This excerpt taken from the GFSI 10-K filed Mar 29, 2007.
2. SECONDARY COMMON STOCK OFFERING AND PREFERRED STOCK REDEMPTION
On October 11, 2006, the Company completed the sale of 10,000,000 shares of its common stock in a secondary public offering at a price of $5.50 per share for proceeds, net of underwriting fees, of $51,150,000. Subsequently, on October 18, 2006, the underwriter exercised the over-allotment option to purchase an additional 1,500,000 shares of the Companys common stock at $5.50 per share for proceeds, net of underwriting fees, of $7,672,500. The proceeds from the offering were used to redeem its
Series A and C preferred stock held by Lightyear for a total of approximately $34.5 million with the remaining offering proceeds and the proceeds from the over-allotment option being used to pay down the Companys $17.8 million Bank of America credit facility. The following is a summary of the secondary offering transaction:
In conjunction with the secondary offering, the Company redeemed all of the Series A and C preferred shares for $33.2 million, including all accrued but unpaid dividends, paid $1.2 million to redeem the 378,788 common stock warrants issued in January 2006, and issued 2,346,000 new common shares to Lightyear, representing 14.9% ownership of the fully diluted common stock of the Company as of October 11, 2006, in exchange for the 3,200,000 common stock warrants held by Lightyear and the release of Lightyear from its guaranty of our Term B Note. This redemption resulted in a deemed distribution of approximately $15.7 million representing the difference in the total value of what the Company paid in cash as well as the estimated fair value of the 2.3 million common shares issued to Lightyear totaling $47.3 million compared to the recorded values of the Series A and C preferred stock of $15.8 million and the amounts credited to additional paid-in-capital relating to the associated warrants of approximately $12.9 million. The deemed distribution is included in the preferred dividends caption in the accompanying consolidated statement of operations for the quarter and year ended December 31, 2006. The Company also recorded a one-time, non-recurring charge for the write-off of the debt discount and the debt issuance costs previously recorded on the Series C preferred stock. This expense is included in other operating expense during the quarter and year ended December 31, 2006 and totals approximately $1.5 million.
The Company redeemed all outstanding Series B preferred shares at the stated redemption price, plus accrued and unpaid dividends, on December 8, 2006. The total amount of the redemption and accrued dividends totaled $2.2 million. As a result of the Series B redemption, the Company recorded a deemed distribution of approximately $1.9 million during the quarter and year ended December 31, 2006.
As a result of the change in control upon completion of the secondary offering, vesting was accelerated on 951,986 of the Companys outstanding stock options. In accordance with SFAS No. 123R, the acceleration in vesting results in the acceleration of non-cash stock compensation associated with these options. Therefore, a non-cash stock compensation charge of approximately $3.0 million was recorded during the quarter and year ended December 31, 2006. Approximately 930,000 of the stock options held by executives and directors that became vested are subject to lock-up agreements with the underwriters. Fifty percent (50%) of the accelerated executive and director options are locked-up for six months with the balance being locked-up for twenty-four months.
Upon the paydown of the Bank of America credit facility, the term debt was extinguished and converted into additional revolving debt, making the credit facility a $25.0 million revolving credit facility. See Note 12 for further discussion of the Companys credit facility.