxxxxxxxx Xxxxxxxxx
Xxxxxxx, Xxxxxxxxxxx 00000-0000 Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxx XxXxxxx, Attention: Xxxxx Xxxxxxxx, Esq.
Account Manager Facsimile: (000) 000-0000
Facsimile: (000) 000-0000
and
General Electric Capital Corporation
000 Xxxx Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxx 00000-0000
Attention: Corporate Counsel -
Commercial Finance
Facsimile: (000) 000-0000
All notices required or permitted to be given hereunder shall be in writing and
may be delivered by hand, by facsimile, by private courier, or by United States
mail. Notices delivered by mail shall be deemed delivered five (5) business days
after being deposited in the United States mail, postage prepaid, registered or
certified mail, return receipt requested. Notices delivered by hand, by
facsimile, or by private carrier shall be deemed given on the business day
following receipt (unless such day is a Saturday, Sunday or national holiday, in
which case such notice shall be deemed given on the next business day);
PROVIDED, HOWEVER, that a notice delivered by facsimile shall only be effective
if such notice is also delivered by hand, or deposited in the United States
mail, postage prepaid, registered or certified mail, on or before two (2)
business days after its delivery by facsimile. All notices to the Company, Alba,
Encompass and GE Capital shall be delivered to the addresses set forth above (or
at such other address for a party as shall be specified by like notice, except
that notices after giving of which there is a designated period within which to
perform an act and notices of changes of address shall be effective only upon
receipt).
SECTION 3.2. HEADINGS. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
16
SECTION 3.3. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
SECTION 3.4. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 3.5. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; AMENDMENTS.
This Agreement, the Operating Agreement, the other Basic Agreements and the
Confidentiality Agreement, together with all Exhibits, Annexes, Appendices and
Schedules hereto and thereto, and any other written agreements entered into
between any parties to this Agreement on or prior to the date hereof,
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersedes all prior agreements and
undertakings, both written and oral, between the parties with respect to the
subject matter hereof and thereof, except for contracts and agreements referred
herein. Except as specifically provided herein or therein, such agreements are
not intended to confer upon any person other than the parties hereto any rights
or remedies hereunder or thereunder. This Agreement may not be amended or
modified without the approval of Alba, GE Capital and the Company. Subject to
Section 1.5 of this Agreement, any such approval by the Company (including any
action or decision relating to any amendment or modification of, or waiver of
any rights or benefits arising under, this Agreement) and any action to be taken
by the Company under this Agreement shall require the approval of at least one
designee of Alba to the Board of Managers of the Company, on the one hand, and
one designee of Encompass to the Board of Managers of the Company, on the other
hand.
SECTION 3.6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAW.
SECTION 3.7. CONSENT TO JURISDICTION.
(a) The parties hereto hereby consent and agree that they shall
commence any action with respect to any claims or disputes between or among the
parties hereto pertaining to this Agreement or to any matter arising out of or
related to this Agreement in the United States District Court for the Western
District of North Carolina, so long as the action falls within the subject
matter jurisdiction of such court; in
17
the event any such action shall be determined by the court to be outside its
subject matter jurisdiction, then the parties agree to commence any such action
in the District Court of Mecklenburg County, North Carolina. The parties hereto
expressly submit and consent in advance to such jurisdiction in any action or
suit commenced in any such court, and hereby waive any objection which it may
have based upon lack of personal jurisdiction, improper venue or forum non
conveniens and hereby consent to the granting for such legal or equitable relief
as is deemed appropriate by such court. Each party hereto irrevocably consents
to the service of process by registered or certified mail, postage prepaid, to
it at its address given pursuant to Section 3.1 hereof. Subject to the
foregoing, nothing in this Agreement shall be deemed or operate to affect the
right of any party to serve legal process in any other manner permitted by law,
or to preclude the enforcement by any party of any judgment or order obtained in
the forum specified in this subsection or the taking of any action under this
Agreement to enforce the same in any other appropriate forum or jurisdiction.
(b) To the extent that any party hereto has or may hereafter
acquire any immunity from the jurisdiction of any court or from any legal
process (whether through service or notice, attachment prior to judgment,
attachment in aid of execution, execution or otherwise) with respect to such
party or such party's property, such party hereby irrevocably waives such
immunity in respect of their respective obligations under this Agreement.
SECTION 3.8. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
SECTION 3.9. SPECIFIC PERFORMANCE. The Company and Encompass agree that
damages cannot adequately compensate Alba and its Affiliates (other than the
Company) in the event of a violation of the covenants contained in this
Agreement, and that injunctive relief shall be essential for the protection of
the Alba Party and its successors and assigns. Accordingly, the Company and
Encompass agree and consent that, in the event they shall violate or breach such
covenants, the Alba Party shall be entitled to obtain injunctive relief against
each of them, without bond but upon due notice, in addition to such further or
other relief as may appertain at law or in equity. Obtainment of such injunction
by the Alba Party shall not be considered an election of remedies or a waiver of
any right by the Alba Party to assert any other remedies it may have at law or
in equity.
SECTION 3.10. PUBLICITY. Unless otherwise required by applicable
Governmental Rule, none of Alba, Encompass or GE Capital shall issue or cause
the publication of any press release or other public announcement with respect
to the transactions contemplated by this Agreement without the consent of the
other parties, which consent shall not be unreasonably withheld.
SECTION 3.11. ASSIGNMENT. Each of the Company, Alba, Encompass and GE
Capital agrees that it will not assign, sell, transfer, delegate, or otherwise
dispose of,
18
whether voluntarily or involuntarily, any right or obligation under this
Agreement other than as otherwise required or expressly permitted herein or
required under or in connection with the AlbaHealth Credit Agreement. Any
purported assignment, transfer, or delegation in violation of this Section 3.11
shall be null and void. Subject to the foregoing limits on assignment and
delegation, this Agreement shall be binding upon and shall inure to the benefit
of the parties and their respective successors and assigns. Except for those
enumerated above, this Agreement does not create, and shall not be construed as
creating, any rights or claims enforceable by any person not a party to this
Agreement.
SECTION 3.12. SUBORDINATION AGREEMENT. The rights of Alba hereunder to
receive any payment from the Company are subject to that certain Intercreditor
Agreement, dated as of the date hereof, by and among the parties hereto and GE
Capital.
19
IN WITNESS WHEREOF, the Company, Encompass, GE Capital and Alba have caused
this Agreement to be signed by their respective parties thereunto duly
authorized, all of the date first written above.
ALBAHEALTH, LLC
By: /s/ Xxx Xxxxxx
----------------------------------------
Name:
Title:
ENCOMPASS GROUP, L.L.C.
By: /s/
----------------------------------------
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/
----------------------------------------
Name:
Title:
ALBA-WALDENSIAN, INC.
By: /s/ Xxx Xxxxxx
----------------------------------------
Name:
Title:
20
EXHIBIT A
ALBA PUT CONSIDERATION PAYMENT SCHEDULE
----------------------------------------------------- ------------------- -------------------------------- ---------------------
INITIAL PUT PERIODIC PUT PAYMENT (PER PUT PAYMENT PERIOD
PUT OPTION YEAR PAYMENT QUARTERLY PERIOD)
----------------------------------------------------- ------------------- -------------------------------- ---------------------
Year 3 50% 5.0% 4 years
(From September 6, 2004 to
September 5, 2005)
----------------------------------------------------- ------------------- -------------------------------- ---------------------
Year 4 68% 5.0% 3 years
(From September 6, 2005 to
September 5, 2006)
----------------------------------------------------- ------------------- -------------------------------- ---------------------
Year 5 80% 5.0% 2 years
(From September 6, 2006 to End of Put Option
Period, as extended in the event of a failure of a
Condition)
----------------------------------------------------- ------------------- -------------------------------- ---------------------
A-1
