Broder sweetens payout, receives tenders for 95% of notes in exchange offer, to settle May 20

New York, May 15 - Broder Bros., Co. said it received tenders for $213.456 million, or 95%, of its $225 million 11¼% senior notes due Oct. 15, 2009 by 1 p.m. ET on May 15 after improving the terms, meeting the threshold to complete the transaction.

Broder Bros. said it will accept all tendered notes and expects to settle the exchange on May 20.

For each $1,000 principal amount of old notes, noteholders will receive $444.44 of new 12%/15% pay-in-kind senior toggle notes due 2013 and a pro rata share of 96% of the company's newly issued common stock.

Noteholders will also receive a cash consent payment of $20.00 per $1,000 principal amount of notes tendered. Of this sum, $10.00 will be paid on settlement and $10.00 on Oct. 1.

Broder Bros. said that the existing stockholders had agreed to add an extra 1% of the company's stock to its tender, raising the amount that noteholders will receive to 96% from 95%, in order to complete the restructuring.

Existing stockholders will receive warrants for 12% of the company's fully diluted common stock, reduced from the previous 15%.

Earlier Friday, Broder said it was extending the exchange to 1 p.m. ET on May 15 form 11:59 p.m. ET on May 14.

As of the prior deadline, holders of $210.97 million, or about 94%, of the notes had tendered their securities.

Broder had said that tenders and consents were needed for $213.75 million principal amount, or 95%, of the notes in order to complete the offer.

At each announcement, the company previously reiterated its threat to file for Chapter 11 bankruptcy if the exchange offer is not completed for any reason, adding that it had received tenders and consents for $206.4 million, or 91.75%, of the notes as of the consent time, which was 5 p.m. ET on May 8.

Broder said it had prepared the materials needed to file for bankruptcy and estimated that an in-court restructuring would result in an additional $25 million in fees, expenses and borrowing costs.

The company already said it would need to seek additional capital to pay these costs and expenses and that this additional capital would likely be on terms that would materially reduce what noteholders would receive, if anything, in an in-court restructuring.

In addition, if less than $220.5 million principal amount is tendered in the exchange offer, Broder will form a new wholly owned subsidiary and transfer substantially all of its assets to that subsidiary.

The company said the new subsidiary would be required to guarantee the exchange notes but, as a result of the effectiveness of the proposed amendments to the indenture governing the existing notes, would not be required to guarantee any of the existing notes that remain outstanding after the exchange offer.

The company began the private exchange offer and consent solicitation for the notes on April 20.

On May 6, Broder reduced the minimum tender condition to 95% of the notes from 98% and extended the consent time to May 8 from May 5.

Under the tender, the company is offering to issue new 12%/15% senior payment-in-kind toggle notes due 2013 and common stock in exchange for the notes.

For each $1,000 principal amount of old notes, noteholders will receive $444.44 of new toggle notes and a pro rata share of at least 95% of the company's newly issued common stock, a figure increased after the final extension.

The new common stock to be issued is subject to dilution upon the exercise of warrants that will be issued to the existing stockholders and the exercise of stock options that will be issued as part of a new management equity incentive plan, Broder noted.

By tendering their notes, exchange offer participants will become obligors under and beneficiaries of a mutual release under which the participating noteholders, the company and its existing equityholders will agree to release each other from all claims, subject to limited exceptions.

In addition, noteholders who tender must deliver consents to amend the indenture governing the old notes to waive any and all defaults and events of default, eliminate substantially all of the covenants that govern the company's actions - other than the covenants to pay principal and interest when due - and eliminate or modify the related events of default.

Noteholders who tender by the earlier of the consent date and the date on which the minimum tender condition is satisfied will receive a cash consent payment of $20.00 per $1,000 principal amount of notes.

The consent payment was modified on April 28 to be payable all in cash. Originally, half of the consent payment was to be made in cash and the other half in new toggle notes.

Of the $20.00, half will be paid on the settlement date and the remainder on Oct. 1.

The exchange offer is only being made to noteholders who are qualified institutional buyers, accredited institutional investors or non-U.S. persons, within the meaning of Rule 144A under the Securities Act.

Completion of the exchange offer is subject to conditions that include the minimum tender condition and the absence of some adverse legal and market developments.

The company said the exchange offer is meant to reduce its leverage, extend the maturity of its senior debt, decrease its cash interest expense and enhance its near-term liquidity.

As previously reported, the company said on April 15 that it reached agreement with an ad hoc committee of noteholders to exchange the existing notes for $100 million of new notes and 95% of the company's common stock.

The committee is made up of holders owning roughly 30% of the existing notes.

Broder also said it would not make the interest payment on the notes due April 15. There is a 30-day grace period before a default occurs. Failure to pay the coupon will not cause a default on the credit facility following the recent amendment.

D.F. King & Co., Inc. (800 859-8508 or 212 269-5550) is the information agent.

Broder is a Trevose, Pa., distributor of imprintable activewear to the screen printing, embroidery and promotional product industries.

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