AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1997
REGISTRATION NO. 333-32605
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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POLYMER GROUP, INC. CHICOPEE, INC.
PGI POLYMER, INC. PNA CORP.
FIBERTECH GROUP, INC. FNA POLYMER CORP.
FIBERGOL CORPORATION FABRENE CORP.
TECHNETICS GROUP, INC. FABRENE GROUP L.L.C.
CHICOPEE HOLDINGS, INC. FABRENE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2297131 57-1003983
DELAWARE 2297131 57-0962088
DELAWARE 2297131 57-0962089
DELAWARE 2297131 57-0962081
DELAWARE 2297131 57-0982116
DELAWARE 2297131 57-1018373
DELAWARE 2297131 57-1013629
NORTH CAROLINA 2297131 56-1887385
NORTH CAROLINA 2297131 56-1742445
DELAWARE 2297131 51-0319685
DELAWARE 2297131 57-0988766
PRINCE EDWARD ISLAND, N/A
CANADA (PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NO.)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
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4838 JENKINS AVENUE
NORTH CHARLESTON, SC 29405
TELEPHONE: (803) 566-7293
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
----------------
JAMES G. BOYD
4838 JENKINS AVENUE
NORTH CHARLESTON, SC 29405
TELEPHONE: (803) 566-7293
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
H. KURT VON MOLTKE
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
TELEPHONE: (312) 861-2295
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF PART I OF FORM S-4
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
- ---------------------------------------------- -------------------------------------------
1. Forepart of Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page; Outside Back Cover
of Prospectus Page
3. Risk Factors, Ratio of Earnings to Fixed Prospectus Summary; Selected Consolidated
Charges and Other Information Financial Data; Unaudited Pro Forma
Financial Information
4. Terms of the Transaction Outside Front Cover Page; Prospectus
Summary; Description of the Exchange
Notes; The Exchange Offer; Certain Federal
Income Tax Consequences
5. Pro Forma Financial Information Unaudited Pro Forma Financial Information
6. Material Contracts with the Company Being Inapplicable
Acquired
7. Additional Information Required Inapplicable
8. Interests of Named Experts and Counsel Legal Matters; Experts
9. Disclosure of Commission Position on Inapplicable
Indemnification for Securities Act
Liabilities
10. Information with Respect to S-3 Outside Front Cover Page; Prospectus
Registrants Summary; Risk Factors; The Refinancing;
Use of Proceeds; Capitalization; Selected
Consolidated Financial Data; Unaudited Pro
Forma Financial Information; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Relationships and Related Transactions;
Security Ownership; Description of Certain
Indebtedness
11. Incorporation of Certain Information by Incorporation of Certain Documents by
Reference Reference
12. Information with Respect to S-3 or S-2 Inapplicable
Registrants
13. Incorporation of Certain Information by Inapplicable
Reference
14. Information with Respect to Registrants Inapplicable
other than S-3 or S-2 Registrants
15. Information with Respect to S-3 Inapplicable
Companies.
16. Information with Respect to S-3 or S-2 Inapplicable
Companies
17. Information with Respect to Companies Inapplicable
Other than S-3 or S-2 Companies
(i)
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
- ---------------------------------------------- -------------------------------------------
18. Information if Proxies, Consents or Inapplicable
Authorizations are to be Solicited
19. Information if Proxies, Consents or Management; Security Ownership; Certain
Authorizations are not to be Solicited or Relationships and Related Transactions
in an Exchange Offer
(ii)
PROSPECTUS
SEPTEMBER 3, 1997
POLYMER GROUP, INC.
OFFER TO EXCHANGE ITS 9% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ANY AND ALL OF ITS OUTSTANDING 9% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON OCTOBER
3, 1997, UNLESS EXTENDED.
Polymer Group, Inc., a Delaware corporation (the "Company") hereby offers
(the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 9% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes"), registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this prospectus is a part, for each $1,000
principal amount of its outstanding 9% Senior Subordinated Notes due 2007 (the
"Old Notes"), of which $400,000,000 principal amount is outstanding. The form
and terms of the Exchange Notes are the same as the form and terms of the Old
Notes except that (i) the Exchange Notes will bear a Series B designation,
(ii) the Exchange Notes will have been registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof and
(iii) holders of the Exchange Notes will not be entitled to certain rights of
holders of Old Notes under the Registration Rights Agreement (as defined). The
Old Notes and the Exchange Notes are referred to herein collectively as the
"Notes." The Exchange Notes will evidence the same debt as the Old Notes
(which they replace) and will be issued under and be entitled to the benefits
of the Indenture dated as of July 1, 1997 (the "Indenture") by and among the
Company, the Guarantors (as defined) and Harris Trust and Savings Bank, as
trustee, governing the Notes. See "The Exchange Offer" and "Description of the
Exchange Notes."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on October 3, 1997,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer."
The Old Notes were sold by the Company on July 3, 1997 to Chase Securities
Inc. (the "Initial Purchaser") in a transaction not registered under the
Securities Act in reliance upon an exemption under the Securities Act (the
"Initial Offering"). The Initial Purchasers subsequently placed the Old Notes
with qualified institutional buyers in reliance upon Rule 144A under the
Securities Act. Accordingly, the Old Notes may not be reoffered, resold or
otherwise transferred in the United States unless registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available. The Exchange Notes are being
offered hereunder in order to satisfy the obligations of the Company and the
Guarantors under the Registration Rights Agreement entered into by the
Company, the Guarantors and the Initial Purchaser in connection with the
Initial Offering (the "Registration Rights Agreement"). See "The Exchange
Offer."
Interest on the Notes will accrue from their date of original issuance and
will be payable semi-annually in arrears on January 1 and July 1 of each year,
commencing January 1, 1998, at the rate of 9% per annum. The Notes will be
redeemable, in whole or in part, at the option of the Company on or after July
1, 2002, at the redemption prices set forth herein plus accrued and unpaid
interest to the date of redemption. In addition, at any time and from time to
time prior to July 1, 2000, the Company may, at its option, redeem up to 35%
of the aggregate principal amount of the Notes with the net cash proceeds of
one or more Public Equity Offerings (as defined) by the Company, at a
redemption price equal to 109.25% of the principal amount thereof plus accrued
and unpaid interest to the date of redemption; provided, however, that after
giving effect to any such redemption, at least 65% of the aggregate principal
amount of the Notes originally issued remains outstanding. Upon a Change in
Control (as defined), the Company will be required to make an offer to
repurchase the Notes at a price equal to 101% of the principal amount thereof
plus accrued and unpaid interest to the date of
repurchase. In addition, the Company will be obligated to offer to repurchase
the Notes at 100% of the principal amount thereof plus accrued and unpaid
interest to the date of repurchase in the event of certain Asset Sales (as
defined). See "Description of the Exchange Notes."
The Notes will be general unsecured senior subordinated obligations of the
Company and will be subordinated in right of payment to all existing and
future Senior Indebtedness (as defined) of the Company. The Notes will rank
pari passu in right of payment with any future senior subordinated
Indebtedness (as defined) of the Company and will rank senior to all other
Subordinated Indebtedness (as defined) of the Company. The Notes will be
guaranteed (the "Guarantees"), jointly and severally, on a senior subordinated
basis by all of the Company's direct and indirect domestic Subsidiaries (as
defined) on the issue day of the Notes (the "Issue Date") as well as by
Fabrene Group, Inc. ("Fabrene Group"), and by each direct and indirect
domestic subsidiary of the Company (excluding Unrestricted Subsidiaries (as
defined)) formed or acquired thereafter (the "Guarantors"). As of the Issue
Date, the Guarantors under the Indenture were PGI Polymer, Inc. ("PGI
Polymer"), FiberTech Group, Inc. ("FiberTech"), FiberGol Corporation
("FiberGol"), Technetics Group, Inc. ("Technetics"), Chicopee Holdings, Inc.
("Chicopee Holdings"), Chicopee, Inc. ("Chicopee"), PNA Corp. ("PNA"), FNA
Polymer Corp. ("FNA"), Fabrene Corp., Fabrene Group L.L.C. ("Fabrene L.L.C.")
and Fabrene Group. The Guarantees will be general unsecured senior
subordinated obligations of the Guarantors and will be subordinated in right
of payment to all existing and future Guarantor Senior Indebtedness (as
defined) (including Indebtedness outstanding under the Amended Credit
Facility). The Guarantees will rank pari passu with any and all future senior
subordinated Indebtedness of the Guarantors and will rank senior to all other
subordinated Indebtedness of the Guarantors. As of June 28, 1997, after giving
pro forma effect to the Refinancing, including the issuance of the Old Notes
and the application of the net proceeds therefrom, the aggregate principal
amount of the Company's outstanding Senior Indebtedness would have been
approximately $29.0 million (excluding unused commitments) and the Company
would have had no senior subordinated Indebtedness outstanding other than the
Notes. See "Description of the Exchange Notes--Ranking" and "Description of
the Exchange Notes-- Guarantees."
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DESCRIPTION OF CERTAIN RISKS
TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and such holder
has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. See "The Exchange Offer--Resale of the
Exchange Notes." Holders of Old Notes wishing to accept the Exchange Offer
must represent to the Company, as required by the Registration Rights
Agreement, that such conditions have been met. Each broker-dealer (a
"Participating Broker-Dealer") that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning
ii
of the Securities Act. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such
Old Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter
is being used in connection with the Exchange Offer. Holders of Old Notes not
tendered and accepted in the Exchange Offer will continue to hold such Old
Notes and will be entitled to all the rights and benefits and will be subject
to the limitations applicable thereto under the Indenture and with respect to
transfer under the Securities Act. See "The Exchange Offer."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of a Public Market
Could Adversely Affect the Value of Exchange Notes." Moreover, to the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SUBSIDIARY GUARANTORS. NEITHER THE DELIVERY
OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE
MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
UNTIL DECEMBER 3, 1997 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "BOOK-ENTRY; DELIVERY AND FORM", THE COMPANY EXPECTS
THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
REPRESENTED BY A GLOBAL NOTE (AS DEFINED), WHICH WILL BE DEPOSITED WITH, OR ON
BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND REGISTERED IN ITS NAME OR
IN THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL INTERESTS IN THE GLOBAL
NOTE REPRESENTING THE EXCHANGE NOTES WILL BE SHOWN ON, AND TRANSFERS THEREOF
WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY DTC AND ITS
iii
PARTICIPANTS. AFTER THE INITIAL ISSUANCE OF THE GLOBAL NOTE, NOTES IN
CERTIFICATED FORM WILL BE ISSUED IN EXCHANGE FOR THE GLOBAL NOTE ONLY UNDER
LIMITED CIRCUMSTANCES AS SET FORTH IN THE INDENTURE. SEE "BOOK-ENTRY; DELIVERY
AND FORM."
PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE NOT TO CONSTRUE THE CONTENTS
OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD
CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX,
BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE EXCHANGE NOTES. NEITHER THE
COMPANY NOR ANY OF THE GUARANTORS IS MAKING ANY REPRESENTATION TO ANY
PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES REGARDING THE LEGALITY OF AN
INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR
SIMILAR LAWS.
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WAS OBTAINED THROUGH COMPANY
RESEARCH, SURVEYS OR STUDIES PURCHASED BY THE COMPANY AND CONDUCTED BY THIRD
PARTIES AND FROM INDUSTRY OR GENERAL PUBLICATIONS. THE COMPANY HAS NOT
INDEPENDENTLY VERIFIED MARKET DATA PROVIDED BY THIRD PARTIES OR INDUSTRY OR
GENERAL PUBLICATIONS. SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY
THE COMPANY TO BE RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT
TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "UNAUDITED PRO FORMA
FINANCIAL INFORMATION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL OF THESE FORWARD
LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT
OF THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY
UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES
AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES OR
STATEMENTS WILL BE REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS
THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2)
INCREASED COSTS; (3) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4)
INCREASES IN THE COMPANY'S COST OF BORROWINGS OR INABILITY OR UNAVAILABILITY
OF ADDITIONAL DEBT OR EQUITY CAPITAL; (5) ADVERSE STATE OR FEDERAL LEGISLATION
OR REGULATION OR ADVERSE DETERMINATIONS BY REGULATORS; AND (6) CHANGES IN
GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH THE COMPANY MAY, FROM TIME
TO TIME, COMPETE. MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE
COMPANY AND ITS MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH
COULD AFFECT THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD LOOKING
STATEMENTS, SEE "RISK FACTORS."
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations promulgated thereunder, covering the Exchange Notes being offered
hereby. This Prospectus does not contain all the information set forth in the
Exchange Offer Registration Statement. For further information with respect to
the Company and the Exchange Offer, reference is made to the Exchange Offer
Registration Statement. Statements made in this Prospectus
iv
as to the contents of any contract, agreement or other document referred to
are not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Exchange Offer Registration
Statement, reference is made to the exhibit for a more complete description of
the document or matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. In addition, the Company files
periodic reports and other information requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), with the Commission. The
Exchange Offer Registration Statement, including the exhibits thereto, and
periodic reports and other information filed by the Company with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at its regional offices located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.com. Reports, proxy statements and other information concerning
the Company can also be inspected at the offices of the New York Stock
Exchange, Inc., 11 Wall Street, New York, New York 10005.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission all
quarterly and annual financial information that would be required to be filed
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act or
any successor provision thereto. In addition, for so long as any of the Notes
remain outstanding and prior to the occurrence of certain events, the Company
has agreed to make available to any record holder, in connection with any sale
thereof, the information required by Rule 144A(d)(4) under the Securities Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE
UPON REQUEST FROM JAMES BRYANT, DIRECTOR OF INVESTOR RELATIONS OF POLYMER
GROUP, INC., 4838 JENKINS AVENUE, NORTH CHARLESTON, SOUTH CAROLINA 29405. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY SEPTEMBER 26, 1997 (FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission pursuant to the
Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1996.
2. The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 29, 1997 and June 28, 1997.
3. The Company's Current Report on Form 8-K dated June 19, 1997.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this
Prospectus and prior to the Expiration Date shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of the filing of
such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in any other subsequently filed document which also is incorporated
or deemed to be incorporated by reference herein) modifies or supersedes such
previous statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Registration Statement.
v
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements, and
the related notes thereto, included elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, the term "Company"
includes the Company and all of its subsidiaries and its and their respective
predecessors and subsidiaries. Unless otherwise indicated, all financial
statements used in this Prospectus have been prepared in accordance with United
States generally accepted accounting principles and all dollar references are
to U.S. dollars. Except as otherwise indicated, the pro forma financial
information for the year ended December 28, 1996 and the six months ended June
28, 1997 gives effect to the FNA Acquisition (as defined) and the Refinancing
(as defined) as if each had occurred on December 31, 1995.
THE COMPANY
Polymer Group, Inc. (the "Company") is a leading worldwide manufacturer and
marketer of a broad range of nonwoven and woven polyolefin products. The
Company's principal lines of business include medical, reusable wiping,
hygiene, and industrial and specialty products. The Company believes that it is
the fourth largest producer of nonwovens in the world and that it employs the
most extensive range of nonwoven technologies of any nonwovens producer, which
allows it to supply products tailored to customers' needs at a competitive
cost. Nonwovens are flat, flexible porous sheets produced by interlocking
fibers or filaments or by perforating films. Nonwovens provide certain
qualities similar to those of textiles at a significantly lower cost. The
Company also believes that it is the largest producer of woven polyethylene
fabrics in North America. Woven polyethylene fabrics are flat, flexible
structures produced by weaving narrow tapes of slit film and are characterized
by high strength-to-weight ratios. For the year ended December 28, 1996, the
Company had pro forma net sales of $540.4 million and pro forma EBITDA of
$105.7 million. From 1993 through 1996 on a pro forma basis, the Company's
compound annual growth rates for net sales and EBITDA were 64.5% and 87.3%,
respectively.
The Company supplies nonwovens to a number of the largest consumer products
manufacturers in the world and specifically targets market niches with high
value-added products. The Company has a global presence with an established
customer base in the three major developed markets of North America, Europe and
Japan, as well as developing markets such as Latin America. The Company's
products are sold principally to converters that manufacture a wide range of
end-use products, such as hospital surgical gowns and drapes, wound care
sponges, multiuse wiping cloths and towels, flexible industrial packaging,
filtration media, battery separators, diapers, feminine hygiene products and
automotive insulation products.
The Company is a leader in nonwoven process technology. The Company operates
thirteen manufacturing facilities located in five countries and is currently
the only nonwovens producer that utilizes all of the established nonwoven
process technologies. The Company believes that the quality of its
manufacturing operations and the breadth of its nonwovens process technologies
give it a competitive advantage in meeting the current and future needs of its
customers and in leading the development of an expanded range of applications
for nonwovens. The Company continues to make significant investments in
advanced technology in order to increase capacity, improve quality and develop
new low-cost, high-value structures. For example, the Company recently
completed what it believes to be one of the world's most advanced
spunbond/meltblown/spunbond ("SMS") lines that
1
allows the Company to produce highly uniform structures with less material than
other SMS lines, and has recently initiated the implementation of a second such
line. The Company believes that its broad technological base gives it the
capability to design and manufacture products with optimal cost and
functionality. Working as a developmental partner with its major customers, the
Company utilizes its technologies to develop and manufacture new products to
meet their needs.
Management has built the Company through a series of strategic business
acquisitions that have broadened the Company's technology base and increased
its product lines. The Company's strategic acquisitions have helped it to
establish strong positions in both the nonwoven and woven polyolefin fabric
markets. Synergies realized through these acquisitions have enabled the Company
to better meet the needs of existing customers, to reach emerging geographic
markets and to exploit niche market opportunities through customer-interactive
specialty product development. For example, technological developments at the
Company's Landisville, New Jersey facility, such as improvements in the
meltblown process, continuous spreading and comprehensive process automation,
have been integral to capacity increases and the implementation of new
production lines in Europe and Mexico. Similarily, the success and underlying
technology of the Company's state-of-the-art 4.2 meter SMS line in San Luis
Potosi, Mexico has led to the implementation of a second line installation at
its Mooresville, North Carolina plant site.
----------------
The principal executive offices of the Company are located at 4838 Jenkins
Avenue, North Charleston, South Carolina 29405, and the Company's telephone
number is (803) 566-7293. The principal executive offices of each Guarantor are
c/o Polymer Group, Inc. at the same address and telephone number.
2
THE REFINANCING
The Company refinanced its outstanding indebtedness under the Senior Notes
(as defined) by consummating the Initial Offering (as defined) of the Old
Notes, the Tender Offer and the related Consent Solicitation (each as defined),
and entered into the Amended Credit Facility (by amending and restating the
Company's Old Credit Facility), all of which occurred concurrently
(collectively, the "Refinancing").
In the Tender Offer and Consent Solicitation, the Company purchased all of
its outstanding Senior Notes for an amount in cash equal to $1,103.64 per
$1,000 aggregate principal amount, plus accrued interest, which was based on
the yield to the earliest redemption date for the Senior Notes, using a
specific reference security, plus a fixed spread. The Company also solicited
consents from tendering holders to amend the indenture under which the Senior
Notes were issued to eliminate substantially all of the protective covenants
contained therein, and paid a separate consent fee to holders who tendered
their notes and delivered consents prior to the expiration of the Consent
Solicitation. The Company received consents relating to, and tenders of, all of
the outstanding Senior Notes.
The Amended Credit Facility provides for secured revolving credit facilities
with an aggregate commitment of up to $325.0 million and a term of
approximately six years. All indebtedness under the Amended Credit Facility is
guaranteed on a joint and several basis by each of the Company's direct and
indirect domestic subsidiaries and by Fabrene Group, an indirect foreign
subsidiary of the Company, and is secured along with the related guarantees by
assets and pledges of stock and intercompany notes of the Company and certain
of its subsidiaries.
3
THE INITIAL OFFERING
Notes....................... The Old Notes were sold by the Company on July 3,
1997 (the "Initial Offering") to Chase
Securities, Inc. (the "Initial Purchaser")
pursuant to a Purchase Agreement dated June 30,
1997 (the "Purchase Agreement"). The Initial
Purchaser subsequently resold the Old Notes to
qualified institutional buyers pursuant to Rule
144A under the Securities Act.
Registration Rights Pursuant to the Purchase Agreement, the Company,
Agreement................... the Guarantors and the Initial Purchaser entered
into a Registration Rights Agreement dated as of
July 3, 1997 (the "Registration Rights
Agreement"), which grants the holder of the Old
Notes certain exchange and registration rights.
The Exchange Offer is intended to satisfy such
exchange and registration rights which terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered.......... $400,000,000 aggregate principal amount of 9%
Senior Subordinated Notes due 2007, Series B, of
the Company (the "Exchange Notes").
The Exchange Offer.......... $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of Old
Notes. As of the date hereof, $400,000,000
aggregate principal amount of Old Notes are
outstanding. The Company will issue the Exchange
Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by
any holder thereof (other than any such holder
which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act)
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's
business and that such holder does not intend to
participate and has no arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of market-
making activities or other trading activities may
be a statutory underwriter. Each Participating
Broker-Dealer that receives Exchange Notes for
4
its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-
Dealer as a result of market-making activities or
other trading activities. The Company has agreed
that, for a period of 180 days after the
Expiration Date, they will make this Prospectus
available to any Participating Broker-Dealer for
use in connection with any such resale. See "Plan
of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the
Exchange Notes could not rely on the position of
the staff of the Commission enunciated in no-
action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
resale transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities
Act for which the holder is not indemnified by
the Company.
Expiration Date.............
5:00 p.m., New York City time, on October 3, 1997
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
Accrued Interest on the
Exchange Notes and the Old
Notes..................
Each Exchange Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including,
the issuance date of the Exchange Notes. Such
interest will be paid with the first interest
payment on the Exchange Notes. Interest on the
Old Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
Conditions to the Exchange The Exchange Offer is subject to certain
Offer....................... customary conditions, which may be waived by the
Company. See "The Exchange Offer--Conditions."
5
Procedures for Tendering
Old Notes..................
Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof (or, in the case of a book-
entry transfer, transmit an Agent's Message (as
defined) in lieu thereof), in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile (or Agent's
message), together with the Old Notes and any
other required documentation to the Exchange
Agent (as defined) at the address set forth
herein. By executing the Letter of Transmittal
(or transmitting an Agent's Message), each holder
will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, that neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes and that neither the holder nor any such
other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company.
See "The Exchange Offer--Purpose and Effect of
the Exchange Offer" and
"--Procedures for Tendering."
Untendered Old Notes........ Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have
any further exchange or registration rights and
such Old Notes will continue to be subject to
certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes
could be adversely affected.
Consequences of Failure to
Exchange...................
The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States
to a foreign person pursuant to the requirements
of Rule 904 under the Securities Act, or (iv)
pursuant to an effective registration statement
under the Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange."
Shelf Registration If any holder of the Old Notes (other than any
Statement................... such holder which is an "affiliate" of the
Company or a Guarantor within the meaning of Rule
405 under the Securities Act) is not eligible
under applicable securities laws to participate
in the Exchange Offer, and such holder has
satisfied certain conditions relating to the
provision of information to the Company for use
therein, the Company and the Guarantors
6
have agreed to register the Old Notes on a shelf
registration statement (the "Shelf Registration
Statement") and to use their best efforts to
cause it to be declared effective by the
Commission as promptly as practical on or after
the consummation of the Exchange Offer. The
Company and Guarantors have agreed to maintain
the effectiveness of the Shelf Registration
Statement for, under certain circumstances, a
maximum of two years, to cover resales of the Old
Notes held by any such holders.
Special Procedures for
Beneficial Owners..........
Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering its Old
Notes, either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time.
Guaranteed Delivery Holders of Old Notes who wish to tender their Old
Procedures.................. Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes
(or comply with the procedures for book-entry
transfer), the Letter of Transmittal or any other
documents required by the Letter of Transmittal
to the Exchange Agent (or transmit an Agent's
message in lieu thereof) prior to the Expiration
Date must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
Acceptance of Old Notes and
Delivery of Exchange
Notes....................... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
Use of Proceeds............. There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange Offer.
Exchange Agent.............. Harris Trust and Savings Bank.
7
THE EXCHANGE NOTES
General..................... The form and terms of the Exchange Notes are the
same as the form and terms of the Old Notes
(which they replace) except that (i) the Exchange
Notes bear a Series B designation, (ii) the
Exchange Notes have been registered under the
Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and
(iii) the holders of Exchange Notes will not be
entitled to certain rights under the Registration
Rights Agreement, including the provisions
providing for an increase in the interest rate on
the Old Notes in certain circumstances relating
to the timing of the Exchange Offer, which rights
will terminate when the Exchange Offer is
consummated. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer." The Exchange Notes
will evidence the same debt as the Old Notes and
will be entitled to the benefits of the
Indenture. See "Description of the Exchange
Notes." The Old Notes and the Exchange Notes are
referred to herein collectively as the "Notes."
Issuer...................... Polymer Group, Inc.
Securities Offered.......... $400 million aggregate principal amount of 9%
Senior Subordinated Notes due 2007, Series B.
Maturity.................... July 1, 2007.
Interest Payment Dates...... January 1 and July 1 of each year, commencing on
January 1, 1998.
Sinking Fund................ None.
Optional Redemption......... Except as described below, the Company may not
redeem the Exchange Notes prior to July 1, 2002.
On or after such date, the Company may redeem the
Exchange Notes, in whole or in part, at the
redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date
of redemption. In addition, at any time and from
time to time on or prior to July 1, 2000, the
Company may redeem up to 35% of the aggregate
principal amount of the Exchange Notes with the
net cash proceeds from one or more Public Equity
Offerings (as defined) by the Company, at a
redemption price equal to 109.25% of the
principal amount to be redeemed, together with
accrued and unpaid interest, if any, to the date
of redemption, provided that at least 65% of the
aggregate principal amount of the Exchange Notes
remains outstanding after each such redemption.
See "Description of the Exchange Notes--Optional
Redemption."
8
Change of Control........... Upon a Change of Control, the Company will be
required to make an offer to repurchase the
Exchange Notes at a price equal to 101% of the
principal amount thereof, together with accrued
and unpaid interest, if any, to the date of
repurchase. See "Description of the Exchange
Notes--Change of Control."
Subsidiary Guarantees....... The Exchange Notes will be guaranteed (the
"Guarantees"), jointly and severally on a senior
subordinated basis, by all of the Company's
direct and indirect domestic Subsidiaries (as
defined) on the issue date of the Exchange Notes
(the "Issue Date") and by each direct and
indirect domestic Subsidiary of the Company
(excluding Unrestricted Subsidiaries) formed or
acquired thereafter. The Guarantees will be
general unsecured senior subordinated obligations
of the Guarantors. The Guarantors have guaranteed
all obligations of the Company under the Amended
Credit Facility, and each Guarantor has granted a
security interest in all or substantially all its
assets to secure its guarantee obligations under
the Amended Credit Facility. The obligations of
each Guarantor under its Guarantee will be
subordinated in right of payment to the prior
payment in full of all Guarantor Senior
Indebtedness (as defined) of such Guarantor to
substantially the same extent as the Exchange
Notes are subordinated to all existing and future
Senior Indebtedness of the Company. See
"Description of the Exchange Notes--Guarantees of
the Notes."
Ranking.....................
The Exchange Notes will be unsecured and will be
subordinated in right of payment to all existing
and future Senior Indebtedness (as defined) of
the Company. The Exchange Notes will rank pari
passu in right of payment with any future senior
subordinated Indebtedness (as defined) of the
Company and will rank senior to all Subordinated
Indebtedness (as defined) of the Company. As of
June 28, 1997, after giving pro forma effect to
the Refinancing, including the issuance of the
Old Notes and the application of the net proceeds
therefrom, the aggregate principal amount of the
Company's outstanding Senior Indebtedness would
have been approximately $29.0 million (excluding
unused commitments) and the Company would have
had no senior subordinated Indebtedness
outstanding other than the Notes. See
"Description of the Exchange Notes--Ranking" and
"--Subordination of the Exchange Notes."
Restrictive Covenants....... The indenture under which the Exchange Notes will
be issued (the "Indenture") limits, among other
things, (i) the incurrence of additional
indebtedness by the Company and its Restricted
Subsidiaries, (ii) the payment of dividends on,
and redemption of, capital stock of the Company
and its Restricted
9
Subsidiaries and the redemption of certain
subordinated obligations of the Company and its
Restricted Subsidiaries, (iii) investments, (iv)
sales of assets and Restricted Subsidiary stock,
(v) transactions with affiliates, and (vi)
consolidations, mergers and transfers of all or
substantially all of the Company's assets. The
Indenture also prohibits certain restrictions on
distributions from Restricted Subsidiaries.
However, all of these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Description
of the Exchange Notes--Certain Covenants."
For additional information regarding the Exchange
Notes, see "Description of the Exchange Notes".
Use of Proceeds............. The Company used the net proceeds from the
Initial Offering to effect the Refinancing and to
pay the related fees and expenses. See "Use of
Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered before tendering Old Notes in exchange for Exchange Notes. These
risk factors are generally applicable to the Old Notes as well as the Exchange
Notes.
10
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA FOR THE COMPANY
The Company was organized on June 16, 1994 and, effective June 24, 1994,
acquired PGI Polymer in a transaction considered to be between entities under
common control and accounted for at historical cost in a manner similar to a
pooling of interests. The following table sets forth certain historical
financial information of the Company and PGI Polymer. The statement of
operations data for each of the three years in the period ended December 28,
1996 and the balance sheet data as of December 31, 1994, December 30, 1995 and
December 28, 1996, have been derived from audited financial statements. The
Company's statement of operations data for the year ended December 30, 1995
include the results of Chicopee Holdings and its subsidiaries for the period
March 16, 1995 to December 30, 1995. The statement of operations data for the
year ended December 28, 1996 include results of FNA for the period August 14,
1996 to December 28, 1996. The data as of and for the six months ended June 29,
1996 and June 28, 1997 are derived from the consolidated unaudited interim
financial statements and include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to fairly present
the data for such periods.
The pro forma financial information for the Company set forth below has been
derived from the unaudited pro forma financial information included elsewhere
in this Prospectus and gives effect to the Company's acquisition (the "FNA
Acquisition") in August 1996 of FNA (formerly known as Fitesa North America
Corp.) and its parent, PNA, and to the Refinancing as described under "Use of
Proceeds" and "Unaudited Pro Forma Financial Information." The unaudited pro
forma combined statements of operations for the year ended December 28, 1996,
and the six months ended June 28, 1997, give effect to the FNA Acquisition and
the Refinancing as if each had occurred on December 31, 1995. The unaudited pro
forma condensed balance sheet as of June 28, 1997 was prepared as if the
Refinancing had occurred on that date. The pro forma financial information does
not purport to represent what the Company's results of operations would have
been if the FNA Acquisition and the Refinancing had actually been completed as
of the date indicated and are not intended to project the Company's results of
operations for any future period.
The table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the financial
statements of the Company and related notes thereto, the unaudited pro forma
financial information for the Company and related notes thereto and other
financial information included elsewhere in this Prospectus.
11
PRO
FORMA
PRO FORMA SIX MONTHS
YEAR ENDED YEAR ENDED SIX MONTHS ENDED ENDED
-------------------------------------- ------------ ------------------ ----------
DECEMBER 31, DECEMBER 30, DECEMBER 28, DECEMBER 28, JUNE 29, JUNE 28, JUNE 28,
1994 1995 1996 1996 1996 1997 1997
------------ ------------ ------------ ------------ -------- -------- ----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS:
Net sales............... $165,333 $437,638 $521,368 $540,395 $251,308 $260,455 $260,455
Cost of goods sold...... 129,071 333,606 389,013 402,477 189,648 193,154 193,154
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 36,262 104,032 132,355 137,918 61,660 67,301 67,301
Selling, general and
administrative
expenses............... 20,699 61,744 70,207 72,125 34,591 37,693 38,346
-------- -------- -------- -------- -------- -------- --------
Operating income....... 15,563 42,288 62,148 65,793 27,069 29,608 28,955
Other (income) expense:
Interest expense, net
(a)................... 13,216 37,868 33,641 35,118 19,605 13,532 17,474
Foreign currency
transaction (gains)
losses, net........... 17,332 22,811 2,955 222 3,573 (325) (325)
Income taxes (benefit). 3,353 5,216 10,730 10,080 1,776 5,427 3,908
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary item.... (18,338) (23,607) 14,822 $ 20,373 2,115 10,974 $ 7,898
======== ========
Extraordinary item,
(loss) from
extinguishment of debt. (4,372) -- (13,932) (13,932) --
-------- -------- -------- -------- --------
Net income (loss)....... (22,710) (23,607) 890 (11,817) 10,974
Redeemable preferred
stock dividends and
accretion.............. (1,209) (4,839) (3,020) (3,020) --
-------- -------- -------- -------- --------
Net income (loss)
applicable to common
stock.................. $(23,919) $(28,446) $ (2,130) $(14,837) $ 10,974
======== ======== ======== ======== ========
Income (loss) before
extraordinary item per
common share........... $ (0.95) $ (1.39) $ 0.43 $ 0.64 $ (0.04) $ 0.34 $ 0.25
======== ======== ======== ======== ======== ======== ========
Average common shares
outstanding............ 20,500 20,500 27,688 32,000 23,375 32,000 32,000
======== ======== ======== ======== ======== ======== ========
OPERATING AND OTHER
DATA:
Cash provided by
operating activities... $ 17,386 $ 11,556 $ 36,097 $ -- $ 16,205 $ 16,274 $ --
Cash (used in) investing
activities ............ (61,375) (333,208) (86,422) -- (18,374) (28,535) --
Cash provided by
financing activities... 58,482 327,636 64,391 -- 3,907 12,200 --
EBITDA (b).............. 23,864 72,122 98,915 105,727 45,335 49,616 49,616
Ratio of earnings to
fixed charges (c)...... -- -- 1.6x 1.7x 1.1x 1.9x 1.5x
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash
equivalents............ $ 13,828 $ 18,088 $ 37,587 -- $ 19,343 $ 31,855 $ 34,981
Working capital......... 31,060 61,558 93,154 -- 79,203 124,885 134,161
Total assets............ 241,429 637,981 708,115 -- 615,413 718,494 735,709
Total debt.............. 190,814 450,878 382,242 -- 322,873 390,199 424,457
Redeemable preferred
stock, dividends and
accretion.............. -- 44,339 -- -- -- -- --
Shareholders' equity.... 2,220 13,752 195,918 -- 186,607 199,571 188,678
- -------
(a) Represents interest expense, net of interest income and capitalized
interest.
(b) EBITDA is defined as operating income plus depreciation, amortization and
Mexican statutory employee profit sharing and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation from or as a substitute for net income, cash flows from operating
activities and other consolidated income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as
a measure of profitability or liquidity. Mexican employee profit sharing
laws require any corporation organized under the laws of Mexico to
distribute 10% of income before taxes to employees. Amounts distributed to
employees pursuant to such laws for the periods set forth herein were not
material.
(c) For purposes of calculating earnings to fixed charges, earnings represent
earnings before income taxes plus fixed charges. Earnings include foreign
currency transaction losses and gains. Fixed charges consist of interest
expense, net, including amortization of discount and financing costs. Fixed
charges exceeded earnings for the year ended December 31, 1994 and the year
ended December 30, 1995 by approximately $15,000 and $20,000, respectively.
However, the Company met all required interest payments and debt
obligations during this time period.
12
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully before tendering Old Notes in
exchange for Exchange Notes. The risk factors set forth below are generally
applicable to the Old Notes as well as the Exchange Notes.
LEVERAGE; RESTRICTIVE COVENANTS
The Company has significant debt service obligations. As of June 28, 1997,
after giving effect to the Refinancing, including the Initial Offering of the
Old Notes and the application of the proceeds therefrom, the Company would
have had outstanding long-term indebtedness of approximately $424.4 million
and shareholders' equity of approximately $188.7 million. See "The
Refinancing," "Use of Proceeds" and "Capitalization." As of June 28, 1997, the
Company's ratio of earnings to fixed charges, on a pro forma basis, would have
been 1.5x.
The degree to which the Company is leveraged could have important
consequences to the holders of the Notes, including: (i) the Company's ability
to obtain additional financing for working capital, capital expenditures or
acquisitions in the future may be limited; (ii) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of the
principal of and interest on its indebtedness, thereby reducing funds
available for future operations; (iii) certain of the Company's borrowings,
including all borrowings under the Amended Credit Facility, are and will
continue to be at variable rates of interest, which exposes the Company to the
risk of increased interest rates; and (iv) the Company may be more vulnerable
to economic downturns and be limited in its ability to withstand competitive
pressures. Certain of the Company's competitors may currently operate on a
less leveraged basis and therefore could have significantly greater operating
and financing flexibility than the Company. The Company's ability to make
scheduled payments of the principal of or interest on, or to refinance, its
indebtedness will depend on its future operating performance and cash flow,
which are subject to prevailing economic conditions, prevailing interest rate
levels, and financial, competitive, business and other factors, many of which
are beyond its control.
The Company believes that, based upon current levels of operations, it
should be able to meet its debt service obligations, including principal and
interest payments on the Exchange Notes when due. However, if the Company
cannot generate sufficient cash flow from operations to meet its debt service
obligations, then the Company might be required to refinance its indebtedness
and may be forced to adopt an alternative strategy that may include actions
such as reducing or delaying capital expenditures, selling assets,
restructuring or refinancing its indebtedness, or seeking additional equity
capital. There is no assurance that refinancings would be permitted by the
terms of the Amended Credit Facility or the Indenture or, along with the
alternative strategies, could be effected on satisfactory terms. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Amended Credit Facility and the Indenture contain numerous restrictive
covenants that limit the discretion of the Company's management with respect
to certain business matters. These covenants place significant restrictions
on, among other things, the ability of the Company to incur additional
indebtedness, to create liens or other encumbrances, to pay dividends or make
certain other payments, investments, loans and guarantees and to sell or
otherwise dispose of assets and merge or consolidate with another entity. The
Amended Credit Facility also contains a number of financial covenants that
require the Company to meet certain financial ratios and financial condition
tests. See "Description of Certain Indebtedness--Amended Credit Facility" and
"Description of the Exchange Notes--Certain Covenants." The Company's ability
to meet these financial ratios and financial condition tests can be affected
by events beyond its control, and there can be no assurance that the Company
will meet such ratios or such tests. A failure to comply with the obligations
in the Amended Credit Facility or the Indenture could result in an event of
default under the Amended Credit Facility or
13
an Event of Default (as defined) under the Indenture which, if not cured or
waived, could permit acceleration of the relevant indebtedness and
acceleration of indebtedness under other instruments that may contain cross-
acceleration or cross-default provisions. In the event of an event of default
under the Amended Credit Facility or an Event of Default under the Indenture,
the lenders thereunder could elect to declare all amounts outstanding
thereunder, together with accrued and unpaid interest, to be immediately due
and payable. If the indebtedness under the Amended Credit Facility were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full that indebtedness and the other indebtedness of
the Company, including the Exchange Notes. Other indebtedness of the Company
and its subsidiaries that may be incurred in the future may contain financial
or other covenants more restrictive than those applicable to the Exchange
Notes.
SUBORDINATION; HOLDING COMPANY STRUCTURE
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Exchange Notes will be subordinated to the
prior payment in full of all existing and future Senior Indebtedness of the
Company (including, without limitation, indebtedness incurred under the
Amended Credit Facility). In the event of the bankruptcy, liquidation,
dissolution, reorganization or other winding-up of the Company, the assets of
the Company will be available to pay obligations on the Exchange Notes only
after all Senior Indebtedness (including amounts incurred under the Amended
Credit Facility) has been so paid in full; accordingly, there may not be
sufficient assets remaining to pay amounts due on any or all of the Exchange
Notes then outstanding. In addition, under certain circumstances, the Company
may not pay principal of, premium, if any, or interest on, or pay other
amounts owing in respect of the Exchange Notes, or purchase, redeem or
otherwise retire the Exchange Notes, in the event of certain defaults with
respect to certain classes of Senior Indebtedness, including Senior
Indebtedness incurred under the Amended Credit Facility. As of June 28, 1997,
after giving pro forma effect to the Refinancing, including the Initial
Offering and the application of the net proceeds therefrom, there would have
been approximately $29.0 million of Senior Indebtedness outstanding (excluding
unused commitments). Additional Senior Indebtedness may be incurred by the
Company from time to time, subject to certain restrictions. See "Description
of Certain Indebtedness--The Amended Credit Facility" and "Description of the
Exchange Notes--Certain Covenants--Limitation on Indebtedness."
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all existing and future secured
Indebtedness of the Company, including the Company's obligations under the
Amended Credit Facility. In addition, the Guarantees will be subordinated in
right of payment to all existing and future secured Indebtedness of the
related Guarantor. The Amended Credit Facility is secured by substantially all
of the assets of the Company and its direct and indirect domestic subsidiaries
and, therefore, claims of holders of the Exchange Notes will be subordinated
to the extent of the value of the assets securing the Amended Credit Facility.
Polymer Group, Inc. is a holding company which has no significant assets
other than its direct and indirect investments in its operating subsidiaries.
Accordingly, the Company must rely on its subsidiaries to generate the funds
necessary to meet its obligations, including the payment of principal and
interest on the Exchange Notes. The ability of the subsidiaries of the Company
to pay dividends or make other payments or advances to the Company will depend
upon their operating results and will be subject to applicable laws and
contractual restrictions contained in the instruments governing any
indebtedness of such subsidiaries (including the Amended Credit Facility).
Although the Indenture limits the ability of Restricted Subsidiaries to enter
into consensual restrictions on their ability to pay dividends and make other
payments, such limitations are subject to a number of significant
qualifications and do not apply to Unrestricted Subsidiaries. See "Description
of the Exchange Notes--Certain Covenants--Limitation on Dividends and Other
Payment Restrictions Affecting Restricted Subsidiaries."
14
The Exchange Notes will be guaranteed, jointly and severally, by each of the
Company's direct and indirect domestic Subsidiaries in existence on the Issue
Date and by Fabrene Group, an indirect foreign subsidiary. The Exchange Notes
will not, however, be guaranteed by the Company's direct and indirect foreign
Subsidiaries (except Fabrene Group). As a result, holders of the Exchange
Notes will not have a direct claim on the assets of such foreign Subsidiaries.
In 1996, approximately 40% of the Company's net sales (or $209.4 million) were
derived from operations conducted outside the United States.
FLUCTUATIONS IN RAW MATERIAL PRICES
The primary raw materials used in the manufacture of most of the Company's
products are polypropylene and polyester fiber, polyethylene and polypropylene
resin, and, to a lesser extent, rayon fiber and tissue paper. In 1996,
polypropylene fiber accounted for approximately 23% of the Company's cost of
sales. The price of polypropylene and polyethylene is a function of, among
other things, manufacturing capacity, demand and the price of crude oil and
natural gas liquids. Historically, the market prices of polypropylene and
polyethylene have fluctuated, such as in late 1994 and early 1995 when resin
prices increased by approximately 60%. In 1996, polypropylene fiber prices
remained stable while resin prices, on average, trended lower. Polyethylene
resin prices were lower in the first half of 1996, but rose in the second half
of the year. Polyester fiber and resin prices experienced substantial declines
worldwide during 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Introduction." There has generally been a
lag time before such increases and decreases could be passed on to the
Company's customers. There can be no assurance that the price of the Company's
raw materials will not increase in the future or that the Company will be able
to pass on such increases to its customers. A significant increase in the
price of raw materials that cannot be passed on to customers could have a
material adverse effect on the Company's results of operations and financial
condition.
RELIANCE ON MAJOR CUSTOMERS
Two of the Company's customers, Johnson & Johnson and Procter & Gamble, each
accounted for over 10% of the Company's net sales during 1996. Net sales to
Johnson & Johnson accounted for approximately 29% of the Company's net sales
in 1996. Net sales to Procter & Gamble, primarily of light weight nonwoven
fabric for diapers, accounted for approximately 14% of the Company's net sales
in 1996. A loss of either of these customers could have a material adverse
effect on the Company. See "Business--Products."
COMPETITION IN THE COMPANY'S MARKETS
Competition in the Company's markets is intense, and some of the Company's
competitors have economic resources greater than those of the Company and are
well established as suppliers to the markets that the Company serves. Quality,
performance, service and cost are generally the principal competitive factors.
Price continues to be a significant competitive factor in Europe and the
United States in thermal bond products due to continued competition with
spunbound products.
A number of the Company's niche product applications are sold into selected
specialized markets. There can be no assurance, however, that these
specialized markets will not attract additional competitors that could have
greater financial, technological, manufacturing and marketing resources than
the Company, particularly as niche product applications become standardized
over time. See "Business--Competition."
IMPORTANCE OF CONTINUED DEVELOPMENT OF INNOVATIVE PRODUCTS
The Company's continued success is dependent in part upon its ability to
maintain a superior technological capability and to continue to identify,
develop and commercialize innovative, high value-added products for niche
applications. There can be no assurance that the Company will be able to
15
accomplish this or that technological developments by the Company's
competitors will not place certain of the Company's products at a competitive
disadvantage in the future. In addition, certain of the new products that the
Company has under development will be offered in markets in which the Company
does not currently compete, and there can be no assurance that the Company
will be able to compete successfully in those new markets.
DEPENDENCE ON KEY SUPPLIERS
The Company's major suppliers of polypropylene fiber are Hercules Fibres
Corp. ("Hercules") and Danaklon a/s ("Danaklon"), while its major supplier of
polyethylene is Novacor Chemicals Inc. ("Novacor"). The Company's major
suppliers of rayon are Lenzing Fibers Corp. ("Lenzing Fibers") and Courtaulds
Fibers, Inc. ("Courtaulds Fibers"), while its major suppliers of polyester are
Wellman, Inc. ("Wellman") and E.I. Du Pont de Nemours & Co. ("Du Pont"). The
Company purchases its polypropylene resin from Indelpro, S.A. de C.V.
("Indelpro") and Montell North America Inc. ("Montell"), and purchases its
tissue paper from Crown Vantage Inc. ("Crown Vantage").
The loss of the Company's suppliers could, in the short term, adversely
affect the Company's business until alternative supply arrangements were
secured. In addition, there is no assurance that any new supply agreement
entered into by the Company will have terms as favorable as those contained in
current supply arrangements. See "Business--Raw Materials."
RISKS OF ACQUISITIONS AND THE FAILURE TO INTEGRATE ACQUIRED BUSINESSES
As part of its long-term strategy, the Company seeks to acquire
complementary businesses. There can be no assurance that the Company will find
attractive acquisition candidates or succeed at effectively managing the
integration of acquired businesses into the Company's existing businesses. If
the expected synergies from such transactions do not materialize or the
Company fails to successfully integrate new businesses into its existing
businesses, the Company's results of operations could be adversely affected.
POTENTIAL RISK OF SIGNIFICANT OPERATIONS IN FOREIGN COUNTRIES
The Company manufactures certain of its products in Germany, Canada, Mexico
and the Netherlands. In 1996, approximately 40% of the Company's net sales (or
$209.4 million) were derived from operations conducted outside the United
States. Foreign operations are subject to certain risks that can materially
affect the sales, profits, cash flows and financial position of the Company,
such as currency exchange rate fluctuations, inflation, exchange controls and
variable political conditions. In particular, currency exchange rate
fluctuations may impact the revenues and gross margins of the Company's
foreign operations. In addition, a highly inflationary economy may also give
rise to increased production costs without correspondingly increased prices,
especially if products are exported to countries with low inflation rates.
Fabrene Group is a corporation incorporated under the laws of Prince Edward
Island, Canada, with 100% of its stock held by its parent, PGI Polymer (a
domestic subsidiary of the Company). In addition, certain of Fabrene Group's
directors are residents of Canada, additional directors or officers who are
foreign individuals may be appointed, and all or a substantial portion of the
assets of Fabrene Group and such person or persons are or may be located
outside the United States. As a result, it may be more difficult for investors
to effect service of process upon such parties, to enforce judgments against
such parties in the United States, or to enforce the Federal Securities laws
or obtain judgments thereunder against such parties outside of the United
States.
16
HISTORICAL LOSSES
The Company experienced substantial net losses, which were primarily non-
cash losses, in 1994 and 1995, principally as a result of foreign currency
transaction losses and interest charges incurred in connection with the
acquisitions of Chicopee Holdings and its subsidiaries (the "Chicopee
Acquisition"), Fabrene Inc. ("Fabrene") and Bonlam, S.A. de C.V. ("Bonlam").
These net losses were $22.7 million and $23.6 million for the years ended
December 31, 1994 and December 30, 1995, respectively. The Company had net
income of $0.9 million for the year ended December 28, 1996.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will largely depend on the efforts and
abilities of its executive officers and certain other key employees. The
Company's operations could be adversely affected if, for any reason, such
officers or key employees did not remain with the Company. See "Management."
RISK OF INCREASED COSTS FOR ENVIRONMENTAL COMPLIANCE
Actions by federal, state and local governments in the United States and
abroad concerning environmental matters could result in laws or regulations
that could increase the cost of producing the products manufactured by the
Company or otherwise adversely affect demand for its products. For example,
certain local governments have adopted ordinances prohibiting or restricting
the use of disposal of certain polyolefin products that are among the types of
products produced by the Company. If such prohibitions or restrictions were
widely adopted, such regulatory and environmental measures could adversely
affect demand for the Company's products and thereby have a material adverse
effect upon the Company. It is also possible that future developments in
environmental regulation could lead to material environmental compliance or
cleanup costs. See "Business--Environmental."
RISK OF CONSUMER ENVIRONMENTAL AWARENESS
A decline in consumer preference for polyolefin products due to
environmental considerations could have a material adverse effect upon the
Company.
CONTROL BY PRINCIPAL STOCKHOLDERS
Certain of the Company's principal stockholders have entered into an
agreement regarding the election of the Company's Board of Directors (the
"Board"). The agreement enables such stockholders, through the Board, to
significantly influence the affairs of the Company, and to render more
difficult or tend to discourage mergers, acquisitions, tender offers, proxy
contests or assumptions of control and changes of incumbent management. See
"Certain Relationships and Related Transactions."
OTHER BUSINESS OPPORTUNITIES AND POTENTIAL CONFLICT OF INTEREST OF MANAGEMENT
Messrs. Zucker and Boyd, the senior executive officers of the Company, also
devote time to the affairs of, and may be deemed to control, a number of other
investment and operating entities, including The InterTech Group, Inc.
("InterTech"). Messrs. Zucker and Boyd may pursue other business opportunities
presented to them and are currently in discussions regarding certain other
business opportunities. The time spent on such other opportunities may be
substantial. Messrs. Zucker and Boyd have entered into an agreement granting
the Company a right of first refusal to acquire potential acquisition
candidates that engage in, or plan to engage in, the manufacture and marketing
of nonwoven and woven polyolefin fabrics for industrial and consumer
applications or any other business then engaged in by the Company. In the
event that the Company were not able to take advantage of an opportunity
presented by Messrs. Zucker and Boyd, or chose not to pursue it, Messrs.
17
Zucker and Boyd could pursue such opportunity, thereby resulting in their
devoting less time to the affairs of the Company. As of the date hereof, no
investments or operating entities controlled by Mr. Zucker or Mr. Boyd compete
in any markets in which the Company sells its products. See "Certain
Relationships and Related Transactions."
In addition, because the Indenture and the Amended Credit Facility place
restrictions on the ability of the Company to make acquisitions, it may be
possible that the Company is presented with a business opportunity that it
desires to exploit but is prohibited from taking.
LIMITATIONS ON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer for cash to repurchase the Exchange Notes at a price equal to
101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. If a Change of Control were to
occur, there can be no assurance that the Company would have sufficient funds
to pay the purchase price for all of the Exchange Notes that the Company might
be required to purchase. Certain events involving a Change of Control may
result in an event of default under the Amended Credit Facility or other
indebtedness of the Company that may be incurred in the future. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing the Exchange Notes, the Company could seek the consent of its
lenders to purchase the Exchange Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
consent or repay such borrowings, the Company would remain prohibited from
purchasing the Exchange Notes. In such case, the Company's failure to purchase
tendered Exchange Notes would constitute an Event of Default under the
Indenture. If, as a result thereof, a default occurs with respect to any
Indebtedness, the Exchange Notes would require payment in full of the Amended
Credit Facility before repurchase of the Exchange Notes. See "Description of
Certain Indebtedness," "Description of the Exchange Notes--Subordination" and
"--Change of Control."
FRAUDULENT CONVEYANCE CONSIDERATIONS
A substantial portion of the proceeds of the Initial Offering were used to
refinance existing indebtedness and to pay the purchase price in connection
with the Tender Offer for the Senior Notes. See "The Refinancing."
Accordingly, the obligations of the Company under the Exchange Notes may be
subject to review under relevant federal and state fraudulent conveyance
statutes ("fraudulent conveyance statutes") in a bankruptcy, reorganization or
rehabilitation case or similar proceeding or a lawsuit by or on behalf of
unpaid creditors of the Company. If a court were to find under relevant
fraudulent conveyance statutes that, at the time the Old Notes or the Exchange
Notes were issued, (a) the Company issued the Notes with the intent of
hindering, delaying or defrauding current or future creditors or (b)(i) the
Company received less than reasonably equivalent value or fair consideration
for issuing the Notes (including, to the extent the proceeds from the Initial
Offering were used to refinance any indebtedness of the Company or any of its
subsidiaries, by virtue of an invalidation as a fraudulent conveyance of the
incurrence of such indebtedness) and (ii)(A) was insolvent or was rendered
insolvent by reason of such issuance and/or such related transactions, (B) was
engaged, or about to engage, in a business or transaction for which its assets
constituted unreasonably small capital, (C) intended to incur, or believed
that it would incur, obligations beyond its ability to pay as such obligations
matured (as all of the foregoing terms are defined in or interpreted under
such fraudulent conveyance statutes) or (D) was a defendant in an action for
money damages, or had a judgment for money damages docketed against it (if, in
either case, after final judgment, the judgment was unsatisfied), such court
could subordinate the Exchange Notes to presently existing and future
indebtedness of the Company and take other action detrimental to the holders
of the Exchange Notes, including, under certain circumstances, invalidating
the Exchange Notes.
18
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the federal or state law that is being applied in any such
proceeding. Generally, however, the Company would be considered insolvent if,
at the time it incurs the obligations constituting the Notes, either (i) the
fair market value (or fair saleable value) of its assets is less than the
amount required to pay the probable liability on its total existing
indebtedness and liabilities (including contingent liabilities) as they become
absolute and mature or (ii) it is incurring obligations beyond its ability to
pay as such obligations mature.
In addition, the Guarantees may be subject to review under fraudulent
conveyance statutes in a bankruptcy, reorganization or rehabilitation case or
similar proceeding or a lawsuit on behalf of other creditors of any of the
Guarantors. In such a case, the analysis set forth above would generally
apply, except that the Guarantees could also be subject to the claim that,
since the Guarantees were incurred for the benefit of the Company (and only
indirectly for the benefit of the Guarantors), they were incurred for less
than reasonably equivalent value or fair consideration. A court could
therefore subordinate the Guarantees to the other obligations of the
Guarantors, or take other action detrimental to holders of the Exchange Notes,
including, under certain circumstances, invalidating the Guarantees.
The Boards of Directors and management of the Company and the Guarantors
believe that at the time of issuance of the Notes and the Guarantees,
respectively, the Company and the Guarantors (i) will be (a) neither insolvent
nor rendered insolvent thereby, (b) in possession of sufficient capital to
meet their obligations as the same mature or become due and to operate their
businesses effectively and (c) incurring obligations within their ability to
pay as the same mature or become due and (ii) will have sufficient assets to
satisfy any probable money judgment against them in any pending action. In
reaching the foregoing conclusions, such Boards of Directors and management
have relied upon their analysis of internal cash flow projections and
estimated values of assets and liabilities of the Company and the Guarantors.
There can be no assurance, however, that such analyses will prove to be
correct or that a court passing on such questions would reach the same
conclusions.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there has not been any public market for the Old Notes. The Old Notes
have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
Exchange Notes by holders who are entitled to participate in this Exchange
Offer. The market for Old Notes not tendered for exchange in the Exchange
Offer is likely to be more limited than the existing market for such notes.
The holders of Old Notes (other than any such holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) who are
not eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Company is required to file a Shelf Registration
Statement with respect to such Old Notes. The Exchange Notes will constitute a
new issue of securities with no established trading market. The Company does
not intend to list the Exchange Notes on any national securities exchange or
seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. The Initial Purchaser has
advised the Company that it currently intends to make a market in the Exchange
Notes, but it is not obligated to do so and may discontinue such market making
at any time. In addition, such market making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act and may be limited
during the Exchange Offer and the pendency of the Shelf Registration
Statement. Accordingly, no assurance can be given that an active public or
other market will develop for the Exchange Notes or as to the liquidity of the
trading market for the Exchange Notes. If a trading market does not develop or
is not maintained, holders of the Exchange Notes may experience difficulty in
reselling the Exchange Notes or may be unable to sell them at all. If a market
for the Exchange Notes develops, any such market may be discontinued at any
time.
19
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from
their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal (or
Agent's Message) and all other required documents. Therefore, holders of the
Old Notes desiring to tender such Old Notes in exchange for Exchange Notes
should allow sufficient time to ensure timely delivery. The Company is under
no duty to give notification of defects or irregularities with respect to the
tenders of Old Notes for exchange. Old Notes that are not tendered or are
tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof and, upon consummation of the Exchange Offer, certain registration
rights under the Registration Rights Agreement will terminate. In addition,
any holder of Old Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities, and if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. See "Plan
of Distribution." To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes could be adversely affected. See "The Exchange Offer."
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this
Prospectus, including those regarding the Company's financial position,
business strategy, projected costs, and plans and objectives of management for
future operations, are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, there can be no assurance that such expectations will prove to
have been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are
disclosed herein under "Risk Factors" and elsewhere in this Prospectus
including, without limitation, in conjunction with the forward-looking
statements included in this Prospectus. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on
behalf of the Company are expressly qualified in their entirety by the
Cautionary Statements.
20
THE REFINANCING
In the Refinancing, the Company (i) refinanced its outstanding indebtedness
under its 12 1/4% Senior Notes due 2002 (the "Senior Notes") by consummating
the Initial Offering, the Tender Offer and the related Consent Solicitation
and (ii) entered into the Amended Credit Facility.
The closing of each of the transactions that constitute the Refinancing
occurred concurrently with the closing of the sale of the Old Notes in the
Initial Offering. Each of such transactions was conditioned upon the prior or
concurrent consummation of each of the other such transactions.
Tender Offer and Consent Solicitation
Pursuant to a separate Offer to Purchase and Consent Solicitation Statement
dated June 5, 1997, the Company offered to repurchase all, but not less than a
majority, of its outstanding Senior Notes (the "Tender Offer") at a price
equal to $1,103.64 per $1,000 aggregate principal amount of each Senior Note,
which was calculated based on (i) the present value on the payment date of
$1,061.25 per $1,000 principal amount of each Senior Note (the amount payable
on July 15, 1998, which was the first date on which the Senior Notes were
redeemable) plus interest payable through July 15, 1998, based on a discount
factor equal to the sum of (x) 5.77% (the yield on the 8 1/4% U.S. Treasury
Note due July 15, 1998 as of 2:00 p.m., New York City Time, on June 18, 1997,
the tenth business day immediately preceding the expiration date of the Tender
Offer), plus (y) 75 basis points, minus (ii) $10.00 per $1,000 principal of
Senior Notes. Each tendering Holder also received accrued and unpaid interest
up to, but not including, the expiration date of the Tender Offer. In
connection with the Tender Offer, the Company also solicited consents (the
"Consent Solicitation") from the tendering holders of Senior Notes to certain
proposed amendments (the "Indenture Amendments") to the indenture under which
the Senior Notes were issued (the "Senior Notes Indenture"), which amendments,
among other things, eliminated substantially all of the protective covenants
contained in the Senior Notes Indenture. Holders of Existing Notes who timely
consented to such amendments also received a consent payment equal to 1% of
the principal amount of the related Senior Notes ($10 per $1,000 principal
amount). In connection with the Tender Offer and Consent Solicitation, the
Company received tenders of, and consents relating to, all of the outstanding
Senior Notes.
Amended Credit Facility
As part of the Refinancing, the Company and its subsidiaries entered into
revolving credit facilities (the "Amended Credit Facility") with a group of
lenders and with The Chase Manhattan Bank ("Chase"), as administrative agent
(the "Agent"), by amending and restating the Old Credit Facility. The Amended
Credit Facility provides for aggregate borrowings of up to $325.0 million,
with approximately $29.0 million borrowed by the Company at the closing of the
Refinancing (assuming the Refinancing was consummated on June 28, 1997).
Interest is based on the Agent's base rate or LIBOR, plus a specified margin.
All indebtedness under the Amended Credit Facility is guaranteed on a joint
and several basis by each of the Company's direct and indirect domestic
subsidiaries and by Fabrene Group. The Amended Credit Facility and the related
guarantees are secured by (i) a lien on substantially all of the assets of the
Company and its domestic subsidiaries, (ii) a pledge of all or a portion of
the stock of the direct and indirect subsidiaries of the Company, (iii) a lien
on substantially all of the assets of direct foreign borrowers (to secure
direct borrowings by such borrowers), and (iv) a pledge of certain secured
intercompany notes issued to the Company by non-domestic subsidiaries. The
Amended Credit Facility has a term of approximately six years. See
"Description of Certain Indebtedness--Amended Credit Facility."
21
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights
Agreement. The Company will not receive any cash proceeds from the issuance of
the Exchange Notes offered hereby. In consideration for issuing the Exchange
Notes contemplated in this Prospectus, the Company will receive Old Notes in
like principal amount, the form and terms of which are the same as the forms
and terms of the Exchange Notes (which replace the Old Notes), except as
otherwise described herein. The Old Notes surrendered in exchange for Exchange
Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any increase or decrease in
the indebtedness of the Company. As such, no effect has been given to the
Exchange Offer in the pro forma statements or capitalization tables.
The net proceeds to the Company from the sale of the Old Notes in the
Initial Offering (after deducting discounts and estimated fees and expenses)
were utilized by the Company to consummate the transactions involved in the
Refinancing. See "The Refinancing."
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 28, 1997, and as adjusted to give effect to the Refinancing
and the application of the net proceeds of the Initial Offering as described
under "Use of Proceeds." This table should be read in conjunction with the
unaudited pro forma financial data and the combined consolidated financial
statements of the Company and notes thereto included elsewhere in this
Prospectus.
JUNE 28, 1997
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN
THOUSANDS)
Cash and cash equivalents.............................. $ 31,855 $ 34,981
======== ========
Long-term debt, including current portion
Existing Notes....................................... $100,000 $ --
Existing Credit Facility............................. 288,325 --
Amended Credit Facility (a).......................... -- 29,019
Notes offered hereby................................. -- 393,564
Other................................................ 1,874 1,874
-------- --------
Total Debt......................................... $390,199 $424,457
-------- --------
Shareholders' equity
Common Stock......................................... 320 320
Additional paid-in capital........................... 243,662 243,662
Deficit.............................................. (43,809) (54,702)(b)
Cumulative translation adjustment.................... (1,238) (1,238)
Unrealized holding gain on marketable securities..... 636 636
-------- --------
Total shareholders' equity......................... $199,571 $188,678
-------- --------
Total capitalization............................... $589,770 $613,135
======== ========
- --------
(a) The Amended Credit Facility provides for aggregate borrowings of up to
$325,000. Initial borrowing as of June 28, 1997 is assumed to be $29,019,
with a remaining availability of $295,981.
(b) Gives effect to the reduction in equity resulting from the premium paid to
holders of Senior Notes in the Tender Offer and the costs associated with
the Refinancing.
22
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical financial information of
the Company, PGI Polymer, and its predecessor, the Nonwoven Products Division
of Scott Paper Company (the "Predecessor"). The statement of operations data
for each of the four years in the period ended December 28, 1996, the ten-week
period ended January 2, 1993 and the balance sheet data as December 28, 1996,
December 30, 1995, December 31, 1994, January 1, 1994 and January 2, 1993 have
been derived from audited financial statements. The data as of and for the six
months ended June 29, 1996 and June 28, 1997 are derived from the consolidated
unaudited interim financial statements of the Company and include, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to fairly present the data for such periods. The
statement of operations data for the forty-two week period ended October 22,
1992 were derived from the audited statement of revenues and expenses before
corporate interest and income taxes of the Predecessor. The table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the financial statements of the Company
and related notes thereto and other information included elsewhere in this
Prospectus.
PREDECESSOR COMPANY COMBINED COMPANY
----------- ---------- ---------- --------------------------------------------------------------------
FORTY-TWO TEN-WEEK
WEEK PERIOD PERIOD YEAR ENDED SIX MONTHS ENDED
ENDED ENDED ------------------------------------------------- ------------------
OCTOBER 22, JANUARY 2, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 29, JUNE 28,
1992(A) 1993 1993(A) 1994 1994 1995 1996 1996 1997
----------- ---------- ---------- ---------- ------------ ------------ ------------ -------- --------
(DOLLARS IN THOUSANDS)
STATEMENT OF
OPERATIONS:
Net sales....... $99,119 $22,081 $121,200 $121,473 $165,333 $ 437,638 $521,368 $251,308 $260,455
Cost of goods
sold........... 84,393 18,587 102,980 97,291 129,071 333,606 389,013 189,648 193,154
------- ------- -------- -------- -------- --------- -------- -------- --------
Gross profit... 14,726 3,494 18,220 24,182 36,262 104,032 132,355 61,660 67,301
Selling, general
and
administrative
expenses....... 5,753 2,291 8,044 13,022 20,699 61,744 70,207 34,591 37,693
------- ------- -------- -------- -------- --------- -------- -------- --------
Operating
income........ 8,973 1,203 10,176 11,160 15,563 42,288 62,148 27,069 29,608
Other (income)
expense:
Interest
expense, net
(b)........... -- 915 -- 4,387 13,216 37,868 33,641 19,605 13,532
Foreign currency
transaction
(gains)
losses, net... -- 903 -- 1,363 17,332 22,811 2,955 3,573 (325)
Income taxes
(benefit)..... -- 11 -- 1,970 3,353 5,216 10,730 1,776 5,427
------- ------- -------- -------- -------- --------- -------- -------- --------
Income (loss)
before
extraordinary
item.......... -- (626) -- 3,440 (18,338) (23,607) 14,822 2,115 10,974
Extraordinary
item, (loss)
from
extinguishment
of debt........ -- -- -- -- (4,372) -- (13,932) (13,932) --
------- ------- -------- -------- -------- --------- -------- -------- --------
Net income
(loss)......... -- (626) -- 3,440 (22,710) (23,607) 890 (11,817) 10,974
Redeemable
preferred stock
dividends and
accretion...... -- -- -- (2,480) (1,209) (4,839) (3,020) (3,020) --
------- ------- -------- -------- -------- --------- -------- -------- --------
Net income
(loss)
applicable to
common stock... $ -- $ (626) $ -- $ 960 $(23,919) $ (28,446) $ (2,130) $(14,837) $ 10,974
======= ======= ======== ======== ======== ========= ======== ======== ========
Income (loss)
before
extraordinary
item per common
share.......... $ -- $ -- $ -- $ 0.05 $ (0.95) $ (1.39) $ 0.43 $ (0.04) $ 0.34
======= ======= ======== ======== ======== ========= ======== ======== ========
Average common
shares
outstanding.... -- -- -- 20,500 20,500 20,500 27,688 23,375 32,000
======= ======= ======== ======== ======== ========= ======== ======== ========
OPERATING AND
OTHER DATA:
Cash provided by
(used in)
operating
activities..... $ -- $(5,561) $ -- $ 6,888 $ 17,386 $ 11,556 $ 36,097 $ 16,205 $ 16,274
Cash (used in)
investing
activities..... -- (72,699) -- (6,958) (61,375) (333,208) (86,422) (18,374) (28,535)
Cash provided by
(used in)
financing
activities..... -- 83,602 -- (1,038) 58,482 327,636 64,391 3,907 12,200
EBITDA (c)...... 12,973 2,087 15,060 16,115 23,864 72,122 98,915 45,335 49,616
Ratio of
earnings to
fixed charges
(d)............ -- -- -- 2.1x -- -- 1.6x 1.1x 1.9x
BALANCE SHEET
DATA (AT END OF
PERIOD):
Cash and cash
equivalents.... -- $ 3,922 $ 3,922 $ 2,694 $ 13,828 $ 18,088 $ 37,587 $ 19,343 $ 31,855
Working capital
(deficit)...... -- 1,774 1,774 (5,786) 31,060 61,558 93,154 79,203 124,885
Total assets.... -- 99,258 99,258 103,187 241,942 637,981 708,115 615,413 718,494
Total debt...... -- 58,600 58,600 57,562 190,814 450,878 382,242 322,873 390,199
Redeemable
preferred
stock,
dividends and
accretion...... -- 29,123 29,123 31,603 -- 44,339 -- -- --
Shareholders'
equity
(deficit)...... -- (1,267) (1,267) (592) 2,220 13,752 195,918 186,607 199,571
See Notes to Selected Consolidated Financial Data.
23
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(a) Audited operating data of the Predecessor for the forty-two week period
ended October 22, 1992 have been combined for presentation purposes with
the audited data of the Company for the ten-week period ended January 2,
1993.
(b) Represents interest expense, net of interest income and capitalized
interest.
(c) EBITDA is defined as operating income plus depreciation, amortization and
Mexican statutory employee profit sharing and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation from or as a substitute for net income, cash flows from
operating activities and other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles
or as a measure of profitability or liquidity. Mexican employee profit
sharing laws require any corporation organized under the laws of Mexico to
distribute 10% of income before taxes to employees. Amounts distributed to
employees pursuant to such laws for the periods set forth herein were not
material.
(d) For purposes of calculating earnings to fixed charges, earnings represent
earnings before income taxes plus fixed charges. Earnings include foreign
currency transaction losses and gains. Fixed charges consist of interest
expense, net, including amortization of discount and financing costs.
Fixed charges exceeded earnings for the ten-week period ended January 2,
1993, the year ended December 31, 1994 and the year ended December 30,
1995 by approximately $700, $15,000 and $20,000, respectively. However,
the Company met all required interest payments and debt obligations during
this time period.
24
UNAUDITED PRO FORMA FINANCIAL INFORMATION
INTRODUCTION
The unaudited pro forma financial information presents the pro forma
combined statement of operations data of the Company for the year ended
December 28, 1996 and the six months ended June 28, 1997 as if the FNA
Acquisition and the Refinancing had occurred on December 31, 1995. In
addition, the pro forma combined statement of operations data for the year
ended December 28, 1996 have been prepared by combining the consolidated
statement of operations of the Company for its fiscal year ended December 28,
1996 (which included FNA from August 14, 1996 through December 28, 1996) with
the historical financial information of FNA for the period from January 1,
1996 to August 14, 1996. The unaudited pro forma balance sheet data as of June
28, 1997 give effect to the Refinancing, including the Initial Offering and
the application of proceeds therefrom, as of June 28, 1997, as described under
"Use of Proceeds."
The unaudited pro forma financial information has been prepared on the basis
of assumptions described in the notes thereto. The consideration paid for FNA
has been allocated to the assets and liabilities of FNA.
The unaudited pro forma financial information does not purport to represent
what the Company's financial position and results of operations would have
been if the FNA Acquisition and the Refinancing had actually been completed as
of the date indicated and are not intended to project the Company's financial
position or results of operations for any future period.
The unaudited pro forma financial information should be read in conjunction
with the respective historical financial statements of the Company and FNA and
the related notes thereto included elsewhere in this Prospectus.
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 28,
1996
The pro forma combined statement of operations data for the year ended
December 28, 1996 have been prepared by combining the consolidated statement
of operations of the Company for its fiscal year ended December 28, 1996
(which includes FNA from August 14, 1996 through December 28, 1996) with the
historical statement of operations of FNA for the period January 1, 1996 to
August 14, 1996 and give effect to the pro forma adjustments as described in
the notes hereto.
HISTORICAL
----------------------------
COMPANY YEAR FNA PERIOD FROM
ENDED JANUARY 1, 1996
DECEMBER 28, THROUGH
1996 AUGUST 14, 1996 ADJUSTMENTS PRO FORMA
------------ --------------- ----------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS:
Net sales............... $521,368 $19,027 $ -- $540,395
Cost of goods sold...... 389,013 12,811 653 (b),(c) 402,477
-------- ------- ------ --------
Gross profit............ 132,355 6,216 (653) 137,918
Selling, general and ad-
ministrative expenses.. 70,207 2,036 (118)(b),(d),(f) 72,125
-------- ------- ------ --------
Operating income....... 62,148 4,180 (535) 65,793
Other (income) expense:
Interest expense, net.. 33,641 1,303 174 (g) 35,118
Foreign currency
transaction (gains)
losses, net........... 2,955 -- (2,733)(e) 222
Income taxes........... 10,730 392 (1,042)(h) 10,080
-------- ------- ------ --------
Income before extraordi-
nary item.............. $ 14,822 $ 2,485 $3,066 $ 20,373
Redeemable preferred
stock dividends and ac-
cretion................ (3,020) -- 3,020 --
-------- ------- ------ --------
Income before extraordi-
nary item applicable to
common stock........... $ 11,802 $ 2,485 $6,086 $ 20,373
======== ======= ====== ========
Income before extraordi-
nary item per common
share.................. $ .43 -- -- $ .64
======== ======= ====== ========
Average common shares
outstanding............ 27,688 -- -- 32,000
======== ======= ====== ========
OPERATING AND OTHER DA-
TA:
Cash provided by operat-
ing activities......... $ 36,097 $ -- $ -- $ --
Cash (used in) investing
activities............. (86,422) -- -- --
Cash provided by financ-
ing activities......... 64,391 -- -- --
EBITDA (a).............. 98,915 5,724 1,088 105,727
Ratio of earnings to
fixed charges (n)...... 1.6x -- -- 1.7x
See Notes to Unaudited Pro Forma Financial Information.
25
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 28,
1997
SIX MONTHS ENDED JUNE 28, 1997
----------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS:
Net sales.................................. $260,455 $ -- $260,455
Cost of goods sold......................... 193,154 -- 193,154
-------- ------- --------
Gross profit............................... 67,301 -- 67,301
Selling, general and administrative ex-
penses.................................... 37,693 653 (i) 38,346
-------- ------- --------
Operating income.......................... 29,608 (653) 28,955
Other (income) expense:
Interest expense, net..................... 13,532 3,942 (j) 17,474
Foreign currency transaction (gains), net. (325) -- (325)
Income taxes.............................. 5,427 (1,519)(k) 3,908
-------- ------- --------
Income (loss) before extraordinary item.... $ 10,974 $(3,075) $ 7,898
======== ======= ========
Income before extraordinary item per common
share..................................... $ .34 -- $ .25
======== ======= ========
Average common shares outstanding.......... 32,000 -- 32,000
======== ======= ========
OPERATING AND OTHER DATA:
Cash provided by operating activities...... $ 16,274 $ -- $ --
Cash (used in) investing activities........ (28,535) -- --
Cash provided by financing activities...... 12,200 -- --
EBITDA (a)................................. 49,616 -- 49,616
Ratio of earnings to fixed charges (n)..... 1.9x -- 1.5x
PRO FORMA CONDENSED BALANCE SHEET AS OF JUNE 28, 1997
AS OF JUNE 28, 1997
--------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
ASSETS:
Current assets:
Cash and equivalents................... $ 31,855 $ 3,126 (l) $ 34,981
Marketable securities.................. 12,677 -- 12,677
Accounts receivable, net............... 75,331 -- 75,331
Inventories............................ 61,322 -- 61,322
Deferred income taxes and other........ 17,906 -- 17,906
-------- -------- --------
Total current assets................. 199,091 3,126 202,217
Property, plant and equipment.......... 406,646 -- 406,646
Intangibles, loan acquisition and
organization costs, net............... 92,457 7,413 (l)(m) 99,870
Deferred income taxes and other........ 20,300 6,676 (m) 26,976
-------- -------- --------
Total assets......................... $718,494 $ 17,215 $735,709
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued
liabilities........................... $ 74,120 $ (6,150)(l) $ 67,970
Current portion of long-term debt...... 86 -- 86
-------- -------- --------
Total current liabilities............ 74,206 (6,150) 68,056
Long-term debt, less current portion... 390,113 34,258 (l) 424,371
Deferred income taxes and other
liabilities........................... 54,604 -- 54,604
Shareholders' equity
Capital stock......................... 320 -- 320
Additional paid in capital............ 243,662 -- 243,662
(Deficit)............................. (43,809) (10,893)(l)(m) (54,702)
Other shareholders' equity............ (602) -- (602)
-------- -------- --------
199,571 (10,893) 188,678
-------- -------- --------
Total liabilities and shareholders'
equity.............................. $718,494 $ 17,215 $735,709
======== ======== ========
See Notes to Unaudited Pro Forma Financial Information.
26
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) EBITDA is defined as operating income plus depreciation,
amortization and Mexican statutory employee profit sharing and
is presented because it is generally accepted as providing
useful information regarding a company's ability to service
and/or incur debt. EBITDA should not be considered in isolation
from or as a substitute for net income, cash flows from
operating activities and other consolidated income or cash flow
statement data prepared in accordance with generally accepted
accounting principles or as a measure of profitability or
liquidity. Mexican employee profit sharing laws require any
corporation organized under the laws of Mexico to distribute 10%
of income before taxes to employees. Amounts distributed to
employees pursuant to such laws for the periods set forth herein
were not material.
(b) Prior to the FNA Acquisition, FNA had intercompany royalty and
guarantee agreements with its former parent with respect to
intercompany transactions. These prior contractual obligations
were not part of the FNA Acquisition; therefore, the following
pro forma adjustments give effect to the elimination of royalty
and guarantee expense from FNA's historical financial results:
Elimination of historical royalty expense as a result of the
acquisition................................................... $ (1,019)
========
Elimination of historical guarantee expense as a result of the
acquisition................................................... $ (69)
========
(c) Represents increase in depreciation expense on assignment of
purchase price of FNA to fair value of property, plant and
equipment....................................................... $ 722
========
(d) Represents increase in amortization expense on assignment of
purchase price of FNA to intangible assets...................... $ 524
========
(e) In accordance with FAS 52 (as defined), the Company records
foreign currency gains and losses upon remeasurement of
obligations which are denominated in a currency other than the
functional currency of the Company's foreign subsidiaries.
Concurrently with the Initial Public Offering, the Company
restructured approximately $56 million of United States dollar
intercompany indebtedness at its Mexican subsidiary by
effectively converting such debt into equity. In addition, the
Company also restructured a portion its United States dollar
acquisition intercompany debt in Canada and Europe. These
obligations, with an aggregate principal amount of $154 million,
either became third party debt denominated in the functional
currency of these entities or were deemed to be a hedge of the
Company's net investment in the foreign subsidiaries. Therefore,
in accordance with FAS 52, the following pro forma adjustment
gives effect to elimination of transaction gains and losses
related to foreign currency as a result of the recapitalization
consummated in connection with the Initial Public Offering...... $ (2,733)
========
(f) Represents net increase in amortization expense related to
additional costs incurred pursuant to the Refinancing........... $ 377
========
(g) Represents estimated net increase in interest expense as a
result of the Refinancing....................................... $ 174
========
(h) Represents estimated income tax effect of (b), (c), (d), (e),
(f) and (g)..................................................... $ (1,042)
========
(i) Represents net increase in amortization expense related to
additional costs incurred pursuant to the Refinancing........... $ 653
========
(j) Represents estimated net increase in interest expense as a
result of the Refinancing....................................... $ 3,942
========
(k) Represents estimated income tax effect of (i) and (j)........... $ (1,519)
========
(l)Reflects the Refinancing:
Proceeds from Notes offered hereby............................. $393,564
Amended Credit Facility........................................ 29,019
--------
422,583
Repayment of Existing Credit Facility.......................... (288,958)
Tender Offer and Consent Solicitation for Existing Notes
including repayment of accrued interest....................... (116,881)
Estimated fees and expenses.................................... (13,618)
--------
Cash.......................................................... $ 3,126
========
(m) Represents estimated write-off of historical loan acquisition
costs as a result of the Refinancing and estimated tax benefit
from extinguishment of debt..................................... $ 471
========
(n) For purposes of calculating earnings to fixed charges, earnings
represent earnings before income taxes plus fixed charges.
Earnings include foreign currency transaction losses and gains.
Fixed charges consist of interest expense, net, including
amortization of discount and financing costs.
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The Company's net sales in recent years have been affected by a variety of
factors, including increased sales volume as a result of growing demand for
the Company's products, fluctuations in average prices for the Company's
products due to fluctuations in raw material prices, and increased competition
for many of the Company's mature product lines. Since 1991, the Company's
sales volume has increased primarily as a result of acquisitions and growth in
sales of consumer disposable products that incorporate the Company's products.
Prior to the second quarter of 1994, the Company's primary raw material,
polypropylene fiber, had reached its lowest price level in the past seven
years, which had been a major factor in the reduction of average selling
prices for the Company's products. During the next two quarters of 1994, the
cost of the Company's key raw materials increased sharply. The Company was
able to pass on the majority of this increase to its customers by the end of
the second quarter of 1995. The sharp increase was primarily due to short-term
interruptions in production capacity and increased demand as a result of an
expanding economy. By mid-1995 and continuing through 1996, raw material
supplies had increased, thereby reducing the Company's key raw material
prices.
In addition, increased competition in several of the Company's markets has
resulted in competitive allowances by the Company to maintain its existing
market shares, effectively reducing average selling prices and correspondingly
decreasing net sales. Despite the decline in average prices over the last
several years, the Company has increased its gross margins primarily due to
decreases in operating expenses and raw material costs and improvements in
manufacturing efficiencies and material utilization. The Company has reduced
operating expenses primarily by increasing the efficiency of its workforce and
by process engineering developments, in turn allowing the Company to increase
its production line speeds.
The Company manufactures certain of its products in Germany, Canada, Mexico
and the Netherlands. The Company accounts for and reports translation of
foreign currency transactions and foreign currency financial statements in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation" ("FAS 52"). If foreign currency denominated revenues are
greater than costs, the translation of foreign currency denominated costs and
revenues into U.S. dollars will improve profitability when the foreign
currency strengthens against the U.S. dollar and will reduce profitability
when the foreign currency weakens. The non-cash adjustment resulting from
translation of financial statements is recorded in a separate component of
shareholder's equity. Prior to the translation of financial statements, the
foreign entities adjust assets and liabilities which are to be settled in a
currency other than the functional currency to the functional currency using
period-end exchange rates. The resulting adjustment for the remeasurement of
assets and liabilities that are to be settled in a currency other than the
functional currency is included in the determination of net income. In
connection with the Initial Public Offering (as defined) and establishment of
the Old Credit Facility (as defined), the intercompany loans to Bonlam and
other foreign facilities were eliminated, substantially reducing the Company's
exposure to currency transaction losses.
The Company's substantial foreign operations expose it to the risk of
exchange rate fluctuations. In addition, the restatement of foreign currency
denominated assets and liabilities into U.S. dollars gives rise to unrealized
foreign exchange gains or losses which are recorded in the statement of
operations. However, the Initial Public Offering and related debt refinancing
eliminated the majority of the Company's U.S. dollar denominated intercompany
debt, effectively reducing the Company's exposure to foreign currency
fluctuations. In addition, effective December 29, 1996, the Company
28
changed the functional currency for its Mexican subsidiary from the nuevo peso
to the U.S. dollar. See "Liquidity and Capital Resources--Foreign Currency."
The Company does not currently participate in hedging transactions related to
foreign currency.
The financial data for the year ended December 30, 1995 include the results
of Chicopee Holdings and its subsidiaries for the period March 16, 1995 to
December 30, 1995. The financial data for the year ended December 28, 1996
includes the results of PNA and FNA for the period August 14, 1996 to December
28, 1996.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships to net sales of
certain income statement items.
THREE MONTHS
YEAR ENDED ENDED SIX MONTHS ENDED
-------------------------------------- ------------------ ------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1994 1995 1996 1997 1996 1997 1996
------------ ------------ ------------ -------- -------- -------- --------
Net sales:
Hygiene................. 80.8 % 45.1 % 44.4 % 42.5 % 45.7 % 42.3 % 44.4 %
Medical................. -- 16.7 17.6 17.7 18.5 17.2 18.9
Wiping.................. -- 16.7 17.4 19.2 16.9 19.2 17.4
Industrial and special-
ty..................... 19.2 21.5 20.6 20.6 18.9 21.3 19.3
----- ----- ----- ----- ----- ----- -----
100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold:
Raw material costs.... 52.3 48.8 46.1 43.4 45.3 43.2 46.0
Labor costs........... 7.5 7.5 7.6 7.9 7.4 7.9 7.4
Overhead costs........ 18.3 19.9 20.9 22.3 22.2 23.1 22.1
----- ----- ----- ----- ----- ----- -----
Total costs of goods
sold................... 78.1 76.2 74.6 73.6 74.9 74.2 75.5
Gross profit.......... 21.9 23.8 25.4 26.4 25.1 25.8 24.5
Selling, general and ad-
ministrative expenses.. 12.5 14.1 13.4 14.5 12.8 14.5 13.8
----- ----- ----- ----- ----- ----- -----
Operating income........ 9.4 9.7 11.9 11.9 12.3 11.3 10.7
Other (income) expense:
Interest expense, net. 8.0 8.7 6.5 5.1 7.0 5.1 7.8
Foreign currency
transaction (gains)
losses, net.......... 10.5 5.2 0.5 -- 1.8 (0.1) 1.4
----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes (benefit)
and extraordinary item. (9.1) (4.2) 4.9 6.8 3.5 6.3 1.5
Income taxes (benefit).. 2.0 1.2 2.1 2.3 1.5 2.1 0.7
----- ----- ----- ----- ----- ----- -----
Income (loss) before
extraordinary item..... (11.1) (5.4) 2.8 4.5 2.0 4.2 0.8
Extraordinary item, net
of income tax benefit.. 2.6 -- 2.6 -- (10.8) -- (5.5)
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (13.7)% (5.4)% 0.2 % 4.5 % (8.8)% 4.2 % (4.7)%
===== ===== ===== ===== ===== ===== =====
29
COMPARISON OF THREE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996
Net Sales
Consolidated net sales increased $2.9 million, or 2.3%, from $128.6 million
for the three months ended June 29, 1996 to $131.5 million for the three
months ended June 28, 1997. Net sales increased $7.8 million as a result of
the FNA Acquisition, which was completed during the third quarter of 1996,
offset by a mix-shift toward lower cost spunbond and SMS technology which
replaced thermal bond fabric sales in certain applications. In addition, sales
growth in Europe was unfavorably impacted by weaker foreign currency
translation rates during the second quarter of 1997 relative to 1996. Hygiene
product sales decreased 4.7%, or approximately $2.8 million, from $58.7
million in 1996 to $56.0 million in 1997. Hygiene sales for adult incontinence
products grew as a result of the FNA Acquisition. However, in response to
increased competitive pressure, the Company has utilized lower cost product
designs incorporating spunbond and SMS technology, which results in a pass
through of a portion of the cost savings to the customer in lower average
selling prices. Medical sales were $23.3 million for the second quarter of
1997 as compared with $23.7 million for the second quarter of 1996. Lower raw
material costs, including rayon fiber and polyester fiber, were also passed
through to customers, resulting in lower revenues compared to the previous
year. Wiping product sales increased 15.8%, or approximately $3.4 million,
from $21.7 million in 1996 to $25.2 million in 1997. Improved sales within
this product category were driven by higher volumes of food service and
consumer wiping product sales and geographic and product line extensions.
Sales in the industrial and specialty product category increased during the
second quarter approximately 11.0%, or $2.7 million, from $24.4 million in
1996 to $27.1 million in 1997, primarily as a result of strong unit growth for
industrial fabrics and the FNA Acquisition.
Gross Profit
Gross profit increased to $34.7 million, or 26.4% of consolidated net sales,
for the second quarter of 1997 versus $32.3 million, or 25.1% of net sales,
for the comparable period in 1996. The approximate $2.5 million increase in
gross profit over the second quarter of 1996 primarily reflected the benefit
from the FNA Acquisition, combined with volume growth in the wiping and
industrial and specialty product categories. Second quarter 1997 raw material
costs were 43.4% of net sales, compared to 45.3% for the comparable period
last year, reflecting the downward trend in raw material prices which began in
1996. Direct labor costs as a percent of net sales were 7.9%, up slightly from
7.4% during the second quarter of 1996. Overhead expenses were approximately
22.3% of net sales in the second quarter of 1997 compared to 22.2% of net
sales in the second quarter of 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 14.5% of consolidated net
sales during the first and second quarter of 1997 compared to 12.8% in the
second quarter of 1996. Consolidated selling, general and administrative
expenses for the second quarter of 1997 were $19.0 million, up approximately
$2.6 million versus $16.5 million for the second quarter of 1996, primarily
because of the additional costs associated with FNA, higher research and
development costs related to product enhancements and other general and
administrative costs.
Other
Interest expense decreased $2.3 million, from $9.0 million in the second
quarter of 1996 to $6.7 million in the second quarter of 1997. Interest
expense as a percentage of net sales decreased from 7.0% in the second quarter
of 1996 to 5.1% in the second quarter of 1997. The decrease in interest
expense is principally due to a lower average amount of indebtedness
outstanding in the second quarter of 1997 resulting from the Initial Public
Offering and the Recapitalization (each as defined) consummated concurrently
therewith.
30
Net foreign currency transaction gains were not significant in the second
quarter of 1997. Net foreign currency transaction losses of $2.2 million were
recorded in the second quarter of 1996. During the second quarter of 1996, the
Company's Mexico operation incurred net foreign currency transaction gains of
$1.3 million, offset by its European operations which recorded foreign
transaction losses of $3.5 million. These gains and losses incurred by the
Company during the second quarter of 1996 principally had no cash impact and
occurred upon the remeasurement of United States dollar intercompany
indebtedness applicable to the Company's foreign operations. As a result of
the Initial Public Offering and Recapitalization, the majority of the
Company's United States dollar intercompany indebtedness at its Mexican,
Canadian and German operations was effectively converted to equity, thus
mitigating the Company's net foreign currency exposure. In addition, the
Company determined that its United States dollar intercompany indebtedness as
its Netherlands operation is of a long-term investment nature in which
settlement is not planned in the foreseeable future. Therefore, in accordance
with FAS 52, gains and losses are excluded from the determination of net
income and are reported in the same manner as translation adjustments.
The Company provided for income taxes of approximately $3.0 million during
the second quarter of 1997, representing an effective tax rate of 33.1%. The
provision for income taxes at the Company's effective rate differed from the
provision for income taxes at the statutory rate due primarily to the
utilization of net operating loss carryforwards and to tax strategies
initiated at the time of the Initial Public Offering. The Company provided for
income taxes of $1.9 million during the second quarter of 1996, representing
an effective tax rate of 42.5%.
As a result of the Initial Public Offering and Recapitalization, the Company
recorded an extraordinary item of $13.9 million, net of the income tax benefit
of $7.5 million, related to the write-off of previously capitalized debt issue
costs and premiums paid in connection with the repurchase of a portion of the
Senior Notes during the second quarter of 1996.
Net Income
Net income was approximately $6.0 million, or $.19 per share, in the second
quarter of 1997 as compared to a net loss of $(11.3) million, or $(.47) per
share, in the second quarter of 1996. Net income was favorably impacted during
the second quarter of 1997 by: (i) the FNA Acquisition; (ii) lower interest
costs attributable to the recapitalization of indebtedness in connection with
the Initial Public Offering; (iii) mitigation of foreign currency exposure
attributable to the Recapitalization; and (iv) a lower effective income tax
rate.
COMPARISON OF SIX MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996
Net Sales
Consolidated net sales increased approximately $9.1 million, or 3.6%, from
$251.3 million for the six months ended June 29, 1996 to $260.5 million for
the six months ended June 28, 1997. Net sales increased $16.8 million as a
result of the FNA Acquisition, offset by lower average selling prices in the
hygiene and medical product categories resulting from declining raw material
costs and a movement toward lower cost spunbond and SMS technology that
replaced thermal bond fabric sales in certain applications. In addition, sales
growth in Europe was unfavorably impacted by weaker foreign currency
translation rates during 1997 relative to 1996. Hygiene product sales
decreased 1.2%, or approximately $1.3 million, from $111.5 million in 1996 to
$110.1 million in 1997. Hygiene sales for adult incontinence products grew as
a result of the FNA Acquisition. However, in response to increased competitive
pressure, the Company has utilized lower cost product designs incorporating
spunbond and SMS technology, resulting in a pass through of a portion of the
cost savings to the customer in lower average selling prices. Year-to-date
medical sales in 1997 were $44.7 million, as compared with $47.5 million in
1996. Lower raw material costs were passed through to customers,
31
resulting in lower revenues compared to last year for medical products. Wiping
product sales increased 14.2%, or $6.2 million, from $43.8 million in 1996 to
$50.0 million in 1997. Improved sales within this product category were driven
by higher volumes of food service and specialty wiping product sales and
geographic and product line extensions. Sales in the industrial and specialty
product category increased during the first six months of 1997 approximately
14.3%, or approximately $7.0 million, from $48.6 million in 1996 to $55.5
million in 1997, primarily as a result of strong unit growth for industrial
fabrics and the FNA Acquisition.
Gross Profit
Year to date gross profit in 1997 increased to $67.3 million, or 25.8% of
consolidated net sales, versus $61.7 million, or 24.5% of net sales, for the
comparable period in 1996. The approximate $5.6 million increase in gross
profit over 1996 primarily reflected the benefit from the FNA Acquisition,
combined with volume growth in the wiping and industrial and specialty product
categories. Raw material costs during the first six months of 1997 were 43.2%
of net sales compared to 46.0% for the comparable period last year, reflecting
the downward trend in raw material prices which began in 1996. Direct labor
costs, as a percent of net sales, were 7.9% on a year to date basis in 1997,
up from 7.4% during the first six months of 1996. Overhead expenses increased
approximately $4.3 million, from 22.1% of net sales in 1996 to 23.1% of net
sales in 1997, due primarily to incremental overhead costs associated with the
FNA Acquisition and higher depreciation on completed capital expenditures.
Selling, General and Administrative Expenses
Selling, general and administrative expenses on a year to date basis in 1997
were 14.5% of consolidated net sales, up from 13.8% in 1996. Year-to-date
selling, general and administrative expenses in 1997 were $37.7 million, up
approximately $3.1 million versus $34.6 million for 1996, primarily because of
the additional costs associated with FNA, higher research and development
costs related to product enhancements and other general and administrative
costs.
Other
Year-to-date interest expense decreased $6.1 million from $19.6 million in
1996 to $13.5 million in 1997. Interest expense as a percentage of net sales
decreased from 7.8% in 1996 to 5.1% in 1997. The decrease in interest expense
is principally due to a lower average amount of indebtedness outstanding in
1997 resulting from the Initial Public Offering and Recapitalization.
Year-to-date net foreign currency transaction gains were $0.3 million in
1997 as compared with net foreign currency transaction losses of $3.6 million
in 1996. These gains and losses incurred by the Company during 1996
principally had no cash impact and occurred upon the remeasurement of United
States dollar intercompany indebtedness applicable to the Company's foreign
operations. As a result of the Initial Public Offering and Recapitalization,
the majority of the Company's United States dollar intercompany indebtedness
at its Mexican, Canadian and German operations was effectively converted to
equity, thus mitigating the Company's net foreign currency exposure. In
addition, the Company determined that its United States dollar intercompany
indebtedness at its Netherlands operation is of a long-term investment nature
in which settlement is not planned in the foreseeable future. Therefore, in
accordance with FAS 52, gains and losses are excluded from the determination
of net income and are reported in the same manner as translation adjustments.
The Company provided for income taxes of approximately $5.4 million during
the first six months of 1997, representing an effective tax rate of 33.1%. The
provision for income taxes at the Company's effective rate differed from the
provision for income taxes at the statutory rate due primarily to the
utilization of net operating loss carryforwards and to tax strategies
initiated at the time of the Initial Public Offering. The Company provided for
income taxes of $1.8 million on a year to date basis in 1996, representing an
effective tax rate of 45.6%.
32
As a result of the Initial Public Offering and Recapitalization, the Company
recorded an extraordinary item of $13.9 million, net of the income tax benefit
of $7.5 million, related to the write-off of previously capitalized debt issue
costs and premiums paid in connection with the repurchase of a portion of the
Senior Notes during the second quarter of 1996.
Net Income
Net income was approximately $11.0 million, or $.34 per share, for the six
months ended June 28, 1997 as compared to a net loss of $(11.8) million, or
$(.64) per share, in the comparable period of 1996. Net income was favorably
impacted during 1997 by: (i) the FNA Acquisition; (ii) lower interest costs
attributable to the recapitalization of indebtedness in connection with the
Initial Public Offering; (iii) mitigation of foreign currency exposure
attributable to the Recapitalization; and (iv) a lower effective income tax
rate.
COMPARISON OF YEAR ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
Net Sales. The Company experienced a high level of demand for several of its
advanced technologies in 1996. Net sales for 1996 were $521.4 million, an
$83.7 million, or 19.1%, increase over net sales of $437.6 million in 1995.
The Company achieved growth through both strategic acquisitions and capacity
expansions of existing assets. Net sales increased by $62.9 million as a
result of the inclusion of a full twelve months of operations of Chicopee
Holdings and its subsidiaries in 1996 as compared to only nine and one half
months in 1995. Market demand was up in all major product categories, with
hygiene and medical products representing the strongest unit growth.
Hygiene product sales increased $33.6 million to $231.2 million (44.4% of
consolidated net sales) in 1996, from $197.6 million (45.1% of consolidated
net sales) in 1995. Sales of hygiene products made with spunbond and SMS,
adhesive bond and apertured film technologies increased by $28.5 million in
1996. Driving the internal growth of hygiene products was the Mexican SMS
expansion and rising demand for apertured film facings, partially offset by
declining thermal bond volume and the discontinuation of purchased spunbond
from a former joint venture partner. SMS fabric has been the fastest-growing
technology within the nonwovens industry, experiencing demand growth in excess
of 10% globally in 1996. The growth in net sales reflects the Company's
continued investment in SMS capacity to support the rising demand for high
performance nonwoven fabrics in hygiene and medical applications. The
Company's spunbond and SMS revenues increased 137% in 1996 as a result of the
successful SMS line start-up in San Luis Potosi, Mexico, and the acquisition
of FNA and PNA in October of 1996. Anticipating continued strong growth for
spunbond polypropylene products, the Company recently announced its commitment
to install a high volume multi-polymer line at its Mooresville, North Carolina
facility in late 1997. Higher volumes of adhesive bond sublayer fabrics for
hygiene applications also contributed to the increase in revenues from 1995 to
1996.
Sales of traditional carded nonwoven fabric for the hygiene market declined
somewhat in 1996 due to a shift in market demand towards spunbond/SMS
technology. While this trend is expected to continue as new spunbond/SMS
capacity is added to the industry globally, the Company believes demand for
its traditional carded nonwoven fabric will continue due to the unique
attributes of this technology, competitive pricing, and the development of new
end uses. Additionally, the adoption of the clothlike backsheet feature by
major diaper producers remains a potential opportunity for greater demand of
light weight nonwoven fabric that would further utilize the Company's
traditional carded nonwoven fabric.
Medical product sales increased $18.7 million to $91.7 million in 1996, from
$73.0 million in 1995. The Company's medical business benefited from a high
level of unit volume growth during the year, offset by a decrease in average
unit selling prices as a result of the pass through of lower raw material
costs. The net increase in total medical sales between 1996 and 1995
attributable to volume growth was $7.5 million, or 10.2%, offset by price
reductions of $5.9 million related to lower material cost. Growth in medical
sales attributable to the acquisition of FNA, PNA and Chicopee Holdings and
its subsidiaries were $17.2 million.
33
Wiping product sales were $90.6 million in 1996, compared to $73.0 million
in 1995, reflecting an increase of $17.6 million. Revenue growth in the wipes
category was principally due to inclusion of a full year of operations of
Chicopee Holdings and its subsidiaries.
Sales of industrial and specialty products were $107.8 million in 1996,
compared to $94.1 million in 1995, up 14.6% due primarily to the acquisitions
of FNA and PNA and Chicopee Holdings and its subsidiaries. In addition,
industrial and specialty product revenue grew in 1996 as a result of: (i) new
product introductions such as decal backings, apparel interlinings, window
coverings and landscape fabrics; and (ii) growth in established product lines
such as microporous separators, crop covers, home furnishings, clean room
rollgoods and industrial protective coverings.
Gross Profit. Gross profit was $132.4 million, or 25.4% of net sales,
compared to $104.0 million, or 23.8% of net sales in 1995. The improvement in
gross profit as a percentage of sales was largely due to lower raw material
costs. After a rapid rise in the cost of key raw materials in 1995, the costs
of the Company's primary raw materials decreased by late 1995 and continued to
decline into 1996. As a result, material costs decreased 2.7% as a percent of
net sales from the previous year. Woodpulp, rayon fiber, polyester fiber and
polypropylene resin declined most significantly in 1996 relative to 1995.
Polyethylene resin was initially lower in the first half of 1996 but price
increases since mid year were only partially passed through to the market.
Polypropylene fibers, which represent a major share of the Company's
purchases, experienced a stable price environment in 1996. During 1996 the
Company successfully completed a strategic cost reduction project with the
installation of polypropylene fiber spinning equipment at the Neunkirchen,
Germany facility for its internal fiber requirements. The Company expects to
complete qualifications of the new fiber product and to begin to realize cost
savings in fiscal 1997. Additionally, the Company has increased its gross
margins as a result of improvements in manufacturing efficiencies and material
utilization and a mix shift to greater value added products. The Company has
improved material utilization primarily by reducing waste, controlling weight
variation and designing lower basis weight products. Overhead expenses
increased from 19.9% of net sales in 1995 to 20.9% of net sales in 1996 as a
result of higher depreciation on completed capital expenditures and
transitional overhead associated with the integration of value-added
production in the hygiene product category.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $70.2 million in 1996, compared with $61.7
million in 1995, an increase of $8.5 million primarily due to the acquisition
of FNA and PNA in August 1996 and a full year of expenses related to the
operations of Chicopee Holdings and its subsidiaries compared with nine and
one half months in 1995. As a percentage of net sales, selling, general and
administrative expenses decreased to 13.5% in 1996 from 14.1% in 1995. The
decrease reflects lower selling and administrative expenses due to
efficiencies resulting from increased sales volume. The Company continued to
aggressively develop its key technologies in 1996, spending approximately $6.9
million on designated research and development activities. Company engineers
developed over 49 new fabric styles utilizing the APEX(R) technology,
commercialized a proprietary new hygiene fabric for improved wetness
acquisition, commercialized a heavyweight shop towel as a line extension in
wipes, and enhanced manufacturing quality and efficiency.
As nonwoven fabrics become more specialized, the Company's challenge is to
develop greater value and functionality in its products and to get new and
improved products to the marketplace sooner. In a move to meet this challenge,
the Company's product development lines currently located at its research and
development facility in Dayton, New Jersey, will be relocated among the
Company's manufacturing facilities in 1997. Management believes this will
reduce the cycle time for the introduction of new products and processes by
allowing manufacturing personnel to be more involved in the development
process.
34
Other. Interest expense decreased $4.3 million from $37.9 million in 1995 to
$33.6 million in 1996. Interest expense as a percentage of net sales decreased
to 6.5% in 1996 from 8.7% in 1995. These decreases are principally due to a
lower average amount of indebtedness outstanding in 1996. Net foreign currency
transaction losses were approximately $3.0 million (0.5% of net sales) in 1996
versus $22.8 million (5.2% of net sales) in 1995. In 1996, the Company's
European operations incurred net foreign currency transaction losses of $6.2
million which were offset by net foreign currency transaction gains of $3.3
million within the Company's Mexican operation. The Initial Public Offering
and the Recapitalization eliminated the majority of the Company's United
States dollar intercompany debt, effectively reducing the Company's exposure
to foreign currency fluctuations as discussed more fully in "Liquidity and
Capital Resources."
Net Income (Loss). Income before nonrecurring charges was $14.8 million in
1996 versus a loss before nonrecurring charges of $(23.6) million in 1995.
Income before nonrecurring charges was favorably impacted during 1996 by
increased profitability attributable primarily to volume increases within the
hygiene and industrial and specialty product categories. Offsetting the
effects of improved gross profit were foreign currency transaction losses of
approximately $3.0 million in 1996. The Company provided for income taxes of
$10.7 million during 1996, representing an effective tax rate of approximately
42%. Unfavorably impacting net income in the prior year was a higher effective
tax rate resulting from foreign losses which did not give rise to a
corresponding tax benefit.
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," a valuation allowance of $14.1 million has been
recognized at December 28, 1996 to offset deferred tax assets due to the
uncertainty of realizing the benefit of foreign net operating and capital loss
carryforwards of approximately $16.9 million. The Company has operating loss
carryforwards of approximately $28.7 million for federal income tax purposes
expiring in the years 2007-2011; capital loss carryforwards of $6.0 million
related to its Canadian operations; and operating loss carryforwards of $15.6
million which begin to expire in 2002 related to its Mexican operation. No
accounting recognition has been given to the potential income tax benefit
related to the Canadian and Mexican operating loss carryforwards. The Company
has not provided U.S. income taxes for undistributed earnings of foreign
subsidiaries which are considered to be retained indefinitely for
reinvestment. The distribution of these earnings would result in additional
foreign withholding taxes and additional U.S. federal income taxes to the
extent they are not offset by foreign tax credits, but it is not practicable
to estimate the total liability that would be incurred upon such a
distribution. However, in 1996, the Company provided approximately $3.5
million for income taxes related to the distribution of earnings from certain
of its foreign operations which are not considered to be retained indefinitely
for reinvestment.
As a result of the Recapitalization effected concurrently with the Initial
Public Offering, the Company recorded nonrecurring charges of approximately
$13.9 million (net of the related income tax benefit of approximately $7.5
million), or $.51 per common share, related to the write-off of previously
capitalized debt issue costs and prepayment penalties paid in connection with
the repurchase of $50.0 million in principal of the Senior Notes.
COMPARISON OF YEAR ENDED DECEMBER 30, 1995 AND DECEMBER 31, 1994
Net Sales. Consolidated net sales increased $272.3 million, to $437.6
million in 1995 from $165.3 million in 1994, primarily as a result of the
inclusion of Chicopee Holdings and its subsidiaries for the period from March
16, 1995 to December 30, 1995 and, to a lesser extent, from the inclusion of a
full year of Fabrene and Bonlam net sales in 1995. For the period from March
16, 1995 to December 30, 1995, Chicopee's net sales were $225.6 million. Net
sales for Fabrene and Bonlam increased $38.1 million, to $77.9 million in 1995
from $39.8 million in 1994. Of this increase, $30.6 million was attributable
to the inclusion of a full year of net sales. The remaining $7.5 million
increase in sales for Fabrene and Bonlam represented organic volume growth of
10.6% during fiscal 1995. This volume
35
growth was made possible by the 1995 SMS capacity expansions at the Company's
Mexican facility and the woven capacity additions in North Bay, Ontario.
Organic growth in the rest of the Company's businesses was $8.6 million, or
6.8% over 1994, and was principally due to price increases for the Company's
hygiene products, reflecting higher raw material costs and the addition of
higher value end-use products.
Gross Profit. Gross profit as a percentage of net sales increased to 23.8%
in 1995 from 21.9% in 1994, primarily as a result of favorable diversification
in the product mix from the acquired businesses and, to a lesser extent, cost
reduction programs and decreases in raw material prices. In particular, the
addition of the wipes product category to the Company's business produced a
favorable impact on gross margins. Gross profit increased $67.7 million, to
$104.0 million in 1995 from $36.3 million in 1994, primarily due to the
Chicopee Acquisition and the effect of a full year of Fabrene and Bonlam. Raw
material costs decreased to 48.8% of net sales in 1995 from 52.3% of net sales
in 1994, reflecting a mix of less expensive raw materials associated with
Chicopee. Labor expenses remained constant at 7.5%. Overhead expenses
increased from 18.3% of net sales in 1994 to 19.9% of net sales in 1995 as a
result of higher depreciation on completed capital expenditures and the
additional overhead expenses of Chicopee. The Company's gross profit not
attributable to the inclusion of Chicopee Holdings and its subsidiaries and a
full year of Fabrene and Bonlam was relatively flat between 1995 and 1994 as a
result of the following factors: (i) highly competitive pricing by diaper
producers, (ii) excess supply and soft pricing of spunbond products, and (iii)
capacity limitations at the North Bay, Ontario wovens facility, which
prevented incremental volume growth until capacity was added.
Selling, General and Administrative. Selling, general and administrative
expenses increased $41.0 million to $61.7 million in 1995 from $20.7 million
in 1994, due to the acquisition of Chicopee and the inclusion of a full year
of operating expenses of Fabrene and Bonlam. Selling, general and
administrative expenses as a percentage of net sales increased to 14.1% in
1995 from 12.5% in 1994, primarily as a result of the acquisition of a branded
wipes business as part of the Chicopee Acquisition, which business requires
greater selling and distribution expenses than the Company's other businesses.
General and administrative expenses increased $18.2 million between 1995 and
1994 as a result of the Chicopee Acquisition, although general and
administrative expenses as a percentage of net sales remained constant at
6.6%.
Other. Interest expense increased $24.7 million to $37.9 million in 1995
from $13.2 million in 1994. Interest expense as a percentage of net sales
increased to 8.7% in 1995 from 8.0% in 1994. These increases are principally
due to a higher average amount of indebtedness outstanding in 1995 associated
with the Chicopee Acquisition. Net foreign currency transaction losses were
$22.8 million (5.2% of net sales) in 1995 and $17.1 million (10.3% of net
sales) in 1994. In 1995, the Company's Canadian and European operations
collectively incurred net foreign currency transaction gains of $1.6 million,
which were offset by net foreign currency transaction losses of $24.4 million
within the Company's Mexican operation. During the fourth quarter of 1994, the
Mexican government discontinued monetary support for the nuevo peso, allowing
it to float to market rates, which resulted in a devaluation of the nuevo peso
of approximately 124% between December 20, 1994 and December 30, 1995.
Approximately 97% ($23.5 million) of the Company's Mexican related net foreign
currency transaction losses during 1995 resulted from its U.S. dollar
denominated intercompany indebtedness. As previously discussed, the
Recapitalization eliminated the majority of the Company's United States dollar
intercompany debt, effectively reducing the Company's exposure to foreign
currency fluctuations.
Net Income (Loss). Net loss increased $0.9 million, to $(23.6) million in
1995 from $(22.7) million in 1994, primarily as a result of a increase in net
foreign currency transaction losses of $5.8 million related mainly to the
continued devaluation of the Mexican nuevo peso during 1995 and to an increase
in interest expense of $24.7 million due to a higher average amount of
indebtedness outstanding in
36
1995 associated with the Chicopee Acquisition. Increasing the Company's net
loss in 1995 was a high effective tax rate resulting from foreign losses,
which did not give rise to a corresponding tax benefit. Net loss was reduced
during 1995 as a result of increased net sales of $272.3 million and increased
gross profit of $67.7 million, each attributable primarily to the Chicopee
Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. At December 28, 1996, the Company had $36.1 million of
cash, compared to $11.6 million during 1995, an increase of $24.5 million.
This increase arose principally from a higher level of operating income in
1996 and lower interest costs due to a lower average amount of indebtedness
outstanding in 1996. The Company's working capital increased $31.6 million, or
51.3%, from $61.6 million in 1995 to $93.2 million in 1996, primarily as a
result of increases in accounts receivable and inventories offset by increased
accounts payable and accrued expenses. Cash and equivalents and marketable
securities were $48.5 million at December 28, 1996 as compared to $22.9
million at December 30, 1995, a net increase of $25.6 million.
During the six months ended June 28, 1997, the Company's operations
generated $16.3 million of cash. The Company's working capital (excluding
current portion of long-term debt) increased $12.3 million from $112.7 million
at December 28, 1996 to approximately $125.0 million at June 28, 1997. Cash
and equivalents and marketable securities were $44.5 million at June 28, 1997
as compared to $48.5 million at December 28, 1996, a net decrease of
approximately $4.0 million.
Investing and Financing Activities. On May 15, 1996, the Company completed
the Initial Public Offering, in which it offered and sold 11.5 million shares
of common stock at an offering price of $18.00 per share. Net proceeds to the
Company after underwriting fees and related costs were $190.8 million. As part
of the Initial Public Offering, the Company (i) effectively repaid all
outstanding indebtedness under the existing credit facilities and terminated
the facilities, (ii) redeemed $50.0 million principal amount of the Senior
Notes at a premium of 112.25%, (iii) redeemed the preferred stock of Chicopee
at a price equal to $1,000 per share plus accrued but unpaid dividends for
$46.9 million, (iv) redeemed the preferred stock of the Company at a price
equal to $1,000 per share plus accrued but unpaid dividends for $10.5 million,
and (v) entered into the Old Credit Facility, which consisted of a $200.0
million term loan and a $125.0 million revolving credit facility. In order to
enter into the Old Credit Facility, the Company was required to obtain the
consents of holders of a majority of the outstanding principal amount of the
Senior Notes. Pursuant to a consent solicitation statement dated March 14,
1996, the Company solicited and received the required consents, and,
accordingly, the Company and the trustee executed a Third Supplemental
Indenture dated as of April 9, 1996 that became effective concurrently with
the Initial Public Offering. The Third Supplemental Indenture allowed the
Company to enter into the Old Credit Facility.
Unused commitments under the revolving portion of the Old Credit Facility
approximated $23.8 million at June 28, 1997. The ratio of debt to total
capital was 66.2% at June 28, 1997, compared to 66.1% at year-end 1996. As a
result of the consummation of the Refinancing, the Company now has commitments
of up to $325.0 million under the Amended Credit Facility, which may be drawn
from time to time on a revolving basis. The Company would have had
approximately $29.0 million borrowed under the Amended Credit Facility,
assuming the Refinancing was completed on June 28, 1997. The Company's annual
requirements relating to interest and rental expense are approximately $38.0
million and $2.0 million, respectively.
On August 14, 1996, a wholly-owned subsidiary of the Company completed the
acquisition of the business of FNA and its parent, PNA, for $48.0 million in a
transaction accounted for under the purchase method. FNA produces
polypropylene fabrics for the nonwovens industry utilizing spunbond and
spunbond/ meltblown/spunblown technologies. FNA competes primarily in three
markets: hygienic
37
markets, including adult incontinence products and feminine hygiene products;
disposable products, including landscape and agricultural applications; and
durable products, including products for home furnishings.
The Company maintains a comprehensive capital expenditure program and
continuously evaluates strategic acquisition opportunities to expand its
existing production capacity or enhance production technologies. Capital
programs which are currently in process as well as those which were completed
in 1996 are consistent with the Company's criteria for capital expenditures
which include projects to debottleneck or expand the highest growth
technologies such as spunbond, spunlace and apertured films. Capital spending
in 1996 approximated $26.7 million. Capital expenditures for the first six
months of 1997 totaled $27.5 million, an increase of approximately $16.5
million over the comparable period of 1996, due primarily to expansion of
adhesive bond and Reticulon(R) capacity, and a new 4.2 meter wide SMS line at
the Company's Mooresville, North Carolina plant site. Total capital outlays
for the new SMS line are expected to approximate $25.0 million, with
commercial start-up expected to begin in the fourth quarter of 1997. The new
line will have the capabilities of producing polyester nonwoven fabric as well
as polypropylene and other polymer-based fabric. Other anticipated uses
include industrial and specialty applications made possible by the multi-
polymer capability of the new lines. The Company anticipates that aggregate
capital expenditures for the year ending
January 3, 1998 will approximate $63.3 million. Approximately $23.0 million of
the Company's 1997 capital budget is allocated to sustaining capital
expenditures.
The Company believes that based on current levels of operations and
anticipated growth, its cash from operations, together with other available
sources of liquidity, including but not limited to, borrowings under the
Amended Credit Facility, will be adequate over the next several years to make
required debt payments, including interest thereon, permit anticipated capital
expenditures and fund the Company's working capital requirements.
In connection with the Chicopee Acquisition, management of the Company
adopted a plan to relocate manufacturing equipment, corporate offices and
certain equipment used in Chicopee's North American research and development
activities to other sites within the United States. Accordingly, the Company
provided for accrued restructuring costs of approximately $17.9 million in
connection with the allocation of the purchase price to the fair value of
assets acquired and liabilities assumed. During 1996 and 1995, the Company
charged approximately $3.5 million and $2.4 million, respectively, against the
accrued restructuring reserve. In 1996, the charges against the restructuring
reserve related primarily to: (i) the relocation of assets, including
equipment used in production and research and development related activities
($2.5 million); (ii) the relocation of the acquiree's corporate headquarters
($0.8 million); and (iii) other miscellaneous costs within the provisions of
the restructuring plan ($0.2 million). At December 28, 1996, the Company's
total accrued restructuring costs associated with the plan approximated $12.0
million. Management currently estimates that approximately $10.0 million of
the total accrued restructuring costs will be incurred during 1997; therefore,
this portion of the total accrual has been recognized as a current liability
in the consolidated balance sheet at December 28, 1996.
Effect of Inflation. Inflation generally affects the Company by increasing
the cost of labor, equipment and new materials. The Company does not believe
that inflation has had any material effect on the Company's results of
operations. See "Foreign Currency" below.
Foreign Currency. The Company manufactures certain of its products in
Germany, Canada, Mexico and the Netherlands. The Company accounts for and
reports translation of foreign currency transactions and foreign currency
financial statements in accordance with FAS 52. For all periods through
December 28, 1996, the foreign entities have used the local currency as the
functional currency and translated assets and liabilities at period-end
exchange rates and income and expense accounts at the average exchange rates
prevailing during the period. The non-cash adjustment
38
resulting from translation of financial statements is recorded in a separate
component of shareholders' equity. Prior to the translation of financial
statements, the foreign entities adjust assets and liabilities which are to be
settled in a currency other than the functional currency to the functional
currency using period-end exchange rates.
Since the Company's substantial foreign operations expose it to the risk of
exchange rate fluctuations, if foreign currency denominated revenues are
greater than costs, the translation of foreign currency denominated costs and
revenues into dollars will improve profitability when the foreign currency
strengthens against the dollar and will reduce profitability when the foreign
currency weakens. In addition, the remeasurements of foreign currency
denominated assets and liabilities into dollars gives rise to foreign exchange
gains and losses which are included in the determination of net income. The
company does not currently participate in hedging transactions related to
foreign currency; however, the Initial Public Offering and related debt
refinancing eliminated the majority of the Company's U.S. dollar denominated
intercompany debt, effectively reducing the Company's exposure to foreign
currency fluctuations.
Effective December 29, 1996, the Company changed the functional currency for
its Mexican subsidiary from the nuevo peso to the U.S. dollar due to economic
facts and circumstances including: (i) the cumulative inflation index in
Mexico has been approximately 100% over a three year period ending December
28, 1996; (ii) an increase in the volume of transactions denominated in
dollars, including dollar-indexed transactions; and (iii) the cash flows of
the Company's Mexican subsidiary are directly affected since a substantial
portion of transactions are dollar denominated or dollar-indexed. Over 50% of
product shipments from the Company's Mexican subsidiary during 1996 were
either dollar denominated or dollar-indexed transactions. Since a significant
portion of transactions are dollar related, inflationary increases has not had
a material effect on the Company's results of operations, as indicated in
"Effect of Inflation" above.
The U.S. dollar translated amounts of nonmonetary assets, primarily
property, plant and equipment and goodwill, at December 28, 1996 was the
accounting basis for those assets at December 29, 1996 and for subsequent
periods. Additionally, the Mexican-related cumulative translation adjustment
at December 28, 1996 accumulated in shareholders' equity prior to this change
in functional currency remains a separate component of shareholders' equity.
Derivatives. The Company does not use derivative financial instruments for
trading purposes. Such products are used only to manage well-defined interest
rate risks. Premiums paid for purchased interest rate cap agreements are
charged to interest expense over the rate cap period. On May 16, 1996 and in
connection with the Initial Public Offering and Recapitalization, the Company
entered into a London Interbank Offered Rate ("LIBOR")-based interest rate cap
agreement. The agreement period extends through March 30, 1999, subject to
adjustment, and provides for a notional amount of $100.0 million which
declines ratably over the rate cap term. If the rate cap exceeds 9% on each
quarterly reset date, as defined in the agreement, the Company shall be due an
amount by which the rate cap exceeds 9%. Over the term of the agreement in
1996, the rate cap did not exceed 9%.
New Accounting Standards. On December 30, 1995, the Company adopted the
provisions of Financial Accounting Standards Board ("FASB") Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" ("FAS 121"), which requires impairment losses to be
recorded on long-lived assets used in operations when indicators are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The effect of adoption did not have a
material impact on the Company's results of operations during 1996. In
connection with the Initial Public Offering, the Company adopted the
provisions of FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 establishes financial accounting and
reporting standards for stock-based compensation plans. In February 1997,
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("FAS 128"), was issued. FAS 128 is designed to improve the earnings per share
information provided
39
in financial statements by simplifying the existing computational guidelines,
revising the disclosure requirements, and increasing the comparability of
earnings per share data on an international basis. FAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. Earlier application is not permitted. The Company
will adopt FAS 128 on its effective date. The Company does not currently
anticipate that the effect of adoption will have a material impact upon its
current earnings per share computation.
Environmental. The Company is subject to a broad range of federal, foreign,
state and local laws and regulations relating to the pollution and protection
of the environment. Among the many environmental requirements applicable to
the Company are laws relating to air emission, wastewater discharges and the
handling, disposal and release of solid and hazardous substances and wastes.
Based on continuing internal review and advice from independent consultants,
the Company believes that it is currently in substantial compliance with
environmental requirements. The Company is also subject to laws, such as the
Federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"), that may impose liability retroactively and without fault
for releases of hazardous substances at on-site or off-site locations. The
Company is not aware of any releases for which it may be liable under CERCLA
or any analogous provision. As a result, the Company does not currently
anticipate any material adverse effect on its operations, financial condition
or competitive position as a result of its efforts to comply with
environmental requirements. Some risk of environmental liability is inherent,
however, in the nature of the Company's business, and there can be no
assurance that material environmental liabilities will not arise.
40
BUSINESS
GENERAL
The Company is a leading worldwide manufacturer and marketer of a broad
range of nonwoven and woven polyolefin products. The Company's principal lines
of business include medical, reusable wiping, hygiene, and industrial and
specialty products. The Company believes that it is the fourth largest
producer of nonwovens in the world and that it employs the most extensive
range of nonwoven technologies of any nonwovens producer, which allows it to
supply products tailored to customers' needs at a competitive cost. Nonwovens
are flat, flexible porous sheets produced by interlocking fibers or filaments
or by perforating films. Nonwovens provide certain qualities similar to those
of textiles at a significantly lower cost. The Company also believes that it
is the largest producer of woven polyethylene fabrics in North America. Woven
polyethylene fabrics are flat, flexible structures produced by weaving narrow
tapes of slit film and are characterized by high strength-to-weight ratios.
For the year ended December 28, 1996, the Company had pro forma net sales of
$540.4 million and pro forma EBITDA of $105.7 million. From 1993 through 1996
on a pro forma basis, the Company's compound annual growth rates for net sales
and EBITDA were 64.5% and 87.3%, respectively.
The Company supplies nonwovens to a number of the largest consumer products
manufacturers in the world and specifically targets market niches with high
value-added products. The Company has a global presence with an established
customer base in the three major developed markets of North America, Europe
and Japan, as well as developing markets such as Latin America. The Company's
products are sold principally to converters that manufacture a wide range of
end-use products, such as hospital surgical gowns and drapes, wound care
sponges, multi-use wiping cloths and towels, flexible industrial packaging,
filtration media, battery separators, diapers, feminine hygiene products and
automotive insulation products. The Company supplies nonwovens to customers
such as Johnson & Johnson for healthcare products, including operating room
gowns, Procter & Gamble for Pampers(R) and Luvs(R) diapers and Confab, Inc.
for private label diapers.
The Company is a leader in nonwoven process technology. The Company operates
thirteen manufacturing facilities located in five countries and is currently
the only nonwovens producer that utilizes all of the established nonwoven
process technologies. The Company recently successfully introduced the new,
proprietary APEX(R) technology, which is a surface-forming technology capable
of producing nonwoven fabrics with intricate, three-dimensional patterns and
the potential to replace traditional woven textiles at a lower cost. The
Company believes that the quality of its manufacturing operations and the
breadth of its nonwovens process technologies give it a competitive advantage
in meeting the current and future needs of its customers and in leading the
development of an expanded range of applications for nonwovens. The Company
continues to make significant investments in advanced technology in order to
increase capacity, improve quality and develop new low-cost, high-value
structures. For example, the Company recently invested in a SMS line that the
Company believes is one of the most advanced in the world, which allows the
Company to produce highly uniform structures with less material than other SMS
lines. The Company believes that this technological advantage gives it the
capability to design and manufacture products with optimal cost and
functionality. Working as a developmental partner with its major customers,
the Company utilizes its technologies to develop and manufacture new products
to meet their needs.
Management has built the Company through a series of strategic business
acquisitions that have broadened the Company's technology base and increased
its product lines. The Company's strategic acquisitions have helped it to
establish strong positions in both the nonwoven and woven polyolefin fabric
markets. Synergies realized through these acquisitions have enabled the
Company to better meet the needs of existing customers, to reach emerging
geographic markets and to exploit niche
41
market opportunities through customer-interactive specialty product
development. For example, technological developments at the Company's
Landisville, New Jersey facility, such as improvements in the meltblown
process, continuous spreading and comprehensive process automation, have been
integral to capacity increases and the implementation of new production lines
in Europe and Mexico. Similarly, the success and underlying technology of the
Company's state-of-the-art 4.2 meter SMS line in San Luis Potosi, Mexico has
led to the implementation of a second line installation at its Mooresville,
North Carolina plant site.
The Company's objectives are to continue to expand its core business while
building new capabilities to capitalize on both a broad range of new, high
value-added niche product opportunities and expanded geographic markets. In
addition to growth in its core businesses, the Company expects growth to come
from the application of several new technologies, including (i) the APEX(R)
nonwovens process technology, and (ii) Metal-Set(R), a new polymer technology
developed in conjunction with the Los Alamos National Scientific Research
Laboratories ("LANL") and designed to recover heavy metals, which can then be
recycled and sold, from contaminated solutions such as hazardous waste sites.
The Company expects to accomplish these objectives by relying on its principal
strengths, which include technological leadership, state-of-the-art
manufacturing capabilities, significant market share in its primary markets,
an experienced and committed management team and key customer relationships.
The Company seeks to utilize these strengths by following a strategy based on
(i) strategic acquisitions, (ii) continuous improvement aimed at increasing
product value and reducing costs, (iii) development of high value-added niche
products, (iv) entrance into new markets with existing products and (v)
expansion of capacity through capital projects.
INDUSTRY OVERVIEW
The Company competes primarily in the worldwide market for nonwovens, which
is approximately a $6.6 billion market, according to industry sources. The
nonwovens industry began in the 1950s when paper, textile and chemical
technologies were combined to produce new fabrics and products with the
attributes of textiles but at a significantly lower cost. Today, nonwovens are
used in a wide variety of consumer, industrial and healthcare products as a
result of their superior functionality and relatively low cost.
The nonwovens industry has benefitted from substantial improvements in
technology over the past several years, which have increased the number of new
applications for nonwovens, and therefore increased demand. The Company
believes, based on industry sources, that demand in the developed markets will
increase 4-5% in each of the next five years, while the emerging markets are
forecasted to grow at a rate of 10-13% per annum. In the developed markets,
growth will be driven primarily by new applications for nonwovens, while
growth in the emerging markets will be volume driven as these countries see
the emergence of a middle class of consumers. According to industry sources,
worldwide consumption of nonwovens increased an average of 9% per annum from
1988 through 1994. The Company also believes that future growth will depend
upon the continuation of improvements in raw materials and technology, which
should result in the development of high-performance nonwovens, leading to new
uses and markets at a lower cost than alternative materials.
Nonwovens are categorized as either disposable (85% of worldwide industry
sales of 1995 yardage according to industry sources), which is the category in
which the Company primarily competes, or durable (15% of worldwide industry
sales in 1995 yardage according to industry sources). The largest end uses for
disposable nonwovens are for hygiene applications, including diapers, feminine
sanitary protection, baby wipes and adult incontinence products, and
healthcare applications, including surgical gowns and drapes and woundcare
sponges and dressings. Other disposable end uses include reusable wipes,
filtration media, protective apparel and fabric softener sheets. Durable end
uses include apparel interlinings, furniture and bedding construction
sheeting, automotive components, geotextiles, roofing membranes, carpet
backing, agricultural fabrics, durable papers and coated and laminated
structures for wallcoverings, upholstery, shoes and luggage.
42
The Company also competes in the North American market for coated woven
polyolefin products. Woven polyolefin fabrics are flat, flexible structures
produced by weaving narrow tapes of slit film and are characterized by high
strength-to-weight ratios. While the broad uncoated woven polyolefin market is
primarily focused on carpet backing fabric and, to a lesser extent,
geotextiles and bags, the markets in which the Company primarily competes are
made up of a large number of specialized products manufactured for niche
applications. These markets include demanding industrial packaging
applications such as lumberwrap, steel wrap and fiberglass packaging, as well
as high-strength protective coverings and specialized components that are
integrated into a variety of industrial and consumer products.
COMPETITIVE STRENGTHS
The Company believes that it has a strong competitive position attributable
to a number of factors, including the following:
Technological Leadership. The Company believes it is a technological
leader in developing and manufacturing nonwoven and woven polyolefin
products. The Company is currently the only nonwovens producer that
utilizes all of the established nonwoven process technologies and has
recently introduced the new, proprietary APEX(R) technology. The expertise
of the Company's research and development staff have enabled the Company to
develop innovative products, frequently in response to specific customer
needs. The Company's research and development efforts have been focused on
increasing its production capacity and improving its production processes,
developing products based on the Company's existing technologies for new
markets, and developing new process technologies to enhance existing
business and allow entry into new markets.
State-of-the-Art Manufacturing Capabilities. The Company believes that it
has state-of-the-art manufacturing capability in both its nonwoven and
woven product lines. As a result, the Company is one of the lowest cost
producers in the markets in which it participates. In recent years, the
Company has invested or committed to invest in excess of $70.0 million
(approximately $60.6 million of which had been spent as of June 28, 1997)
in capital improvements to increase capacity and has improved quality and
uniformity through the implementation of automated process technology. The
Company recently completed an expansion in Mexico with the installation of
a new 4.2 meter SMS line with unique and proprietary capabilities. The
Company is currently adding Reticulon(R) film and adhesive bond capacity to
meet demand in both the United States and Europe, and a new 4.2 meter SMS
line at its Mooresville, North Carolina facility. The Company has also
developed a proprietary method to produce an exceptionally lightweight
thermal bond fabric of superior uniformity, which allows the Company to
offer more cost-effective product performance.
Significant Market Share in Primary Markets. The Company has developed
significant market shares in its primary markets. For example, the Company
believes that it has a significant share of the noncaptive hygiene market
and the wipes market and that it is the leading North American manufacturer
of lumberwrap and woven uncoated fabric used for lamination to paper for
the steel wrap market. The Company also believes that it is the leading
North American supplier in both the manufactured housing bottom board and
fiberglass packaging markets. The Company believes it has been able to
obtain these market shares as a result of its commitment to, and reputation
for, innovation and quality.
Experienced and Committed Management Team. The Company's senior
management team has significant experience in the manufacturing and
marketing of polyolefin products, with an average of 12 years of experience
in this industry. Management's experience includes acquiring and employing
assets at a low cost and increasing the utilization of assets. Management
also has a successful track record of acquiring and improving complementary
businesses while integrating them into the Company's existing businesses.
Senior management currently owns approximately 18.3% of the common equity
of the Company.
43
Key Customer Relationships. The Company has successfully cultivated long-
term relationships with key customers, such as Johnson & Johnson and its
affiliates ("Johnson & Johnson") and The Procter & Gamble Company ("Procter
& Gamble"), who are market leaders in their industries. The Company
currently works closely as a developmental partner of Procter & Gamble,
focusing resources and working together to develop advanced components for
next generation diapers. The Company has also negotiated a favorable, long-
term supply agreement with Johnson & Johnson, under which it is the
exclusive provider of nonwoven fabric requirements for Johnson & Johnson.
Similarly, the Company enjoys an exclusive, long-term supply contract with
Bulldog Bag Ltd. for its woven fabrics product line. The Company's success
in developing and strengthening its relationships with these and other key
customers is attributable to its commitment to product quality, dedication
to customer technical service and ability to develop innovative
applications for existing products.
By focusing on the Company's competitive strengths, the Company's management
team has positioned the Company to address the current and future needs of the
nonwovens and wovens markets by providing high value, low cost products to
converters and end-use customers in specialty niche application markets on a
global basis.
BUSINESS STRATEGY
The Company's goals are to continue to grow its core businesses while
developing new technologies to capitalize on a broad range of new high-margin
niche product opportunities and expanded geographic markets. The Company
intends to be the leading supplier in its chosen markets by delivering high-
quality products and service at competitive prices. To achieve these goals,
the Company's primary strategy focuses on:
Strategic Acquisitions. The Company continuously evaluates opportunities
to make acquisitions which complement and expand its core businesses or
which have the potential to increase market share and distribution
capability in high-margin complementary products. The Company may seek to
vertically integrate operations where such expansion is economical and
supports the Company's core business without adversely impacting its
existing relationships. An example of this strategy is the Company's
acquisition in August 1996 of FNA, a significant producer of polypropylene
fabrics for the nonwovens industry. The acquisition of FNA's modern plant
facility, built in 1992 and expanded in 1994, strengthened the Company's
strategic position in the hygiene materials market and broadened its
offering of medical and agricultural products.
Continuous Improvement Aimed at Increasing Product Value and Reducing
Costs. The Company is committed to continuous improvements throughout its
business to increase product value and lower costs. The Company's product
design teams continuously seek to incorporate new materials and operating
capabilities that enhance or maintain performance specifications while
lowering the cost of raw materials used in the products. State-of-the-art
equipment, much of which has been developed internally and is proprietary
to the Company, has been designed and installed to continuously measure
process parameters and maintain very narrow tolerances, resulting in less
product variation. As a result, the Company's manufacturing processes
utilize less material and produce a higher quality fabric. In addition, the
Company maintains a human resource program aimed at capturing productivity
gains through team building, formal training and employee empowerment.
Development of High Value-Added Niche Products. The Company is committed
to investment in the development of products for high value-added niche
markets. One new offering is its Reticulon(R) brand apertured film, which
is used as a facing film on feminine hygiene products. The Company also
expects to commercialize in the near term additional medical gown and drape
technologies as well as new, high-margin wiping applications. Other new
developments include the proprietary APEX(R) technology, which is a
surface-forming technology capable of producing nonwoven fabrics with
intricate, three-dimensional patterns with the potential to replace woven
and
44
knit textiles at a lower cost. This next-generation technology is currently
in commercial production for Johnson & Johnson for medical applications
such as woven-like gauze and surgical lap-pads, and could be utilized in
the future in a variety of other applications, including automotive
headliners, home furnishings and filtration products.
Entrance into New Markets with Existing Products. The Company believes
that it has significant additional market opportunities for its existing
products. The Company is actively expanding its capabilities to take
advantage of the penetration and growth of its core products
internationally, particularly in developing countries. For example, the
Company has increased sales to Latin America, the Caribbean, New Zealand
and Australia. Over the past four years, the Company's sales from
manufacturing facilities outside the United States and export sales from
domestic manufacturing facilities have increased from approximately $28
million in 1993 to approximately $253 million in 1996. In addition, the
Company has expanded its technical marketing staff to pursue novel
applications of its current products with new segments of end users. For
example, the Company has developed a multimillion square meter market in
Europe for a new hygiene application by introducing a product and
technology primarily used as a wipe in North America.
Expansion of Capacity through Capital Projects. The Company continuously
evaluates opportunities to expand its existing production capacity or
enhance production technologies. The Company has invested or committed to
invest approximately $70.0 million in capital improvements (approximately
$60.6 million of which had been spent as of June 28, 1997) since 1992 to
either debottleneck existing assets or to add new capabilities and
capacity. The largest of these projects are the state-of-the-art SMS lines
at the San Luis Potosi, Mexico and Mooresville, North Carolina facilities.
The San Luis Potosi facility line began commercial production in the third
quarter of 1995, and now runs at full capacity. Total capital outlay for
the Mooresville facility line is expected to be approximately $25.0
million, with commercial startup expected to begin in the fourth quarter of
1997. Other significant projects include FASE II(TM) uniformity technology,
which has increased line speed and improved product fiber distribution on
thermal bond lines, and capacity expansions in the Company's Reticulon(R)
film and adhesive bond process technologies for hygiene, both of which are
scheduled for commercial start-up by the end of the third quarter of 1997.
The Company's woven polyolefin business has completed a series of
expansions and debottlenecking projects since 1990, which have cumulatively
increased capacity by 61%. The expansions include facilities in Portland,
Oregon and Vancouver, British Columbia, which primarily supply the
Northwest lumber industry with coated and printed lumberwrap.
Through the implementation of its business strategy, management has
achieved an increase in gross margins from 21.9% in 1994 to 25.5% in 1996, and
an increase in EBITDA from $23.9 million in 1994 to $105.7 million in 1996, in
each case on a pro forma basis. At the same time, the Company has continued to
develop new, proprietary product technologies and to expand its state-of-the-
art manufacturing facilities in the United States and Mexico.
PRODUCTS
The Company develops, manufactures and sells a broad array of nonwovens,
woven polyolefin products, conulated/apertured (perforated) films, laminated
composite structures, converted wipes and sorbent products. Sales are focused
in four general product categories that provide opportunities to leverage the
Company's advanced technology and substantial capacity. These product
categories include medical, reusable wiping, hygiene, and industrial and
specialty products.
Marketing and research and development teams are committed to constant
product innovation in conjunction with, or at the request of, the Company's
customers. Close long-term relationships with end-use customers have been a
significant factor in the Company's success by enabling the Company
45
to better understand its customers' needs. In addition, the research and
development teams seek to develop high value-added specialty products using
existing assets in order to leverage the Company's capabilities to produce
high-margin products.
Industrial and Specialty Products
The industrial and specialty products category represented approximately
21%, 22% and 19%, or $112.4 million, $94.1 million and $31.8 million, of the
Company's 1996 pro forma net sales, 1995 net sales and 1994 net sales,
respectively. Demand for this product category is distributed among hundreds
of end-use applications. Some typical end uses include filtration media, home
furnishings, apparel interlinings, automotive insulation and interior fabrics,
agricultural fabrics, battery separators, fabric softener sheets, protective
coverings and flexible industrial packaging. The Company's strength in
engineering and extensive range of process technologies are well-suited to
meet the specialized functionality requirements in this category. Customers
typically have very specific performance and quality requirements that demand
efficient design and process conditions, both of which are strategic strengths
of the Company.
The Company produces a broad range of industrial and specialty products,
including alkaline battery separators, electronic clean room wipes,
manufactured housing bottom board fabric (used to enclose the underside of a
manufactured home), home furnishing dust covers and mattress pads, window
coverings, fabric softener sheets, protective apparel and specialized
protective coverings such as golf green covers, pool covers, salt pile covers,
landfill covers and athletic field covers. The Company also produces a variety
of flexible packaging products utilizing coated and uncoated woven polyolefin
fabrics, such as Arbrene(R) and Lumber Guard(R) lumberwrap, which are used to
cover high-quality kiln dried lumber for shipping and storage, fiberglass
packaging tubes, which hold batts of insulation under compression for
efficient storage and shipping, balewrap for synthetic and cotton fibers,
steel and aluminum wrap, which are used to cover mill rolls, and coated woven
bags for animal feed, specialty chemicals and mineral fibers. The Company is a
leading supplier of several of these products, including wetlaid alkaline
battery separators, woven lumberwrap, fiberglass packaging and bottom board
fabric.
The Company also produces a variety of specialized niche products that
further augment the array of end use applications within this product
category. The Company expects that the majority of its long-term growth will
come in the industrial and specialty products category. The Company's current
primary industrial and specialty products and applications are summarized
below:
Product Application
Microporous rollgoods Alkaline battery separators
Kiara(R) Liquid filtration
Key Bak(R) Automotive insulation
Arbrene(R) and Lumber Guard(R) Lumberwrap
Airgard(R) Housewrap
Fab-Strip(TM) Corrugated box reinforcement
Fabrene(TM) Protective coverings and laminated
structures
Agricultural fabric Crop covers
Dust cover Furniture and bedding
The Company's industrial and specialty products are produced primarily using
wetlaid, adhesive bond, through-air fusible fiber bond, spun bond, woven
polyolefin and lamination technologies. Specialized converting facilities
operated by the Company include a wide-width paper/nonwoven/film laminating
and printing facility in Portland, Oregon and a thermal and ultrasonic bonding
facility in Vineland, New Jersey. The Company sells its industrial products
primarily to converter/distributors, except for battery separators, fiberglass
packaging and lumberwrap in the U.S. Pacific Northwest, which are sold by the
Company's own sales team.
46
Wiping Products
The wiping products category represented approximately 19% and 17%, or
$100.0 million and $73.0 million, of the Company's 1996 pro forma net sales
and 1995 net sales. The Company has a complete line of wiping products used
for food service, institutional, light industrial, janitorial and consumer
markets. In 1995, approximately 13%, or 2.0 billion square yards, of North
American nonwovens roll goods capacity was used to produce wiping products.
Wiping products are categorized as either "premoistened/wet wipes" or "dry
wipes." The Company primarily participates in the "dry wipes" portion of the
market, which the Company believes to have greater potential for growth and
generally contains more value-added, specialty products. Within the "dry
wipes" category, the three general end-use products are food service wipes,
consumer household wipes and industrial and specialty wipes. The Company
maintains a significant market share in the food service category and is a
leading producer for the consumer and industrial categories. Industry sources
estimate that the North American volume growth for nonwovens used in
disposable wipes will be approximately 5% per annum through 2000.
Products within this category include branded and unbranded light to
heavyweight cloth wipes, towels and aprons marketed under the Chix(R), Chix
Plus(R), Chifonet(TM) and Lerette(TM) trademarks, medium to heavyweight open
weave towels marketed under the Fresh Guy(R) trademark and dry, pretreated,
water activated cleaning and sanitizing wipes for the food service industry,
marketed under the Quix(TM) trademark. Products for the industrial, janitorial
and institutional markets include light to heavy-duty towels and cloths sold
under a variety of trademarks including Worxwell(R), Durawipe(R), Masslinn(R)
and Stretch 'N Dust(R). Specialty wipes consist of products designed to meet
specialized customer requirements and specifications and include clean room
wipes used in the electronics, pharmaceutical and office equipment cleaning
industries, tack cloth used by automotive paint shops, and aerospace wipes for
solvent and sealant wiping, surface preparation and general purposes. The
Company produces multi-use kitchen wipes, including Colgate Palmolive's
Handiwipes(R) brand pursuant to a long-term supply agreement. The Company also
markets a line of catering products in Europe, including banquet rolls, table
napkins and table cloths. The Company's primary wiping products and
applications are summarized below:
Product Application Application
Chix(R) and Chix Plus(R) Food service
Fresh Guy(R) Heavyweight food service
Durawipe(R) Industrial
Quix(TM) Sanitizing/food service
Worxwell(R) Consumer and janitorial
Masslinn(R) Janitorial
Stretch 'N Dust(R) Janitorial
Duralace(R) Specialized, clean rooms
Chifonet(TM) Consumer--Europe
Lerette(TM) Food service--Europe
Napkins and tablecloths Catering--Europe
Handiwipes(R) and Heavywipes(R)/1/ Consumer
- --------
/1/Handiwipes(R) and Heavywipes(R) are registered trademarks of Colgate
Palmolive. The Company produces wipes exclusively for Colgate Palmolive under
a long-term supply agreement.
The Company utilizes primarily dry form resin bonded and spunlace
technologies to manufacture its wiping products and also maintains dedicated
converting and packaging equipment. In North America, the Company has a long-
term manufacturing and distribution agreement, which extends through 1998,
with Berkley Medical Resources Inc. ("BMR") in Fairfield, Pennsylvania to
convert, warehouse and distribute a wide range of wiping products. The
equipment used in the converting and
47
packaging operations is owned by the Company and operated solely for its
benefit. In Europe, the Company operates its own converting and packaging
equipment within the Cuijk manufacturing facility. The Company is a leading
manufacturer and marketer of wiping products as a result of its wide range of
products, wide distribution base of dealers and food service distributors and
reputation for excellent customer and technical support, including the ability
to meet specific customer requirements.
Medical Products
The medical products category represented approximately 17% and 17%, or
$94.0 million and $73.0 million, of the Company's 1996 pro forma net sales and
1995 net sales. The Company's medical products are used in the production of
wound care sponges and dressings, disposable surgical packs, apparel such as
operating room gowns, drapes for operating rooms and facemasks, shoecovers and
headwear. Medical applications represent the second largest market for
nonwoven fabrics, with almost two billion square yards consumed annually in
the United States. Approximately 40% of this demand is for disposable surgical
packs, drapes and gowns, a market in which Johnson & Johnson has a leading
share.
Johnson & Johnson is the Company's primary customer for medical products
pursuant to a long-term supply agreement dated March 15, 1995 (the "Supply
Agreement"). The Supply Agreement grants the Company the exclusive right to
supply Johnson & Johnson with all of its nonwoven fabric requirements,
including those for its entire line of medical products as well as for other
disposable hygiene and wiping applications, for a period of five years, and,
provided that the Company's prices remain competitive with the marketplace,
extends for a period of an additional five years. During the first five-year
period, of which approximately three years still remain, the Company enjoys
significantly favorable pricing terms. In addition, other preferential terms
continue throughout the duration of the contract. Johnson & Johnson accounted
for approximately 29% of the Company's 1996 net sales.
The Company believes, based on industry sources, that the North American
volume growth rate for nonwovens in medical applications will be approximately
2-4% per annum between 1995 and 2000, with much of the growth coming from the
expansion of traditional product lines. A 1992 ruling by the Occupational
Safety and Health Administration ("OSHA") required that employers of
healthcare workers supply personal protective equipment to employees at risk
of exposure to infectious body fluids. Industry sources expect that OSHA rules
will continue to stimulate demand for protective applications for workers,
including those in funeral homes, linen services and law enforcement agencies
in addition to healthcare workers.
Surgical gowns and drapes containing a protective barrier against fluid
strike-through are the largest and fastest growing applications for nonwoven
fabrics in the medical products category. The Company produces Duralace(R)
spunlace fabric for this product group and treats the surface of the fabric to
give it high fluid repellency required for this application. The sponge and
dressing products are produced using spunlace apertured technologies and the
Company's proprietary APEX(R) technology. A recently developed product using
the APEX(R) technology, Mirasorb(R)/1/, is a nonwoven sponge that can replace
woven gauze in some applications at considerably less cost. The Company's
primary medical products and applications are summarized below:
Product Application
Duralace(R) Surgical gowns and drapes
Mirasorb(R) Sponges
Nugauze(R) Nonwoven gauze
- --------
/1/Mirasorb(R) and Nugauze(R) are trademarks of Johnson & Johnson. The Company
furnishes Johnson & Johnson with products used in the manufacture of these
products.
48
Hygiene Products
The hygiene products category represented approximately 43%, 45% and 81%, or
$234.0 million, $197.6 million and $133.5 million, of the Company's 1996 pro
forma net sales, 1995 net sales, and 1994 net sales, respectively. The Company
produces a variety of nonwoven fabrics and films for use in the production of
diapers, training pants, feminine sanitary protection, baby wet wipes and
adult incontinence products. Today, the Company's customers annually consume
over two billion square yards of nonwoven fabrics for hygiene products. The
Company believes that it has a significant share of the noncaptive North
American topsheet market. Industry sources estimate that the global growth
rate for SMS and spunbond nonwovens in hygiene applications will average 8%
through 2000, primarily due to an increase in the amount of nonwoven fabric
per diaper, increased unit demand from developing countries and the rise in
use of adult incontinence products. Volume growth for nonwovens for use in
hygiene in North America is expected to be 5-6% annually through 2000.
Recent innovations by the Company have broadened its product offering and
provided customers with a full range of specialized components for unique or
distinctive products. Such recent innovations include the Isolite(TM)
topsheet, Multi-Strike(TM) transfer layer, Soft Touch(TM) backsheet fabric,
Dry-Fit(TM) leg cuff fabric, Reticulon(R) sanitary protection facings,
absorbent pads for the Serenity(R)/1/ incontinence guard and Carefree(R)/1/
panty shield and Ensorb(TM) absorbent cores. The Company produces a spunlace
"wet wipe" product for baby wipe applications in Europe for Johnson & Johnson.
This product fills the gap between standard nonwoven wipes and a quality cloth
wipe and has improved thickness and softness over standard airlaid pulp
products. The Company is the only supplier capable of providing all of the
thermal bond, adhesive bond, spunbond, SMS, coextruded apertured films,
through-air bond, spunlace and ultrasonic bond technologies which are required
in the manufacture of these products. The Company's primary hygiene products
and applications are summarized below:
Product Application
Isolite(TM) Coverstock
Multi-Strike(TM) Transfer sublayer
Soft Touch(TM) Clothlike backsheet
Dry-Fit(TM) Leg cuff for diapers
Reticulon(R) Sanitary protection facing
Ensorb(R) Absorbent cores
Novaspun Topsheets
Baby wipes Consumer--Europe
- --------
/1/Serenity(R) and Carefree(R) are Johnson & Johnson trademarks. The Company
furnishes Johnson & Johnson with products used in the manufacture of these
products.
The Company has a significant relationship with Procter & Gamble and
supplies a full range of products to Procter & Gamble on a global basis.
Approximately 14% of the Company's 1996 net sales were related to Procter &
Gamble products. Procter & Gamble and the Company's marketing and research and
development teams work closely as partners in the development of next
generation products. The Company believes that this technical support ensures
that the Company's products will continue to be incorporated into Procter &
Gamble's product designs in the future. The Company also has significant
relationships with private-label producers of diaper products, including
Confab, First Quality Products Inc. and several leading producers in Latin
America, including Absormex. The Company is also the primary supplier to
Johnson & Johnson Personal Products for its nonwoven requirements for sanitary
protection, tampon and adult incontinence products.
NEW PRODUCT DEVELOPMENT
The Company continually develops new products that incorporate the Company's
wide variety of technologies. The Company's research and development efforts
have been focused on increasing its production capacity and improving its
production processes, developing products based on the
49
Company's existing technologies for new markets and developing new process
technologies to enhance existing businesses and allow entry into new
businesses. The expertise of the Company's research and development staff, who
work closely with manufacturing and marketing personnel, has enabled the
Company to develop innovative products, frequently in response to specific
customer needs. In addition, the Company frequently enters into collaborative
partnerships with its customers to develop and manufacture next-generation
products in response to its customers' changing needs. The Company believes
that these developmental partnerships enhance customer relationships by
ensuring that the Company's products will continue to be incorporated into its
customers' future products. The Company also utilizes in-plant pilot lines
that are installed in its manufacturing facilities in order to develop new
products under real manufacturing conditions prior to commercialization. The
Company currently has several projects in advanced stages of development that
it believes will present the potential for substantial growth.
APEX(R), a new surface-forming technology marketed under the name
MIRATEC(R), has the potential to displace traditional woven textile, knitted
and composite products in many applications because of its favorable price to
value ratio. APEX(R) technology uses advanced nonwoven structural web process
technology to produce low-cost textile replacement fabrics with intricate,
three-dimensional patterns. This technology, which can be applied to most
sheet structures, enhances the Company's ability to gain competitive
advantages by increasing manufacturing efficiency and product differentiation.
Pursuant to an agreement with Johnson & Johnson, products for hygiene and
healthcare applications that are manufactured utilizing the APEX(R) technology
may only be sold to Johnson & Johnson. In all other markets, such as
automotive headliners, home furnishings and filtration products, the Company
may manufacture and freely market products utilizing the APEX(R) technology.
The Company is at the forefront in the use of new generation resins, which
have the potential to produce stronger and thinner fabrics with advanced
performance characteristics such as elasticity, microporosity and surface
adhesion. The Company believes that its state-of-the-art equipment and
manufacturing processes will provide it with the flexibility to process these
advanced resins and allow it to be a leader in the introduction of these
materials for traditional as well as new end uses.
The Company has agreed in collaboration with LANL to develop and
commercialize specific applications of polymer filtration/metal separations in
aqueous, solid and vapor-phase matrices, which permit removal and recovery of
specific metal ions based on sophisticated polymer chemistry. Initial polymer
filtration techniques relate to the removal and recovery of metal ions from
electroplating and metal finishing process waste streams. Additional polymer
filtration/metal separations applications are being identified by the Company
and LANL for commercialization. These techniques have potential applications
in commercial and large-scale waste site cleanup and disposal. The Company
currently markets this product under the Metal-Set(R) brand name.
MARKETING AND SALES
The Company sells to over 1,000 customers in the domestic and international
marketplace. Approximately 60%, 21%, 11% and 8% of the Company's 1996 net
sales were to entities from manufacturing facilities in the United States,
Europe, Canada and Mexico, respectively. Johnson & Johnson, the Company's
largest customer, accounted for approximately 29% of the Company's 1996 net
sales, while sales to Procter & Gamble accounted for approximately 14% of the
Company's net sales for the same period. Sales to the Company's top 20
customers represented approximately 63% of the Company's total 1996 net sales.
The Company sells primarily to manufacturers and converters, which
incorporate the Company's products into their finished goods. The Company
employs direct sales representatives, a number of whom are engineers and each
of whom has advanced technical knowledge of the Company's products and the
applications for which they are used. The Company's sales representatives are
active in the Company's new product development efforts and are strategically
located in the major geographic
50
regions in which the Company's products are utilized. The woven polyolefin
products are sold primarily through a well-established network of converters,
most of whom have been doing business with the Company for more than 16 years.
Converters add incremental value to the Company's products and service the
small order size requirements typical of many end users.
In certain new high-margin niche markets, the Company has maintained control
over distribution by dealing directly with the end-use customer through its
sales representatives. The Company offers a broad range of high-quality
products, utilizing multiple technologies and materials, allowing its sales
force to offer customers what the Company believes is the widest range and
variety of nonwoven and woven polyolefin products available to meet customers'
requirements from a single source. The Company has utilized its broadened
product base to market its products in high-value niche product areas.
MANUFACTURING PROCESSES
General. The Company's competitive strengths include low-cost, high-quality
manufacturing processes and a broad range of process technologies, which allow
the Company to offer its customers the best-suited product for each respective
application. Additionally, the Company has made significant capital
investments in modern technology and has developed proprietary equipment and
manufacturing techniques. The Company believes that it exceeds industry
standards in productivity, reduction of variability and delivery lead time.
The Company has a wide range of manufacturing capabilities (many of which are
patented) that allow it to produce specialized products which, in certain
cases, cannot be reproduced in the market. Substantially all of the Company's
manufacturing sites have plant-wide real time control and monitoring systems
that constantly monitor key process variables using a sophisticated closed
loop system of computers, sensors and custom software.
Nonwovens. The Company believes that it has the most comprehensive array of
nonwoven manufacturing technologies in the industry. The Company has
capabilities spanning the entire spectrum of nonwoven technologies, including
the following manufacturing processes: spunbond, SMS, thermal and adhesive
bond, spunlace, wet-laid, film extrusion and aperturing, through-air bond,
ultrasonic bond and tenters, which is a finishing process.
Nonwoven rollgoods typically have three process steps: web formation, web
consolidation or bonding and finishing. Web formation is the process by which
previously prepared fibers, filaments or films are arranged into loosely held
networks called webs, batts or sheets. In each process, the fiber material is
laid onto a forming or conveying surface, which may be dry, wet or molten. The
dry-laid process utilizes textile fiber processing equipment, called "cards,"
that have been specifically designed for high-capacity nonwoven production.
The carding process converts bales of entangled fibers into uniform oriented
webs that then feed into the bonding process. The wet-laid process utilizes
papermaking technology in which the fibers are suspended in a water slurry and
deposited onto a moving screen, allowing the water to pass through and the
fibers to collect. In a molten polymer-laid process, extrusion technology is
used to transform polymer pellets into filaments, which are laid on a
conveying screen and interlocked by thermal fusion. In this process, the fiber
formation, web formation and web consolidation are generally performed as a
continuous simultaneous operation, making this method very efficient.
Web consolidation is the process by which the fibers or film are bonded
together using either mechanical, thermal, chemical or solvent means. The
bonding method greatly influences the end products' strength, softness, loft
and utility. The principal bonding processes are thermal bond, resin or
adhesive bond, hydroentanglement or spunlace, binder fiber or through-air
bond, calender, spunbond, meltblown, SMS, ultrasonic bond and needlepunch.
Thermal bond utilizes heated calender rolls with embossed patterns to point
bond or fuse the fibers together. In the resin bond process, an adhesive,
typically latex, is pad rolled onto the web to achieve a bond. Spunlace, or
51
hydroentanglement, uses high pressure water jets to mechanically entangle the
fibers. Through-air bonding takes place through the fusion of bi-component
fibers in a blown hot air drum. Spunbond and meltblown take advantage of the
melt properties of the resins and may use thermal fusion with the aid of
calender rolls. SMS is the integrated process of combining spunbond and
meltblown sheets in a laminated structure, creating very strong, lightweight
and uniform fabrics. Ultrasonic bonding utilizes high-frequency sound waves
that heat the bonding sites. Needlepunch is a mechanical process in which beds
of needles are punched through the web, entangling the fibers.
Finishing, or post-treatment, adds value and functionality to the product
and typically includes surface treatments for fluid repellency, aperturing,
embossing, laminating, printing and slitting. Spunlace and resin bond systems
also have a post-treatment drying or curing step. Certain products also go
through an aperturing process in which holes are opened in the fabric,
improving absorbency.
Films and Wovens. The woven/film process begins with plastic resin, which is
extruded into a thin plastic film. The film is slit into narrow tapes and
stretched or "oriented," the process through which it derives its high
strength. The tapes are wound onto spools which feed weaving machines. In the
final step, the product is coated for water or chemical resistance,
ultraviolet stabilization and protection, flame retardancy, color and other
specialized characteristics. The Company operates 160-inch and 80-inch coating
lines that have been equipped with the latest technology for gauge control,
print treating, lamination, anti-slip finishes and perforation. The 160-inch
line is one of only two lines of that size in North America. At its Portland,
Oregon facility, the Company extrudes specialized films which are used to
laminate the woven product to paper and has the additional capability of
printing up to four colors on one of the widest printing presses in North
America.
Outside Converting. The Company entered into a five-year manufacturing and
distribution agreement commencing in August 1993 with BMR to convert,
warehouse and distribute a wide range of wiping products. Under the agreement,
the Company sells base fabrics produced at its Benson, North Carolina
manufacturing facility to BMR. BMR then cuts, folds and packages the fabric
using Company-owned machinery in a dedicated facility on behalf of the Company
in accordance with specifications. BMR distributes the products directly to
the Company's customers, while marketing, sales and order processing are the
responsibility of the Company. In Europe, the Company operates its own
cutting, folding and packaging machines at its Cuijk manufacturing facility.
COMPETITION
The Company's primary competitors in its industrial and specialty product
markets are Du Pont, Freudenberg Nonwovens L.P., Kimberly-Clark Corporation
("Kimberly-Clark"), Dexter Nonwovens Division, Kuraray Co., Ltd., Veratec (a
subsidiary of International Paper Co.) and Reemay Inc. (a subsidiary of BBA
Group plc) for nonwoven products and Intertape Polymer Group Inc. and Amoco
Fabrics and Fibers Co. for woven products. Generally, product innovation and
performance, quality, service and cost are the primary competitive factors,
with technical support being highly valued by the largest customers.
The Company's primary competitors in its wiping product markets are Du Pont
in nonwovens and paper producers such as Fort Howard Corporation ("Fort
Howard"), Atlantic Mills Inc., James River Corporation of Virginia ("James
River") and Kimberly-Clark. On May 5, 1997, Fort Howard and James River
announced that they had entered into a definitive merger agreement to combine
the two companies. In addition to like-kind products, the Company's wiping
products also compete with used rags and linen. Generally, cost, distribution
and utility are the principal factors considered in food service and
janitorial end uses, while product innovation, performance and technical
support are the most important factors for specialty and industrial wiping
products.
52
The Company's primary competitors in its medical product markets are Du Pont
and FiberWeb Group, Inc. (a subsidiary of BBA Group plc). Price, distribution,
variety of product offerings and performance are the chief competitive factors
in this product category.
The Company's primary competitors in its hygiene product categories are
Veratec, FiberWeb Group, Inc. and Poly-Bond Inc. in North America, Corovin
GmbH and J.W. Suominen O.Y. in Europe and Uni-Charm Corp. in Japan. Generally,
product cost, technical capacity and innovation and customer relationships are
the most important competitive factors in these markets. The Company believes
that it is an industry leader in each of these categories.
A number of the Company's niche product applications are sold into select
specialized markets, and the Company believes that the size of such markets,
relative to the amount of capital required for entry, as well as the advanced
manufacturing processes and technical support required to service them,
present barriers to entry. There can be no assurance, however, that these
specialized markets, particularly as niche product applications become
standardized over time, will not attract additional competitors that could
have greater financial, technological, manufacturing and marketing resources
than the Company. See "Risk Factors--Competition in the Company's Markets."
RAW MATERIALS
The primary raw materials used in the manufacture of most of the Company's
products are polypropylene and polyester fiber, polyethylene and polypropylene
resin, and, to a lesser extent, rayon and tissue paper. In 1996, polypropylene
fiber accounted for approximately 23% of the Company's cost of sales. The
prices of polypropylene and polyethylene are a function of, among other
things, manufacturing capacity, demand and the price of crude oil and natural
gas liquids. Historically, the prices of polypropylene and polyethylene have
fluctuated, such as in late 1994 and early 1995 when resin prices increased by
approximately 60%. The sharp increase was primarily due to short-term
interruptions in production capacity and increased demand as a result of an
expanding economy. By mid-1995, supply had increased, reducing prices, which
reductions the Company expects will continue as incremental capacity continues
to be added. In 1996, polypropylene fiber prices remained stable while resin
prices, on average, trended lower. Polyethylene resin prices were lower in the
first half of 1996, but rose in the second half of the year. Polyester fiber
and resin prices experienced substantial declines worldwide during 1996.
There can be no assurance that the prices of polypropylene and polyethylene
will not increase in the future or that the Company will be able to pass on
such increases to its customers as it has generally been able to do in the
past. A significant increase in the prices of polyolefin resins that cannot be
passed on to customers could have a material adverse effect on the Company's
results of operations and financial conditions.
The Company's major suppliers of polypropylene fiber are Hercules and
Danaklon, while its major supplier of polyethylene is Novacor. The Company's
major suppliers of rayon fiber are Lenzing Fibers and Courtaulds Fibers, while
its major suppliers of polyester are Wellman and Du Pont. The Company
purchases its polypropylene resin from Indelpro and Montell, and purchases its
tissue paper from Crown Vantage.
The Company believes that the loss of any one or more of its suppliers would
not have a long-term material adverse effect on the Company because other
manufacturers with whom the Company conducts business would be able to fulfill
the Company's requirements. However, the loss of the Company's suppliers
could, in the short term, adversely affect the Company's business until
alternative supply arrangements were secured. In addition, there is no
assurance that any new supply arrangements entered into by the Company will
have terms as favorable as those contained in current supply arrangements. The
Company has not experienced any significant disruptions in supply as a result
of shortages in raw materials.
53
ENVIRONMENTAL
The Company is subject to a broad range of federal, foreign, state and local
laws and regulations relating to the pollution and protection of the
environment. Among the many environmental requirements applicable to the
Company are laws relating to air emissions, wastewater discharges and the
handling, disposal and release of solid and hazardous substances and wastes.
Based on continuing internal review and advice from independent consultants,
the Company believes that it is currently in substantial compliance with
applicable environmental requirements.
The Company is also subject to laws, such as CERCLA, that may impose
liability retroactively and without fault for releases or threatened releases
of hazardous substances at on-site or off-site locations. The Company is not
aware of any releases for which it may be liable under CERCLA or any analogous
provision.
Actions by federal, state and local governments in the United States and
abroad concerning environmental matters could result in laws or regulations
that could increase the cost of producing the products manufactured by the
Company or otherwise adversely affect demand for its products. For example,
certain local governments have adopted ordinances prohibiting or restricting
the use or disposal of certain plastic products, such as certain of the
plastic wrapping materials which are produced by the Company. Widespread
adoption of such prohibitions or restrictions could adversely affect demand
for the Company's products and thereby have a material adverse effect upon the
Company. In addition, a decline in consumer preference for plastic products
due to environmental considerations could have a material adverse effect upon
the Company.
Most of the Company's manufacturing processes are mechanical and are
therefore considered to be environmentally benign. The polyolefin resins are
readily recyclable, and the Company maintains a network of recyclers to
receive post-industrial waste for certain of the Company's products. In
addition, each of the Company's manufacturing sites has equipment and
procedures for reclaiming a majority of internally generated scrap, thus
reducing the amount of waste sent to local landfills. As a result, the Company
does not currently anticipate any material adverse effect on its operations,
financial condition or competitive position as a result of its efforts to
comply with environmental requirements. Some risk of environmental liability
is inherent, however, in the nature of the Company's business, and there can
be no assurance that material environmental liabilities will not arise. It is
also possible that future developments in environmental regulation could lead
to material environmental compliance or cleanup costs.
PATENTS AND TRADEMARKS
The Company considers its patents, patent licenses and trademarks, in the
aggregate, to be of material importance to its business and seeks to protect
this proprietary know-how in part through United States and foreign patent and
trademark registrations. The Company maintains over 40 registered trademarks
and over 70 patents or patent licenses in the United States. In addition, the
Company maintains certain trade secrets for which, in order to maintain the
confidentiality of such trade secrets, it has not sought patent protection.
LITIGATION
The Company is currently a party to various claims and legal actions which
arise in the ordinary course of business. The Company believes such claims and
legal actions, individually and in the aggregate, will not have a material
adverse effect on the business, financial condition or results of operations
of the Company.
54
PROPERTIES
The Company and its subsidiaries operate the following principal
manufacturing plants and other facilities, all of which are owned, except as
noted. All of the Company's owned properties are subject to liens in favor of
the lenders under the Amended Credit Facility.
TOTAL
SQUARE
LOCATION FEET PRINCIPAL FUNCTION
-------- ------- ------------------
North Little Rock, Arkansas 364,000 Manufacturing
(Plant 1).....................
North Little Rock, Arkansas 119,000 Manufacturing and Warehousing
(Plant 2).....................
Rogers, Arkansas............... 126,000 Manufacturing
Rogers, Arkansas............... 15,000(1) Warehousing
Gainesville, Georgia........... 121,000(1) Manufacturing and Warehousing
Dayton, New Jersey............. 30,000(2) Administration
Landisville, New Jersey........ 245,000 Manufacturing, Sales, Marketing and
Research and Development
Vineland, New Jersey........... 83,500(3) Manufacturing
Benson, North Carolina......... 469,000 Manufacturing, Sales, Marketing and
Warehousing
Raleigh, North Carolina........ 5,300(1) Administration
Mooresville, North Carolina.... 73,500 Manufacturing, Sales, Marketing and
Warehousing
Portland (Clackamas), Oregon... 30,000 Manufacturing
North Charleston, South 4,500(3) Corporate
Carolina......................
Vancouver, British Columbia.... 60,000(1) Manufacturing
Mississauga, Ontario........... 2,900(1) Sales and Marketing
North Bay, Ontario............. 300,000 Manufacturing
North Bay, Ontario............. 28,800(1) Warehousing
Neunkirchen, Germany........... 108,000 Manufacturing, Sales and Marketing
Guadalajara, Mexico............ 6,200(1) Sales, Marketing and Warehousing
Monterrey, Mexico.............. 2,325(1) Sales, Marketing and Warehousing
Mexico City, Mexico............ 9,850(1) Sales, Marketing and Warehousing
San Luis Potosi, Mexico........ 100,000 Manufacturing and Marketing
Cuijk, The Netherlands......... 364,000 Warehousing, Manufacturing, Sales,
Marketing, Warehousing and Research
and Development
- --------
(1) Leased.
(2) The Company owns this 239,200 square foot facility, leasing it to an
unaffiliated tenant, and subleases 30,000 square feet from such tenant.
The tenant can terminate the Company's sublease upon 12 months' notice.
(3) Leased from entities affiliated with one of the Company's stockholders.
See "Certain Relationships and Related Transactions."
EMPLOYEES
As of June 28, 1997, the Company employed approximately 2,400 persons.
Approximately 279 of the employees in Canada, 20 in Portland, Oregon, 76 in
North Little Rock, Arkansas, 133 in Germany, 188 in Mexico, and 241 in The
Netherlands are represented by labor unions or trade councils. The collective
bargaining agreement for the employees in North Bay, Ontario is scheduled to
expire on December 4, 1997. The Company considers its employee relations to be
very good.
55
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers as of August 1, 1997:
NAME AGE POSITION
---- --- --------
Jerry Zucker................ 47 Chairman, President, Chief Executive Officer
and Director
James G. Boyd............... 52 Executive Vice President, Chief Financial
Officer, Treasurer, Secretary and Director
S. Grant Reeves............. 41 Vice President
Thomas E. Phillips.......... 47 Group Vice President--Finance, Systems and
Administration, Nonwovens
James L. Schaeffer.......... 46 Group Vice President--Operations/
Engineering, Nonwovens
Gregg Wilkinson............. 45 Group Vice President--Marketing and Sales,
Nonwovens
Peter C. Bourgeois.......... 53 Vice President, Wovens
Bruce V. Rauner............. 41 Director
David A. Donnini............ 32 Director
Michael J. McGovern......... 34 Director
L. Glenn Orr, Jr. .......... 56 Director
John F. ("Jack") Ruffle..... 60 Director
The following table sets forth certain information concerning the
Guarantors' directors and officers as of August 1, 1997. Officers of the
Guarantors serve at the discretion of the respective board of directors.
NAME AGE POSITIONS
---- --- ---------
Jerry Zucker..................... 47 Chairman, President, Chief Executive
Officer and Director of PGI Polymer,
FiberTech, FiberGol, Technetics,
Chicopee Holdings, Chicopee, PNA,
FNA, Fabrene Corp., and Fabrene
Group L.L.C. Chairman, President,
Chief Executive Officer of Fabrene
Group.
James G. Boyd.................... 52 Executive Vice President, Treasurer,
Secretary and Director of PGI
Polymer, FiberTech, FiberGol,
Technetics, Chicopee Holdings,
Chicopee, PNA, FNA, Fabrene Corp.,
Fabrene Group L.L.C. and Fabrene
Group.
Peter C. Bourgeois............... 53 Director of Fabrene Corp. and Fabrene
Group.
Bruce V. Rauner.................. 41 Director of PGI Polymer, FiberTech,
FiberGol and Technetics.
David A. Donnini................. 32 Director of PGI Polymer, FiberTech,
FiberGol and Technetics.
56
JERRY ZUCKER has served as Chairman, President, Chief Executive Officer and
a Director of the Company, PGI Polymer, FiberTech, FiberGol, Technetics,
Chicopee Holdings, Chicopee, PNA, FNA, Fabrene Corp., and Fabrene Group L.L.C.
since their inception. Mr. Zucker has served as Chairman, President and Chief
Executive Officer of Fabrene Group since its inception. In addition to his
duties with the Company and the above-named subsidiaries, Mr. Zucker presently
serves as Chairman and Chief Executive Officer of InterTech, one of the
Company's principal stockholders, and has served in this capacity since 1983.
JAMES G. BOYD has served as Executive Vice President, Treasurer, Secretary
and a Director of the Company, PGI Polymer, FiberTech, FiberGol, Technetics,
Chicopee Holdings, Chicopee, PNA, FNA, Fabrene Corp., Fabrene Group L.L.C. and
Fabrene Group since their inception. In 1986, Mr. Boyd joined InterTech where
he currently serves as Executive Vice President, Treasurer and Director and
performs various treasury, financial and legal functions for the Company and
its affiliates.
S. GRANT REEVES has served as Vice President of the Company since its
inception. Mr. Reeves joined lnterTech in 1986 and served as General Manager
at Fabrene from 1991 through June 1994.
THOMAS E. PHILLIPS has served as Group Vice President--Finance, Systems and
Administration, Nonwovens, since March 1995. From 1993 until March 1995, Mr.
Phillips served as General Manager and Vice President of FiberTech. Prior to
joining FiberTech, Mr. Phillips served as a Vice President (1986-1992) and a
Senior Vice President (1992-1993) of Reemay, Inc., where his responsibilities
included financial, systems, human resources and administrative functions.
JAMES L. SCHAEFFER has served as Group Vice President--
Operations/Engineering, Nonwovens since March 1995. From 1992 until March
1995, Mr. Schaeffer served as Vice President--Operations/Engineering of
FiberTech. Prior to joining FiberTech, Mr. Schaeffer served as General Manager
for Scott Nonwovens at the Landisville facility from 1990 to 1992.
GREGG WILKINSON has served as Group Vice President--Marketing and Sales,
Nonwovens, since March 1995. From July 1994 until March 1995, Mr. Wilkinson
served as Vice President--Marketing, Sales and Technology of FiberTech and
from August 1993 until July 1994, Mr. Wilkinson served as Director-New
Business Development. For the period 1987 to August 1993, Mr. Wilkinson served
in sales and marketing management capacities with Reemay, Inc., a former
InterTech affiliate.
PETER C. BOURGEOIS has served as Vice President, Wovens, since 1993. Prior
to attaining this position, Mr. Bourgeois had served as Vice President--
Marketing and Sales for Fabrene since June 1989. Mr. Bourgeois has served as a
Director of Fabrene Corp. and Fabrene Group since their inception.
BRUCE V. RAUNER has served as a Director of the Company, PGI Polymer,
FiberTech, FiberGol and Technetics since their inception. Mr. Rauner has been
a Principal and General Partner with Golder, Thoma, Cressey, Rauner, Inc.
("Golder, Thoma") in Chicago, Illinois since 1984, where he is responsible for
originating and making new investments, monitoring portfolio companies and
recruiting and training associates. Mr. Rauner is also a director of Lason,
Inc., Coinmach Laundry Corporation and COREStaff, Inc.
DAVID A. DONNINI has served as a Director of the Company, PGI Polymer,
FiberTech, FiberGol and Technetics since their inception. Mr. Donnini has been
a Principal of Golder, Thoma since 1993. From 1991 to 1993, Mr. Donnini was an
Associate with Golder, Thoma. Prior to joining Golder, Thoma in 1991, Mr.
Donnini attended The Stanford Graduate School of Business. Mr. Donnini is also
a director of Coinmach Laundry Corporation.
MICHAEL J. MCGOVERN has served as a Director of the Company since May 1996.
Mr. McGovern has served as Managing Director in the Global Investment Banking
Division of Chase Securities Inc. since April 1996. Prior thereto, Mr.
McGovern was a Managing Director in Global Corporate Finance
57
for The Chase Manhattan Bank, N.A. from January 1996 until April 1996. Mr.
McGovern was a Vice President in Global Corporate Finance for The Chase
Manhattan Bank, N.A. from December 1990 until January 1996.
L. GLENN ORR, JR. has served as a Director of the Company since February
1997. Mr. Orr has been Chairman, President and Chief Executive Officer of Orr
Management Company, a management consulting company, since February 1995. From
October 1990 until February 1995, Mr. Orr was Chairman, President and Chief
Executive Officer of Southern National Corporation, a bank holding company.
Mr. Orr is also a director of Southern National Corporation, Ladd Furniture
Company and Highwood Properties.
JOHN F. ("JACK") RUFFLE has served as a Director of the Company since May
1997. Mr. Ruffle served as Vice Chairman and a director of J.P. Morgan & Co.
Incorporated and Morgan Guaranty Trust Company of New York from 1985 through
his retirement in May 1993. Mr. Ruffle is a past president of the Board of
Trustees of the Financial Accounting Foundation and a past chairman of the
Financial Executives Institute. Mr. Ruffle is presently also a director of
Bethlehem Steel Corporation, American Shared Hospital Services, Inc., Trident
Corp., Wackenhut Corrections Corp. and The Johns Hopkins University, and is a
trustee of JPM Series Trust II.
The Company's Board currently consists of seven directors, who are divided
into three classes as nearly equal number as possible, with Messrs. Boyd's and
McGovern's terms expiring in 1998, Messrs. Zucker's and Rauner's terms
expiring in 1999, and Messrs. Donnini's, Orr's and Ruffle's terms expiring in
2000. At each annual meeting of stockholders, successors to the class of
directors whose term expires at such meeting will be elected to serve for
three-year terms or until their successors are duly elected and qualified. The
Board has the power to appoint the officers of the Company. Each officer will
hold office for such term as may be prescribed by the Board and until such
person's successor is chosen and qualified or until such person's death,
resignation or removal.
There are three Committees of the Company's Board: the Compensation
Committee, the 1996 Key Employee Stock Option Plan Committee (the "Stock
Option Committee") and the Audit Committee. The Compensation Committee, which
is composed of Messrs. Donnini and Rauner, reviews and makes recommendations
to the Board regarding salaries, compensation and benefits of executive
officers and key employees of the Company. The Stock Option Committee, which
is composed of Messrs. Donnini and Rauner, is empowered to grant options to
purchase Common Stock of the Company to any key employee in accordance with
the 1996 Key Employee Stock Option Plan. The Audit Committee is composed of
Messrs. McGovern, Donnini and Rauner. Among other duties, the Audit Committee
reviews the internal and external financial reporting of the Company, reviews
the scope of the independent audit, considers comments by the auditors
regarding internal controls and accounting procedures and provides the
management's response to the auditors' comments. The Company does not have a
nominating committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INITIAL PUBLIC OFFERING AND RECAPITALIZATION
In May 1996, the Company completed its initial public offering of 11.5
million shares of Common Stock at a price of $18.00 per share (the "Initial
Public Offering"). Net proceeds to the Company after underwriting fees and
discounts approximated $190.8 million. Pursuant to the Recapitalization
Agreement dated May 6, 1996, all of the warrants to acquire shares of Class C
Common Stock were exercised and the outstanding shares of Class A Common
Stock, Class B Common Stock and Class C Common Stock were converted into a
single class of Common Stock concurrently with the Initial
58
Public Offering. In addition, the Company's Board of Directors approved an
approximately 19.97 to 1 stock split (collectively, with the effect of the
Recapitalization Agreement, the "Recapitalization"). In addition, the Company
(i) effectively repaid all outstanding indebtedness under the FiberTech and
Chicopee credit facilities and terminated such credit facilities, redeemed
$50.0 million principal amount of the Senior Notes at premium of 112.25% plus
accrued, but unpaid, interest and entered into the Old Credit Facility,
consisting of a $200.0 million term loan and a $125.0 million revolving credit
facility, (ii) redeemed the preferred stock of Chicopee for approximately
$46.9 million, and (iii) redeemed the Company Preferred Stock for
approximately $10.5 million.
Prior to and in connection with the Initial Public Offering, the Company
solicited the consents from holders of the Senior Notes to certain amendments
to the Senior Notes Indenture. Chase Securities Inc. acted as Solicitation
Agent in connection with the solicitation of such consents, as well as Dealer
Manager and Solicitation Agent in connection with the Tender Offer and Consent
Solicitation consummated concurrently with the Initial Offering. Chase
Securities Inc. also acted as co-manager and representative in the Initial
Public Offering. In connection therewith, Chase Securities Inc. received
customary fees and discounts, and was indemnified against certain liabilities,
including liabilities under the Securities Act.
Chase, an affiliate of Chase Securities Inc., acted as agent and lender
under the former FiberTech and Chicopee credit facilities and the Old Credit
Facility. Chase acts as lender and agent under the Amended Credit Facility.
For each such facility, Chase received or will receive customary syndication
fees, commitment fees and annual agency fees.
For a description of certain relationships between the Company and Chase
Securities Inc., Chase and their affiliates, see "Plan of Distribution."
VOTING AGREEMENT
Concurrently with the Initial Public Offering, certain of the stockholders
entered into an agreement (the "Voting Agreement") providing, among other
things, for the nomination and voting for up to six directors of the Company
by such stockholders, who own approximately 46.6% of the outstanding Common
Stock. Under the Voting Agreement, each of the stockholders party thereto will
agree to vote its shares in favor of the Company's Chief Executive Officer and
Executive Vice President, two nominees designated by Golder, Thoma, Cressey
Fund III Limited Partnership ("GTC Fund III") and two outside directors to be
jointly designated by GTC Fund III and lnterTech. Each director nominated by
parties to the Voting Agreement may be removed only at the request of the
party who nominated such director. The Voting Agreement terminates at such
time as (a) GTC Fund III and its affiliates cease to own at least 10% of the
Common Stock and (b) InterTech and its affiliates cease to own at least 10% of
the Common Stock. The stockholders who are parties to the Voting Agreement
hold, in the aggregate, a substantial amount of the voting power of the
Company and thus, if acting in unison or in various combinations, could likely
elect a majority of the directors of the Company even if the Voting Agreement
were not in place.
THE FNA ACQUISITION
In August 1996, the Company completed the acquisition of FNA and its parent,
PNA, collectively a significant producer of polypropylene fabrics for the
nonwovens industry. The transaction, which was financed for approximately
$48.0 million with a combination of borrowings under the Old Credit Facility
and working capital, was accounted for under the purchase method of
accounting. The acquisition of FNA's modern plant facility, built in 1992 and
expanded in 1994, strengthened the Company's strategic position in the hygiene
materials market and broadened its offering of medical and agricultural
materials.
OTHER TRANSACTIONS
The Company's corporate headquarters are housed in space leased by InterTech
from an affiliate of InterTech. A portion of the payments and other expenses,
primarily insurance and allocated costs, are charged to the Company. Such
amounts approximated $2.1 million during 1996.
59
On September 1, 1993, ConX, Inc. ("ConX"), a subsidiary of InterTech,
acquired a manufacturing facility in Vineland, New Jersey for the benefit of
Technetics, and entered into a lease of the facility to Technetics at a base
rate of $2.50 per square foot, subject to adjustment to account for inflation,
which is comparable to similar properties in the area. The lease terminates on
August 31, 2003 and is subject to a purchase option at termination. The leased
facility consists of 83,500 square feet of manufacturing space and was
acquired by ConX for $1,250,000.
On January 11, 1996, the Company authorized and issued 10,000 shares of
Company Redeemable Preferred Stock to ConX II, Inc. ("ConX II") for $10.0
million cash. Of the $10.0 million purchase price, an aggregate of $4.0
million was loaned to ConX II by InterTech, ZB Holdings (a wholly owned
subsidiary of InterTech) and Mr. Zucker, while $6.0 million was advanced to
ConX II by a third-party lender (the repayment of which was guaranteed by GTC
Fund III). The Company used a portion of the proceeds of the Initial Public
Offering to redeem all of the Company Redeemable Preferred Stock on May 15,
1996.
SECURITY OWNERSHIP
The following information with respect to the outstanding shares of Common
Stock beneficially owned by each director and nominee for director of the
Corporation, the chief executive officer and the four other most highly
compensated executive officers, all beneficial owners of more than five
percent of the Common Stock known to the Corporation and the directors and
executive officers as a group is furnished as of August 1, 1997, except as
otherwise indicated.
COMMON STOCK
---------------------
NUMBER OF PERCENT OF
NAME SHARES(1) CLASS(2)
- ---- ---------- ----------
Jerry Zucker(3)(4)(5).................................... 5,372,037 16.8%
James G. Boyd(4)(5)(6)................................... 4,337,979 13.6
The InterTech Group, Inc.(5)(7).......................... 3,861,208 12.1
Golder, Thoma, Cressey Fund III Limited
Partnership(4)(5)(8).................................... 7,109,096 22.2
Bruce V. Rauner(8)....................................... 7,109,096 22.2
David A. Donnini......................................... 0 *
Michael J. McGovern...................................... 0 *
John F. ("Jack") Ruffle.................................. 5,000 *
L. Glenn Orr, Jr. ....................................... 0 *
Thomas E. Phillips....................................... 1,500 *
James L. Schaeffer....................................... 2,000 *
Gregg Wilkinson.......................................... 0 *
The Chase Manhattan Foundation(5)(9)..................... 1,152,131 3.6
Leeway & Co.(5)(10)...................................... 795,838 2.5
Alliance Capital Management L.P.(11)..................... 4,134,289 12.9
The Capital Group Companies, Inc.(12).................... 2,042,700 6.4
All directors and executive officers as a group (12 per-
sons)(13)............................................... 12,971,404 40.5
- --------
(1) Each holder has sole voting and investment power with respect to the
shares listed unless otherwise indicated.
(2) Percentages less than one percent are denoted by an asterisk.
60
(3) Includes 1,510,829 shares held by Mr. Zucker, 3,599,557 shares held by
InterTech, and 261,651 shares held by FTG. Mr. Zucker is Chairman, Chief
Executive Officer and President of InterTech and FTG, and as a result may
be deemed to have voting and dispositive power over the shares held by
InterTech and FTG.
(4) Each of these Stockholders has entered into an agreement pursuant to
which, upon the occurrence of certain events, Messrs. Zucker and Boyd and
Chase Manhattan Investment Holdings, Inc. ("CMIHI"), and affiliate of
Chase, would acquire additional shares of Common Stock from GTC Fund III,
which would result in an increase in the ownership of Common Stock by
Messrs. Zucker and Boyd and CMIHI and a corresponding decrease in the
ownership of Common Stock by GTC Fund III.
(5) Each of these parties has entered into an agreement providing for the
election of directors. Each such party disclaims beneficial ownership of
shares of Common Stock owned by each other party.
(6) Includes 476,771 shares held by Mr. Boyd, 3,599,557 shares held by
InterTech and 261,651 shares held by FTG. Mr. Boyd is Executive Vice
President, Secretary and Treasurer of InterTech and FTG.
(7) Includes 3,599,557 shares held by InterTech and 261,651 shares held by
FTG. The address of InterTech is 4838 Jenkins Avenue, North Charleston, SC
29405.
(8) All of the reported shares are held by GTC Fund III, of which Golder,
Thoma, Cressey & Rauner, L.P. is the general partner. Mr. Rauner is a
general partner of Golder, Thoma, Cressey & Rauner, L.P., but disclaims
beneficial ownership of such shares. The address of GTC Fund III is c/o
Golder, Thoma, Cressey, Rauner, Inc., 6100 Sears Tower, Chicago, IL 60606-
6402.
(9) The address of The Chase Manhattan Foundation ("CMF"), an affiliate of
CMIHI and Chase, is 600 Fifth Avenue--3rd Floor, New York, NY 10020.
(10) The address of Leeway & Co. is c/o State Street Bank and Trust Co.,
Master Trust Division--Q4W, P.O. Box 1992, Boston, MA 02110.
(11) Alliance Capital Management L.P. reported as of December 31, 1996, sole
voting power of 3,639,289 shares of Common Stock and sole dispositive
power of 3,827,689 shares of Common Stock. The Equitable Life Assurance
Society of the United States reported sole voting and dispositive power
of 304,600 shares of Common Stock. Donaldson, Lufkin & Jenrette
Securities Corporation reported shared voting and dispositive power of
2,000 shares of Common Stock. In addition, AXA Assurances I.A.R.D.
Mutuelle AXA Assurances Vie Mutuelle, Alpha Assurances I.A.R.D. Mutuelle,
Alpha Assurances Vie Mutuelle AXA Courtage Assurance Mutuelle, AXA and
The Equitable Companies Incorporated each reported sole voting power over
3,943,889 shares of Common Stock, sole dispositive power over 4,132,289
shares of Common Stock and shared dispositive power over 2,000 shares of
Common Stock. The information set forth herein is based solely on a Form
13G filed by such entities for the year ended December 31, 1996. The
addresses for such entities, as so reported, were: Alpha Assurances
I.A.R.D. Mutuelle and Alph Assurances Vie Mutuelle, 100-101 Terrasse
Boieldicu, 92042 Paris La Defense, France; AXA Assurances I.A.R.D.
Mutuelle and AXA Assurances Vie Mutuelle, 21, rue de Chateaudun, 75009
Paris, France; AXA Courtage Assurance Mutuelle, 26, rue Louis le Grand,
75002 Paris, France; AXA, 23, Avenue Matignon, 75008 Paris, France; and
The Equitable Companies Incorporated, 787 Seventh Avenue, New York, New
York 10019.
(12) The Capital Group Companies reported as of December 31, 1996, sole voting
power over 654,400 shares of Common Stock and sole dispositive power over
2,042,700 shares of Common Stock. The Capital Group Companies indicated
that such shares are held by either Capital Research and Management
Company or Capital Guardian Trust Company. The information set forth
herein is based solely on a Form 13G filed by such entities for the year
ended December 31, 1996. The address for such entities, as so reported,
was 333 South Hope Street, Los Angeles, California 90071.
(13) Includes shares held by GTC Fund III, InterTech and FTG.
61
DESCRIPTION OF CERTAIN INDEBTEDNESS
AMENDED CREDIT FACILITY
General. As part of the Refinancing, the Company and its subsidiaries
entered into the Amended Credit Facility with a group of lenders (the
"Lenders") and with Chase, as Agent, by amending and restating the Old Credit
Facility. The Amended Credit Facility provides for secured revolving credit
facilities of up to $325,000,000. Subject to certain terms and conditions to
be agreed upon by the Company and Chase, a portion of the Amended Credit
Facility may be dedicated to a letter of credit facility. Consistent with the
terms of the Old Credit Facility, a portion of the Amended Credit Facility may
be denominated in Dutch guilders and in Canadian dollars at the Company's
request. All indebtedness under the Amended Credit Facility (including any
hedging arrangements provided by a Lender) is guaranteed, on a joint and
several basis, by each and all of the direct and indirect domestic
subsidiaries of the Company and by Fabrene Group.
Security. The Amended Credit Facility and the related guarantees are secured
by (i) a lien on substantially all of the assets of the Company and its
domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the
direct and indirect subsidiaries of the Company, (iii) a lien on substantially
all of the assets of direct foreign borrowers (to secure direct borrowings by
such borrowers), and (iv) a pledge of certain secured intercompany notes
issued to the Company by non-domestic subsidiaries.
Maturity; Prepayment. The Amended Credit Facility terminates approximately
six years from the date that the Refinancing (including the Initial Offering)
was consummated. The loans will be subject to mandatory prepayment out of
proceeds received in connection with certain casualty events, asset sales and
debt issuances.
Interest Rates. The interest rate applicable to borrowings under the Amended
Credit Facility is, in the case of U.S. dollar denominated loans, the Agent's
base rate or LIBOR, at the Company's option, plus a specified margin. With
respect to portions of the Amended Credit Facility that are denominated in
Dutch guilders or Canadian dollars, the applicable interest rate is based on
the applicable Eurocurrency rate or the Agent's Canadian base rate,
respectively, or at such other rate or rates as may be negotiated between the
Company and the Lenders, plus a specified margin. The applicable margin for
base rate loans ranges from 0% to 1%, and from 0.75% to 2.25% for LIBOR loans,
based on the Company's ratio of total consolidated indebtedness to
consolidated EBITDA calculated on a rolling four quarter basis.
Covenants; Events of Default. The Amended Credit Facility contains covenants
and events of default customary for financings of this type.
OLD CREDIT FACILITY
In connection with the Initial Public Offering, the Company and its
subsidiaries entered into a credit facility dated as of May 15, 1996 among the
Company, its subsidiaries, the financial institutions listed therein, and
Chase, as administrative agent and operations agent (the "Old Credit
Facility"). The Old Credit Facility provided for term loans in an aggregate
principal amount of $195.0 million and revolving loans in an aggregate
principal amount not to exceed $125.0 million. Of the term loans, $130.0
million in the aggregate was denominated in U.S. dollars and was made to the
Company, Chicopee and FiberTech, $40.0 million of the term loans was
denominated in Dutch guilders and was made to Chicopee Holdings B.V., and
$30.0 million of the term loans was denominated in Canadian dollars and was
made to Fabrene. Revolving loans may be denominated in U.S. dollars, Dutch
guilders (up to $15.0 million) and Canadian dollars (up to $5.0 million). All
indebtedness under the Old Credit Facility was guaranteed (in whole or in
part) by each of the Company's domestic and certain of its foreign
subsidiaries. In connection with the Refinancing, the Old Credit Facility was
amended to become the Amended Credit Facility. See "The Refinancing."
62
SENIOR NOTES
In June 1994, the Company issued and sold (the "1994 Notes Offering") $150.0
million aggregate principal amount of 12 1/4% Senior Notes due 2002 (the "1994
Notes") pursuant to a Purchase Agreement dated June 17, 1994 among the
Company, Chase Securities, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman, Sachs & Co. (the "1994 Initial Purchasers") and an
indenture dated as of June 24, 1994 between the Company and First Union
National Bank of South Carolina ("First Union"), as amended by the First
Supplemental Indenture dated as of March 15, 1995 between the Company and
First Union, the Second Supplemental Indenture dated as of September 14, 1995
among the Company, First Union and Harris Trust and Savings Bank, as trustee
(the "Senior Notes Trustee"), the Third Supplemental Indenture dated as of
April 9, 1996 between the Company and the Senior Notes Trustee, the Fourth
Supplemental Indenture dated as of August 14, 1996 between the Company and the
Senior Notes Trustee and the Fifth Supplemental Indenture dated as of June 19,
1997 between the Company and the Senior Notes Trustee (as so amended, the
"Senior Notes Indenture"). The 1994 Initial Purchasers subsequently resold the
1994 Notes to qualified institutional buyers pursuant to Rule 144A under the
Securities Act. In October 1995, pursuant to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862), declared effective by the
Commission on September 29, 1995, the Company consummated an exchange offer
pursuant to which the Company, in exchange for the $150.0 million principal
amount of 1994 Notes outstanding, issued an equal principal amount of 12 1/4%
Senior Notes due 2002 (the "Senior Notes"), which were identical to the 1994
Notes, with the exception that the Senior Notes were registered under the
Securities Act.
In connection with the May 1996 Initial Public Offering, the Company
redeemed $50 million of the outstanding Senior Notes. On July 3, 1997 as part
of the Refinancing, the Company repurchased the remaining $100 million of
outstanding Senior Notes in connection with the Tender Offer and Consent
Solicitation. See "The Refinancing."
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes offered hereby will be issued as a separate series under
the Indenture among the Company, the Guarantors and Harris Trust and Savings
Bank, as trustee (the "Trustee"). The form and terms of the Exchange Notes are
the same as the form and terms of the Old Notes (which they replace) except
that (i) the Exchange Notes bear a Series B designation, (ii) the Exchange
Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof, and (iii) the holders of
Exchange Notes will not be entitled to certain rights under the Registration
Rights Agreement, including the provisions providing for an increase in the
interest rate on the Old Notes in certain circumstances relating to the timing
of the Exchange Offer, which rights will terminate when the Exchange Offer is
consummated. The Old Notes issued in the Initial Offering and the Exchange
Notes offered hereby are referred to collectively as the "Notes."
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), and to all of the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the Trust Indenture Act, as in effect on the date of
the Indenture. The definitions of certain capitalized terms used in the
following summary are set forth below under "Certain Definitions." References
in this "Description of the Exchange Notes" section to "the Company" mean only
Polymer Group, Inc. and not any of its Subsidiaries.
GENERAL
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Company will
appoint the Trustee, together with its affiliate Harris Trust Company of New
York, to serve as registrar and paying agent under the Indenture at its
offices
63
at 77 Water Street, New York, New York 10005. No service charge will be made
for any registration of transfer or exchange of the Notes, except for any tax
or other governmental charge that may be imposed in connection therewith. Any
Old Notes that remain outstanding after completion of the Exchange Offer,
together with the Exchange Notes issued in connection with the Exchange Offer,
will be treated as a single class of securities under the Indenture.
RANKING
The Notes will rank junior to, and be subordinated in right of payment to,
all existing and future Senior Indebtedness of the Company, pari passu in
right of payment with all senior subordinated Indebtedness of the Company and
senior in right of payment to all Subordinated Indebtedness of the Company. At
June 28, 1997, after giving pro forma effect to the Refinancing, including the
issuance of the Old Notes in the Initial Offering and the application of the
net proceeds therefrom, the Company would have had approximately $29.0 million
of Senior Indebtedness outstanding (exclusive of unused commitments). All debt
incurred under the Amended Credit Facility constitutes Senior Indebtedness of
the Company, is guaranteed by each of the Guarantors on a senior basis and is
secured by substantially all of the assets of the Company and the Guarantors.
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes will be limited to $400.0 million aggregate principal amount and
will mature on July 1, 2007. Cash interest on the Notes will accrue at a rate
of 9% per annum and will be payable semi-annually in arrears on each January 1
and July 1, commencing January 1, 1998, to the holders of record of Notes at
the close of business on December 15 and June 15, respectively, immediately
preceding such interest payment date. Cash interest will accrue from the most
recent interest payment date to which interest has been paid or, if no
interest has been paid, from July 3, 1997. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after July 1, 2002, at the redemption prices
(expressed as a percentage of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the 12-month period
beginning on July 1 of the years indicated below:
REDEMPTION
YEAR PRICE
---- ----------
2002.......................... 104.625%
2003.......................... 103.083%
2004.......................... 101.542%
2005 and thereafter........... 100.000%
In addition, at any time and from time to time on or prior to July 1, 2000,
the Company may redeem in the aggregate up to 35% of the originally issued
aggregate principal amount of the Notes with the net cash proceeds of one or
more Public Equity Offerings by the Company at a redemption price in cash
equal to 109.25% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of redemption (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that at least 65% of the
originally issued aggregate principal amount of the Notes must remain
outstanding immediately after giving effect to each such redemption (excluding
any Notes held by the Company or any of its Affiliates). Notice of any such
redemption must be given within 60 days after the date of the closing of the
relevant Public Equity Offering of the Company.
64
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption
will be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not then listed on a national securities exchange, on a
pro rata basis, by lot or by such method as the Trustee shall deem fair and
appropriate; provided, however, that no Notes of a principal amount of $1,000
or less shall be redeemed in part; provided, further, however, that if a
partial redemption is made with the net cash proceeds of a Public Equity
Offering by the Company, selection of the Notes or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis or on as
nearly a pro rata basis as is practicable (subject to the procedures of The
Depository Trust Company), unless such method is otherwise prohibited. Notice
of redemption shall be mailed by first-class mail at least 30 but not more
than 60 days before the redemption date to each Holder of Notes to be redeemed
at its registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. On and after the
redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption as long as the Company has deposited with the paying
agent for the Notes funds in satisfaction of the applicable redemption price
pursuant to the Indenture.
SUBORDINATION OF THE NOTES
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, to the extent and in the manner provided
in the Indenture, to the prior payment in full in cash of all Senior
Indebtedness.
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any
payment from the trust described under "Satisfaction and Discharge of
Indenture; Defeasance" (a "Defeasance Trust Payment")), upon any dissolution
or winding-up or total liquidation or reorganization of the Company, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all Senior Indebtedness shall first be paid in full in cash
before the Holders of the Notes or the Trustee on behalf of such Holders shall
be entitled to receive any payment by the Company of the principal of,
premium, if any, or interest on the Notes, or any payment by the Company to
acquire any of the Notes for cash, property or securities, or any distribution
by the Company with respect to the Notes of any cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities and
excluding any Defeasance Trust Payment). Before any payment may be made by, or
on behalf of, the Company of the principal of, premium, if any, or interest on
the Notes upon any such dissolution or winding-up or total liquidation or
reorganization, any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities
(excluding any payment or distribution of Permitted Junior Securities and
excluding any Defeasance Trust Payment), to which the Holders of the Notes or
the Trustee on their behalf would be entitled, but for the subordination
provisions of the Indenture, shall be made by the Company or by any receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, directly to the holders of the Senior Indebtedness
(pro rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their representatives or to the trustee
or trustees or agent or agents under any agreement or indenture pursuant to
which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all such
Senior Indebtedness in full in cash after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders
of such Senior Indebtedness.
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No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by or
on behalf of the Company of principal of, premium, if any, or interest on the
Notes, whether pursuant to the terms of the Notes, upon acceleration, pursuant
to an Offer to Purchase or otherwise, will be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Designated Senior Indebtedness, whether at maturity, on
account of mandatory redemption or prepayment, acceleration or otherwise, and
such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Designated Senior
Indebtedness. In addition, during the continuance of any non-payment event of
default with respect to any Designated Senior Indebtedness pursuant to which
the maturity thereof may be immediately accelerated, and upon receipt by the
Trustee of written notice (a "Payment Blockage Notice") from the holder or
holders of such Designated Senior Indebtedness or the trustee or agent acting
on behalf of the holders of such Designated Senior Indebtedness, then, unless
and until such event of default has been cured or waived or has ceased to
exist or such Designated Senior Indebtedness has been discharged or repaid in
full in cash or the benefits of these provisions have been waived by the
holders of such Designated Senior Indebtedness, no direct or indirect payment
(excluding any payment or distribution of Permitted Junior Securities and
excluding any Defeasance Trust Payment) will be made by or on behalf of the
Company of principal of, premium, if any, or interest on the Notes, to such
Holders, during a period (a "Payment Blockage Period") commencing on the date
of receipt of such notice by the Trustee and ending 179 days thereafter.
Notwithstanding anything in the subordination provisions of the Indenture or
the Notes to the contrary, (x) in no event will a Payment Blockage Period
extend beyond 179 days from the date the Payment Blockage Notice in respect
thereof was given, (y) there shall be a period of at least 181 consecutive
days in each 360-day period when no Payment Blockage Period is in effect and
(z) not more than one Payment Blockage Period may be commenced with respect to
the Notes during any period of 360 consecutive days. No event of default that
existed or was continuing on the date of commencement of any Payment Blockage
Period with respect to the Designated Senior Indebtedness initiating such
Payment Blockage Period (to the extent the holder of Designated Senior
Indebtedness, or trustee or agent, giving notice commencing such Payment
blockage Period had knowledge of such existing or continuing event of default)
may be, or be made, the basis for the commencement of any other Payment
Blockage Period by the holder or holders of such Designated Senior
Indebtedness or the trustee or agent acting on behalf of such Designated
Senior Indebtedness, whether or not within a period of 360 consecutive days,
unless such event of default has been cured or waived for a period of not less
than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of the Notes. See "Events of
Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders
of the Notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Company may
be unable to meet fully its obligations with respect to the Notes.
At the time of the issuance of the Notes, the Amended Credit Facility is
expected to be the only outstanding Senior Indebtedness. Subject to the
restrictions set forth in the Indenture, in the future the Company may issue
additional Senior Indebtedness.
GUARANTEES OF THE NOTES
The Indenture provides that each of the Guarantors will unconditionally
guarantee on a joint and several basis (the "Guarantees") all of the Company's
obligations under the Notes, including its obligations to pay principal,
premium, if any, and interest with respect to the Notes. The Guarantees
66
are general unsecured obligations of the Guarantors. The obligations of each
Guarantor under its Guarantee are subordinated and junior in right of payment
to the prior payment in full of all existing and future Guarantor Senior
Indebtedness of such Guarantor to substantially the same extent as the Notes
are subordinated to all existing and future Senior Indebtedness of the
Company. The Guarantors have guaranteed all obligations of the Company under
the Amended Credit Facility, and each Guarantor has granted a security
interest in all or substantially all of its assets to secure the obligations
under the Amended Credit Facility. The obligations of each Guarantor are
limited to the maximum amount which, after giving effect to all other
contingent and fixed liabilities of such Guarantor (including any Senior
Indebtedness Incurred after the Issue Date) and after giving effect to any
collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in
the obligations of such Guarantor under its Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under Federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee is entitled
to a contribution from each other Guarantor in a pro rata amount, based on the
net assets of each Guarantor determined in accordance with GAAP.
The Company shall cause each Restricted Subsidiary issuing a Guarantee after
the Issue Date to execute and deliver to the Trustee a supplemental indenture
in form reasonably satisfactory to the Trustee pursuant to which such
Restricted Subsidiary shall become a party to the Indenture and thereby
unconditionally guarantee all of the Company's Obligations under the Notes and
the Indenture on the terms set forth therein. Thereafter, such Restricted
Subsidiary shall (unless released in accordance with the terms of the
Indenture) be a Guarantor for all purposes of the Indenture.
The Indenture provides that if the Notes thereunder are defeased in
accordance with the terms of the Indenture, or if, subject to the requirements
of the first paragraph under "--Merger, Sale of Assets, Etc." all or
substantially all of the assets of any Guarantor or all of the Equity
Interests of any Guarantor are sold (including by issuance or otherwise) by
the Company in a transaction constituting an Asset Sale, and if (x) the Net
Cash Proceeds from such Asset Sale are used in accordance with the covenant
described under "Certain Covenants--Disposition of Proceeds of Asset Sales" or
(y) the Company delivers to the Trustee an Officers' Certificate to the effect
that the Net Cash Proceeds from such Asset Sale shall be used in accordance
with the covenant described under "Certain Covenants--Disposition of Proceeds
of Asset Sales" and within the time limits specified by such covenant, then
such Guarantor (in the event of a sale or other disposition of all of the
Equity Interests of such Guarantor) or the corporation acquiring such assets
(in the event of a sale or other disposition of all or substantially all of
the assets of such Guarantor) shall be released and discharged of its
Guarantee obligations in respect of the Indenture and the Notes.
Any Guarantor that is designated an Unrestricted Subsidiary pursuant to and
in accordance with "Designation of Unrestricted Subsidiaries" below shall upon
such Designation be released and discharged of its Guarantee obligations in
respect of the Indenture and the Notes and any Unrestricted Subsidiary whose
Designation is revoked pursuant to "Designation of Unrestricted Subsidiaries"
below is required to become a Guarantor in accordance with the procedure
described in the third preceding paragraph.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such occurrence
being the "Change of Control Date"), the Company shall notify the Holders of
the Notes of such occurrence in the manner prescribed by the Indenture and
shall, within 45 days after the Change of Control Date, make an Offer to
Purchase all Notes then outstanding at a purchase price in cash equal to 101%
of the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the Purchase Date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date).
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If a Change of Control occurs which also constitutes an event of default
under the Amended Credit Facility, the lenders under the Amended Credit
Facility are entitled to exercise the remedies available to a secured lender
under applicable law and pursuant to the terms of the Amended Credit Facility.
Accordingly, any claims of such lenders with respect to the assets of the
Company will be prior to any claim of the Holders of the Notes with respect to
such assets.
If the Company makes an Offer to Purchase, the Company will comply with all
applicable tender offer laws and regulations and any violation of the
provisions of the Indenture relating to such Offer to Purchase occurring as a
result of such compliance shall not be deemed an Event of Default or an event
that, with the passing of time or giving of notice, or both, would constitute
an Event of Default.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Notes to require
that the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
CERTAIN COVENANTS
Limitation on Indebtedness. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness), except for Permitted
Indebtedness; provided, however, that the Company and any Restricted
Subsidiary may Incur Indebtedness if, at the time of and immediately after
giving pro forma effect to such Incurrence of Indebtedness and the application
of the proceeds therefrom, the Consolidated Coverage Ratio would be greater
than 2.0 to 1.0.
The foregoing limitations will not apply to the Incurrence by the Company or
any Restricted Subsidiary of any of the following (collectively, "Permitted
Indebtedness"), each of which shall be given independent effect:
(a) Indebtedness under the Notes;
(b) Indebtedness Incurred pursuant to (i) the Amended Credit Facility
and/or (ii) any other agreements or indentures governing Senior
Indebtedness if at the time of and immediately after giving effect thereto,
the aggregate consolidated Indebtedness Incurred under both clauses (i) and
(ii) would not exceed $325.0 million at any one time outstanding; provided,
however, that such $325.0 million shall be reduced (without duplication) by
the amount of any repayment of Indebtedness under the Amended Credit
Facility pursuant to "Disposition of Proceeds of Asset Sales" below;
(c) Indebtedness of any Restricted Subsidiary owed to and held by the
Company or any Guarantor, other Indebtedness of the Company owed to and
held by any Guarantor which is unsecured and subordinated in right of
payment to the payment and performance of the Company's obligations under
any Senior Indebtedness, the Indenture and the Notes and Indebtedness of a
Foreign Restricted Subsidiary that is not a Guarantor owed to and held by
any other Restricted Subsidiary that is not a Guarantor; provided, however,
that an Incurrence of Indebtedness that is not permitted by this clause (c)
shall be deemed to have occurred upon (i) any sale or other disposition of
any Indebtedness of the Company or any Restricted Subsidiary referred to in
this clause (c) to a Person (other than the Company or a Guarantor), (ii)
any sale or other disposition of Equity Interests of any Guarantor which
holds Indebtedness of the Company or another Restricted Subsidiary such
that such Guarantor ceases to be a Guarantor and (iii) the designation of a
Restricted Subsidiary that is a Guarantor and which holds Indebtedness of
the Company or any other Restricted Subsidiary as an Unrestricted
Subsidiary;
(d) the Guarantees and guarantees by any Guarantor of Indebtedness of the
Company; provided, however, that if such guarantee is of Subordinated
Indebtedness, then the Guarantee of such Guarantor shall be senior to such
Guarantor's guarantee of Subordinated Indebtedness;
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(e) Hedging Obligations of the Company or any Guarantor entered into in
the ordinary course of business and not for speculative purposes;
(f) Purchase Money Indebtedness and Capitalized Lease Obligations which
do not exceed $25.0 million in the aggregate at any one time outstanding;
(g) Indebtedness to the extent representing a replacement, renewal,
refinancing or extension (collectively, a "refinancing") of outstanding
Indebtedness Incurred in compliance with the Consolidated Coverage Ratio of
the first paragraph of this covenant or clause (a) of this paragraph of
this covenant; provided, however, that (i) any such refinancing shall not
exceed the sum of the principal amount (or accreted amount (determined in
accordance with GAAP), if less)) of the Indebtedness being refinanced, plus
the amount of accrued interest thereon, plus the amount of any reasonably
determined prepayment premium necessary to accomplish such refinancing and
such reasonable fees and expenses incurred in connection therewith, (ii)
Indebtedness representing a refinancing of Indebtedness other than Senior
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being refinanced, (iii) Indebtedness that is pari passu with the Notes may
only be refinanced with Indebtedness that is made pari passu with or
subordinate in right of payment to the Notes and Subordinated Indebtedness
may only be refinanced with Subordinated Indebtedness, (iv) no Restricted
Subsidiary that is not a Guarantor may Incur Indebtedness to refinance
Indebtedness of the Company or any Guarantor and (v) Indebtedness of the
Company may only be refinanced by Indebtedness of the Company and
Indebtedness of a Restricted Subsidiary may only be refinanced by
Indebtedness of such Restricted Subsidiary or by the Company; and
(h) in addition to the items referred to in clauses (a) through (f)
above, Indebtedness of the Company (including any Indebtedness under the
Amended Credit Facility that utilizes this subparagraph (h)) having an
aggregate principal amount not to exceed $50.0 million at any one time
outstanding.
Limitation on Senior Subordinated Indebtedness. The Company shall not,
directly or indirectly, Incur any Indebtedness that by its terms would
expressly rank senior in right of payment to the Notes and subordinate in
right of payment to any other Indebtedness of the Company.
The Company shall not permit any Guarantor to, and no Guarantor shall,
directly or indirectly, Incur any Indebtedness that by its terms would
expressly rank senior in right of payment to the Guarantee of such Guarantor
and subordinate in right of payment to any other Indebtedness of such
Guarantor.
Limitation on Restricted Payments. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any Equity
Interests of the Company or any Restricted Subsidiary or make any payment
or distribution to the direct or indirect holders (in their capacities as
such) of Equity Interests of the Company or any Restricted Subsidiary
(other than any dividends, distributions and payments made to the Company
or any Restricted Subsidiary and dividends or distributions payable to any
Person solely in Qualified Equity Interests of the Company or in options,
warrants or other rights to purchase Qualified Equity Interests of the
Company);
(ii) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any Restricted Subsidiary (other than any such
Equity Interests owned by the Company or any Restricted Subsidiary);
(iii) purchase, redeem, defease or retire for value, or make any
principal payment on, prior to any scheduled maturity, scheduled repayment
or scheduled sinking fund payment, any Subordinated Indebtedness (other
than any Subordinated Indebtedness held by the Company); or
(iv) make any Investment in any Person (other than Permitted Investments)
69
(any such payment or any other action (other than any exception thereto)
described in (i), (ii), (iii) or (iv) each, a "Restricted Payment"), unless
(a) no Default or Event of Default shall have occurred and be continuing
at the time or immediately after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the Consolidated Coverage Ratio of the first
paragraph of "Limitation on Indebtedness" above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date does not exceed an amount equal to the sum of (1) 50% of
cumulative Consolidated Net Income determined for the period (taken as one
period) from the beginning of the first fiscal quarter commencing after the
Issue Date and ending on the last day of the most recent fiscal quarter
immediately preceding the date of such Restricted Payment for which
consolidated financial information of the Company is available (or if such
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss), plus (2) the aggregate net cash proceeds received by the Company
either (x) as capital contributions to the Company after the Issue Date or
(y) from the issue and sale (other than to a Restricted Subsidiary) of its
Qualified Equity Interests after the Issue Date (excluding the net proceeds
from any issuance and sale of Qualified Equity Interests financed, directly
or indirectly, using funds borrowed from the Company or any Restricted
Subsidiary until and to the extent such borrowing is repaid), plus (3) the
principal amount (or accreted amount (determined in accordance with GAAP),
if less) of any Indebtedness of the Company or any Restricted Subsidiary
Incurred after the Issue Date which has been converted into or exchanged
for Qualified Equity Interests of the Company, plus (4) without duplication
of any amounts included in clause (i) above, in the case of the disposition
or repayment of, or the receipt by the Company or any Restricted Subsidiary
of any dividends or distributions from, any Investment constituting a
Restricted Payment made after the Issue Date, an amount equal to the lesser
of the amount of such Investment and the amount received by the Company or
any Restricted Subsidiary upon such disposition, repayment, dividend or
distribution, plus (5) in the event the Company or any Restricted
Subsidiary makes any Investment in a Person that, as a result of or in
connection with such Investment, becomes a Restricted Subsidiary, an amount
equal to the Company's or any Restricted Subsidiary's existing Investment
in such Person that was previously treated as a Restricted Payment, plus
(6) so long as the Designation thereof was treated as a Restricted Payment
made after the Issue Date, with respect to any Unrestricted Subsidiary that
has been redesignated as a Restricted Subsidiary after the Issue Date in
accordance with "Designation of Unrestricted Subsidiaries" below, an amount
equal to the Company's Investment in such Unrestricted Subsidiary (provided
that such amount shall not in any case exceed the Designation Amount with
respect to such Restricted Subsidiary upon its Designation), plus (7) $25.0
million, minus (8) the Designation Amount (measured as of the date of
Designation) with respect to any Subsidiary of the Company which has been
designated as an Unrestricted Subsidiary after the Issue Date in accordance
with "Designation of Unrestricted Subsidiaries" below.
The foregoing provisions will not prevent (i) the payment of any dividend or
distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of
such formal notice such payment or redemption would comply with the provisions
of the Indenture; (ii) the purchase, redemption, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the net cash proceeds of the substantially concurrent issue and sale (other
than to a Restricted Subsidiary) of, Qualified Equity Interests of the
Company; provided, however, that any such net cash proceeds and the value of
any Qualified Equity Interests issued in exchange for such retired Equity
Interests are excluded from clause (c)(2) of the preceding paragraph (and were
not included therein at any time) and are not used to redeem the Notes
pursuant to "--Optional Redemption" above; (iii) the purchase, redemption,
retirement, defeasance or other acquisition of Subordinated Indebtedness, or
any other payment thereon, made in exchange for, or out of the net
70
cash proceeds of, a substantially concurrent issue and sale (other than to a
Restricted Subsidiary) of (x) Qualified Equity Interests of the Company;
provided, however, that any such net cash proceeds and the value of any
Qualified Equity Interests issued in exchange for Subordinated Indebtedness
are excluded from clauses (c)(2) and (c)(3) of the preceding paragraph (and
were not included therein at any time) and are not used to redeem the Notes
pursuant to "--Optional Redemption" above or (y) Subordinated Indebtedness
permitted to be Incurred pursuant to clause (g) of the second paragraph under
"--Limitation on Indebtedness"; (iv) the making of loans or advances to
officers and directors of the Company or any Restricted Subsidiary entered
into in the ordinary course of business in an amount not to exceed $5.0
million at any one time outstanding; (v) the repurchase, redemption,
defeasance, retirement, refinancing or acquisition for value or payment of
principal of Subordinated Indebtedness at a purchase price not greater than
101% of the principal amount of such Subordinated Indebtedness in the event of
a Change of Control pursuant to a provision similar to the "Offer to Purchase
upon Change of Control" provisions above; provided, however, that prior to any
such repurchase, the Company has made an Offer to Purchase as provided in
"Offer to Purchase upon Change of Control" above with respect to the Notes and
has repurchased all Notes validly tendered for payment in connection with such
Offer to Purchase; or (vi) Investments in joint ventures (however structured)
not to exceed $25.0 million at any one time outstanding; provided, however,
that in the case of each of clauses (ii), (iii), (v) and (vi) no Default or
Event of Default shall have occurred and be continuing or would arise
therefrom.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i) and (iv) of the immediately
preceding paragraph shall be included as Restricted Payments. The amount of
any non-cash Restricted Payment shall be deemed to be equal to the Fair Market
Value thereof at the date of the making of such Restricted Payment.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions to the Company or any other Restricted Subsidiary on its Equity
Interests or with respect to any other interest or participation in, or
measured by, its profits, or pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (b) make loans or advances to, or guarantee any
Indebtedness or other obligations of, or make any Investment in, the Company
or any other Restricted Subsidiary or (c) transfer any of its properties or
assets to the Company or any other Restricted Subsidiary, except for such
encumbrances or restrictions existing under or by reason of (i) the Amended
Credit Facility, or any other agreement of the Company or the Restricted
Subsidiaries outstanding on the Issue Date, in each case as in effect on the
Issue Date, and any amendments, restatements, renewals, replacements or
refinancings thereof; provided, however, that any such amendment, restatement,
renewal, replacement or refinancing is no more restrictive in the aggregate
with respect to such encumbrances or restrictions than those contained in the
agreement being amended, restated, reviewed, replaced or refinanced; (ii)
applicable law; (iii) any instrument governing Indebtedness or Equity
Interests of an Acquired Person acquired by the Company or any Restricted
Subsidiary as in effect at the time of such acquisition (except to the extent
such Indebtedness was Incurred by such Acquired Person in connection with, as
a result of or in contemplation of such acquisition); provided, however, that
such encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary, or the properties or assets of the Company or any
Restricted Subsidiary, other than the Acquired Person; (iv) customary non-
assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices; (v) Purchase Money Indebtedness
for property acquired in the ordinary course of business that only imposes
encumbrances and restrictions on the property so acquired; (vi) any agreement
for the sale or disposition of the Equity Interests or assets of any
Restricted Subsidiary; provided, however, that such encumbrances and
restrictions described in this clause (vi) are only applicable to such
Restricted Subsidiary or assets, as applicable, and any such sale or
disposition is made in compliance with "Disposition of Proceeds of Asset
Sales" below to the extent applicable thereto; (vii) refinancing Indebtedness
permitted under clause (h) of the second paragraph of "Limitation on
Indebtedness" above; provided, however, that such encumbrances and
restrictions
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contained in the agreements governing such Indebtedness are no more
restrictive in the aggregate than those contained in the agreements governing
the Indebtedness being refinanced immediately prior to such refinancing; or
(viii) the Indenture.
Designation of Unrestricted Subsidiaries. The Company may designate after
the Issue Date any Subsidiary of the Company as an "Unrestricted Subsidiary"
under the Indenture (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Designation;
(ii) at the time of and after giving effect to such Designation, the
Company could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Coverage Ratio of the first paragraph
of "Limitation on Indebtedness" above; and
(iii) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
"Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the amount of the Company's Investment in such Subsidiary
on such date.
Neither the Company nor any Restricted Subsidiary shall at any time (x)
provide credit support for, subject any of its property or assets (other than
the Equity Interests of any Unrestricted Subsidiary) to the satisfaction of,
or guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary, except for
any non-recourse guarantee given solely to support the pledge by the Company
or any Restricted Subsidiary of the capital stock of any Unrestricted
Subsidiary. For purposes of the foregoing, the Designation of a Subsidiary of
the Company as an Unrestricted Subsidiary shall be deemed to include the
Designation of all of the Subsidiaries of such Subsidiary.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") only if:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
Limitation on Liens. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, Incur any Liens of any
kind against or upon any of their respective properties or assets now owned or
hereafter acquired, or any proceeds therefrom or any income or profits
therefrom, to secure any Indebtedness unless contemporaneously therewith
effective provision is made, (x) in the case of the Company, to secure the
Notes and all other amounts due under the Indenture and any other class of
Senior Subordinated Indebtedness, and (y) in the case of a Restricted
Subsidiary which is a Guarantor, to secure such Restricted Subsidiary's
Guarantee of the Notes and all other amounts due under the Indenture, in each
case, equally and ratably with such Indebtedness (or, in the event that such
Indebtedness is subordinated in right of payment to the Notes or such
Restricted Subsidiary's Guarantee, prior to such Indebtedness) with a Lien on
the same properties and assets securing such Indebtedness for so long as such
Indebtedness is secured by such Lien, except for (i) Liens securing Senior
Indebtedness (including, without limitation, Indebtedness incurred under the
Amended Credit Facility) and (ii) Permitted Liens.
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Disposition of Proceeds of Asset Sales. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly, make any
Asset Sale, unless (i) the Company or such Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least equal
to the Fair Market Value of the assets sold or otherwise disposed of and (ii)
at least 75% of such consideration consists of (A) cash or Cash Equivalents,
or (B) properties, capital assets and interests in joint ventures (however
structured) that replace the properties and assets that were the subject of
such Asset Sale or in properties and capital assets that will be used in the
business of the Company and its Restricted Subsidiaries as existing at such
time or in businesses reasonably related thereto (as determined in good faith
by the Company's Board of Directors) ("Replacement Assets"). The amount of any
Indebtedness (other than any Subordinated Indebtedness) of the Company or any
Restricted Subsidiary that is actually assumed by the transferee in such Asset
Sale and from which the Company and the Restricted Subsidiaries are fully and
unconditionally released shall be deemed to be cash for purposes of
determining the percentage of cash consideration received by the Company or
the Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i) apply
the Net Cash Proceeds of any Asset Sale within 270 days of receipt thereof to
repay Senior Indebtedness and permanently reduce any related commitment, or
(ii) make an Investment in Replacement Assets.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are not
applied within 270 days of such Asset Sale as described in clause (i) or (ii)
of the immediately preceding paragraph (such Net Cash Proceeds, the
"Unutilized Net Cash Proceeds"), the Company shall, within 45 days after such
270th day, make an Offer to Purchase all outstanding Notes and other Senior
Subordinated Indebtedness, pro rata, up to a maximum principal amount
(expressed as a multiple of $1,000) of Notes and other Senior Subordinated
Indebtedness equal to such Unutilized Net Cash Proceeds, at a purchase price
in cash equal to 100% of the principal amount thereof (or the accreted value
of such other Senior Subordinated Indebtedness, if such other Senior
Subordinated Indebtedness is issued at a discount), plus accrued and unpaid
interest thereon, if any, to the Purchase Date; provided, however, that the
Offer to Purchase may be deferred until there are aggregate Unutilized Net
Cash Proceeds equal to or in excess of $25.0 million, at which time the entire
amount of such Unutilized Net Cash Proceeds, and not just the amount in excess
of $25.0 million, shall be applied as required pursuant to this paragraph.
With respect to any Offer to Purchase effected pursuant to this covenant,
among the Notes, to the extent the aggregate principal amount of Notes and
other Senior Subordinated Indebtedness tendered pursuant to such Offer to
Purchase exceeds the Unutilized Net Cash Proceeds to be applied to the
repurchase thereof, such Notes and other Senior Subordinated Indebtedness
shall be purchased pro rata based on the aggregate principal amount of such
Notes and other Senior Subordinated Indebtedness tendered (or the accreted
value of such other Senior Subordinated Indebtedness, if such other Senior
Subordinated Indebtedness is issued at a discount) by each holder of Notes and
such other Senior Subordinated Indebtedness. To the extent the Unutilized Net
Cash Proceeds exceed the aggregate amount of Notes and other Senior
Subordinated Indebtedness tendered pursuant to such Offer to Purchase, the
Company may retain and utilize any portion of the Unutilized Net Cash Proceeds
not applied to repurchase the Notes and other Senior Subordinated Indebtedness
for any purpose consistent with the other terms of the Indenture.
In the event that the Company makes an Offer to Purchase the Notes and other
Senior Subordinated Indebtedness, the Company shall comply with any applicable
securities laws and regulations, and any violation of the provisions of the
Indenture relating to such Offer to Purchase occurring as a result of such
compliance shall not be deemed an Event of Default or an event that with the
passing of time or giving of notice, or both, would constitute an Event of
Default.
Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must
73
be tendered in an integral multiple of $1,000 principal amount and subject to
any proration among tendering Holders and holders of other Senior Subordinated
Indebtedness as described above.
Merger, Sale of Assets, etc. The Company shall not consolidate with or merge
with or into (whether or not the Company is the Surviving Person) any other
entity and the Company shall not and shall not cause or permit any Restricted
Subsidiary to, sell, convey, assign, transfer, lease or otherwise dispose of
all or substantially all of the Company's and the Restricted Subsidiaries'
properties and assets (determined on a consolidated basis for the Company and
the Restricted Subsidiaries) to any entity in a single transaction or series
of related transactions, unless: (i) either (x) the Company shall be the
Surviving Person or (y) the Surviving Person (if other than the Company) shall
be a corporation organized and validly existing under the laws of the United
States of America or any State thereof or the District of Columbia or, if any
such Restricted Subsidiary was a Foreign Restricted Subsidiary, under the laws
of the United States of America or any state thereof or the District of
Columbia or the jurisdiction under which such Foreign Restricted Subsidiary
was organized, and shall, in any such case, expressly assume by a supplemental
indenture, the due and punctual payment of the principal of, premium, if any,
and interest on all the Notes and the performance and observance of every
covenant of the Indenture and the Registration Rights Agreement to be
performed or observed on the part of the Company; (ii) immediately thereafter,
no Default or Event of Default shall have occurred and be continuing; and
(iii) immediately after giving effect to any such transaction involving the
Incurrence by the Company or any Restricted Subsidiary, directly or
indirectly, of additional Indebtedness (and treating any Indebtedness not
previously an obligation of the Company or any Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Surviving Person (A) shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company immediately prior to such transaction and (B) could Incur, on a
pro forma basis after giving effect to such transaction as if it had occurred
at the beginning of the four quarter period immediately preceding such
transaction for which consolidated financial statements of the Company are
available, at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Coverage Ratio of the first paragraph of
"Limitation on Indebtedness" above.
Notwithstanding the foregoing clause (iii) of the immediately preceding
paragraph, any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or any
Restricted Subsidiary that is a Guarantor.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interest of which constitutes all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
No Guarantor (other than a Guarantor whose Guarantee is to be released in
accordance with the terms of its Guarantee and the Indenture as provided in
the third paragraph under "Guarantees of the Notes" above) shall consolidate
with or merge with or into another Person, whether or not such Person is
affiliated with such Guarantor and whether or not such Guarantor is the
Surviving Person, unless (i) the Surviving Person (if other than such
Guarantor) is a corporation organized and validly existing under the laws of
the United States, any State thereof or the District of Columbia or, if any
such Guarantor was a Foreign Restricted Subsidiary, under the laws of the
United States of America or any state thereof or the District of Columbia or
the jurisdiction under which the Foreign Restricted Subsidiary was organized;
(ii) the Surviving Person (if other than such Guarantor) expressly assumes by
a supplemental indenture all the obligations of such Guarantor under its
Guarantee of the Notes and the performance and observance of every covenant of
the Indenture and the Registration Rights Agreement to be performed or
observed by such Guarantor, (iii) at the time of and immediately after such
Disposition, no Default or Event of Default shall have occurred and be
continuing; and (iv)
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immediately after giving effect to any such transaction involving the
Incurrence by such Guarantor, directly or indirectly, of additional
Indebtedness (and treating any Indebtedness not previously an obligation of
such Guarantor in connection with or as a result of such transaction as having
been Incurred at the time of such transaction), the Company could Incur, on a
pro forma basis after giving effect to such transaction as if it had occurred
at the beginning of the latest fiscal quarter for which consolidated financial
statements of the Company are available, at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the Consolidated
Coverage Ratio of the first paragraph of "Limitation on Indebtedness" above;
provided, however, that this paragraph shall not be a condition to a merger or
consolidation of a Guarantor if such merger or consolidation only involves the
Company and/or one or more other Guarantors. Notwithstanding the foregoing,
nothing in this covenant shall prohibit the consolidation or merger with or
into or the sale of all or substantially all of the assets or properties of a
Guarantor to any other Restricted Subsidiary that is a Guarantor.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs
in which the Company or a Guarantor, as the case may be, is not the Surviving
Person and the Surviving Person is to assume all the Obligations of the
Company under the Notes, the Indenture and the Registration Rights Agreement
or of such Guarantor under its Guarantee, the Indenture and the Registration
Rights Agreement, as the case may be, pursuant to a supplemental indenture,
such Surviving Person shall succeed to, and be substituted for, and may
exercise every right and power of, the Company or such Guarantor, as the case
may be, and the Company, as the case may be, shall be discharged from its
Obligations under the Indenture and the Notes or such Guarantor shall be
discharged from its Obligations under the Indenture and its Guarantee.
Transactions with Affiliates. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, conduct any
business or enter into any transaction (or series of related transactions)
with or for the benefit of any of their respective Affiliates or any officer,
director or employee of the Company or any Restricted Subsidiary (each an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
which are no less favorable to the Company or such Restricted Subsidiary, as
the case may be, than would be available in a comparable transaction with an
unaffiliated third party and (ii) (A) if such Affiliate Transaction (or series
of related Affiliate Transactions) involves aggregate payments or the transfer
of other consideration between the Company and an Affiliate of the Company
having a Fair Market Value in excess of $15.0 million, such Affiliate
Transaction is in writing and the Company delivers an officer's certificate to
the Trustee certifying that such Affiliate Transaction (or series of Affiliate
Transactions) complies with the foregoing provisions, (B) if such Affiliate
Transaction (or series of related Affiliate Transactions) involves aggregate
payments or the transfer of other consideration between the Company and an
Affiliate of the Company having a Fair Market Value in excess of $15.0
million, such Affiliate Transaction is in writing and a majority of the
disinterested members of the Board of Directors of the Company shall have
approved such Affiliate Transaction and determined that such Affiliate
Transaction complies with the foregoing provisions. In addition, any Affiliate
Transaction involving aggregate payments or the transfer of other
consideration between the Company and an Affiliate of the Company having a
Fair Market Value in excess of $25.0 million will also require a written
opinion from an Independent Financial Advisor (filed with the Trustee) stating
that the terms of such Affiliate Transaction are fair, from a financial point
of view, to the Company or the Restricted Subsidiary involved in such
Affiliate Transaction, as the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any Wholly
Owned Restricted Subsidiary or between or among Wholly Owned Restricted
Subsidiaries; (ii) reasonable fees and compensation paid to and indemnity
provided on behalf of, officers, directors, employees, consultants or agents
of the Company or any Restricted Subsidiary of the Company as determined in
good faith by the Company's Board of Directors; (iii) any transactions
undertaken pursuant to any contractual obligations or rights in existence
75
on the Issue Date (as in effect on the Issue Date); (iv) any Restricted
Payments made in compliance with "Limitation on Restricted Payments" above;
(v) loans and advances to officers, directors and employees of the Company or
any Restricted Subsidiary for travel, entertainment, moving and other
relocation expenses, in each case made in the ordinary course of business; and
(vi) the entering into by the Company and any of its consolidated Restricted
Subsidiaries of a tax sharing or similar arrangement.
Limitation on the Sale or Issuance of Equity Interests of Restricted
Subsidiaries. The Company shall not sell any Equity Interest of a Restricted
Subsidiary, and shall not cause or permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any Equity Interests, except: (i) to the
Company or a Wholly Owned Restricted Subsidiary; or (ii) if, immediately after
giving effect to such issuance or sale, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary. Notwithstanding the foregoing, the
Company is permitted to sell all the Equity Interest of a Restricted
Subsidiary as long as the Company is in compliance with the terms of the
covenant described under "Disposition of Proceeds of Asset Sales" and, if
applicable, "Merger, Sale of Assets, etc." above.
Limitation on Guarantees by Restricted Subsidiaries. The Indenture provides
that in the event the Company (i) organizes or acquires any Domestic
Restricted Subsidiary after the Issue Date that is not a Guarantor or (ii)
causes or permits any Foreign Restricted Subsidiary that is not a Guarantor
to, directly or indirectly, guarantee the payment of any Indebtedness of the
Company or any Domestic Restricted Subsidiary ("Other Indebtedness") then, in
each case the Company shall cause such Restricted Subsidiary to simultaneously
execute and deliver a supplemental indenture to the Indenture pursuant to
which it will become a Guarantor under the Indenture; provided, however, that
in the event a Domestic Restricted Subsidiary is acquired in a transaction in
which a merger agreement is entered into, such Domestic Restricted Subsidiary
shall not be required to execute and deliver such supplemental indenture until
the consummation of the merger contemplated by any such merger agreement;
provided, further, that if such Other Indebtedness is (i) Indebtedness that is
ranked pari passu in right of payment with the Notes or the Guarantee of such
Restricted Subsidiary, as the case may be, the Guarantee of such Subsidiary
shall be pari passu in right of payment with the guarantee of the Other
Indebtedness; or (ii) Subordinated Indebtedness, the Guarantee of such
Subsidiary shall be senior in right of payment to the guarantee of the Other
Indebtedness (which guarantee of such Subordinated Indebtedness shall provide
that such guarantee is subordinated to the Guarantees of such Subsidiary to
the same extent and in the same manner as the other Indebtedness is
subordinated to the Notes or the Guarantee of such Restricted Subsidiary, as
the case may be).
Provision of Financial Information. Whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and
other documents which the Company would have been required to file with the
SEC pursuant to such Section 13(a) or 15(d) or any successor provision thereto
if the Company were so subject, such documents to be filed with the SEC on or
prior to the respective dates (the "Required Filing Dates") by which the
Company would have been required so to file such documents if the Company were
so subject. The Company shall also in any event (a) within 15 days of each
Required Filing Date (whether or not permitted or required to be filed with
the SEC) (i) transmit (or cause to be transmitted) by mail to all Holders, as
their names and addresses appear in the Note register, without cost to such
Holders upon their request, and (ii) file with the Trustee, copies of the
annual reports, quarterly reports and proxy statements which the Company is
required to file with the SEC pursuant to the preceding sentence, or, if such
filing is not so permitted, information and data of a similar nature, and (b)
if, notwithstanding the preceding sentence, filing such documents by the
Company with the SEC is not permitted by SEC practice or applicable law or
regulations, promptly upon written request supply copies of such documents to
any Holder. In addition, for so long as any Notes remain outstanding and prior
to the later of the consummation of the the Exchange Offer and the filing of
the Initial Shelf Registration Statement, if required, the Company will
furnish to the Holders, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
76
EVENTS OF DEFAULT
The occurrence of any of the following is defined as an "Event of Default"
under the Indenture: (a) failure to pay principal of (or premium, if any, on)
any Note when due (whether or not prohibited by the provisions of the
Indenture described under "Subordination of the Notes" above); (b) failure to
pay any interest on any Note when due, continued for 30 days or more (whether
or not prohibited by the provisions of the Indenture described under
"Subordination of the Notes" above); (c) default in the payment of principal
of or interest on any Note required to be purchased pursuant to any Offer to
Purchase required by the Indenture when due and payable or failure to pay on
the Purchase Date the Purchase Price for any Note validly tendered pursuant to
any Offer to Purchase required by the Indenture (whether or not prohibited by
the provisions of the Indenture described under "Subordination of the Notes"
above); (d) failure to perform or comply with any of the provisions described
under "Certain Covenants-- Merger, Sale of Assets, etc." above; (e) failure to
perform any other covenant, warranty or agreement of the Company under the
Indenture or in the Notes or of the Guarantors under the Indenture or in the
Guarantees continued for 30 days or more after written notice to the Company
by the Trustee or Holders of at least 25% in aggregate principal amount of the
outstanding Notes; (f) default or defaults under the terms of one or more
instruments evidencing or securing Indebtedness of the Company or any of its
Restricted Subsidiaries having an outstanding principal amount of $20.0
million or more individually or in the aggregate that has resulted in the
acceleration of the payment of such Indebtedness or failure by the Company or
any of its Restricted Subsidiaries to pay principal of at least $20.0 million
when due at the stated maturity of any such Indebtedness and such default or
defaults shall have continued after any applicable grace period and shall not
have been cured or waived within 10 days after the occurrence thereof; (g) the
rendering of a final judgment or judgments (not subject to appeal) against the
Company or any of its Restricted Subsidiaries in an amount of $20.0 million or
more (net of any amounts covered by reputable and creditworthy insurance
companies) which remains undischarged or unstayed for a period of 60 days
after the date on which the right to appeal has expired; (h) certain events of
bankruptcy, insolvency or reorganization affecting the Company or any of its
Significant Restricted Subsidiaries; or (i) other than as provided in or
pursuant to any Guarantee or the Indenture, the Guarantee of any Guarantor
that constitutes a Significant Restricted Subsidiary ceases to be in full
force and effect or is declared null and void and unenforceable or found to be
invalid or any Guarantor that is a Significant Restricted Subsidiary denies
its liability under its Guarantee (other than by reason of a release of such
Guarantor from its Guarantee in accordance with the terms of the Indenture and
such Guarantee).
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the
Trustee is under no obligation to exercise any of its rights or powers under
the Indenture at the request or direction of any of the Holders of Notes,
unless such Holders shall have offered to the Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the Trustee, the Holders
of a majority in aggregate principal amount of the outstanding Notes have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power
conferred on such Trustee.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (h) of the preceding
paragraph) occurs and is continuing, the Trustee or the Holders of at least
25% in aggregate principal amount of the outstanding Notes, by notice in
writing to the Company may declare the unpaid principal of (and premium, if
any) and accrued interest to the date of acceleration on all the outstanding
Notes to be due and payable immediately and, upon any such declaration, such
principal amount (and premium, if any) and accrued interest, notwithstanding
anything contained in the Indenture or the Notes to the contrary, will become
immediately due and payable; provided, however, that so long as the Amended
Credit Facility shall be in full force and effect, if an Event of Default
shall have occurred and be continuing (other than an Event of Default with
respect to the Company described in clause (h) of the second preceding
paragraph), the Notes shall not become due and payable until the earlier to
occur of (x) five business days following delivery
77
of written notice of such acceleration of the Notes to the agent under the
Amended Credit Facility and (y) the acceleration (ipso facto or otherwise) of
any Indebtedness under the Amended Credit Facility. If an Event or Default
specified in clause (h) of the preceding paragraph with respect to the Company
occurs under the Indenture, the Notes will ipso facto become immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder of the Notes.
Any such declaration with respect to the Notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding Notes
upon the conditions provided in the Indenture. For information as to waiver of
defaults, see "Modification and Waiver" below.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes
outstanding, give the Holders of the Notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it; provided, however, that,
except in the case of a Default or an Event of Default in payment with respect
to the Notes or a Default or Event of Default in complying with "Certain
Covenants--Merger, Sale of Assets, etc." above, the Trustee shall be protected
in withholding such notice if and so long as a committee of its trust officers
in good faith determines that the withholding of such notice is in the
interest of the Holders of the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee written notice of a continuing
Event of Default thereunder and unless the Holders of at least 25% of the
aggregate principal amount of the outstanding Notes shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as the Trustee, and the Trustee shall have not have received from
the Holders of a majority in aggregate principal amount of such outstanding
Notes a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. However, such limitations do not
apply to a suit instituted by a Holder of such a Note for enforcement of
payment of the principal of and premium, if any, or interest on such Note on
or after the respective due dates expressed in such Note.
The Company is required to furnish to the Trustee annually a statement as to
the performance by it of certain of its obligations under the Indenture and as
to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any
obligations of the Company or any of its Affiliates under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its and the Guarantors' substantive obligations in
respect of the Notes by delivering all outstanding Notes to the Trustee for
cancellation and paying all sums payable by it on account of principal of,
premium, if any, and interest on all Notes or otherwise. In addition to the
foregoing, the Company may, provided that no Default or Event of Default has
occurred and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default specified in clause (h) of "Events of Default"
above, occurs at any time on or prior to the 91st calendar day after the date
of such deposit (it being understood that this condition shall not be deemed
satisfied until after such 91st day)) under the Indenture and provided that no
default under any Senior Indebtedness would result therefrom, terminate its
and the Guarantors' substantive obligations in respect of the Notes (except
for its obligations to pay the principal of (and premium, if any, on) and the
interest on the Notes and the Guarantors' Guarantee thereof) by (i) depositing
with the Trustee, under the terms of an
78
irrevocable trust agreement, money or United States Government Obligations
sufficient (without reinvestment) to pay all remaining Indebtedness on such
Notes; (ii) delivering to the Trustee either an Opinion of Counsel or a ruling
directed to the Trustee from the Internal Revenue Service to the effect that
the Holders of the Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit and termination of
obligations; (iii) delivering to the Trustee an Opinion of Counsel to the
effect that the Company's exercise of its option under this paragraph will not
result in any of the Company, the Trustee or the trust created by the
Company's deposit of funds pursuant to this provision becoming or being deemed
to be an "investment company" under the Investment Company Act of 1940, as
amended (the "Investment Act"); and (iv) complying with certain other
requirements set forth in the Indenture. In addition, the Company may,
provided that no Default or Event of Default has occurred and is continuing or
would arise therefrom (or, with respect to a Default or Event of Default
specified in clause (h) of "Events of Default" above, occurs at any time on or
prior to the 91st calendar day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
91st day)) under the Indenture and provided that no default under any Senior
Indebtedness would result therefrom, terminate all of its and the Guarantors'
substantive obligations in respect of the Notes (including its obligations to
pay the principal of (and premium, if any, on) and interest on the Notes and
the Guarantors' Guarantee thereof) by (i) depositing with the Trustee, under
the terms of an irrevocable trust agreement, money or United States Government
Obligations sufficient (without reinvestment) to pay all remaining
Indebtedness on the Notes; (ii) delivering to the Trustee either a ruling
directed to the Trustee from the Internal Revenue Service to the effect that
the Holders of the Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and termination of obligations
or an Opinion of Counsel addressed to the Trustee based upon such a ruling or
based on a change in the applicable federal tax law since the date of the
Indenture, to such effect; (iii) delivering to the Trustee an Opinion of
Counsel to the effect that the Company's exercise of its option under this
paragraph will not result in any of the Company, the Trustee or the trust
created by the Company's deposit of funds pursuant to this provision becoming
or being deemed to be an "investment company" under the Investment Act; and
(iv) complying with certain other requirements set forth in the Indenture.
The Company may make an irrevocable deposit pursuant to this provision only
if at such time it is not prohibited from doing so under the subordination
provisions of the Indenture or certain covenants in the Senior Indebtedness
and the Company has delivered to the Trustee and any Paying Agent an Officers'
Certificate to that effect.
GOVERNING LAW
The Indenture, the Notes and the Guarantees are governed by the laws of the
State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company,
the Guarantors, and the Trustee with the consent of the Holders of a majority
in aggregate principal amount of the outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes);
provided, however, that no such modification or amendment to the Indenture
may, without the consent of the Holder of each Note affected thereby, (a)
change the maturity of the principal of or any installment of interest on any
such Note or alter the optional redemption or repurchase provisions of any
such Note or the Indenture in a manner adverse to the Holders of the Notes;
(b) reduce the principal amount of (or the premium) of any such Note; (c)
reduce the rate of or extend the time for payment of interest on any such
Note; (d) change the place or currency of payment of principal of (or premium)
or interest on any such Note; (e) modify any provisions of the Indenture
relating to the waiver of past defaults (other than to add sections of the
Indenture or the Notes subject thereto) or the right
79
of the Holders of Notes to institute suit for the enforcement of any payment
on or with respect to any such Note or any Guarantee in respect thereof or the
modification and amendment provisions of the Indenture and the Notes (other
than to add sections of the Indenture or the Notes which may not be amended,
supplemented or waived without the consent of each Holder therein affected);
(f) reduce the percentage of the principal amount of outstanding Notes
necessary for amendment to or waiver of compliance with any provision of the
Indenture or the Notes or for waiver of any Default in respect thereof; (g)
waive a default in the payment of principal of, interest on, or redemption
payment with respect to, the Notes (except a rescission of acceleration of the
Notes by the Holders thereof as provided in the Indenture and a waiver of the
payment default that resulted from such acceleration); (h) modify the ranking
or priority of any Note or the Guarantee in respect thereof of any Guarantor
or modify the definition of Senior Indebtedness or Guarantor Senior
Indebtedness or amend or modify the subordination provisions of the Indenture
in any manner adverse to the Holders of the Notes; (i) modify the provisions
of any covenant (or the related definitions) in the Indenture requiring the
Company to make an Offer to Purchase in the event of a Change of Control in a
manner materially adverse to the Holders of Notes affected thereby otherwise
than in accordance with the Indenture; or (j) release any Significant
Restricted Subsidiary that is a Guarantor from any of its obligations under
its Guarantee or the Indenture otherwise than in accordance with the
Indenture.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
and the Guarantors with certain restrictive provisions of the Indenture.
Subject to certain rights of the Trustee, as provided in the Indenture, the
Holders of a majority in aggregate principal amount of the Notes, on behalf of
all Holders, may waive any past default under the Indenture (including any
such waiver obtained in connection with a tender offer or exchange offer for
the Notes), except a default in the payment of principal, premium or interest
or a default arising from failure to purchase any Notes tendered pursuant to
an Offer to Purchase, or a default in respect of a provision that under the
Indenture cannot be modified or amended without the consent of the Holder of
each Note that is affected.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the
existence of a Default, the Trustee will exercise such rights and powers
vested in it under the Indenture and use the same degree of care and skill in
its exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, any Guarantor or any other obligor upon the
Notes, to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claim as security or otherwise.
The Trustee is permitted to engage in other transactions with the Company or
an Affiliate of the Company; provided, however, that if it acquires any
conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time
such Person becomes a Restricted Subsidiary or is merged or consolidated with
or into the Company or any Restricted Subsidiary.
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"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated with or merged into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, that for purposes of
the "Transactions with Affiliates" covenant, the term "Affiliate" shall not
include Chase Securities Inc. or its affiliates. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement
or otherwise.
"Amended Credit Facility" means the Second Amended, Restated and
Consolidated Credit Agreement, dated as of July 3, 1997, by and among the
Company, the Subsidiaries of the Company identified on the signature pages
thereof and any Subsidiary that is later added thereto, the lenders named
therein, and The Chase Manhattan Bank, as Administrative Agent, as amended,
including any deferrals, renewals, extensions, replacements, refinancings or
refundings thereof, or amendments, modifications or supplements thereto and
any agreement providing therefor (including any restatements thereof and any
increases in the amount of the commitment thereunder), whether by or with the
same or any other lender, creditor, group of lenders or group of creditors,
and including related notes, guarantee and note agreements and other
instruments and agreements executed in connection therewith.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including,
without limitation, any merger, consolidation or sale-leaseback transaction)
to any Person other than the Company or a Wholly Owned Restricted Subsidiary,
in one transaction or a series of related transactions, of (i) any Equity
Interest of any Restricted Subsidiary (other than directors' qualifying
shares, to the extent mandated by applicable law); (ii) any assets of the
Company or any Restricted Subsidiary which constitute substantially all of an
operating unit or line of business of the Company or any Restricted
Subsidiary; or (iii) any other property or asset of the Company or any
Restricted Subsidiary outside of the ordinary course of business (including
the receipt of proceeds paid on account of the loss of or damage to any
property or asset and awards of compensation for any asset taken by
condemnation, eminent domain or similar proceedings). For the purposes of this
definition, the term "Asset Sale" shall not include (a) any transaction
consummated in compliance with "Certain Covenants--Merger, Sale of Assets,
etc." above and the creation of any Lien not prohibited by "Certain
Covenants--Limitation on Liens" above; (b) sales of property or equipment that
has become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary, as
the case may be; (c) any transaction consummated in compliance with "Certain
Covenants--Limitation on Restricted Payments" above; (d) any transfers of
properties and assets between Wholly Owned Restricted Subsidiaries; (e) any
transaction pursuant to which the Company or any Restricted Subsidiary
transfers property to a Person and the Company or such Restricted Subsidiary
leases such property from such Person; provided, however, that such
transaction complies with "Limitation on Indebtedness" above; and (f) sales of
Investments (i) that were originally made pursuant to clause (a)
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of the definition of "Permitted Investments" or (ii) to the extent that such
Investments were treated as Restricted Payments. In addition, solely for
purposes of "Certain Covenants--Disposition of Proceeds of Asset Sales" above,
any sale, conveyance, transfer, lease or other disposition of any property or
asset, whether in one transaction or a series of related transactions,
involving assets with a Fair Market Value not in excess of $5.0 million in any
fiscal year shall be deemed not to be an Asset Sale.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be properly capitalized on the balance sheet in accordance
with GAAP.
"Cash Equivalents" means: (a) U.S. dollars; (b) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency
or instrumentality thereof having maturities of not more than six months from
the date of acquisition; (c) certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight
bank deposits, in each case with any domestic commercial bank having capital
and surplus in excess of $500 million; (d) repurchase obligations with a term
of not more than seven days for underlying securities of the types described
in clauses (b) and (c) above entered into with any financial institution
meeting the qualifications specified in clause (c) above; (e) commercial paper
rated P-1, A-1 or the equivalent thereof by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, respectively, and in each case maturing within
six months after the date of acquisition; and (f) corporate securities having
a rating equal to or higher than BBB- and Baa3, or the equivalents thereof, by
both Standard & Poors Ratings Group and Moody's Investor Service, Inc.,
respectively, if both such entities rate the securities, or having such rating
from one of such entities if only one such entity is rating such Securities.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act),
other than one or more Permitted Holders, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, upon the happening of an event
or otherwise), directly or indirectly, of more than 35% of the total voting
power of the then outstanding Voting Equity Interests of the Company; (ii) the
Company consolidates with, or merges with or into, another Person (other than
the Company or a Wholly Owned Restricted Subsidiary) or the Company or any of
its Subsidiaries sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of the assets of the Company and its
Subsidiaries (determined on a consolidated basis) to any Person (other than
the Company or any Wholly Owned Restricted Subsidiary), other than any such
transaction where immediately after such transaction the Person or Persons
that "beneficially owned" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time) immediately prior to such transaction, directly or indirectly, a
majority of the total voting power of the then outstanding Voting Equity
Interests of Holdings or the Company, as the case may be, "beneficially own"
(as so determined), directly or indirectly, a majority of the total voting
power of the then outstanding Voting Equity Interests of the surviving or
transferee Person; (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the shareholders
of the Company was approved by a vote of a majority of the directors of the
Company
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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
Company then in office; or (iv) the Company is liquidated or dissolved or
adopts a plan of liquidation or dissolution other than in a transaction which
complies with the provisions described under "Certain Covenants--Merger, Sale
of Assets, etc."
"Change of Control Date" has the meaning set forth under "Offer to Purchase
upon Change of Control" above.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter
period of the most recent four consecutive fiscal quarters for which financial
statements are available ending prior to the date of such determination (the
"Four Quarter Period") to (ii) Consolidated Fixed Charges for such Four
Quarter Period; provided, however, that (1) if the Company or any Restricted
Subsidiary has incurred any Indebtedness since the beginning of such Four
Quarter Period that remains outstanding on such date of determination or if
the transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an Incurrence of Indebtedness, Consolidated EBITDA and Consolidated
Fixed Charges for such Four Quarter Period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been Incurred on the first day of such Four Quarter Period and the discharge
of any other Indebtedness repaid, repurchased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such Four Quarter Period, (2) if since the beginning of such Four
Quarter Period the Company or any Restricted Subsidiary shall have made any
Asset Sale, the Consolidated EBITDA for such Four Quarter Period shall be
reduced by an amount equal to the Consolidated EBITDA (if positive) directly
attributable to the assets that are the subject of such Asset Sale for such
Four Quarter Period or increased by an amount equal to the Consolidated EBITDA
(if negative) directly attributable thereto for such Four Quarter Period and
Consolidated Fixed Charges for such Four Quarter Period shall be reduced by an
amount equal to the Consolidated Fixed Charges directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased
or otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Sale for such Four
Quarter Period (or, if the Equity Interests of any Restricted Subsidiary are
sold, the Consolidated Fixed Charges for such Four Quarter Period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent
the Company and its continuing Restricted Subsidiaries are no longer liable
for such Indebtedness after such sale), (3) if since the beginning of such
Four Quarter Period the Company or any Restricted Subsidiary (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person that becomes a Restricted Subsidiary) or an acquisition of assets,
including any acquisition of assets occurring in connection with a transaction
causing a calculation to be made hereunder, which constitutes all or
substantially all of an operating unit or a line of a business or which
constitutes Replacement Assets, Consolidated EBITDA and Consolidated Fixed
Charges for such Four Quarter Period shall be calculated after giving pro
forma effect to (x) such Investment or acquisition of assets (including the
Incurrence of any Indebtedness) as if such Investment or acquisition occurred
on the first day of such Four Quarter Period and (y) net cost savings that the
Company reasonably believes in good faith could have been achieved during the
Four Quarter Period as a result of such Investment or acquisition and which
cost savings could then be reflected in pro forma financial statements under
GAAP (provided that both (A) such cost savings were identified and quantified
in an Officer's Certificate delivered to the Trustee at the time of the
consummation of the Investment or acquisition and (B) with respect to each
Investment or acquisition completed prior to the 90th day preceding such date
of determination, actions were commenced or initiated by the Company within 90
days of such Investment or acquisition to effect such cost savings identified
in such officer's certificate and (4) if since the beginning of such Four
Quarter Period any Person (that subsequently became a Restricted Subsidiary or
was merged with or into the Company or any Restricted Subsidiary since the
beginning of such Four Quarter Period) shall have made any Asset Sale or any
Investment
83
or acquisition of assets that would have required an adjustment pursuant to
clause (2) or (3) above if made by the Company or a Restricted Subsidiary
during such Four Quarter Period, Consolidated EBITDA and Consolidated Fixed
Charges for such Four Quarter Period shall be calculated after giving pro
forma effect thereto as if such Asset Sale, Investment or acquisition of
assets occurred on, with respect to any Investment or acquisition, the first
day of such Four Quarter Period and, with respect to any Asset Sale, the day
prior to the first day of such Four Quarter Period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Fixed Charges associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in
accordance with GAAP. If any Indebtedness bears a floating rate of interest
and is being given pro forma effect, the interest expense on such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any
agreement under which Interest Rate Protection Obligations are outstanding
applicable to such Indebtedness if such agreement under which such Hedging
Obligations are outstanding has a remaining term as at the date of
determination in excess of 12 months); provided, however, that the
Consolidated Fixed Charges of the Company attributable to interest on any
Indebtedness Incurred under a revolving credit facility computed on a pro
forma basis shall be computed based upon the average daily balance of such
Indebtedness during the Four Quarter Period.
"Consolidated EBITDA" means, for any period, the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) Consolidated Income Tax Expense for such period;
(ii) Consolidated Interest Expense for such period; (iii) Consolidated Non-
cash Charges for such period; and (iv) expenses relating to employee profit
sharing arising in connection with applicable Mexican statutory requirements
less (A) all non-cash items increasing Consolidated Net Income for such period
and (B) all cash payments during such period relating to non-cash charges that
were added back in determining Consolidated EBITDA in any prior period.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense and
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Equity Interest of such Person (other than dividends paid solely in
Qualified Equity Interests) paid, accrued or scheduled to be paid or accrued
during such period times (y) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective consolidated
federal, state and local tax rate of such Person, expressed as a decimal.
"Consolidated Income Tax Expense" means, with respect to the Company for any
period, the provision for Federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the
Company and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount, (b) the net cost under Hedging Obligations,
(c) the interest portion of any deferred payment obligation, (d) all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and (e) all capitalized interest
and all accrued interest and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by the
Company and the Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net income
(loss) of the Company and the Restricted Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such person is not a Restricted
84
Subsidiary, except (A) to the extent of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution and (B) the Company's equity in a net loss of
any such Person (other than an Unrestricted Subsidiary) for such period shall
be included in determining such Consolidated Net Income; (ii) any net income
(loss) of any person acquired by the Company or a Restricted Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income (but not loss) of any Restricted Subsidiary
if such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company to the extent of
such restrictions; (iv) any gain or loss realized upon the sale or other
disposition of any asset of the Company or the Restricted Subsidiaries
(including pursuant to any sale/leaseback transaction) outside of the ordinary
course of business; (v) any extraordinary gain or loss; (vi) the cumulative
effect of a change in accounting principles; (vii) any restoration to income
of any contingency reserve of an extraordinary, non-recurring or unusual
nature, except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date; and
(viii) gains and losses resulting from foreign currency transaction
adjustments.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Equity
Interests of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period the sum of (i) depreciation, (ii) amortization and (iii) other non-cash
expenses of such Person and its Restricted Subsidiaries reducing Consolidated
Net Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP (excluding, for
purposes of clause (iii) only, such charges which require an accrual of or a
reserve for cash charges for any future period).
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means (a) any Indebtedness outstanding
under the Amended Credit Facility and (b) any other Senior Indebtedness which,
at the time of determination, has an aggregate principal amount outstanding,
together with any commitments to lend additional amounts, of at least $25.0
million, if the instrument governing such Senior Indebtedness expressly states
that such Indebtedness is "Designated Senior Indebtedness" for purposes of the
Indenture and a Board Resolution setting forth such designation by the Company
has been filed with the Trustee.
"Designation" has the meaning set forth under "Certain Covenants--
Designation of Unrestricted Subsidiaries" above.
"Designation Amount" has the meaning set forth under "Certain Covenants--
Designation of Unrestricted Subsidiaries" above.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such
Person is the Surviving Person) or the sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of such Person's
assets.
"Disqualified Equity Interest" means any Equity Interest which, by its terms
(or by the terms of any security into which it is convertible or for which it
is exchangeable at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof
(except, in each case, upon the occurrence of a Change of Control), in whole
or in part, or exchangeable into Indebtedness on or prior to the earlier of
the maturity date of the Notes or the date on which no Notes remain
outstanding.
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"Domestic Restricted Subsidiary" means a Restricted Subsidiary of the
Company organized under the laws of the United States or any political
subdivision thereof or the operations of which are located substantially
inside the United States.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited,
in such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair
Market Value of any such asset or assets shall be determined conclusively by
the Board of Directors of the Company acting in good faith, and shall be
evidenced by resolutions of the Board of Directors of the Company delivered to
the Trustee.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary of the Company
not organized under the laws of the United States or any political subdivision
thereof and the operations of which are located substantially outside of the
United States.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantee" means the guarantee of the Notes by each Guarantor under the
Indenture.
"Guarantor" means (i) each Domestic Restricted Subsidiary in existence on
the Issue Date, (ii) Fabrene Group, Inc., and (iii) each other Restricted
Subsidiary, formed, created or acquired before or after the Issue Date,
required to become a Guarantor after the Issue Date pursuant to "Limitation on
Guarantees by Restricted Subsidiaries" above.
"Guarantor Senior Indebtedness" means, with respect to any Guarantor, at any
date, (a) all Obligations of such Guarantor under the Amended Credit Facility;
(b) all Hedging Obligations of such Guarantor; (c) all Obligations of such
Guarantor under stand-by letters of credit; and (d) all other Indebtedness of
such Guarantor for borrowed money, including principal, premium, if any, and
interest (including Post-Petition Interest) on such Indebtedness unless the
instrument under which such Indebtedness of such Guarantor for money borrowed
is Incurred expressly provides that such Indebtedness for money borrowed is
not senior or superior in right of payment to such Guarantor's
86
Guarantee of the Notes, and all renewals, extensions, modifications,
amendments or refinancings thereof. Notwithstanding the foregoing, Guarantor
Senior Indebtedness shall not include (a) to the extent that it may constitute
Indebtedness, any Obligation for federal, state, local or other taxes; (b) any
Indebtedness among or between such Guarantor and any Subsidiary of such
Guarantor or any Affiliate of such Guarantor or any of such Affiliate's
Subsidiaries; unless, and for so long as such Indebtedness has been pledged to
secure obligations under or in respect of Guarantor Senior Indebtedness; (c)
to the extent that it may constitute Indebtedness, any Obligation in respect
of any trade payable Incurred for the purchase of goods or materials, or for
services obtained, in the ordinary course of business; (d) that portion of any
Indebtedness that is Incurred in violation of the Indenture; (e) Indebtedness
evidenced by such Guarantor's Guarantee of the Notes; (f) Indebtedness of such
Guarantor that is expressly subordinate or junior in right of payment to any
other Indebtedness of such Guarantor; (g) to the extent that it may constitute
Indebtedness, any obligation owing under leases (other than Capitalized Lease
Obligations) or management agreements; (h) any obligation that by operation of
law is subordinate to any general unsecured obligations of such Guarantor; (i)
Indebtedness represented by guarantees of the Existing Notes; and (j)
Indebtedness of a Guarantor to the extent such Indebtedness is owed to and
held by any Federal, state, local or other governmental authority.
"Hedging Agreement" means, with respect to any Person, all interest rate
swap or similar agreements or foreign currency or commodity hedge, exchange or
similar agreements of such Person.
"Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under Hedging Agreements.
"Holders" means the registered holders of the Notes.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to
GAAP or otherwise, of any such Indebtedness or other obligation on the balance
sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall have
meanings correlative to the foregoing). Indebtedness of any Acquired Person or
any of its Subsidiaries existing at the time such Acquired Person becomes a
Restricted Subsidiary (or is merged into or consolidated with the Company or
any Restricted Subsidiary), whether or not such Indebtedness was Incurred in
connection with, as a result of, or in contemplation of, such Acquired Person
becoming a Restricted Subsidiary (or being merged into or consolidated with
the Company or any Restricted Subsidiary), shall be deemed Incurred at the
time any such Acquired Person becomes a Restricted Subsidiary or merges into
or consolidates with the Company or any Restricted Subsidiary.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (a) every obligation of such Person for money
borrowed; (b) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in
connection with the acquisition of property, assets or businesses; (c) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person; (d) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable
incurred in the ordinary course of business and payable in accordance with
industry practices, or other accrued liabilities arising in the ordinary
course of business which are not overdue or which are being contested in good
faith); (e) every Capital Lease Obligation of such Person; (f) every net
obligation under Hedging Agreements of such Person; (g) every obligation of
the type referred to in clauses (a) through (f) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has guaranteed or is responsible or liable for, directly or indirectly, as
obligor, guarantor or otherwise; and (h) any and all deferrals,
87
renewals, extensions and refundings of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a) through (g) above. Indebtedness (a) shall never be calculated
taking into account any cash and cash equivalents held by such Person; (b)
shall not include obligations of any Person (x) arising from the honoring by a
bank or other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business, provided that such obligations are extinguished within two Business
Days of their incurrence, (y) resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business and consistent
with past business practices and (z) under stand-by letters of credit to the
extent collateralized by cash or Cash Equivalents; (c) which provides that an
amount less than the principal amount thereof shall be due upon any
declaration of acceleration thereof shall be deemed to be incurred or
outstanding in an amount equal to the accreted value thereof at the date of
determination; (d) shall include the liquidation preference and any mandatory
redemption payment obligations in respect of any Disqualified Equity Interests
of the Company or any Restricted Subsidiary; and (e) shall not include
obligations under performance bonds, performance guarantees, surety bonds and
appeal bonds, letters of credit or similar obligations, incurred in the
ordinary course of business.
"Independent Financial Advisor" means a nationally recognized, accounting,
appraisal, investment banking firm or consultant which, in the judgment of the
Board of Directors of the Company, is independent and qualified to perform the
task for which it is to be engaged.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"Interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest (as defined under "Registration Rights" below) on
the Notes.
"Investment" means, with respect to any Person, any direct or indirect loan,
advance, guarantee or other extension of credit or capital contribution to (by
means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. For
purposes of the "Limitation on Restricted Payments" covenant above, the amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to
such Investment; reduced by the payment of dividends or distributions in
connection with such Investment or any other amounts received in respect of
such Investment; provided, however, that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income. If the Company or
any Restricted Subsidiary sells or otherwise disposes of any Voting Equity
Interests of any direct or indirect Restricted Subsidiary such that, after
giving effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, greater than 50% of the outstanding Voting Equity
Interests of such Restricted Subsidiary, the Company shall be deemed to have
made an Investment on the date of any such sale or disposition.
"Issue Date" means the original issue date of the Notes.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Maturity Date" means the date, which is set forth on the face of the Notes,
on which the Notes will mature.
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"Net Cash Proceeds" means the aggregate proceeds in the form of cash or Cash
Equivalents received by the Company or any Restricted Subsidiary in respect of
any Asset Sale, including all cash or Cash Equivalents received upon any sale,
liquidation or other exchange of proceeds of Asset Sales received in a form
other than cash or Cash Equivalents, net of (a) the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board
of Directors of the Company to be provided as a reserve, in accordance with
GAAP, against any liabilities associated with such assets which are the
subject of such Asset Sale; including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee (provided that the amount of any such reserves shall be deemed to
constitute Net Cash Proceeds at the time such reserves shall have been
reversed or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by Restricted Subsidiaries, the portion of such
cash payments attributable to Persons holding a minority interest in such
Restricted Subsidiary.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
"Offer to Purchase" means a written offer (the "Offer") sent by or on behalf
of the Company by first-class mail, postage prepaid, to each holder at his
address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such
Offer at the purchase price specified in such Offer (as determined pursuant to
the Indenture if so required). Unless otherwise required by applicable law,
the Offer shall specify an expiration date (the "Expiration Date") of the
Offer to Purchase, which shall be not less than 20 Business Days nor more than
60 days after the date of such Offer, and a settlement date (the "Purchase
Date") for purchase of Notes to occur no later than five Business Days after
the Expiration Date. The Company shall notify the Trustee at least 15 Business
Days (or such shorter period as is acceptable to the Trustee) prior to the
mailing of the Offer of the Company's obligation to make an Offer to Purchase,
and the Offer shall be mailed by the Company or, at the Company's request, by
the Trustee in the name and at the expense of the Company. The Offer shall
contain all the information required by applicable law to be included therein.
The Offer shall contain all instructions and materials necessary to enable
such Holders to tender Notes pursuant to the Offer to Purchase. The Offer
shall also state: (1) the Section of the Indenture pursuant to which the Offer
to Purchase is being made; (2) the Expiration Date and the Purchase Date; (3)
the aggregate principal amount of the outstanding Notes offered to be
purchased by the Company pursuant to the Offer to Purchase (including, if less
than 100%, the manner by which such amount has been determined pursuant to the
Section of the Indenture requiring the Offer to Purchase) (the "Purchase
Amount"); (4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Indenture) (the "Purchase Price"); (5) that the Holder may
tender all or any portion of the Notes registered in the name of such Holder
and that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount; (6) the place or places where Notes are
to be surrendered for tender pursuant to the Offer to Purchase; (7) that
interest on any Note not tendered or tendered but not purchased by the Company
pursuant to the Offer to Purchase will continue to accrue; (8) that on the
Purchase Date the Purchase Price will become due and payable upon each Note
being accepted for payment pursuant to the Offer to Purchase and that interest
thereon shall cease to accrue on and after
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the Purchase Date; (9) that each Holder electing to tender all or any portion
of a Note pursuant to the Offer to Purchase will be required to surrender such
Note at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being, if the Company or the
Trustee so requires, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing); (10) that
(a) if Notes in an aggregate principal amount less than or equal to the
Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to
Purchase, the Company shall purchase all such Notes and (b) if Notes in an
aggregate principal amount in excess of the Purchase Amount are tendered and
not withdrawn pursuant to the Offer to Purchase, the Company shall purchase
Notes having an aggregate principal amount equal to the Purchase Amount on a
pro rata basis (with such adjustments as may be deemed appropriate so that
only Notes in denominations of $1,000 principal amount or integral multiples
thereof shall be purchased); and (11) that in the case of any Holder whose
Note is purchased only in part, the Company shall execute and the Trustee
shall authenticate and deliver to the Holder of such Note without service
charge, a new Note or Notes, of any authorized denomination as requested by
such Holder, in an aggregate principal amount equal to and in exchange for the
unpurchased portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holder" means Golder, Thoma, Cressey Fund III Limited
Partnership, The InterTech Group, Inc. (for so long as Messrs. Zucker and Boyd
own 100% of the issued and outstanding stock thereof), Mr. Zucker and Mr. Boyd
and members of either of their immediate families and trusts of which such
persons are the beneficiaries and The Chase Manhattan Corporation and its
subsidiaries or The Chase Manhattan Foundation.
"Permitted Indebtedness" has the meaning set forth in the second paragraph
of "Certain Covenants--Limitation on Indebtedness" above.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits; (c)
Hedging Obligations; (d) bonds, notes, debentures or other securities received
as a result of Asset Sales permitted under "Certain Covenants--Disposition of
Proceeds of Asset Sales" above not to exceed 25% of the total consideration
for such Asset Sales; (e) Investments in the Company and Investments in a
Restricted Subsidiary or a Person that, as a result of or in connection with
such Investment, becomes a Restricted Subsidiary or is merged with or into or
consolidated with the Company or another Restricted Subsidiary; (f)
Investments existing as of the Issue Date; and (g) any Investment consisting
of a guarantee by a Restricted Subsidiary of Senior Indebtedness or any
guarantee of Indebtedness otherwise permitted by the Indenture.
"Permitted Junior Securities" means any securities of the Company or any
other Person that are (i) equity securities without special covenants or (ii)
debt securities expressly subordinated in right of payment to all Senior
Indebtedness that may at the time be outstanding, to substantially the same
extent as, or to a greater extent than, the Notes are subordinated as provided
in the Indenture, in any event pursuant to a court order so providing and as
to which (a) the rate of interest on such securities shall not exceed the
effective rate of interest on the Notes on the date of the Indenture, (b) such
securities shall not be entitled to the benefits of covenants or defaults
materially more beneficial to the holders of such securities than those in
effect with respect to the Notes on the date of the Indenture and (c) such
securities shall not provide for amortization (including sinking fund and
mandatory prepayment provisions) commencing prior to the date six months
following the final scheduled maturity
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date of the Senior Indebtedness (as modified by the plan of reorganization of
readjustment pursuant to which such securities are issued).
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure
any property or assets of the Company or any Restricted Subsidiary other than
the property or assets subject to the Liens prior to such merger or
consolidation; (b) Liens imposed by law such as carriers', warehousemen's and
mechanics' Liens and other similar Liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due or
which are being contested in good faith and by appropriate proceedings; (c)
Liens existing on the Issue Date; (d) Liens securing only the Notes or the
Guarantees; (e) Liens in favor of the Company or any Restricted Subsidiary
(including any such Liens securing Indebtedness, to the extent and for so long
as such Indebtedness is pledged to secure Senior Indebtedness); (f) Liens for
taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided, however,
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (g) easements, reservation
of rights of way, restrictions and other similar easements, licenses,
restrictions on the use of properties, or minor imperfections of title that in
the aggregate do not in any case materially detract from the properties
subject thereto or interfere with the ordinary conduct of the business of the
Company and the Restricted Subsidiaries; (h) Liens resulting from the deposit
of cash or notes in connection with contracts, tenders or expropriation
proceedings, or to secure workers' compensation, surety or appeal bonds, costs
of litigation when required by law and public and statutory obligations or
obligations under franchise arrangements entered into in the ordinary course
of business; (i) Liens securing Indebtedness consisting of Capital Lease
Obligations, Purchase Money Indebtedness, mortgage financings, industrial
revenue bonds or other monetary obligations, in each case incurred solely for
the purpose of financing all or any part of the purchase price or cost of
construction or installation of assets used in the business of the Company or
the Restricted Subsidiaries, or repairs, additions or improvements to such
assets, provided, however, that (I) such Liens secure Indebtedness in an
amount not in excess of the original purchase price or the original cost of
any such assets or repair, addition or improvement thereto (plus an amount
equal to the reasonable fees and expenses in connection with the incurrence of
such Indebtedness), (II) such Liens do not extend to any other assets of the
Company or the Restricted Subsidiaries (and, in the case of repair, addition
or improvements to any such assets, such Lien extends only to the assets (and
improvements thereto or thereon) repaired, added to or improved), (III) the
Incurrence of such Indebtedness is permitted by "Certain Covenants--Limitation
on Indebtedness" above and (IV) such Liens attach within 90 days of such
purchase, construction, installation, repair, addition or improvement; and (j)
Liens to secure any refinancings, renewals, extensions, modifications or
replacements (collectively, "refinancing") (or successive refinancings), in
whole or in part, of any Indebtedness secured by Liens referred to in the
clauses above so long as such Lien does not extend to any other property
(other than improvements thereto).
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person
in accordance with and at the contract rate (including, without limitation,
any rate applicable upon default) specified in the agreement or instrument
creating, evidencing or governing such Indebtedness, whether or not, pursuant
to applicable law or otherwise, the claim for such interest is allowed as a
claim in such Insolvency or Liquidation Proceeding.
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"Preferred Equity Interest", in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over
Equity Interests of any other class in such Person.
"principal" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"Public Equity Offering" means, with respect to the Company, an underwritten
public offering of Qualified Equity Interests of the Company pursuant to an
effective registration statement filed under the Securities Act (excluding
registration statements filed on Form S-8).
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price, or the cost of construction or improvement of any
property; provided, however, that the aggregate principal amount of such
Indebtedness does not exceed the lesser of the Fair Market Value of such
property or such purchase price or cost, including any refinancing of such
Indebtedness that does not increase the aggregate principal amount (or
accreted amount, if less) thereof as of the date of refinancing.
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Redemption Date" has the meaning set forth in the third paragraph of
"Optional Redemption" above.
"Replacement Assets" has the meaning set forth in the first paragraph under
"Certain Covenants--Disposition of Proceeds of Asset Sales" above.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of
the Board of Directors of the Company delivered to the Trustee, as an
Unrestricted Subsidiary pursuant to "Certain Covenants--Designation of
Unrestricted Subsidiaries" above. Any such designation may be revoked by a
resolution of the Board of Directors of the Company delivered to the Trustee,
subject to the provisions of such covenant.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means, at any date, (a) all Obligations of the Company
under the Amended Credit Facility; (b) all Hedging Obligations of the Company;
(c) all Obligations of the Company under stand-by letters of credit; and (d)
all other Indebtedness of the Company for borrowed money, including principal,
premium, if any, and interest (including Post-Petition Interest) on such
Indebtedness, unless the instrument under which such Indebtedness of the
Company for money borrowed is Incurred expressly provides that such
Indebtedness for money borrowed is not senior or superior in right of payment
to the Notes, and all renewals, extensions, modifications, amendments or
refinancings thereof. Notwithstanding the foregoing, Senior Indebtedness shall
not include (a) to the extent that it may constitute Indebtedness, any
Obligation for Federal, state, local or other taxes; (b) any Indebtedness
among or between the Company and any Subsidiary of the Company or any
Affiliate of the Company or any of such Affiliate's Subsidiaries; unless and
for so long as such Indebtedness has been pledged to secure obligations under
or in respect of Senior Indebtedness; (c) to the extent that it
92
may constitute Indebtedness, any Obligation in respect of any trade payable
Incurred for the purchase of goods or materials, or for services obtained, in
the ordinary course of business; (d) that portion of any Indebtedness that is
Incurred in violation of the Indenture; (e) Indebtedness evidenced by the
Notes; (f) Indebtedness of the Company that is expressly subordinate or junior
in right of payment to any other Indebtedness of the Company; (g) to the
extent that it may constitute Indebtedness, any obligation owing under leases
(other than Capitalized Lease Obligations) or management agreements; (h) any
obligation that by operation of law is subordinate to any general unsecured
obligations of the Company; (i) Indebtedness represented by the Existing
Notes; and (j) Indebtedness of the Company to the extent such Indebtedness is
owed to and held by any Federal, state, local or other governmental authority.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness
is to rank pari passu in right of payment with the Notes and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness.
"Significant Restricted Subsidiary" means, at any date of determination, (a)
any Restricted Subsidiary that, together with its Subsidiaries that constitute
Restricted Subsidiaries (i) for the most recent fiscal year of the Company
accounted for more than 10.0% of the consolidated revenues of the Company and
the Restricted Subsidiaries or (ii) as of the end of such fiscal year, owned
more than 10.0% of the consolidated assets of the Company and the Restricted
Subsidiaries, all as set forth on the consolidated financial statements of the
Company and the Restricted Subsidiaries for such year prepared in conformity
with GAAP, and (b) any Restricted Subsidiary which, when aggregated with all
other Restricted Subsidiaries that are not otherwise Significant Restricted
Subsidiaries and as to which any event described in clause (h) of "Events of
Default" above has occurred, would constitute a Significant Restricted
Subsidiary under clause (a) of this definition.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable.
"Subordinated Indebtedness" means, with respect to the Company or any
Guarantor, any Indebtedness of the Company or such Guarantor, as the case may
be, which is expressly subordinated in right of payment to the Notes or such
Guarantor's Guarantee, as the case may be.
"Subsidiary" means, with respect to any Person, (a) any corporation of which
the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, through one or more Persons by such Person, or
(b) any other Person of which at least a majority of Voting Equity Interests
are at the time, directly or indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or
the Person to which such Disposition is made.
"United States Government Obligations" means direct non-callable obligations
of the United States of America for the payment of which the full faith and
credit of the United States is pledged.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to "Certain Covenants--Designation of Unrestricted Subsidiaries"
above. Any such designation may be revoked by a resolution of the Board of
Directors of the Company delivered to the Trustee, subject to the provisions
of such covenant.
"Unutilized Net Cash Proceeds" has the meaning set forth in the third
paragraph under "Certain Covenants--Disposition of Proceeds of Asset Sales"
above.
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"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company and/or one
or more Wholly Owned Restricted Subsidiaries.
BOOK-ENTRY; DELIVERY AND FORM
The Notes initially will be represented by one or more permanent global
certificates in definitive, duly registered form (the "Global Notes"). The
Global Notes will be deposited on the date of issuance with, or on behalf of,
The Depository Trust Company, New York, New York ("DTC") and registered in the
name of a nominee of DTC.
The Global Notes. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes
of the individual beneficial interests represented by such Global Notes to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Notes will be shown on, and
the transfer of such ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants)
and the records of participants (with respect to interests of persons other
than participants). Such accounts initially will be designated by or on behalf
of the Initial Purchaser and ownership of beneficial interests in the Global
Notes will be limited to persons who have accounts with DTC ("participants")
or persons who hold interests through participants. QIBs and institutional
Accredited Investors who are not QIB's may hold their interests in the Global
Notes directly through DTC if they are participants in such system, or
indirectly through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes
will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes.
Payments of the principal of, premium (if any) and interest on the Global
Notes will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee or any Paying Agent
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Notes or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, and interest on the Global Notes, will credit
participants' accounts with payments in amount proportionate to their
respective beneficial interests in the principal amount of the Global Notes as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in the Global Notes
held through such participants will be
94
governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery of a
certificate in registered form (a "Certificated Security") for any reason,
including to sell Notes to persons in states which require physical delivery
of the Notes, or to pledge such securities, such holder must transfer its
interest in a Global Note in accordance with the normal procedures of DTC and
with the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if
there is an Event of Default under the Indenture, DTC will exchange the Global
Notes for Certificated Securities, which it will distribute to its
participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Issuer within 90 days, Certificated Securities will be issued
in exchange for the Global Notes.
REGISTRATION RIGHTS
The following description of the Registration Rights Agreement is a summary
only, does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all provisions of the Registration Rights
Agreement.
DEFINITIONS. As used in this section, the following terms shall have the
following meanings:
Closing Date: July 3, 1997, the closing date of the Initial Offering of the
Old Notes.
Effectiveness Date: The 150th day after the Closing Date; provided, however,
that, with respect to the Initial Shelf Registration Statement, (i) if the
Filing Date in respect thereof is fewer than 60 days
95
prior to the 150th day after the Closing Date, then the Effectiveness Date in
respect thereof shall be the 60th day after such Filing Date and (ii) if the
Filing Date is after the filing of the Exchange Offer Registration Statement
with the SEC, then the Effectiveness Date in respect thereof shall be the 60th
day after such Filing Date.
Expiration Date: The 30th day after the Effectiveness Date; provided,
however, that if the Exchange Offer is required by applicable law to be open
for a period of more than 30 days, the Expiration Date shall mean the last
date of such period.
Filing Date: The 60th day after the Closing Date; provided, however, that,
with respect to the Initial Shelf Registration Statement, (i) if a Shelf
Registration Event shall have occurred fewer than 30 days prior to the 60th
day after the Closing Date, then the Filing Date in respect thereof shall be
the 30th day after such Shelf Registration Event and (ii) if a Shelf
Registration Event shall have occurred after the filing of the Exchange Offer
Registration Statement with the SEC, then the Filing Date in respect thereof
shall be the 30th day after such Shelf Registration Event.
Registrable Securities: The Old Notes upon original issuance thereof and at
all times subsequent thereto, each Exchange Note (as defined below) as to
which clause (v) of paragraph (b) of "The Exchange Offer--Purpose and Effect
of the Exchange Offer" below is applicable upon original issuance and at all
times subsequent thereto and, if issued, the Private Exchange Notes (as
defined in the Registration Rights Agreement), until in the case of any such
Old Notes, Exchange Notes or Private Exchange Notes, as the case may be, (i) a
Registration Statement (other than, with respect to any Exchange Note as to
which clause (v) of paragraph (b) of "The Exchange Offer--Purpose and Effect
of the Exchange Offer" below is applicable, the Exchange Offer Registration
Statement) covering such Old Notes, Exchange Notes or Private Exchange Notes
has been declared effective by the SEC and such Old Notes, Exchange Notes or
Private Exchange Notes, as the case may be, have been disposed of in
accordance with such effective Registration Statement, (ii) such Old Notes,
Exchange Notes or Private Exchange Notes, as the case may be, are sold in
compliance with Rule 144 under the Securities Act, (iii) such Old Note has
been exchanged for an Exchange Note pursuant to the Exchange Offer and clause
(v) of paragraph (b) of "The Exchange Offer--Purpose and Effect of the
Exchange Offer" below is not applicable thereto, or (iv) such Old Notes,
Exchange Notes or Private Exchange Notes, as the case may be, cease to be
outstanding.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on July 3, 1997 to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently resold the Old Notes to qualified institutional buyers in
reliance on Rule 144A under the Securities Act. As a condition to the Purchase
Agreement, the Company, the Guarantors and the Initial Purchaser entered into
the Registration Rights Agreement on the date of the Initial Offering (the
"Issue Date"). Certain terms of the Registration Rights Agreement are
summarized as follows:
(a) The Company and each of the Guarantors agree to file with the Securities
and Exchange Commission (the "SEC" or "Commission"), on or before the Filing
Date, an offer to exchange (the "Exchange Offer") any and all of the
Registrable Securities for a like aggregate principal amount of senior
subordinated debt securities of the Company which are identical to the Old
Notes and are guaranteed, jointly and severally, by each of the Guarantors
(the "Exchange Notes") (and which are entitled to the benefits of a trust
indenture which is identical to the Indenture (other than such changes as are
necessary to comply with any requirements of the SEC to effect or maintain the
qualification of such trust indenture under the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act"))
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and which has been qualified under the Trust Indenture Act), except that the
Exchange Notes shall have been registered pursuant to an effective
Registration Statement under the Securities Act and shall contain no
restrictive legend thereon. The Exchange Offer will be registered under the
Securities Act on the appropriate form (the "Exchange Offer Registration
Statement") and will comply with all applicable tender offer rules and
regulations under the Exchange Act. The Company and each of the Guarantors
agree to use their respective best efforts to (i) cause the Exchange Offer
Registration Statement to become effective and commence the Exchange Offer on
or prior to the Effectiveness Date, (ii) keep the Exchange Offer open until
the Expiration Date and (iii) exchange Exchange Notes for all Notes validly
tendered and not withdrawn pursuant to the Exchange Offer on or prior to the
fifth day following the Expiration Date.
The Company and each of the Guarantors shall use their respective best
efforts to keep the Exchange Offer Registration Statement effective and to
amend and supplement the prospectus contained therein in order to permit such
prospectus to be lawfully delivered by all persons subject to the prospectus
delivery requirements of the Securities Act for at least 180 days (or such
shorter time as such persons must comply with such requirements in order to
resell the Exchange Notes) (the "Applicable Period").
(b) If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company is not permitted to
effect the Exchange Offer, (ii) the Exchange Offer is not commenced on or
prior to the Effectiveness Date, (iii) the Exchange Offer is not, for any
reason, consummated on or prior to the fifth day after the Expiration Date,
(iv) any Holder of Private Exchange Notes so requests, or (v) in the case of
any Holder that participates in the Exchange Offer, such Holder does not
receive Exchange Notes on the date of the exchange that may be sold without
restriction under Federal securities laws (the occurrence of any such event, a
"Shelf Registration Event"), then, in the case of each of clauses (i) through
(v) of this sentence, the Company shall promptly deliver to the Holders and
the Trustee notice thereof (the "Shelf Notice") and thereafter the Company and
each of the Guarantors shall file an Initial Shelf Registration Statement
pursuant to the terms of the Registration Rights Agreement.
SHELF REGISTRATION. If a Shelf Registration Event has occurred (and whether
or not an Exchange Offer Registration Statement has been filed with the SEC or
has become effective, or the Exchange Offer has been consummated), then:
(a) Initial Shelf Registration Statement. The Company and each of the
Guarantors shall promptly prepare and file with the SEC a Registration
Statement for an offering to be made on a continuous basis pursuant to Rule
415 covering all of the Registrable Securities (the "Initial Shelf
Registration Statement"). The Company and each of the Guarantors shall file
with the SEC the Initial Shelf Registration Statement on or prior to the
Filing Date. The Initial Shelf Registration Statement shall be on Form S-1 or
another appropriate form if available, permitting registration of such
Registrable Securities for resale by such holders in the manner designated by
them (including, without limitation, in one or more underwritten offerings).
The Company and each of the Guarantors shall not permit any securities other
than the Registrable Securities to be included in the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement. The
Company and each of the Guarantors shall use their respective best efforts to
cause the Initial Shelf Registration Statement to be declared effective under
the Securities Act on or prior to the Effectiveness Date, and to keep the
Initial Shelf Registration Statement continuously effective under the
Securities Act until the date which is 24 months from the Closing Date or such
shorter period ending when (i) all Registrable Securities covered by the
Initial Shelf Registration Statement have been sold in the manner set forth
and as contemplated in the Initial Shelf Registration Statement or (ii) a
Subsequent Shelf Registration Statement covering all of the Registrable
Securities has been declared effective under the Securities Act (such 24 month
or shorter period, the "Effectiveness Period").
97
(b) Subsequent Shelf Registration Statements. If the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement ceases
to be effective for any reason at any time during the Effectiveness Period
(other than because of the sale of all of the securities registered
thereunder), the Company and each of the Guarantors shall use their respective
best efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event the Company and each of the Guarantors
shall within 45 days of such cessation of effectiveness amend the Shelf
Registration Statement in a manner reasonably expected to obtain the
withdrawal of the order suspending the effectiveness thereof, or file an
additional "shelf" Registration Statement pursuant to Rule 415 covering all of
the Registrable Securities (a "Subsequent Shelf Registration Statement"). If a
Subsequent Shelf Registration Statement is filed, the Company and each of the
Guarantors shall use their respective best efforts to cause the Subsequent
Shelf Registration Statement to be declared effective as soon as reasonably
practicable after such filing and to keep such Registration Statement
continuously effective until the end of the Effectiveness Period. As used
herein the term "Shelf Registration Statement" means the Initial Shelf
Registration Statement and any Subsequent Shelf Registration Statement.
(c) Supplements and Amendments. The Company and each of the Guarantors shall
promptly supplement and amend the Shelf Registration Statement if required by
the rules, regulations or instructions applicable to the registration form
used for such Shelf Registration Statement, if required by the Securities Act,
or if reasonably requested by the Holders of a majority in aggregate principal
amount of the Registrable Securities covered by such Registration Statement or
by any underwriter of such Registrable Securities.
ADDITIONAL INTEREST. The Company agrees to pay, as liquidated damages,
additional interest on the Old Notes ("Additional Interest") under the
circumstances and to the extent set forth below (each of which shall be given
independent effect and shall not be duplicative):
(i) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement has not been filed on or prior to the
applicable Filing Date (unless, with respect to the Exchange Offer
Registration Statement, a Shelf Event described in clause (i) of paragraph
(b) of "--Purpose and Effect of Exchange Offer" above shall have occurred
prior to the Filing Date), Additional Interest shall accrue on the Old
Notes over and above the stated interest in an amount equal to $0.192 per
week (or any part thereof) per $1,000 principal amount of the Old Notes;
(ii) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement is not declared effective by the SEC on or
prior to the Effectiveness Date (unless, with respect to the Exchange Offer
Registration Statement, a Shelf Event described in clause (i) of paragraph
(b) of "--Purpose and Effect of Exchange Offer" above shall have occurred),
Additional Interest shall accrue on the Old Notes over and above the stated
interest in an amount equal to $0.192 per week (or any part thereof) per
$1,000 principal amount of Old Notes; and
(iii) if (A) the Company has not exchanged Exchange Notes for all Old
Notes validly tendered and not withdrawn in accordance with the terms of
the Exchange Offer on or prior to the fifth day after the Expiration Date,
or (B) the Exchange Offer Registration Statement ceases to be effective at
any time prior to the Expiration Date, or (C) if applicable, any Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time during the
Effectiveness Period, then Additional Interest shall accrue on the Old
Notes over and above the stated interest in an amount equal to $0.192 per
week (or any part thereof) per $1,000 principal amount of the Old Notes
commencing on the (x) sixth day after the Expiration Date, in the case of
(A) above, or (y) the day the Exchange Offer Registration Statement ceases
to be effective in the case of (B) above, or (z) the day such Shelf
Registration Statement ceases to be effective in the case of (C) above;
provided, however, that (1) upon the filing of the Exchange Offer Registration
Statement or a Shelf Registration Statement as required hereunder (in the case
of clause (i) of this paragraph), (2) upon
98
the effectiveness of the Exchange Offer Registration Statement or the Shelf
Registration Statement as required hereunder (in the case of clause (ii) of
this paragraph) or (3) upon the exchange of Exchange Notes for all Old Notes
validly tendered and not withdrawn (in the case of clause (iii)(A) of this
paragraph), or upon the effectiveness of the Exchange Offer Registration
Statement which had ceased to remain effective (in the case of clause (iii)(B)
of this paragraph), or upon the effectiveness of the Shelf Registration
Statement which had ceased to remain effective (in the case of clause (iii)(C)
of this paragraph), or upon the effectiveness of a Subsequent Shelf
Registration Statement (in the case of clause (iii)(C) of this paragraph),
Additional Interest on the Old Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue (but
any accrued amount shall be payable).
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) the Exchange
Notes have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
Notes will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Old Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The Exchange Notes will evidence the same debt as the Old Notes
and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $400,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
August 27, 1997 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
99
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
October 3, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on January 1, 1998. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each January 1
and July 1, commencing on January 1, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
For a holder to validly tender Old Notes pursuant to the Exchange Offer, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantee, or (in the case of a book-
entry transfer) an Agent's Message in lieu of the Letter of Transmittal, and
any other required documents must be received by the Exchange Agent at the
address set forth under "Exchange Agent" prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, prior to 5:00 p.m., New York City
time, on the Expiration Date, either (a) certificates for tendered Old Notes
must be received by the Exchange Agent at such address or (b) such Old Notes
must be transferred pursuant to the procedures for book-entry transfer
described below (and a confirmation of such tender received by the Exchange
Agent, including an Agent's Message if the tendering holder has not delivered
a Letter of Transmittal). The term "Agent's Message" means a message,
transmitted by the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), to and received by the Exchange Agent
and forming a part of a book-entry confirmation, which states that the Book-
Entry Transfer Facility has received an express acknowledgment from the
tendering participant that such participant has received and agrees to be
bound by the Letter of Transmittal and that the Company may enforce such
Letter of Transmittal against such participant.
100
By executing the Letter of Transmittal (or transmitting an Agent's Message
in lieu thereof), each holder will make to the Company the representations set
forth above in the third paragraph under the heading "--Purpose and Effect of
the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a recognized participant in the Securities
Transfer Agent Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchange Medallion Program (each a "Medallion
Signature Guarantor"), unless the Old Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of a member firm of a registered national securities exchange, a
member of the NASD or a commercial bank or trust company having an office or
correspondent in the United States (each of the foregoing being an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by a Medallion Signature Guarantor.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the Book-Entry Transfer Facility for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature
101
guarantee (or, in the case of book-entry transfer, an Agent's Message in lieu
thereof) and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the right in its sole discretion to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived
will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal (or, in the case of book-entry transfer, an Agent's Message) or
any other required documents to the Exchange Agent or (iii) who cannot
complete the procedures for book-entry transfer (including delivery of an
Agent's Message), prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution (i) an Agent's Message with respect to guaranteed
delivery that is accepted by the Company, or (ii) a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder,
the certificate number(s) of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal or
facsimile thereof (or, in the case of book-entry transfer, an Agent's
Message), as well as the certificate(s) representing all tendered Old Notes
in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
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WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries;
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Company, might materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation
of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and
return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see
"--Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn.
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EXCHANGE AGENT
Harris Trust and Savings Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
HARRIS TRUST AND SAVINGS BANK
By Mail: Overnight Courier:
c/o Harris Trust Company of New York c/o Harris Trust Company of New York
Wall Street Station 77 Water Street, 4th Floor
P.O. Box 1023 New York, NY 10005
New York, NY 10268-1023 Attention: Reorganization Dept.
Attention: Reorganization Dept.
By Hand: Facsimile Transmission:
(for Eligible Institutions Only)
c/o Harris Trust Company of New York (212) 701-7636 or 7637
Receive Window
77 Water Street, 5th Floor
New York, NY 10005
Attention: Reorganization Dept.
For Information Telephone (call collect):
(212) 701-7624
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, less the original issue discount (net of
amortization) as reflected in the Company's accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. Certain expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule
104
144A, to a person inside the United States whom the seller reasonably believes
is a qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who receives Exchange Notes in exchange for Old Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Exchange Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such Participating Broker-Dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the Exchange Notes are to
be acquired by the holder or the person receiving such Exchange Notes, whether
or not such person is the holder, in the ordinary course of business, (ii) the
holder or any such other person (other than a broker-dealer referred to in the
next sentence) is not engaging and does not intend to engage, in the
distribution of the Exchange Notes, (iii) the holder or any such other person
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iv) neither the holder nor any such other
person is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act, and (v) the holder or any such other person acknowledges
that if such holder or other person participates in the Exchange Offer for the
purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those no-
action letters. As indicated above, each Participating Broker-Dealer that
receives an Exchange Note for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be
sought. Legislative, judicial or
105
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies, tax-
exempt organizations, financial institutions. broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. The Company
recommends that each holder consult such holder's own tax advisor as to the
particular tax consequences of exchanging such holder's Old Notes for Exchange
Notes, including the applicability and effect of any state, local or foreign
tax laws.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes will not be considered
to differ materially in kind or extent from the Old Notes. Rather, the
Exchange Notes received by a holder will be treated as a continuation of the
Old Notes in the hands of such holder. As a result, there should be no federal
income tax consequences to holders exchanging Old Notes for Exchange Notes
pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired as
a result of market-making activities or other trading activities. The Company
has agreed that for a period of 180 days after the Expiration Date, they will
make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale. In
addition, until December 3, 1997 (90 days after the commencement of the
Exchange Offer), all dealers effecting transactions in the Exchange Notes may
be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any Participating Broker-Dealer that requests such
documents in the Letter of Transmittal.
106
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Kirkland & Ellis, Chicago, Illinois.
EXPERTS
The consolidated financial statements and schedule of Polymer Group, Inc.
included herein and appearing in Polymer Group, Inc.'s Annual Report (Form 10-
K) as of December 28, 1996 and December 30, 1995 and for each of the three
years ended December 28, 1996 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein
and included herein and incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
In connection with the Chicopee Acquisition on March 15, 1995, the Company
appointed Ernst & Young LLP, independent auditors, as independent accountants
for Chicopee B.V., an indirect foreign subsidiary, to replace Coopers &
Lybrand (Nederland) ("C&L Nederland"), independent public accountants
affiliated with Coopers & Lybrand International, whom the Company dismissed as
of March 15, 1995.
During the two fiscal years prior to the Chicopee Acquisition, there were no
disagreements with C&L Nederland on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure nor
did C&L Nederland's reports on the financial statements for such periods
contain an adverse opinion or disclaimer of opinion, nor were such reports
qualified or modified as to uncertainty, audit scope or accounting.
In connection with the filing of the Company's Registration Statement on
Form S-1, C&L Nederland was provided with a copy of this disclosure and was
requested by the Company to furnish a letter addressed to the Commission
stating whether they agree with the above statements. A copy of C&L
Nederland's letter to the Commission was filed as an exhibit to the
Registration Statement on Form S-1.
107
POLYMER GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
POLYMER GROUP, INC.
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Consolidated Balance Sheets as of December 28, 1996 and December 30, 1995. F-3
Consolidated Statements of Operations for the fiscal years ended December
28, 1996,
December 30, 1995 and December 31, 1994................................ F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the fiscal
years ended
December 28, 1996, December 30, 1995 and December 31, 1994............. F-5
Consolidated Statements of Cash Flows for the fiscal years ended December
28, 1996,
December 30, 1995 and December 31, 1994................................ F-6
Notes to Consolidated Financial Statements for the fiscal years ended
December 28, 1996, December 30, 1995 and December 31, 1994............. F-7
Condensed Consolidated Balance Sheets as of June 28, 1997 (unaudited) and
December 28, 1996 ..................................................... F-32
Consolidated Statements of Operations (unaudited) for the three and six
months ended
June 28, 1997 and June 29, 1996........................................ F-33
Condensed Consolidated Statements of Cash Flows (unaudited) for the six
months ended June 28, 1997 and June 29, 1996........................... F-34
Notes to Condensed Consolidated Financial Statements for the three and six
months ended
June 28, 1997 and June 29, 1996........................................ F-35
F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Polymer Group, Inc.
We have audited the accompanying consolidated balance sheets of Polymer
Group, Inc. as of December 28, 1996 and December 30, 1995, and the related
consolidated statements of operations, shareholders' equity (deficit), and
cash flows for each of the three years in the period ended December 28, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Polymer
Group, Inc. at December 28, 1996 and December 30, 1995 and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 28, 1996 in conformity with generally accepted
accounting principles.
Ernst & Young llp
Greenville, South Carolina
January 23, 1997
F-2
POLYMER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
ASSETS
------
Current assets:
Cash and equivalents..................................... $ 37,587 $ 18,088
Marketable securities.................................... 10,892 4,861
Accounts receivable, net................................. 64,752 58,288
Inventories.............................................. 55,637 47,882
Deferred income taxes.................................... 5,172 4,100
Other.................................................... 10,387 13,691
-------- --------
Total current assets................................. 184,427 146,910
Property, plant and equipment, net........................ 406,527 380,338
Intangibles, loan acquisition and organization costs, net. 96,932 95,753
Deferred income taxes..................................... 10,741 9,500
Other..................................................... 9,488 5,480
-------- --------
Total assets......................................... $708,115 $637,981
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable......................................... $ 36,059 $ 36,550
Accrued liabilities...................................... 33,130 29,813
Income taxes payable..................................... 1,196 4,295
Deferred income taxes.................................... 1,391 3,756
Current portion of long-term debt........................ 19,497 10,938
-------- --------
Total current liabilities............................ 91,273 85,352
Long-term debt, less current portion...................... 362,745 439,940
Deferred income taxes..................................... 52,115 43,192
Other noncurrent liabilities.............................. 6,064 11,406
Mandatory redeemable preferred stock of subsidiary; 13%
cumulative, non-voting, $.01 par value--0 shares
authorized, issued and outstanding at 1996 (40,000 shares
authorized, issued and outstanding at 1995); plus
accumulated dividends of $0 at 1996 ($4,575 at 1995);
mandatory redemption value of $0 at 1996 ($44,575 at
1995).................................................... -- 44,339
Shareholders' equity:
Series preferred stock--$.01 par value, 10,000,000
shares authorized at 1996 (0 at 1995); 0 shares issued
and outstanding at 1996 and 1995........................ -- --
Common stock--$.01 par value, 100,000,000 shares
authorized at 1996 (0 at 1995); 32,000,000 shares
issued and outstanding at 1996 (0 at 1995).............. 320 --
Non-voting common stock--$.01 par value, 3,000,000
shares authorized at 1996 (0 at 1995); 0 shares issued
and outstanding at 1996 and 1995........................ -- --
Class A-1 common stock--$.0005 par value, 0 shares
authorized at 1996 (8,985,641 at 1995); 0 shares issued
and outstanding at 1996 (5,359,615 at 1995)............. -- 3
Class A-2 common stock--$.0005 par value, 0 shares
authorized at 1996 (998,405 at 1995); 0 shares issued
and outstanding at 1996 (698,883 at 1995)............... -- --
Class A-3 common stock--$.0005 par value, 0 shares
authorized at 1996 (2,995,214 at 1995); 0 shares issued
and outstanding at 1996 (2,296,330 at 1995)............. -- 1
Class B common stock--$.0005 par value, 0 shares
authorized at 1996 (11,980,854 at 1995); 0 shares
issued and outstanding at 1996 (10,727,437 at 1995)..... -- 6
Class C common stock--$.0005 par value, 0 shares
authorized at 1996 (4,992,023 at 1995), 0 shares issued
and outstanding at 1996 and 1995........................ -- --
Additional paid-in capital............................... 243,662 53,134
(Deficit)................................................ (54,783) (52,653)
Cumulative translation adjustment........................ 6,790 12,919
Unrealized holding gain (loss) on marketable securities.. (71) 342
-------- --------
195,918 13,752
-------- --------
Total liabilities and shareholders' equity........... $708,115 $637,981
======== ========
See accompanying notes.
F-3
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE FISCAL YEARS ENDED
--------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
Net sales............................... $521,368 $437,638 $165,333
Cost of goods sold...................... 389,013 333,606 129,071
-------- -------- --------
Gross profit............................ 132,355 104,032 36,262
Selling, general and administrative
expenses............................... 70,207 61,744 20,699
-------- -------- --------
Operating income........................ 62,148 42,288 15,563
Other expense:
Interest expense, net................. 33,641 37,868 13,216
Foreign currency transaction losses,
net.................................. 2,955 22,811 17,332
-------- -------- --------
36,596 60,679 30,548
-------- -------- --------
Income (loss) before income taxes and
extraordinary item..................... 25,552 (18,391) (14,985)
Income taxes............................ 10,730 5,216 3,353
-------- -------- --------
Income (loss) before extraordinary item. 14,822 (23,607) (18,338)
Extraordinary item, loss from
extinguishment of debt, net of income
tax benefit of $7,492 in 1996 ($1,846
in 1994)............................... (13,932) -- (4,372)
-------- -------- --------
Net income (loss)....................... 890 (23,607) (22,710)
Redeemable preferred stock dividends and
accretion.............................. (3,020) (4,839) (1,209)
-------- -------- --------
Net (loss) applicable to common stock... $ (2,130) $(28,446) $(23,919)
======== ======== ========
Net income (loss) per common share:
Income (loss) before extraordinary
item................................. $ .43 $ (1.39) $ (.95)
Extraordinary item, net of income tax
benefit.............................. (.51) -- (.21)
-------- -------- --------
Net (loss) applicable to common stock... $ (.08) $ (1.39) $ (1.17)
======== ======== ========
Weighted average number of shares....... 27,688 20,500 20,500
======== ======== ========
See accompanying notes.
F-4
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER
31, 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
UNREALIZED
HOLDING
CUMULATIVE GAIN
ADDITIONAL TRANSLATION (LOSS) ON
COMMON PAID-IN ADJUSTMENTS MARKETABLE
STOCK CAPITAL (DEFICIT) AND OTHER SECURITIES TOTAL
------ ---------- -------- ----------- ---------- --------
Balance--January 1,
1994................... $ 2 $ 78 $ (52) $ (620) $ -- $ (592)
Exchange of preferred
stock and shareholder
loans for common stock. -- 23,929 -- -- -- 23,929
Cash paid to and
collected from
shareholders........... -- (595) (236) 80 -- (751)
Acquisition of
affiliate.............. -- (876) -- (698) -- (1,574)
Issuance of stock
(29,435,640 shares).... 15 -- -- -- -- 15
Net loss................ -- -- (22,710) -- -- (22,710)
Foreign currency
translation
adjustments............ -- 90 -- 5,022 -- 5,112
Cumulative dividends on
redeemable preferred
stock and discount
accretion.............. -- -- (1,209) -- -- (1,209)
---- -------- -------- ------ ----- --------
Balance--December 31,
1994................... 17 22,626 (24,207) 3,784 -- 2,220
Exchange of Class A and
B stock (32,959,130
shares)................ (17) (22,626) -- -- -- (22,643)
Issuance of Class A-1
stock (5,359,615
shares)................ 3 21,155 -- -- -- 21,158
Issuance of Class A-2
stock (698,883 shares). -- 4,015 -- -- -- 4,015
Issuance of Class A-3
stock (2,296,330
shares)................ 1 4,621 -- -- -- 4,622
Issuance of Class B
stock (10,727,437
shares)................ 6 22,843 -- -- -- 22,849
Issuance of warrants.... -- 500 -- -- -- 500
Net loss................ -- -- (23,607) -- -- (23,607)
Foreign currency
translation
adjustments............ -- -- -- 9,135 -- 9,135
Cumulative dividends on
redeemable preferred
stock and discount
accretion.............. -- -- (4,839) -- -- (4,839)
Unrealized holding gain
on marketable
securities............. -- -- -- -- 342 342
---- -------- -------- ------ ----- --------
Balance--December 30,
1995................... 10 53,134 (52,653) 12,919 342 13,752
Exercise of warrants
(1,417,735 shares)..... 1 (1) -- -- -- --
Approximate 19.97 to 1
stock split............ 194 (194) -- -- -- --
Issuance of stock, net
of costs incurred
(11,500,000 shares).... 115 190,723 -- -- -- 190,838
Net income.............. -- -- 890 -- -- 890
Foreign currency
translation
adjustments............ -- -- -- (6,129) -- (6,129)
Cumulative dividends on
redeemable preferred
stock and discount
accretion.............. -- -- (3,020) -- -- (3,020)
Unrealized holding
(loss) on marketable
securities............. -- -- -- -- (413) (413)
---- -------- -------- ------ ----- --------
Balance--December 28,
1996................... $320 $243,662 $(54,783) $6,790 $ (71) $195,918
==== ======== ======== ====== ===== ========
See accompanying notes.
F-5
POLYMER GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE FISCAL YEARS ENDED
--------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
Operating activities
Net income (loss)..................... $ 890 $ (23,607) $ (22,710)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Extraordinary item, net of income tax
benefit.............................. 13,932 -- 4,372
Depreciation and amortization expense. 36,767 29,834 8,348
Foreign currency transaction losses,
net.................................. 2,955 22,811 17,055
Provision for losses on accounts
receivable and price concessions..... 9,060 5,788 435
Provision for deferred income taxes... 339 (1,375) 582
Changes in operating assets and
liabilities, net of effect
of acquisitions:
Accounts receivable................. (11,966) (16,160) (7,401)
Inventories......................... (6,353) (7,799) 3,953
Accounts payable and accrued
expenses........................... (5,860) (2,666) 13,381
Other, net.......................... (3,667) 4,730 (629)
--------- --------- ---------
Net cash provided by operating
activities....................... 36,097 11,556 17,386
Investing activities
Purchases of property, plant and
equipment............................ (26,739) (47,842) (11,341)
Purchases of marketable securities.... (22,879) (22,521) (4,705)
Proceeds from sales of marketable
securities........................... 16,713 19,929 2,707
Acquisition of businesses, net of cash
acquired............................. (52,466) (281,358) (48,643)
Organization and other costs.......... (1,051) (1,416) 607
--------- --------- ---------
Net cash (used in) investing
activities....................... (86,422) (333,208) (61,375)
Financing activities
Issuance of common stock, net of costs
incurred............................. 190,838 30,000 15
Proceeds from debt.................... 308,277 273,654 189,514
Payments of debt...................... (375,989) (13,638) (113,404)
Issuance of redeemable preferred stock
and warrants......................... 10,000 40,000 --
Redemption of preferred stock......... (57,359) -- (13,324)
Loan acquisition, debt prepayment and
other costs, net..................... (11,376) (2,380) (4,319)
--------- --------- ---------
Net cash provided by financing
activities....................... 64,391 327,636 58,482
Effect of exchange rate changes on cash. 5,433 (1,724) (3,359)
--------- --------- ---------
Net increase in cash and
equivalents...................... 19,499 4,260 11,134
Cash and equivalents at beginning
of year.......................... 18,088 13,828 2,694
--------- --------- ---------
Cash and equivalents at end of
year............................. $ 37,587 $ 18,088 $ 13,828
========= ========= =========
Noncash investing and financing
activities
Issuance of common stock in exchange
for preferred stock, cumulative
dividends and common stock in
affiliated companies................. $ -- $ -- $ 23,065
Cumulative dividends on redeemable
preferred stock and accretion........ 3,020 4,839 1,209
Approximate 19.97 to 1 stock split.... 194 -- --
Supplemental information
Cash paid for interest................ 38,111 43,186 3,949
Cash paid for income taxes............ 6,602 5,027 1,298
Acquisition of businesses:
Fair value of assets acquired......... 61,946 358,814 122,165
Liabilities assumed and incurred...... 9,480 77,456 73,522
Cash paid............................. 52,466 281,358 48,643
See accompanying notes.
F-6
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Polymer Group, Inc. ("Polymer Group" or "Company") operates in one business
segment, manufacturing and marketing woven and nonwoven polyolefin fabric. The
Company's principal lines of business include hygiene and medical products for
consumer applications, wiping products and industrial and specialty products.
The Company operates thirteen manufacturing facilities located in the United
States, Canada, Mexico, The Netherlands and Germany.
(b) Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements of Polymer Group, a
Delaware corporation incorporated on June 16, 1994, are prepared on the basis
of generally accepted accounting principles and include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All material
intercompany accounts are eliminated in consolidation. Certain amounts
previously presented in the consolidated financial statements for prior
periods have been reclassified to conform to current classification. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(c) Revenue Recognition
Revenue from product sales is recognized at the time ownership of goods
transfers to the customer and the earnings process is complete.
(d) Cash Equivalents and Investment Income
Investment securities with maturities of three months or less at the time of
acquisition are considered cash equivalents. Investment income approximated
$1.9 million in 1996 and consists primarily of interest income from highly
liquid investment sources. Interest expense in the consolidated statements of
operations is net of investment income and capitalized interest (see
explanation (h) below). Investment income was not significant in 1995 or 1994.
(e) Marketable Securities
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the
Company has classified equity securities as available-for-sale which are
carried at fair value based on quoted market prices. Unrealized holding gains
and losses on available-for-sale securities are included as a component of
shareholders' equity. Realized gains and losses are determined on the specific
identification method and included in the determination of net income.
Marketable securities as of December 28, 1996 and December 30, 1995 consist of
the following:
1996 1995
------- ------
(IN THOUSANDS)
Marketable securities (common and preferred stock):
Cost................................................... $10,963 $4,519
Unrealized gains....................................... -- 342
Unrealized (losses).................................... (71) --
------- ------
Gross fair value....................................... $10,892 $4,861
======= ======
F-7
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(f) Accounts Receivable and Concentration of Credit Risks
Accounts receivable potentially expose the Company to concentration of
credit risk, as defined by Statement of Financial Accounting Standards No. 105
"Disclosure of Information about Financial Instruments with Off-Balance Sheet
Risk and Financial Instruments with Concentration of Credit Risk." The Company
provides credit in the normal course of business and performs ongoing credit
evaluations on certain of its customers' financial condition, but generally
does not require collateral to support such receivables. The Company also
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other
information. The allowance for doubtful accounts was $3.8 and $1.9 million at
December 28, 1996 and December 30, 1995, respectively, which management
believes is adequate to provide for credit loss in the normal course of
business, as well as losses for customers who have filed for protection under
the bankruptcy law. Johnson & Johnson ("J&J") and The Procter & Gamble Company
("P&G") accounted for approximately 29% and 14%, respectively, of the
Company's sales in 1996. In 1995, J&J and P&G accounted for approximately 28%
and 15%, respectively, of the Company's sales. P&G accounted for approximately
38% of the Company's sales in 1994.
(g) Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out method of accounting. Supply inventories not expected to be utilized
within one year are classified as other non-current assets. Inventories,
classified as current assets, as of December 28, 1996 and December 30, 1995,
consist of the following:
1996 1995
------- -------
(IN THOUSANDS)
Finished goods........................................... $26,809 $22,476
Work in process and stores and maintenance parts......... 3,328 4,010
Raw materials............................................ 25,500 21,396
------- -------
Total................................................ $55,637 $47,882
======= =======
(h) Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed for financial reporting purposes on the
straight-line method over the estimated useful lives of the related assets.
The estimated useful lives established for building and land improvements
range from 18 to 33 years, and the estimated useful lives established for
machinery, equipment and other fixed assets range from 3 to 15 years. Costs of
the construction of certain long-term assets include capitalized interest
which is amortized over the estimated useful life of the related asset. The
Company capitalized approximately $0.8, $1.9 and $0.5 million of interest
costs during 1996, 1995 and 1994, respectively.
(i) Intangibles, Loan Acquisition and Organization Costs
The excess of cost over the fair value of net assets of companies acquired
is amortized on the straight-line method over an estimated useful life of 40
years. Identified intangible assets consist primarily of costs allocated in
the acquisitions to supply agreements, proprietary technology and other
acquisition related arrangements. Such costs are amortized on the straight-
line method over periods not exceeding an estimated useful life of ten years.
Capitalized organization costs are amortized over five years on the straight-
line method. Loan acquisition costs relating to long-term debt are amortized
F-8
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
over the term of the related debt. The lives established for these assets are
a composite of many factors; accordingly, the Company evaluates the continued
appropriateness of these lives based upon the latest available economic
factors and circumstances. The carrying value of goodwill is reviewed if the
facts and circumstances suggest that it may be impaired. If this review
indicates that goodwill will not be recoverable, as determined based on the
undiscounted cash flows of the entity acquired over the remaining amortization
period, the Company's carrying value of the goodwill is reduced by the
estimated shortfall of cash flows.
(j) Derivatives
The Company does not use derivative financial instruments for trading
purposes. Such products are used only to manage well-defined interest rate
risks. Premiums paid for purchased interest rate cap agreements are charged to
expense over the rate cap period. On May 16, 1996, and in connection with the
Amended Credit Facility (see Note 8. Long-Term Debt), the Company entered into
a London Interbank Offered Rate ("LIBOR")-based interest rate cap agreement.
The agreement period extends through March 30, 1999, subject to adjustment,
and provides for a notional amount of $100.0 million which declines ratably
over the rate cap term. If the rate cap exceeds 9% on each quarterly reset
date, as defined in the agreement, the Company is entitled to receive an
amount by which the rate cap exceeds 9%. Over the term of the agreement in
1996, such amount did not exceed 9%. Charges to expense in 1996 related to
derivative products were not significant.
(k) Fair Value of Financial Instruments
The Company has estimated the fair value amounts of financial instruments as
required by Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments", using available market information
and appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, such estimates are not necessarily indicative of the amounts that
the Company would realize in a current market exchange. The carrying amount of
cash and equivalents, marketable securities, accounts receivable, other assets
and accounts payable are reasonable estimates of their fair values. Fair value
of the Company's long-term debt was estimated using interest rates at those
dates for issuance of such financial instruments with similar terms and
remaining maturities and other independent valuation methodologies. The
estimated fair value of long-term debt at December 28, 1996 and December 30,
1995 was $391.2 million and $445.2 million, respectively.
(l) Income Taxes
The provision for income taxes and corresponding balance sheet accounts are
determined in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the deferred
tax liabilities and assets are determined based upon temporary differences
between the basis of certain assets and liabilities for income tax and
financial reporting purposes. A valuation allowance is recognized if it is
more likely than not that some portion or all of a deferred tax asset will not
be ultimately realized.
(m) Research and Development
The cost of research and development is charged to expense as incurred and
is included in selling, general and administrative expense in the consolidated
statement of operations. The Company incurred approximately $6.9, $6.4 and
$2.9 million of research and development expense during 1996, 1995 and 1994,
respectively.
F-9
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(n) Foreign Currency Translation
For all periods through December 28, 1996, the local currencies of the
Company's foreign subsidiaries have been determined to be the functional
currencies in accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation" ("FAS 52"). Assets and liabilities of the
Company's foreign subsidiaries are translated into United States dollars at
current exchange rates and resulting translation adjustments are included as a
separate component of shareholders' equity while revenue and expense accounts
of these operations are translated at weighted average exchange rates during
the period. Transaction gains and losses are included in the determination of
net income. See Note 18. Subsequent Events for discussion of the Company's
change in functional currency for its Mexican subsidiary from the nuevo peso
to the United States dollar.
(o) Net Income (Loss) Per Common Share
Net income (loss) per common share is determined by dividing net income
(loss) applicable to common stock by the average number of shares outstanding
during the period. Stock options are considered common stock equivalents, but
are excluded from the calculation of net income (loss) per common share since
their effect is antidilutive.
(p) New Accounting Standards
On December 31, 1995, the Company adopted the provisions of Financial
Accounting Standards Board ("FASB") Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("FAS 121"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. The effect of adoption did not have a material impact on the
Company's results of operations during 1996. In connection with the Company's
initial public offering of common stock ("IPO"), the Company adopted the
provisions of FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 establishes financial accounting and
reporting standards for stock-based compensation plans. As permitted by FAS
123, the Company elected to account for stock-based compensation awards in
accordance with Accounting Principles Board Opinion No. 25. Accordingly, the
Company has disclosed information required by FAS 123 in Note 11. Stock Option
Plan.
NOTE 2. INITIAL PUBLIC OFFERING
Initial Public Offering
On May 15, 1996, the Company completed the IPO, in which it offered and sold
11.5 million shares of its common stock at a price of $18.00 per share. Net
proceeds to the Company after underwriting fees and other related costs were
approximately $190.8 million. Pursuant to the Recapitalization Agreement dated
May 6, 1996, all of the warrants to acquire shares of Class C common stock
were exercised, and the outstanding shares of Class A common stock, Class B
common stock, and Class C common stock were converted into shares of a single
class of common stock concurrently with the IPO. In connection with the IPO,
the Company's Board of Directors ("Board") approved an approximate 19.97 to 1
stock split. Accordingly, all common share and warrant data in the
consolidated financial statements have been restated to reflect such stock
split. In connection with consummation of the IPO, the Company consummated the
following transactions: (i) effectively repaid all outstanding indebtedness
under the FiberTech and Chicopee credit facilities and
F-10
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
terminated such credit facilities and redeemed $50.0 million principal amount
of the 12 1/4% Senior Notes at a premium of 112.25% plus accrued and unpaid
interest and entered into a new credit facility (together with the IPO, the
"Recapitalization") (see Note 8. Long-Term Debt); (ii) redeemed the preferred
stock of Chicopee, Inc. at a price of $1,000 per share plus accrued but unpaid
dividends (approximately $46.9 million); and (iii) redeemed the preferred
stock of the Company, which was issued on January 11, 1996 (see Note 17.
Certain Matters), at a price of $1,000 per share plus accrued but unpaid
dividends (approximately $10.5 million). Redeemable preferred stock activity
during 1996 and 1995 consists of the following:
FISCAL YEAR
-----------------
1996 1995
-------- -------
(IN THOUSANDS)
Balance at beginning of period......................... $ 44,339 $ --
Issuances of redeemable preferred stock................ 10,000 39,500
Accrued dividends and discount accretion............... 3,020 4,839
Redemption of redeemable preferred stock............... (57,359) --
-------- -------
Balance at end of period............................... $ -- $44,339
======== =======
Shareholders' Equity
As a result of the IPO, the Company's authorized capital stock consists of
100,000,000 shares of common stock, par value $0.01 per share, 3,000,000
shares of non-voting common stock, par value $0.01 per share, and 10,000,000
shares of preferred stock, par value $0.01 per share. Subject to certain
regulatory limitations, the non-voting common stock is convertible on a one-
for-one basis into common stock at the option of the holder. The Company's
Board may, without further action by Polymer Group's shareholders, from time
to time, direct the issuance of shares of preferred stock in series and may,
at the time of issuance, determine the rights, preferences, conversion
features, dividend rate (including whether such dividend shall be cumulative
or noncumulative) and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of preferred stock would reduce the amount
of funds available for common dividends. Holders of shares of preferred stock
may be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding-up of the Company before any payment is
made to holders of shares of common stock. Following the IPO, 100,000 shares
of junior preferred stock were reserved for issuance in connection with the
Rights Plan (see Note 12. Shareholder Rights Plan).
NOTE 3. ORGANIZATION AND ACQUISITIONS
On June 24, 1994, the Company issued $150.0 million in 12 1/4% Senior Notes
(see Note 8. Long-Term Debt); acquired two affiliated companies, PGI Polymer,
Inc. ("PGI") and Fabrene Inc. ("Fabrene"); and acquired Bonlam, S.A. de C.V.
("Bonlam"). Following these transactions, PGI, Fabrene and Bonlam became
wholly-owned subsidiaries of the Company. PGI, a holding company, was acquired
by exchanging 1,522,370 shares of the Company's common stock and approximately
$13.3 million in cash for all of the outstanding shares of common stock and
preferred stock of PGI, and accrued dividends thereon. The acquisition was
considered to be between entities under common control and was accounted for
at historical cost in a manner similar to a pooling of interests. The net
assets of PGI on a historical cost basis were approximately $16.3 million at
the time of the acquisition. Prior to the acquisitions of PGI and Fabrene by
the Company, PGI owned 27% of Fabrene, a Canadian-based manufacturer and
marketer of woven polyolefin fabrics. This equity interest was
F-11
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acquired indirectly by the Company in connection with the acquisition of PGI.
The remaining 73% was acquired by the Company in a transaction accounted for
by the purchase method of accounting. To effect the transaction, Fabrene
acquired shares of its common stock and warrants from a shareholder, and
repaid a subordinated loan to the shareholder for $12.5 million in cash. The
remaining shareholders of Fabrene exchanged their common stock and common
stock warrants for 128,220 shares of common stock of the Company and
approximately $0.8 million in cash. The Company's total cost of acquiring the
ownership not previously owned by PGI was approximately $7.0 million. The
Company also acquired all the outstanding common stock of Bonlam, a Mexican-
based manufacturer and marketer of spunbond nonwoven products, for
approximately $40.7 million in a transaction accounted for by the purchase
method of accounting.
On March 15, 1995, the Company completed the acquisition ("Chicopee
Acquisition") of the Nonwovens Business of Johnson & Johnson Advanced
Materials Company and Chicopee B.V. (collectively, "Chicopee") from J&J for an
aggregate consideration of $290.0 million in a transaction accounted for by
the purchase method of accounting. Chicopee manufactures and markets nonwoven
roll and converted products, with a leading market share in the domestic and
international health care market. On August 14, 1996, PGI completed the
acquisition ("FNA Acquisition") of the business of FNA Polymer Corp. ("FNA")
(formerly known as Fitesa North America Corporation) for approximately $48.0
million in a transaction accounted for by the purchase method of accounting.
FNA produces polypropylene fabrics for the nonwovens industry. The results of
FNA are included in the accompanying consolidated statements of operations for
the period from the date of acquisition through December 28, 1996.
The following pro forma information in the table below is based on
historical financial statements of the Company, FNA and Chicopee adjusted to
give effect to the IPO, the FNA Acquisition, the Chicopee Acquisition and the
financing thereof as if such events occurred on December 31, 1995 and January
1, 1995, respectively. The allocation of the purchase price for the FNA
Acquisition is subject to revision based on facts and circumstances. The
accompanying unaudited pro forma financial information in the table below does
not purport to represent what the Company's results of operations would have
been had the FNA Acquisition, the Chicopee Acquisition and the IPO actually
occurred at the beginning of the respective periods, or project the Company's
results of operations for any future periods.
FISCAL YEAR
-----------------
1996 1995
-------- --------
(IN THOUSANDS)
Net sales.............................................. $540,395 $519,600
Income before extraordinary item....................... 19,323 10,284
Net income............................................. 4,765 2,858
Per share:
Income before extraordinary item....................... $ .60 $ .32
Net income............................................. .15 .09
F-12
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 28, 1996 and December 30, 1995,
consist of the following:
1996 1995
-------- --------
(IN THOUSANDS)
Cost:
Land................................................ $ 9,272 $ 9,091
Buildings and land improvements..................... 84,089 75,297
Machinery, equipment and other...................... 365,464 316,712
Construction in progress............................ 12,915 18,429
-------- --------
471,740 419,529
Less accumulated depreciation......................... (65,213) (39,191)
-------- --------
$406,527 $380,338
======== ========
Depreciation charged to expense was $27.2, $21.0 and $6.3 million during
1996, 1995 and 1994, respectively.
NOTE 5. INTANGIBLES, LOAN ACQUISITION AND ORGANIZATION COSTS
Intangibles, loan acquisition and organization costs as of December 28, 1996
and December 30, 1995, consist of the following:
1996 1995
-------- --------
(IN THOUSANDS)
Cost:
Goodwill............................................ $ 61,801 $ 41,837
Identified intangibles:
Supply agreement.................................. 13,431 13,000
Proprietary technology............................ 24,100 24,100
Other............................................. 902 876
Loan acquisition costs.............................. 8,302 21,613
Organization costs.................................. 6,752 7,375
-------- --------
115,288 108,801
Less accumulated amortization....................... (18,356) (13,048)
-------- --------
$ 96,932 $ 95,753
======== ========
Amortization charged to expense was $9.6, $8.9 and $2.1 million during 1996,
1995 and 1994, respectively. The approximate $20.0 million increase in
goodwill between 1996 and 1995 results from the FNA Acquisition. Additionally,
the $13.3 million decrease in loan acquisition costs between 1996 and 1995
results from the early extinguishment of debt in connection with the IPO as
discussed in Note 2. Initial Public Offering and Note 15. Quarterly Results of
Operations (Unaudited).
F-13
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities as of December 28, 1996 and December 30, 1995, consist
of the following:
1996 1995
------- -------
(IN THOUSANDS)
Accrued liabilities:
Interest payable............................................. $ 6,778 $ 8,898
Salaries, wages and other fringe benefits.................... 7,116 5,924
Restructuring costs.......................................... 10,036 7,540
Other........................................................ 9,200 7,451
------- -------
$33,130 $29,813
======= =======
In connection with the Chicopee Acquisition, management of the Company
adopted a plan to relocate manufacturing equipment, corporate offices and
certain equipment used in Chicopee's North American research and development
activities to other sites within the United States. Accordingly, the Company
provided for accrued restructuring costs of approximately $17.9 million in
connection with the allocation of the purchase price to the fair value of
assets acquired and liabilities assumed. During 1996 and 1995, the Company
charged approximately $3.5 million and $2.4 million, respectively, against the
accrued restructuring reserve. In 1996, the charges against the restructuring
reserve related primarily to: (i) the relocation of assets, including
equipment used in production and research and development related activities
($2.5 million); (ii) the relocation of the acquiree's corporate headquarters
($0.8 million); and (iii) other miscellaneous costs within the provisions of
the restructuring plan ($0.2 million). At December 28, 1996, the Company's
total accrued restructuring costs associated with the plan approximated $12.0
million. Management currently estimates that approximately $10.0 million of
the total accrued restructuring costs will be incurred during 1997; therefore,
this portion of the total accrual has been recognized as a current liability
in the consolidated balance sheet.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain manufacturing, warehousing and other facilities
and equipment under operating leases. The leases on most of the properties
contain renewal provisions. Rent expense (net of sub-lease income), including
incidental leases, approximated $2.4, $2.3 and $0.3 million in 1996, 1995 and
1994, respectively. Rental income approximated $2.2 and $2.3 million in 1996
and 1995, respectively. The approximate net minimum rental payments required
under operating leases that have initial or remaining non-cancelable lease
terms in excess of one year at December 28, 1996 are:
GROSS LEASE NET
MINIMUM AND SUB- MINIMUM
RENTAL LEASE RENTAL
PAYMENTS (INCOME) PAYMENTS
-------- -------- --------
(IN THOUSANDS)
1997......................................... $1,778 $ (445) $ 1,333
1998......................................... 1,484 (1,068) 416
1999......................................... 1,302 (1,068) 234
2000......................................... 1,213 (1,068) 145
2001......................................... 1,137 (1,068) 69
Thereafter................................... 2,086 (14,408) (12,322)
------ -------- --------
$9,000 $(19,125) $(10,125)
====== ======== ========
F-14
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Purchase Commitments
At December 28, 1996, the Company had commitments of approximately $73.5
million related to the purchase of raw materials and converting services and
approximately $30.9 million related to capital projects.
Collective Bargaining Agreements
At December 28, 1996, the Company had a total of approximately 2,300
employees worldwide. Of this total, approximately 900 employees are
represented by labor unions or trade councils that have entered into separate
collective bargaining agreements with the Company. Approximately 34% of the
Company's labor force is covered by collective bargaining agreements which
will expire within one year.
Environmental
The Company is subject to a broad range of federal, foreign, state and local
laws governing regulations relating to the pollution and protection of the
environment. Among the many environmental requirements applicable to the
Company are laws relating to air emissions, wastewater discharges and the
handling, disposal and release of solid and hazardous substances and wastes.
Based on continuing internal review and advice from independent consultants,
the Company believes that it is currently in substantial compliance with
environmental requirements. The Company is also subject to laws, such as the
Federal Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 ("CERCLA"), that may impose liability retroactively and without fault
for releases of hazardous substances at on-site or off-site locations. The
Company is not aware of any releases for which it may be liable under CERCLA
or any analogous provision. As a result, the Company does not currently
anticipate any material adverse effect on its operations, financial condition
or competitive position as a result of its efforts to comply with
environmental requirements. Some risk of environmental liability is inherent,
however, in the nature of the Company's business, and there can be no
assurance that material environmental liabilities will not arise.
F-15
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. LONG-TERM DEBT
Long-term debt as of December 28, 1996 and December 30, 1995, consists of
the following:
1996 1995
-------- --------
(IN THOUSANDS)
Senior Notes, due July 15, 2002, interest rate 12 1/4%...... $100,000 $150,000
Term Loans, Facility A, B and C payable in quarterly
installments ranging from $751 to $9,588 for the period
from March 31, 1997 through March 31, 2002; interest at
rates ranging from 4.88% to 7.44%.......................... 199,189 --
Revolving Credit Facility, due March 31, 2002 (subject to
two one-year extensions at the request of the Company),
interest at rates ranging from 4.88% to 7.50%.............. 80,894 --
FiberTech Revolving Credit Facility, Tranche A aggregate
principal of $46,600 due 1997; Tranche B aggregate
principal of $25,000 due 1998, interest at rates ranging
from 9.00% to 10.50%, paid in full in 1996 in connection
with the IPO............................................... -- 71,600
Chicopee Term Loans, Tranche A--$10,000 payable in 1996,
$20,000 payable in 1997, $25,000 payable in 1998, $30,000
payable in 1999, $34,000 payable in 2000, and $6,000
payable in 2001; Tranche B--$850 payable yearly from 1996
through 2000, $34,000 payable in 2001, $42,000 payable in
2002 and $4,113 payable in 2003, interest at base or LIBOR
rates plus a margin ranging from 1.50% to 3.25%, paid in
full in 1996 in connection with the IPO.................... -- 209,363
Chicopee Revolving Credit Facility, due 2001, interest at
rates ranging from 8.63% to 10.50%, paid in full in 1996 in
connection with the IPO.................................... -- 18,000
Other....................................................... 2,159 1,915
-------- --------
382,242 450,878
Less current maturities..................................... 19,497 10,938
-------- --------
Total....................................................... $362,745 $439,940
======== ========
Long-term debt maturities consist of the following (in thousands):
1997............................................................. $ 19,497
1998............................................................. 26,834
1999............................................................. 36,850
2000............................................................. 46,789
2001............................................................. 56,517
Thereafter....................................................... 195,755
Senior Notes
In June 1994, the Company issued and sold ("Notes Offering") $150.0 million
principal amount of 12 1/4% Senior Notes due 2002 ("Original Notes") pursuant
to a Purchase Agreement dated June 17, 1994 and an indenture dated June 24,
1994, as amended by the First Supplemental Indenture dated as of March 15,
1995, and the Second Supplemental Indenture dated as of September 14, 1995,
and the Third Supplemental Indenture dated as of April 9, 1996 (as so amended
the "Indenture"). The Senior Notes are unsecured senior obligations of the
Company and are guaranteed by certain of the
F-16
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's subsidiaries as more fully discussed in Note 9. Selected Financial
Data of Guarantors. The Senior Notes are subject to redemption at any time on
or after July 15, 1998 at the option of the Company based on certain
redemption prices including accrued and unpaid interest, if any, to the
redemption date. Notwithstanding the foregoing, at any time prior to July 15,
1997, the Company was entitled to redeem up to $50.0 million of the Senior
Notes originally issued at a redemption price of 112.25% of the principal
amount redeemed plus accrued interest to the redemption date. Accordingly, the
Company, in connection with its IPO, redeemed $50.0 million of the Senior
Notes for approximately $58.7 million. See Note 2. Initial Public Offering.
The Indenture contains a number of covenants restricting the operations of the
Company and its subsidiaries, including covenants regarding limitations on
dividends and other restrictions. As of December 28, 1996, the Company was in
compliance with covenant provisions associated with the Senior Notes. If a
change of control (as defined in the Indenture) occurs at any time, then each
holder shall have the right to require that the Company purchase the Senior
Notes in whole or in part at an amount equal to 101% of the principal amount
of such Senior Notes, plus accrued interest.
Existing Credit Facility
In connection with the IPO, the Company and its subsidiaries entered into a
new credit facility (the "Existing Credit Facility"). The Existing Credit
Facility consists of term loans in the aggregate principal amount of $200.0
million and revolving credit loans in an aggregate principal amount not to
exceed $125.0 million. $130.0 million in the aggregate of the term loans are
denominated in United States dollars, $40.0 million of the term loans are
denominated in Dutch guilders and $30.0 million of the term loans are
denominated in Canadian dollars. Revolving loans may be denominated in United
States dollars, Dutch guilders (up to $15.0 million) and Canadian dollars (up
to $5.0 million). All indebtedness under the Existing Credit Facility is
guaranteed (in whole or in part) by each of the Company's domestic and certain
of its foreign subsidiaries. The interest rates applicable to borrowings under
the Existing Credit Facility are, in the case of United States dollar
denominated loans, the agent's base rate or LIBOR, in the case of Dutch
guilder denominated loans, the applicable Eurocurrency rate, and in the case
of Canadian dollar denominated loans, the agent's Canadian base rate or the BA
rate, in each case plus a margin determined on the basis of the ratio of the
Company's total consolidated indebtedness to its consolidated earnings before
interest, taxes, depreciation and amortization on a rolling four quarter
basis. The margin applicable to base rate loans range from 0.0% to 1.25% and
the margin for LIBOR, Eurocurrency and BA loans range from 1.0 % to 2.5%. The
Existing Credit Facility contains covenants customary for financings of this
type. As of December 28, 1996, the Company was in compliance with covenant
provisions associated with the Existing Credit Facility. In order to enter
into the Existing Credit Facility with terms and conditions described above,
the Company was required to obtain the affirmative consents of holders of a
majority of the outstanding principal amount of the Senior Notes. Pursuant to
a consent solicitation statement dated March 14, 1996, the Company solicited
and received the required consents, and accordingly, the Company and the
trustee executed a Third Supplemental Indenture that became effective
concurrently with consummation of the IPO, which allowed the Company to enter
into the Existing Credit Facility. Commitment fees on the Existing Credit
Facility are generally equal to a percentage of the daily unused average
amount of each such commitment. At December 28, 1996, unused commitments under
the Existing Credit Facility approximated $44.1 million. Loan acquisition
costs, including commitment fees, approximated $5.3 million and $13.5 million
in 1996 and 1995, respectively.
F-17
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Payment of the Senior Notes is unconditionally guaranteed, jointly and
severally, on a senior basis by certain of the Company's wholly-owned
subsidiaries ("Guarantors"). Management has determined that separate complete
financial statements of the Guarantors would not be material to users of the
financial statements. The following sets forth condensed consolidating
financial statements of the Guarantors and Non-Guarantor subsidiaries (in
thousands):
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 28, 1996
COMBINED COMBINED
GUARANTOR NON-GUARANTOR THE RECLASSIFICATIONS
ASSETS SUBSIDIARIES SUBSIDIARIES COMPANY AND ELIMINATIONS CONSOLIDATED
------ ------------ ------------- -------- ----------------- ------------
Cash & equivalents......... $ 16,329 $18, 254 $ 3,004 $ -- $ 37,587
Marketable securities...... -- -- 10,892 -- 10,892
Accounts receivable, net... 29,848 34,904 -- -- 64,752
Inventories................ 34,088 21,595 -- (46) 55,637
Other...................... 12,447 1,902 1,395 (185) 15,559
---------- -------- -------- ----------- --------
Total current assets... 92,712 76,655 15,291 (231) 184,427
Due from affiliates........ 377,780 671 57,236 (435,687) --
Investment in subsidiaries. 250,589 -- 389,769 (640,358) --
Property, plant &
equipment, net............ 266,446 137,942 2,139 -- 406,527
Intangibles, loan
acquisition and
organization costs, net... 36,743 57,027 1,218 1,944 96,932
Other...................... 7,963 6,381 6,143 (258) 20,229
---------- -------- -------- ----------- --------
Total assets........... $1,032,233 $278,676 $471,796 $(1,074,590) $708,115
========== ======== ======== =========== ========
LIABILITIES & SHAREHOLDERS'
EQUITY
- ---------------------------
Accounts payable, accrued
liabilities and other..... $ 43,546 $ 22,636 $ 5,944 $ (350) $ 71,776
Current portion of long-
term debt................. 11,069 6,985 1,443 -- 19,497
---------- -------- -------- ----------- --------
Total current
liabilities........... 54,615 29,621 7,387 (350) 91,273
Due to affiliates.......... 301,447 38,450 95,790 (435,687) --
Long-term debt, less
current portion........... 129,931 69,257 163,557 -- 362,745
Deferred income taxes and
other..................... 18,765 31,110 9,144 (840) 58,179
Shareholders' equity....... 527,475 110,238 195,918 (637,713) 195,918
---------- -------- -------- ----------- --------
Total liabilities and
shareholders' equity.. $1,032,233 $278,676 $471,796 $(1,074,590) $708,115
========== ======== ======== =========== ========
F-18
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 30, 1995
COMBINED COMBINED
GUARANTOR NON-GUARANTOR THE RECLASSIFICATIONS
ASSETS SUBSIDIARIES SUBSIDIARIES COMPANY AND ELIMINATIONS CONSOLIDATED
------ ------------ ------------- -------- ----------------- ------------
Cash & equivalents......... $ 8,595 $ 9,207 $ 286 $ -- $ 18,088
Marketable securities...... -- -- 4,861 -- 4,861
Accounts receivable, net... 28,766 29,522 -- -- 58,288
Inventories................ 28,168 19,748 -- (34) 47,882
Other...................... 15,373 1,222 -- 1,196 17,791
-------- -------- -------- --------- --------
Total current assets... 80,902 59,699 5,147 1,162 146,910
Due from affiliates........ 161,336 546 140,593 (302,475) --
Investment in subsidiaries. 115,214 -- 78,105 (193,319) --
Property, plant &
equipment, net............ 235,870 144,467 -- 1 380,338
Intangibles, loan
acquisition and
organization costs, net... 32,427 63,141 -- 185 95,753
Other...................... 5,649 5,834 -- 3,497 14,980
-------- -------- -------- --------- --------
Total assets........... $631,398 $273,687 $223,845 $(490,949) $637,981
======== ======== ======== ========= ========
LIABILITIES & SHAREHOLDERS'
EQUITY
- ---------------------------
Accounts payable, accrued
liabilities and other..... $ 43,872 $ 19,679 $ 10,121 $ 742 $ 74,414
Current portion of long-
term debt................. 10,850 88 -- -- 10,938
-------- -------- -------- --------- --------
Total current
liabilities........... 54,722 19,767 10,121 742 85,352
Due to affiliates.......... 47,628 204,875 49,972 (302,475) --
Long-term debt, less
current portion........... 288,113 1,827 150,000 -- 439,940
Deferred income taxes and
other..................... 18,018 33,835 -- 2,745 54,598
Redeemable preferred stock. 44,339 -- -- -- 44,339
Shareholders' equity....... 178,578 13,383 13,752 (191,961) 13,752
-------- -------- -------- --------- --------
Total liabilities and
shareholders' equity.. $631,398 $273,687 $223,845 $(490,949) $637,981
======== ======== ======== ========= ========
F-19
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
COMBINED
COMBINED NON- RECLASSIFI-
GUARANTOR GUARANTOR THE CATIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------ -------- ------------ ------------
Net sales............... $335,477 $187,754 $ -- $ (1,863) $521,368
Cost of goods sold...... 264,027 126,836 1 (1,851) 389,013
-------- -------- -------- -------- --------
Gross profit.......... 71,450 60,918 (1) (12) 132,355
Selling, general and
administrative
expenses............... 38,281 32,710 (453) (331) 70,207
-------- -------- -------- -------- --------
Operating income...... 33,169 28,208 452 319 62,148
Other expense, net...... 11,772 13,806 11,018 -- 36,596
-------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item... 21,397 14,402 (10,566) 319 25,552
Income taxes............ 4,698 1,659 4,373 -- 10,730
-------- -------- -------- -------- --------
Income before
extraordinary item... 16,699 12,743 (14,939) 319 14,822
Extraordinary item...... (10,745) 793 (3,980) -- (13,932)
Equity in earnings of
subsidiaries........... -- -- 19,809 (19,809) --
-------- -------- -------- -------- --------
Net income.............. 5,954 13,536 890 (19,490) 890
Redeemable preferred
stock dividends and
accretion.............. (2,551) -- (3,020) 2,551 (3,020)
-------- -------- -------- -------- --------
Income (loss) applicable
to common stock........ $ 3,403 $ 13,536 $ (2,130) $(16,939) $ (2,130)
======== ======== ======== ======== ========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
COMBINED
COMBINED NON- RECLASSIFI-
GUARANTOR GUARANTOR THE CATIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------ -------- ------------ ------------
Net sales............... $287,418 $154,025 $ -- $ (3,805) $437,638
Cost of goods sold...... 230,740 106,670 -- (3,804) 333,606
-------- -------- -------- -------- --------
Gross profit.......... 56,678 47,355 -- (1) 104,032
Selling, general and
administrative
expenses............... 38,502 23,242 -- -- 61,744
-------- -------- -------- -------- --------
Operating income...... 18,176 24,113 -- (1) 42,288
Other expense, net...... 15,733 44,671 275 -- 60,679
-------- -------- -------- -------- --------
Income (loss) before
income taxes......... 2,443 (20,558) (275) (1) (18,391)
Income taxes............ 742 1,709 2,765 -- 5,216
Equity in earnings
(loss) of subsidiaries. -- -- (20,567) 20,567 --
-------- -------- -------- -------- --------
Net income (loss)....... 1,701 (22,267) (23,607) 20,566 (23,607)
Redeemable preferred
stock dividends and
accretion.............. (4,839) -- (4,839) 4,839 (4,839)
-------- -------- -------- -------- --------
(Loss) applicable to
common stock........... $ (3,138) $(22,267) $(28,446) $ 25,405 $(28,446)
======== ======== ======== ======== ========
F-20
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
COMBINED COMBINED RECLASSIFI-
GUARANTOR NON-GUARANTOR THE CATIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ------------ ------------
Net sales............... $126,310 $ 39,782 $ -- $ (759) $165,333
Cost of goods sold...... 103,167 26,632 -- (728) 129,071
-------- -------- -------- ------- --------
Gross profit.......... 23,143 13,150 -- (31) 36,262
Selling, general and
administrative
expenses............... 14,946 5,904 -- (151) 20,699
-------- -------- -------- ------- --------
Operating income...... 8,197 7,246 -- 120 15,563
Other expense, net...... 3,746 26,462 286 54 30,548
-------- -------- -------- ------- --------
Income (loss) before
income taxes and
extraordinary item... 4,451 (19,216) (286) 66 (14,985)
Income taxes............ 1,128 1,036 1,189 -- 3,353
-------- -------- -------- ------- --------
Income before
extraordinary item... 3,323 (20,252) (1,475) 66 (18,338)
Extraordinary item...... (1,803) (2,569) -- -- (4,372)
Equity in (loss) of
subsidiaries........... -- -- (21,235) 21,235 --
-------- -------- -------- ------- --------
Net income (loss)....... 1,520 (22,821) (22,710) 21,301 (22,710)
Redeemable preferred
stock dividends and
accretion.............. (1,209) -- (1,209) 1,209 (1,209)
-------- -------- -------- ------- --------
Income (loss) applicable
to common stock........ $ 311 $(22,821) $(23,919) $22,510 $(23,919)
======== ======== ======== ======= ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
COMBINED
COMBINED NON- RECLASSIFI-
GUARANTOR GUARANTOR THE CATIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------ ------- ------------ ------------
Net cash provided by
operating activities... $ 31,224 $17,997 $ 3,580 $(16,704) $ 36,097
Investing activities
Purchases of property,
plant and equipment.. (13,029) (11,569) (2,141) -- (26,739)
Purchases of
marketable
securities........... -- -- (22,879) -- (22,879)
Proceeds from sales of
marketable
securities........... -- -- 16,713 -- 16,713
Acquisition of
businesses, net of
cash acquired........ -- -- (52,466) -- (52,466)
Other costs........... (520) -- (531) -- (1,051)
-------- ------- ------- -------- --------
Net cash (used in)
investing activities... (13,549) (11,569) (61,304) -- (86,422)
Financing activities
Issuance of common
stock, net of costs
incurred............. -- -- 190,838 -- 190,838
Proceeds from debt.... 165,900 75,377 67,000 -- 308,277
Payments of debt...... (323,863) (126) (52,000) -- (375,989)
Issuance of redeemable
preferred stock...... -- -- 10,000 -- 10,000
Redemption of
preferred stock...... -- -- (57,359) -- (57,359)
Intercompany
transactions, net.... 151,691 (71,487) (96,908) 16,704 --
Loan acquisition and
other costs.......... (3,669) (1,145) (6,562) -- (11,376)
-------- ------- ------- -------- --------
Net cash provided by
(used in) financing
activities............. (9,941) 2,619 55,009 16,704 64,391
Effect of exchange rate
changes on cash........ -- -- 5,433 -- 5,433
-------- ------- ------- -------- --------
Net increase in cash and
equivalents............ 7,734 9,047 2,718 -- 19,499
Cash and equivalents at
beginning of year...... 8,595 9,207 286 -- 18,088
-------- ------- ------- -------- --------
Cash and equivalents at
end of year............ $116,329 $18,254 $ 3,004 $ -- $ 37,587
======== ======= ======= ======== ========
F-21
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
COMBINED
COMBINED NON- RECLASSIFI-
GUARANTOR GUARANTOR THE CATIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------ -------- ------------ ------------
Net cash provided by
(used by) operating
activities............. $ 33,304 $(8,663) $(34,302) $21,217 $ 11,556
Investing activities
Purchases of property,
plant and equipment.. (17,951) (29,891) -- -- (47,842)
Purchases of
marketable
securities........... -- -- (22,521) -- (22,521)
Proceeds from sales of
marketable
securities........... -- -- 19,929 -- 19,929
Acquisition of
businesses, net of
cash acquired........ -- -- (281,358) -- (281,358)
Other costs........... (1,416) -- (399) 399 (1,416)
-------- ------- -------- ------- --------
Net cash (used in)
investing activities... (19,367) (29,891) (284,349) 399 (333,208)
Financing activities
Issuance of common
stock, net of costs
incurred............. 30,000 -- -- -- 30,000
Proceeds from debt.... 273,654 -- -- -- 273,654
Payments of debt...... (13,638) -- -- -- (13,638)
Issuance of redeemable
preferred stock...... 40,000 -- -- -- 40,000
Intercompany
transactions, net.... (344,207) 44,046 321,777 (21,616) --
Loan acquisition and
other costs.......... (1,263) -- (1,117) -- (2,380)
-------- ------- -------- ------- --------
Net cash provided by
(used in) financing
activities............. (15,454) 44,046 320,660 (21,616) 327,636
Effect of exchange rate
changes on cash........ -- -- (1,724) -- (1,724)
-------- ------- -------- ------- --------
Net increase (decrease)
in cash and
equivalents............ (1,517) 5,492 285 -- 4,260
Cash and equivalents at
beginning of year...... 10,112 3,715 1 -- 13,828
-------- ------- -------- ------- --------
Cash and equivalents at
end of year............ $ 8,595 $ 9,207 $ 286 $ -- $ 18,088
======== ======= ======== ======= ========
F-22
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
COMBINED
COMBINED NON- RECLASSIFI-
GUARANTOR GUARANTOR THE CATIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------ ------- ------------ ------------
Net cash provided by
(used by) operating
activities............. $ 9,059 $(5,616) $(3,373) $17,316 $ 17,386
Investing activities
Purchases of property,
plant and equipment.. (6,401) (4,940) -- -- (11,341)
Purchases of
marketable
securities........... -- -- (4,705) -- (4,705)
Proceeds from sales of
marketable
securities........... -- -- 2,707 -- 2,707
Acquisition of
businesses, net of
cash acquired........ -- -- (48,643) -- (48,643)
Other costs........... -- -- 607 -- 607
-------- ------- ------- ------- --------
Net cash (used in)
investing activities... (6,401) (4,940) (50,034) -- (61,375)
Financing activities
Issuance of common
stock, net of costs
incurred............. -- -- 15 -- 15
Proceeds from debt.... 39,514 -- 150,000 -- 189,514
Payments of debt...... (113,404) -- -- -- (113,404)
Redemption of
preferred stock...... -- -- (13,324) -- (13,324)
Affiliate
transactions, net.... 79,957 17,283 (79,924) (17,316) --
Loan acquisition and
other costs.......... (1,307) (3,012) -- -- (4,319)
-------- ------- ------- ------- --------
Net cash provided by
financing activities... 4,760 14,271 56,767 (17,316) 58,482
Effect of exchange rate
changes on cash........ -- -- (3,359) -- (3,359)
-------- ------- ------- ------- --------
Net increase in cash and
equivalents............ 7,418 3,715 1 -- 11,134
Cash and equivalents at
beginning of year...... 2,694 -- -- -- 2,694
-------- ------- ------- ------- --------
Cash and equivalents at
end of year............ $ 10,112 $ 3,715 $ 1 $ -- $ 13,828
======== ======= ======= ======= ========
F-23
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. INCOME TAXES
Significant components of the provision for income taxes are as follows:
FISCAL YEAR
------------------------
1996 1995 1994
------- ------ -------
(IN THOUSANDS)
Current:
Federal and state.................................. $ -- $1,461 $ (812)
Foreign............................................ 2,899 5,130 1,737
Deferred:
Federal and state.................................. 8,324 (826) 2,679
Foreign............................................ (493) (549) (251)
------- ------ -------
Income tax before extraordinary item................. 10,730 5,216 3,353
Income tax benefit from:
Extraordinary item, loss from early extinguishment
of debt........................................... (7,492) -- (1,846)
------- ------ -------
Total income tax expense............................. $ 3,238 $5,216 $ 1,507
======= ====== =======
The Company's provision for income taxes in 1996 includes the benefit of
utilizing net operating loss carryforwards of approximately $4.9 million. At
December 28, 1996, the Company had: (i) operating loss carryforwards of
approximately $28.7 million for federal income tax purposes expiring in the
years 2007-2011; (ii) capital loss carryforwards of approximately $6.0 million
related to its Canadian operation; and (iii) operating loss carryforwards of
approximately $15.6 million which begin to expire in 2002 related to its
Mexican operation. No accounting recognition has been given to the potential
income tax benefit related to the Canadian and Mexican operating loss
carryforwards. The Company has not provided U.S. income taxes for
undistributed earnings of foreign subsidiaries which are considered to be
retained indefinitely for reinvestment. The distribution of these earnings
would result in additional foreign withholding taxes and additional U.S.
federal income taxes to the extent they are not offset by foreign tax credits,
but it is not practicable to estimate the total liability that would be
incurred upon such a distribution. However, in 1996, the Company provided
approximately $3.5 million for income taxes related to the distribution of
earnings from certain of its foreign operations which are not considered to be
retained indefinitely for reinvestment. Significant components of the
Company's deferred tax assets and liabilities as of December 28, 1996 and
December 30, 1995 are as follows:
1996 1995
-------- --------
(IN THOUSANDS)
Deferred tax assets:
Provision for restructuring.............................. $ 2,566 $ 3,341
U.S. net operating loss carryforward..................... 10,057 4,360
Foreign net operating and capital loss carryforward...... 6,821 9,660
Foreign tax credits...................................... 1,356 783
Other.................................................... 9,262 7,248
-------- --------
Total deferred tax assets.............................. 30,062 25,392
Valuation allowance for deferred tax assets................ (14,149) (11,792)
-------- --------
Net deferred tax assets.................................... 15,913 13,600
Deferred tax liabilities:
Depreciation and amortization............................ (22,159) (16,827)
Basis difference on fixed assets......................... (23,561) (27,795)
Provision for undistributed foreign earnings not
considered to be retained indefinitely for reinvestment. (3,301) --
Other, net............................................... (4,485) (2,326)
-------- --------
Total deferred tax liabilities......................... (53,506) (46,948)
-------- --------
Net deferred taxes..................................... $(37,593) $(33,348)
======== ========
F-24
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Taxes on income are based on earnings (loss) before taxes as follows:
FISCAL YEAR
--------------------------
1996 1995 1994
------- -------- --------
(IN THOUSANDS)
Domestic............................................ $11,018 $ 1,611 $ 4,056
Foreign............................................. 14,534 (20,002) (19,041)
------- -------- --------
$25,552 $(18,391) $(14,985)
======= ======== ========
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate as follows:
FISCAL YEAR
-------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
Computed tax (benefit) expense at the statutory
rate............................................... $ 8,943 $(6,437) $(5,095)
Valuation allowance................................. 418 7,521 6,800
Withholding taxes................................... 964 1,244 720
Effect of foreign operations, net................... 347 2,375 239
Other, net.......................................... 58 513 689
------- ------- -------
Provision for income taxes before extraordinary
item............................................... 10,730 5,216 3,353
Income tax benefit related to extraordinary item.... (7,492) -- (1,846)
------- ------- -------
Provision for income taxes.......................... $ 3,238 $ 5,216 $ 1,507
======= ======= =======
NOTE 11. STOCK OPTION PLAN
In connection with the Offering, the Company adopted the 1996 Key Employee
Stock Option Plan ("1996 Plan"). The 1996 Plan is administered by the Stock
Option Committee, which are non-management members of the Company's Board who
are appointed by the Board. Any person who is a full-time, salaried employee
of the Company (excluding non-management directors) is eligible to participate
in the 1996 Plan. The Stock Option Committee selects the participants and
determines the terms and conditions of the options. The 1996 Plan provides for
the issuance of options covering 1,500,000 shares of common stock, subject to
certain adjustments reflecting changes in the Company's capitalization.
Options granted under the 1996 Plan may be either incentive stock options
("ISOs") or such other forms of non-qualified stock options ("NQOs") as the
Stock Option Committee may determine. The 1996 Plan provides that the option
price shall not be less than the fair value of the shares at the date of grant
and that such options vest in equal 20% increments over five years. The
options expire three years after the date that such portion became vested and
exercisable. Option activity under the 1996 Plan is as follows:
FISCAL YEAR 1996
----------------------
NUMBER OF GRANT/OPTION
SHARES PRICE
--------- ------------
Shares under option at beginning of year................. -- --
Granted.................................................. 130,330 $18.00
Exercised................................................ -- --
Forfeited................................................ -- --
Expired/Canceled......................................... -- --
--------- ------
Shares under option at end of year....................... 130,330 $18.00
========= ======
Shares under option exercisable at end of year........... -- --
========= ======
Shares available for future grant........................ 1,369,670 --
========= ======
F-25
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As disclosed in Note 1. Description of Business and Significant Accounting
Policies, the Company adopted the disclosure-only provisions of FAS 123.
Accordingly, no compensation cost has been recognized in the Company's audited
financial statements for the 1996 Plan. In accordance with FAS 123, the fair
value of each option grant was determined by using the Black-Scholes option-
pricing model with the following weighted average assumptions used for 1996:
dividend yield of 0.0%; expected volatility of 0.55; risk-free interest rate
of 6.1% and expected lives of 5 years. Had compensation cost for the Company's
1996 Plan been determined based on the fair value at the grant date for awards
in 1996 consistent with provisions of FAS 123, the Company's net loss
available to common shareholders and net loss per common share would not have
differed materially from those amounts reported in the consolidated statements
of operations; therefore, supplemental pro forma information has not been
separately disclosed, as permitted by FAS 123.
NOTE 12. SHAREHOLDER RIGHTS PLAN
In connection with the IPO, the Company adopted a rights plan ("Rights
Plan"). On April 15, 1996, the Company's Board of Directors declared a
dividend of one right for each share of common stock outstanding at the close
of business on June 3, 1996. The holders of additional common stock issued
subsequent to such date and before the occurrence of certain events are
entitled to one right for each such additional share. Each right entitles the
registered holder under certain circumstances to purchase from the Company
one-thousandth of a share of junior preferred stock (series A) at a price of
$80 per one-thousandth share of junior preferred stock, subject to adjustment.
The Company may redeem the rights at $.01 per right prior to earlier of the
stock acquisition date and the expiration date as defined in the Rights Plan.
Prior to exercise of a right, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends or distributions. In addition, the rights have
certain anti-takeover effects. The rights are not issued in separate form and
may not be traded other than with the shares to which they attach. If
unexercised, the rights expire on June 3, 2006.
NOTE 13. RETIREMENT PLANS
Defined Contribution Plans
FiberTech maintains a 401(k) Plan ("FiberTech 401(k) Plan"), a Money
Purchase Salary Plan ("FiberTech Money Purchase Salary Plan") and a Money
Purchase Hourly Plan ("FiberTech Money Purchase Hourly Plan") (collectively,
the "FiberTech Money Purchase Plans") covering all employees who meet certain
service requirements. Under the provisions of the FiberTech Money Purchase
Plans, the Company has established 401(h) accounts to fund covered medical
claims for early retirees up to age 65. Under the FiberTech 401(k) Plan,
employer contributions are defined as a matching of employee contributions
allowing for a maximum matching contribution of 3% of a participant's
earnings. Under the FiberTech Money Purchase Salary Plan, employer
contributions are defined as 6.5% of a participant's base salary with 5%
contributed to an employee's account and 1.5% allocated to fund the general
pool of the 401(h) account. Under the FiberTech Money Purchase Hourly Plan,
employer contributions are defined as 2.5% of a participant's base salary with
2% given to an employee's account and .5% allocated to fund the 401(h)
account. The 401(h) accounts can be terminated at the Company's discretion at
any time without notice. Participant contributions are not permitted under the
FiberTech Money Purchase Plans. The cost of the FiberTech plans was
approximately $0.7, $0.8 and $0.8 million for 1996, 1995 and 1994,
respectively. Chicopee maintains a 401(k) Retirement Savings Plan for non-
union employees ("Chicopee Non-Union 401(k) Plan") and a Money Purchase
Retirement Plan for non-union employees ("Chicopee Non-Union Money Purchase
F-26
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Plan"). Under the Chicopee Non-Union 401(k) Plan, employer contributions are
defined as a matching of employee contributions allowing for a maximum match
of 3%. Under the Chicopee Non-Union Money Purchase Plan, employer
contributions are defined as 3.5% of a participant's base salary. Participant
contributions are not permitted under the Chicopee Non-Union Money Purchase
Plan. Chicopee also maintains a 401(k) Retirement Savings Plan for union
employees whereby employer contributions are based on 25% of the first $.40
per hour deferred by the employee. The cost of the Chicopee plans was
approximately $1.0 and $0.8 million in 1996 and 1995, respectively. FNA
maintains a 401(k) Plan ("FNA 401(k) Plan") covering all employees who meet
certain requirements. Each plan year employer contributions are discretionary
and are based on employee pre-tax contributions. The cost of the FNA 401(k)
Plan was not material in 1996.
Defined Benefit Plans
The Company maintains defined benefit retirement plans covering employees at
certain of the Company's subsidiaries. The annual service costs are determined
on the basis of an actuarial valuation by using the projected benefit method.
Any realizable surpluses are amortized on a straight-line basis over the
expected average remaining service lives of the employees in the plan. It is
the Company's policy to fund such plans in accordance with applicable laws and
regulations. At December 28, 1996, the pension plan assets were primarily
invested in separate funds whose values are subject to fluctuation in interest
rates and equity/bond securities markets. The data presented in the following
tables illustrate components of pension expense, assumptions used in
accounting for the defined benefit retirement plans and the funded status for
such plans as of the respective periods. Information regarding the Company's
defined benefit retirement plan for its Mexican subsidiary is excluded from
the following disclosures as such amounts were not material during 1996, 1995
and 1994.
Pension expense included in the determination of net income for 1996, 1995
and 1994 is included in the following table:
FISCAL YEAR
-----------------------
1996 1995 1994
------- ------- -----
(IN THOUSANDS)
Current service costs.................................. $ 1,523 $ 1,286 $ 96
Interest costs on projected benefit obligation......... 1,673 1,160 158
Return on plan assets.................................. (2,158) (1,400) (194)
Net amortization of transition obligation.............. (52) 5 (12)
------- ------- -----
Pension expense, net................................... $ 986 $ 1,051 $ 48
======= ======= =====
F-27
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant assumptions used in accounting for the defined benefit
retirement plans are as follows:
FISCAL YEAR
-------------------------
1996 1995 1994
---------- --------- ----
(IN THOUSANDS)
Return on plan assets:
U.S. Plan.......................................... 9.0% 9.0% --
Non U.S. Plans..................................... 6.5%-13.0% 6.5%-8.0% 8.0%
Discount rate on projected benefit obligations:
U.S. Plan.......................................... 7.5% 7.5% --
Non U.S. Plans..................................... 6.0%-8.5% 6.0%-8.0% 8.0%
Salary and wage escalation rate:
U.S. Plan.......................................... -- -- --
Non U.S. Plans..................................... 3.0%-4.0% 3.0%-4.0% 4.0%
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheet as of December 28, 1996 and December 30, 1995:
1996 1995
----------------------- -----------------------
(NON U.S. (U.S. PLAN) (NON U.S. (U.S. PLAN)
PLANS) PLAN PLANS) PLAN
PLAN ASSETS LIABILITIES PLAN ASSETS LIABILITIES
EXCEED PLAN EXCEED PLAN EXCEED PLAN EXCEED PLAN
LIABILITIES ASSETS LIABILITIES ASSETS
----------- ----------- ----------- -----------
(IN THOUSANDS)
Accumulated benefit obligation:
Vested......................... $21,368 $ 231 $15,533 $ 153
Non-vested..................... 1,172 181 589 121
------- ----- ------- -----
22,540 412 16,122 274
Benefits attributable to future
salaries...................... 3,942 -- 3,005 --
------- ----- ------- -----
Projected benefit obligation... 26,482 412 19,127 274
Plan assets at fair value...... 34,036 175 23,509 15
------- ----- ------- -----
Excess (deficit) of plan assets
over projected benefit
obligation.................... 7,554 (237) 4,382 (259)
Unrecognized transition net
asset......................... (360) -- (412) --
Unrecognized net (gain) loss... (1,635) -- 353 --
------- ----- ------- -----
Prepaid pension cost (pension
liability).................... $ 5,559 $(237) $ 4,323 $(259)
======= ===== ======= =====
NOTE 14. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In connection with the Chicopee Acquisition, the Company assumed obligations
under a defined benefit health care retirement plan for union employees at
Chicopee's North Little Rock, Arkansas manufacturing facility in addition to
certain other postretirement benefits for non-union employees. Accordingly,
the Company follows provisions of Statement of Financial Accounting Standards
No. 106, "Employers Accounting for Postretirement Benefits Other Than
Pensions" ("FAS 106"). FAS 106 requires that the accrual method of accounting
for postretirement benefits other than pensions be used and the accrual period
be based on the period that employees render the services necessary to earn
their postretirement benefits. The Company currently anticipates funding the
plans on a "pay-as-you-go" basis. The weighted average discount rate used in
the calculation of the accumulated postretirement benefit obligation and the
net postretirement benefit cost for the plans was 6.5% and 7.5%. The assumed
annual composite rate of increase in the per capita cost of Company provided
F-28
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
health care benefits begins at 9.0% for 1996, gradually decreases to 6.0% by
1999 and remains at that level thereafter. A 1% increase in these health care
cost trend rates would cause the accumulated obligation to increase by $0.7
million. The effect of such increase on the aggregate of the service and
interest components of the 1996 net postretirement benefit cost is not
significant. Net postretirement benefit cost included in the determination of
net income for 1996 and 1995 is included in the following table:
FISCAL YEAR
-------------------
1996 1995
------- -------
(IN THOUSANDS)
Service cost--benefits earned during period.......... $ 169 $ 109
Interest cost on accumulated postretirement benefit
obligation.......................................... 238 174
------- -------
Net postretirement benefit cost...................... $ 407 $ 283
======= =======
The following table sets forth the funded status of the Company's obligation
under FAS 106 as of December 28, 1996 and December 30, 1995:
1996 1995
------ ------
(IN
THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees......................................................... $ -- $ --
Fully eligible active plan participants.......................... 885 --
Other active plan participants................................... 3,016 3,493
------ ------
Accrued postretirement benefit obligation........................ $3,901 $3,493
====== ======
NOTE 15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS)
FISCAL YEAR ENDED DECEMBER 28, 1996
Net sales.............................. $122,715 $128,593 $135,042 $135,018
Gross profit........................... 29,395 32,265 33,834 36,861
Income (loss) before extraordinary
item.................................. (483) 2,598 5,531 7,176
Extraordinary item..................... -- (13,932) -- --
Net income (loss)...................... (483) (11,334) 5,531 7,176
Redeemable preferred stock dividends
and accretion......................... (2,104) (916) -- --
Net income (loss) attributable to
common stock.......................... (2,587) (12,250) 5,531 7,176
Net income (loss) attributable to
common stock per share before
extraordinary item.................... $ (.13) $ .06 $ .17 $ .22
Extraordinary item per common share.... -- (.53) -- --
Net income (loss) attributable to
common stock.......................... $ (.13) $ (.47) $ .17 $ .22
FISCAL YEAR ENDED DECEMBER 30, 1995
Net sales.............................. $ 66,012 $123,041 $122,521 $126,064
Gross profit........................... 15,999 30,856 29,101 28,076
Net income (loss)...................... (11,304) 6,774 (2,860) (16,217)
Redeemable preferred stock dividends
and accretion......................... (200) (1,398) (1,454) (1,787)
Net income (loss) attributable to
common stock.......................... $(11,504) $ 5,376 $ (4,314) $(18,004)
Net income (loss) attributable to
common stock per share................ $ (.56) $ .26 $ (.21) $ (.88)
F-29
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Extraordinary Item
As discussed in Note 2. Initial Public Offering and Note 8. Long-Term Debt,
the Company entered into the Existing Credit Facility in connection with
consummation of the IPO. Accordingly, the Company recorded an extraordinary
item ($13.9 million, net of the related income tax benefit of $7.5 million) in
the second quarter of 1996 related to the write-off of previously capitalized
debt issue costs and prepayment costs associated with the repurchase of $50.0
million principal amount of the Senior Notes.
Other
In 1995, the Company incurred net foreign currency transaction losses of
approximately $22.8 million related primarily to United States dollar
intercompany indebtedness at the Company's Mexican operation ($24.3 million)
offset by net foreign currency gains within the Company's Canadian and
European operations ($1.6 million). In the fourth quarter of 1994, the Mexican
government discontinued monetary support for the nuevo peso allowing it to
float to market rates which has resulted in a significant devaluation of the
nuevo peso since the end of 1994. As part of the Recapitalization (see Note 2.
Initial Public Offering) in 1996, the majority of the Company's United States
dollar intercompany indebtedness at its Mexican, Canadian and German
operations was effectively converted to equity, thus mitigating the Company's
exposure to foreign currency fluctuations. Consequently, the Company's net
foreign currency transaction loss in 1996 approximated $3.0 million (primarily
related to United States dollar intercompany indebtedness), a decrease of
$19.8 million versus 1995. See Note 18. Subsequent Events for a discussion of
the Company's change in functional currency for its Mexican subsidiary from
the nuevo peso to the United States dollar.
NOTE 16. GEOGRAPHICAL INFORMATION
Geographic data for the Company's operations are presented in the following
table. Intercompany sales and expenses are eliminated in determining results
for each operation. Export sales from the Company's United States operations
to unaffiliated customers approximated $43.8, $16.1 and $8.1 million during
1996, 1995 and 1994, respectively.
FISCAL YEAR
---------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Net sales to unaffiliated customers:
United States................................... $312,000 $255,296 $108,356
Canada.......................................... 57,371 59,417 24,418
Europe.......................................... 108,563 99,180 21,347
Mexico.......................................... 43,434 23,745 11,212
-------- -------- --------
Total......................................... $521,368 $437,638 $165,333
======== ======== ========
Income from operations:
United States................................... $ 35,625 $ 16,918 $ 7,994
Canada.......................................... 9,045 13,485 5,746
Europe.......................................... 7,350 4,994 181
Mexico.......................................... 10,128 6,891 1,642
-------- -------- --------
Total......................................... 62,148 42,288 15,563
Other expense, net:
Interest expense................................ 33,641 37,868 13,216
Foreign currency transaction losses, net........ 2,955 22,811 17,332
-------- -------- --------
Income (loss) before income taxes and
extraordinary item............................... $ 25,552 $(18,391) $(14,985)
======== ======== ========
Identifiable assets:
United States................................... $388,240 $324,088 $104,792
Canada.......................................... 92,670 88,100 71,088
Europe.......................................... 171,676 180,978 29,020
Mexico.......................................... 55,529 44,815 36,529
-------- -------- --------
Total......................................... $708,115 $637,981 $241,429
======== ======== ========
F-30
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 17. CERTAIN MATTERS
The Company's corporate headquarters are housed in space leased by a
shareholder of the Company from an affiliate of the shareholder. A portion of
the payments and other expenses, primarily insurance and allocated costs, are
charged to the Company. Such amounts approximated $2.1, $2.3 and $1.4 million
in 1996, 1995 and 1994, respectively. On September 1, 1993, an affiliated
entity of the Company acquired a manufacturing facility in Vineland, New
Jersey for the benefit of a wholly-owned subsidiary of the Company and entered
into a lease of the facility to the subsidiary at a base rate of $2.50 per
square foot, subject to adjustment to account for inflation, which is
comparable to similar properties in the area. The lease terminates on August
31, 2003 and is subject to a fair market value purchase option at termination.
Annual rental expense relating to this lease approximated $0.2 million in
1996, 1995 and 1994, respectively. On January 11, 1996, the Company issued
10,000 shares of 13% Cumulative Redeemable Preferred Stock, $.01 par value, to
an entity affiliated with the Company for $10.0 million. Such shares were
redeemed in connection with the IPO (see Note 2. Initial Public Offering).
NOTE 18. SUBSEQUENT EVENTS
Foreign Currency
Effective December 29, 1996, the Company changed the functional currency for
its Mexican subsidiary from the nuevo peso to the United States dollar due to
economic facts and circumstances including: (i) the cumulative inflation index
in Mexico has been approximately 100% over a three year period ended December
28,1996; (ii) an increase in the volume of transactions denominated in dollars
including dollar-indexed transactions; and (iii) the cash flows of the
Company's Mexican subsidiary are directly affected since a substantial portion
of transactions are dollar denominated or dollar-indexed. In accordance with
FAS 52, the dollar translated amounts of nonmonetary assets, primarily
property, plant and equipment and goodwill, at December 28, 1996, became the
accounting basis for those assets at December 29, 1996, and for subsequent
periods. Additionally, the Mexican-related cumulative translation adjustment
at December 28, 1996, accumulated in shareholders' equity prior to this change
in functional currency, remains as a separate component of shareholders'
equity.
Employee Stock Purchase Plan
On January 1, 1997, the Company adopted the Stock Purchase Plan for
Employees of Polymer Group, Inc. which allows employee participants to
purchase common stock of the Company through payroll deductions. The plan is
administered by a third party and all administrative costs of the plan are
covered by the Company. In accordance with the plan, share purchases by the
administrator are made at the fair value of the Company's common stock on the
date of purchase.
F-31
POLYMER GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 28, DECEMBER 28,
ASSETS 1997 1996
------ ----------- ------------
(UNAUDITED)
Current assets:
Cash and equivalents................................ $ 31,855 $ 37,587
Marketable securities............................... 12,677 10,892
Accounts receivable, net............................ 75,331 64,752
Inventories......................................... 61,322 55,637
Deferred income taxes and other..................... 17,906 15,559
-------- --------
Total current assets.............................. 199,091 184,427
Property, plant and equipment, net.................... 406,646 406,527
Intangibles, loan acquisition and organization costs,
net.................................................. 92,457 96,932
Deferred income taxes and other....................... 20,300 20,229
-------- --------
Total assets...................................... $718,494 $708,115
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................... $ 32,469 $ 36,059
Accrued liabilities and other....................... 41,651 35,717
Current portion of long-term debt................... 86 19,497
-------- --------
Total current liabilities......................... 74,206 91,273
-------- --------
Long-term debt, less current portion.................. 390,113 362,745
Deferred income taxes................................. 49,257 52,115
Other noncurrent liabilities.......................... 5,347 6,064
Shareholders' equity:
Series preferred stock--$.01 par value, 10,000,000
shares authorized,
0 shares issued and outstanding.................... -- --
Common stock--$.01 par value, 100,000,000 shares
authorized, 32,000,000 shares issued and
outstanding........................................ 320 320
Non-voting common stock--$.01 par value, 3,000,000
shares authorized, 0 shares issued and outstanding. -- --
Additional paid-in capital.......................... 243,662 243,662
(Deficit)........................................... (43,809) (54,783)
Cumulative translation adjustment................... (1,238) 6,790
Unrealized holding gain (loss) on marketable
securities......................................... 636 (71)
-------- --------
199,571 195,918
-------- --------
Total liabilities and shareholders' equity........ $718,494 $708,115
======== ========
See accompanying notes.
F-32
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- ------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
--------- --------- -------- --------
Net sales............................ $ 131,508 $128,593 $260,455 $251,308
Cost of goods sold................... 96,792 96,328 193,154 189,648
--------- --------- -------- --------
Gross profit......................... 34,716 32,265 67,301 61,660
Selling, general and administrative
expenses............................ 19,037 16,480 37,693 34,591
--------- --------- -------- --------
Operating income..................... 15,679 15,785 29,608 27,069
Other (income) expenses:
Interest expense, net.............. 6,698 9,026 13,532 19,605
Foreign currency transaction
(gains) losses, net............... (5) 2,241 (325) 3,573
--------- --------- -------- --------
6,693 11,267 13,207 23,178
--------- --------- -------- --------
Income before income taxes and
extraordinary item.................. 8,986 4,518 16,401 3,891
Income taxes......................... 2,974 1,920 5,427 1,776
--------- --------- -------- --------
Income before extraordinary item..... 6,012 2,598 10,974 2,115
Extraordinary item, (loss) from
extinguishment of debt, net of
income tax benefit of $7,492........ -- (13,932) -- (13,932)
--------- --------- -------- --------
Net income (loss).................... 6,012 (11,334) 10,974 (11,817)
Redeemable preferred stock dividends
and accretion....................... -- (916) -- (3,020)
--------- --------- -------- --------
Net income (loss) applicable to
common stock........................ $ 6,012 $ (12,250) $ 10,974 $(14,837)
========= ========= ======== ========
Net income (loss) per common share:
Income (loss) before extraordinary
item.............................. $ .19 $ .06 $ .34 $ (.04)
Extraordinary item, (loss) from
extinguishment of debt, net of
income tax benefit................ -- (.53) -- (.60)
--------- --------- -------- --------
Net income (loss) applicable to
common stock........................ $ .19 $ (.47) $ .34 $ (.64)
========= ========= ======== ========
Weighted average number of shares
outstanding......................... 32,000 26,250 32,000 23,375
========= ========= ======== ========
See accompanying notes.
F-33
POLYMER GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
------------------
JUNE 28, JUNE 29,
1997 1996
-------- --------
Operating activities
Net income (loss)........................................ $ 10,974 $(11,817)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item, loss from extinguishment of debt,
net of income tax benefit............................. -- 13,932
Depreciation and amortization expense.................. 20,008 18,266
Foreign currency transaction (gains) losses, net....... (325) 3,573
Provision for losses on accounts receivable and price
concessions........................................... 3,470 3,856
Changes in operating assets and liabilities:
Accounts receivable.................................... (14,049) (9,095)
Inventories............................................ (5,685) (3,501)
Accounts payable and accrued liabilities............... 1,627 2,399
Other, net............................................. 254 (1,408)
-------- --------
Net cash provided by operating activities............ 16,274 16,205
-------- --------
Investing activities
Purchases of property, plant and equipment............... (27,457) (10,973)
Purchases of marketable securities....................... (10,585) (15,452)
Proceeds from sales of marketable securities............. 9,591 8,100
Organization and other costs............................. (84) (49)
-------- --------
Net cash (used in) investing activities.............. (28,535) (18,374)
-------- --------
Financing activities
Issuance of common stock, net of costs incurred.......... -- 190,838
Proceeds from debt....................................... 27,093 235,400
Payments of debt......................................... (14,780) (363,905)
Redemption of preferred stock............................ -- (57,359)
Issuance of redeemable preferred stock................... -- 10,000
Loan acquisition and debt prepayment costs............... (113) (11,067)
-------- --------
Net cash provided by financing activities............ 12,200 3,907
-------- --------
Effect of exchange rate changes on cash.................... (5,671) (483)
-------- --------
Net increase (decrease) in cash and cash equivalents. (5,732) 1,255
Cash and equivalents at beginning of period.......... 37,587 18,088
-------- --------
Cash and equivalents at end of period................ $ 31,855 $ 19,343
======== ========
Noncash financing activities
Cumulative dividends on redeemable preferred stock....... $ -- $ 3,020
See accompanying notes.
F-34
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Polymer Group, Inc. ("Polymer Group" or the "Company") is a world-wide
manufacturer of flexible nonwoven and woven polyolefin fabrics. The Company's
principal lines of business include hygiene, medical, wiping and industrial
and specialty products. The Company operates thirteen manufacturing facilities
located in the United States, Canada, Mexico, Germany and The Netherlands.
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the management of Polymer
Group, these unaudited consolidated financial statements contain all
adjustments of a normal recurring nature necessary for a fair presentation.
Operating results for the three and six months ended June 28, 1997, are not
necessarily indicative of the results that may be expected for fiscal 1997.
Certain amounts previously presented in the consolidated financial statements
for prior periods have been reclassified to conform to current classification.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method of accounting and consist of the following (in thousands):
JUNE 28, DECEMBER 28,
1997 1996
----------- ------------
(UNAUDITED)
Inventories:
Finished goods................................ $32,838 $26,809
Work in process and stores and maintenance
parts........................................ 3,840 3,328
Raw materials................................. 24,644 25,500
------- -------
Total....................................... $61,322 $55,637
======= =======
NOTE 3. NET INCOME (LOSS) PER SHARE
Net income (loss) per common share is determined by dividing net income
(loss) applicable to common stock by the average number of shares outstanding
during the period.
NOTE 4. SELECTED FINANCIAL DATA OF GUARANTORS
Payment of the $100.0 million 12 1/4% Senior Notes, which were refinanced on
July 3, 1997 as discussed in "Note 7. Subsequent Event" of Notes to
Consolidated Financial Statements, is unconditionally guaranteed, jointly and
severally, on a senior basis by certain of the Company's wholly-owned
subsidiaries ("Guarantors"). Management has determined that separate complete
financial statements of the Guarantors would not be material to users of the
financial statements. The following sets forth selected financial data of the
Guarantors and Non-Guarantor subsidiaries (in thousands):
F-35
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING SELECTED BALANCE SHEET FINANCIAL DATA
AS OF JUNE 28, 1997
COMBINED COMBINED RECLASSIFI-
GUARANTOR NON-GUARANTOR THE CATIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ------------ ------------
Working capital......... $ 52,392 $ 66,127 $ 6,244 $ 122 $124,885
Total assets............ 1,063,847 321,327 498,981 (1,165,661) 718,494
Total debt.............. 468,007 157,286 272,858 (507,952) 390,199
Shareholders' equity.... 533,129 115,242 207,487 (656,287) 199,571
CONDENSED CONSOLIDATING SELECTED BALANCE SHEET FINANCIAL DATA
AS OF DECEMBER 28, 1996
COMBINED COMBINED RECLASSIFI-
GUARANTOR NON-GUARANTOR THE CATIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ------------ ------------
Working capital......... $ 38,097 $ 47,034 $ 7,904 $ 119 $ 93,154
Total assets............ 1,032,233 278,676 471,796 (1,074,590) 708,115
Total debt.............. 442,447 114,692 260,790 (435,687) 382,242
Shareholders' equity.... 527,475 110,238 195,918 (637,713) 195,918
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SELECTED FINANCIAL DATA
FOR THE SIX MONTHS ENDED JUNE 28, 1997
COMBINED COMBINED RECLASSIFI-
GUARANTOR NON-GUARANTOR THE CATIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ------------ ------------
Net sales............... $ 165,495 $ 99,174 $ -- $ (4,214) $260,455
Operating income........ 12,120 14,381 3,107 -- 29,608
Income (loss) before
income taxes........... 9,681 12,311 (5,591) -- 16,401
Income taxes (benefit).. (93) 1,510 4,010 -- 5,427
Equity in earnings of
subsidiaries........... -- -- 20,575 (20,575) --
Net income.............. 9,774 10,801 10,974 (20,575) 10,974
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SELECTED FINANCIAL DATA
FOR THE SIX MONTHS ENDED JUNE 29, 1996
COMBINED COMBINED RECLASSIFI-
GUARANTOR NON-GUARANTOR THE CATIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- -------- ------------ ------------
Net sales............... $ 164,042 $ 87,905 $ -- $ (639) $251,308
Operating income (loss). 13,372 13,698 (15) 14 27,069
Income (loss) before
income taxes and
extraordinary item..... 3,405 2,911 (2,439) 14 3,891
Income taxes (benefit).. 1,514 (558) 820 -- 1,776
Income (loss) before
extraordinary item..... 1,891 3,469 (3,259) 14 2,115
Extraordinary Item...... (10,745) 793 (3,980) -- (13,932)
Equity in earnings
(loss) of subsidiaries. -- -- (4,922) 4,922 --
Net income (loss)....... (8,854) 4,262 (12,161) 4,936 (11,817)
F-36
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 5. FOREIGN CURRENCY
On December 29, 1996, the Company changed the functional currency for its
Mexican subsidiary from the nuevo peso to the United States dollar due to
economic facts and circumstances including: (i) the cumulative inflation index
in Mexico has approximated 100% over a three year period ended December 28,
1996; (ii) an increase in the volume of transactions denominated in dollars
including dollar-indexed transactions; and (iii) the cash flows of the
Company's Mexican subsidiary are directly affected since a substantial portion
of transactions are dollar denominated or dollar-indexed. In accordance with
FAS 52, the dollar translated amounts of nonmonetary assets, primarily
property, plant and equipment and goodwill, at December 28, 1996 became the
accounting basis for those assets at December 29, 1996 and for subsequent
periods. Additionally, the Mexican-related cumulative translation adjustment
at December 28, 1996 accumulated in shareholders' equity prior to this change
in functional currency remains as a separate component of shareholders'
equity.
NOTE 6. NEW ACCOUNTING STANDARD
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("FAS 128"), was issued. FAS 128 is designed to improve
the earnings per share information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of earnings per share data on
an international basis. FAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods. Earlier
application is not permitted. The Company will adopt FAS 128 on its effective
date. The Company does not currently anticipate that the effect of adoption
will have a material impact upon its current earnings per share computation.
NOTE 7. SUBSEQUENT EVENT
On July 3, 1997, the Company refinanced its outstanding indebtedness by: (i)
consummating the private placement and resale of $400.0 million 9% Senior
Subordinated Notes due 2007 pursuant to Rule 144A promulgated under the
Securities Act of 1933, and the tender offer and related consent solicitation
for its Senior Notes; and (ii) amending and restating its existing credit
facility (collectively, the "Refinancing"). In the tender offer and consent
solicitation, the Company purchased all of its outstanding Senior Notes for an
amount in cash equal to $1,103.64 per $1,000 aggregate amount, plus accrued
interest. The Company also solicited consents from tendering holders to amend
the indenture under which the Senior Notes were issued to eliminate
substantially all of the protective covenants contained therein, and paid a
separate consent fee to holders who tendered their notes and delivered
consents prior to the expiration of the consent solicitation. The Company
received consents relating to, and tenders of, all of the outstanding Senior
Notes. The amended credit facility provides for secured revolving credit
facilities with an aggregate commitment of up to $325.0 million and a term of
approximately six years. The Company's current portion of long-term debt that
was refinanced in connection with the Refinancing has been classified as long-
term debt in the Company's June 28, 1997 condensed consolidated balance sheet
in accordance with Statement of Financial Accounting Standards No. 6,
"Classification of Short-Term Obligations Expected to be Refinanced."
F-37
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
Summary.................................................................... 1
Risk Factors............................................................... 13
The Refinancing............................................................ 21
Use of Proceeds............................................................ 22
Capitalization............................................................. 22
Selected Consolidated Financial Data....................................... 23
Unaudited Pro Forma Financial Information.................................. 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 28
Business................................................................... 41
Management................................................................. 56
Certain Relationships and Related Transactions............................. 58
Security Ownership......................................................... 60
Description of Certain Indebtedness........................................ 62
Description of the Exchange Notes.......................................... 63
Registration Rights........................................................ 95
The Exchange Offer......................................................... 96
Certain Federal Income Tax Consequences.................................... 105
Plan of Distribution....................................................... 106
Legal Matters.............................................................. 107
Experts.................................................................... 107
Index to Financial Statements.............................................. F-1
PROSPECTUS
$400,000,000
POLYMER GROUP, INC.
OFFER TO EXCHANGE ITS 9% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B, FOR ANY
AND ALL OUTSTANDING 9% SENIOR SUBORDINATED NOTES DUE 2007
LOGO
September 3, 1997
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company, PGI Polymer, FiberTech, FiberGol, Technetics, Chicopee Holdings,
Chicopee and Fabrene Corp.
The Company and each of PGI Polymer, FiberTech, FiberGol, Technetics,
Chicopee Holdings, Chicopee and Fabrene Corp. (the "Delaware Corporate
Guarantors") are incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person is or was an officer, director, employee or agent of
such corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the corporation's best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorney's fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.
The respective certificates of incorporation, as amended, of the Company and
each Delaware Corporate Guarantor provide that no director of the corporation
shall be liable to such corporation or its stockholders for monetary damages
arising from a breach of fiduciary duty owed to the corporation or its
stockholders. The certificate of incorporation, as amended, of Fabrene Corp.
excludes from such provision liabilities arising (i) from breach of the
director's duty of loyalty to Fabrene Corp. or its stockholders, (ii) from
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) pursuant to Section 174 of the Delaware
General Corporation Law, or (iv) from any transaction from which the director
derived an improper personal benefit.
The respective by-laws of the Company and each Delaware Corporate Guarantor
provide that the Company shall indemnify, to the fullest extent permitted by
the General Corporation Law of the State of Delaware, any person who was or is
a party or is threatened to be made a party to or is involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he or she
is or was a director or officer of such corporation or other entity, or is or
was serving at the request of such corporation as a director, officer or
member of another corporation, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding and that
such indemnification shall continue as to an indemnitee who has ceased to a be
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a director or officer and shall inure to the benefit of the indemnitee's
heirs, executors and administrators. The by-laws of the Company and each
Delaware Corporate Guarantor except Technetics and Fabrene Corp. further
provide that any employee or agent of such corporation, or any person serving
at the request of the Company or such respective Delaware Corporate Guarantor
as an employee or agent of another corporation, partnership, joint venture or
other enterprise shall be indemnified in the same manner as a director or
officer of such entity.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
The respective by-laws of the Company and each Delaware Corporate Guarantor
except Technetics and Fabrene Corp. provide that each such corporation may
purchase and maintain insurance on its own behalf and on behalf of any person
who is or was a director, officer, employee, fiduciary, or agent of such
corporation or was serving at the request of that corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or her
and incurred by him or her in any such capacity, whether or not the
corporation would have the power to indemnify such person against such
liability under its by-laws. Technetics and Fabrene Corp. extend such coverage
only to officers or directors of such corporations or serving in such
capacities at other entities at the request of such corporations.
All of the directors and officers of the Company and each Delaware Corporate
Guarantor are covered by insurance policies maintained and held in effect by
either the Company or such corporation against certain liabilities for actions
taken in such capacities, including liabilities under the Securities Act of
1933.
Fabrene L.L.C.
Fabrene L.L.C. is organized under the Delaware Limited Liability Company Act
(the "L.L.C. Act"). Under Section 18-108 of the L.L.C. Act, subject to such
standards and restrictions, if any, as are set forth in a limited liability
company's agreement, a limited liability company may indemnify and hold
harmless any member or manager or other person from and against any and all
claims and demands whatsoever.
The Limited Liability Company Agreement of Fabrene L.L.C. (the "L.L.C.
Agreement") provides that, to the fullest extent permitted by law, Fabrene
L.L.C. shall indemnify any person who was or is a party or is threatened to be
made a party to any proceeding, other than an action by or in the right of
Fabrene L.L.C., by reason of the fact that such person is or was a member, a
director of a member, or an officer of Fabrene L.L.C. or a member, or is or
was serving at the request of Fabrene L.L.C. as a director, officer, employee
or agent of another limited liability company, corporation, partnership, joint
venture, trust or other enterprise against expenses (including but not limited
to attorneys' fees), judgment, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of Fabrene L.L.C., and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of Fabrene L.L.C., and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
The L.L.C. Agreement further provides that such persons shall be indemnified
in actions by Fabrene L.L.C. so long as such person acted in good faith and in
a manner he reasonably believed to
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be in or not opposed to the best interests of Fabrene L.L.C., except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to Fabrene L.L.C.
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
PNA and FNA
PNA and FNA are incorporated under the laws of the State of North Carolina.
Section 8.51 of the North Carolina Business Corporation Act (the "NCBCA")
provides that a corporation may indemnify an individual made a party to a
proceeding because he is or was a director against liability incurred in the
proceeding if (i) he conducted himself in good faith, (ii) he reasonably
believed (a) in the case of conduct in his official capacity with the
corporation, that his conduct was in its best interests, and (b) in all other
cases, that his conduct was at least not opposed to its best interests, and
(iii) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful. Section 8.51 provides that the termination
of a proceeding by judgment, order, settlement, conviction, or upon a plea of
no contest or its equivalent is not, of itself, determinative that the
director did not meet the requisite standard of conduct. Section 8.51
prohibits indemnification of a director (i) in connection with a proceeding by
or in the right of the corporation in which the director was adjudged liable
to the corporation, and (ii) in connection with any other proceeding charging
improper personal benefit to him, whether or not involving action in his
official capacity, in which he was adjudged liable on the basis that personal
benefit was improperly received by him. Indemnification permitted under
Section 8.51 in connection with a proceeding by or in the right of the
corporation that is concluded without a final adjudication on the issue of
liability is limited to reasonable expenses incurred in connection with the
proceeding.
Section 8.52 of the NCBCA provides that, unless limited by its articles of
incorporation, a corporation shall mandatorily indemnify a director who was
wholly successful, on the merits or otherwise, in the defense of any
proceeding to which he was a party because he is or was a director of the
corporation against reasonable expenses incurred by him in connection with the
proceeding. Section 8.56 of the NCBCA provides that an officer of the
corporation is entitled to mandatory indemnification under Section 8.52 to the
same extent as a director, and that the corporation may otherwise indemnify
and advance expenses to an officer, employee, or agent of the corporation to
the same extent as to a director. Section 8.57 of the NCBCA provides that, in
addition to and separate and apart from the indemnification provided under the
NCBCA, a corporation may in its articles of incorporation or bylaws or by
contract or resolution indemnify or agree to indemnify any one or more of its
directors, officers, employees, or agents against liability and expenses in
any proceeding (including without limitation a proceeding brought by or on
behalf of the corporation itself) arising out of their status as such or their
activities in any of the foregoing capacities; provided, however, that a
corporation may not indemnify or agree to indemnify a person against liability
or expenses he may incur on account of his activities which were at the time
taken known or believed by him to be clearly in conflict with the best
interests of the corporation. Section 8.57 also provides that any provision of
any articles of incorporation, by-law, contract, or resolution permitted under
such section may include provisions for recovery from the corporation of
reasonable costs, expenses, and attorneys' fees in connection with the
enforcement of rights to indemnification granted therein and may further
include provisions establishing reasonable procedures for determining and
enforcing the rights granted therein.
The articles of incorporation, as amended, of PNA provide that a director of
the corporation shall not be personally liable for monetary damages for breach
of any duty as a director except and only to the extent applicable law
restricts such indemnification. The by-laws of PNA provide that any person who
at any time serves as a director or officer of PNA, or in such capacity at the
request of PNA for
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any other corporation, partnership, joint venture, trust or other enterprise,
or as a trustee or administrator under an employee benefit plan, shall have a
right to be indemnified by PNA to the fullest extent permitted by law against
(a) reasonable expenses, including reasonable attorneys' fees, actually
incurred by him in connection with any threatened, pending or completed
action, suit or proceeding (and any appeal thereof), whether civil, criminal,
administrative, investigative or arbitrative, and whether or not brought by or
on behalf of PNA, seeking to hold him liable by reason of the fact that he is
or was acting in such capacity, and (b) reasonable payments made by him in
satisfaction of any judgment, money decree, fine (including, without
limitation, an excise tax assessed with respect to an employee benefit plan),
penalty or settlement for which he may have become liable in any such action,
suit or proceeding.
The by-laws of PNA provide that any person who at any time serves or has
served as a director or officer of PNA, or in such capacity at the request of
PNA for any other corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan,
shall have a right to be indemnified by PNA to the fullest extent permitted by
law against (a) reasonable expenses, including reasonable attorneys' fees,
actually incurred by him in connection with any threatened, pending or
completed action, suit or proceeding (and any appeal thereof), whether civil,
criminal, administrative, investigative or arbitrative, and whether or not
brought by or on behalf of PNA, seeking to hold him liable by reason of the
fact that he is or was acting in such capacity, and (b) reasonable payments
made by him in satisfaction of any judgment, money decree, fine (including,
without limitation, any excise tax assessed with respect to an employee
benefit plan), penalty or settlement for which he may have become liable in
any such action, suit or proceeding.
The articles of incorporation, as amended, of FNA provide that no person who
is serving or who has served as a director of the corporation shall be
personally liable in any action for monetary damages for breach of his or her
duty as a director, whether such action is brought by or in the right of the
corporation or otherwise. The by-laws of FNA provide that any person who at
any time serves or has served as a director or officer of FNA or of any wholly
owned subsidiary of FNA, or in such capacity at the request of FNA for any
other foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, or as a trustee or administrator under any employee benefit
plan of FNA or of any wholly owned subsidiary thereof (a "Claimant"), shall
have the right to be indemnified and held harmless by FNA to the fullest
extent from time to time permitted by law against all liabilities and
litigation expenses (as hereinafter defined) in the event a claim shall be
made or threatened against that person in, or that person is made or
threatened to be made a party to, any proceeding, whether or not brought by or
on behalf of FNA, including all appeals therefrom, arising out of such
service, provided, that such indemnification shall not be effective with
respect to (a) that portion of any liabilities or litigation expenses with
respect to which the Claimant is entitled to receive payment under any
insurance policy or (b) any liabilities or litigation expenses incurred on
account of any of the Claimant's activities which were at the time taken known
or believed by the Claimant to be clearly in conflict with the best interests
of FNA.
The by-laws of FNA provide that any person who at any time serves or has
served as a director or officer of FNA, or of any wholly owned subsidiary of
FNA or in such capacity at the request of FNA for any other foreign or
domestic corporation, partnership, joint venture, trust or other enterprise,
or as a trustee or administrator under any employee benefit plan of FNA or of
any wholly owned subsidiary thereof (a "Claimant"), shall have the right to be
indemnified and held harmless by FNA to the fullest extent from time to time
permitted by law against all liabilities and litigation expenses (as
hereinafter defined) in the event a claim shall be made or threatened against
that person in, or that person is made or threatened to be made a party to,
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative, and whether or not brought
by or on behalf of the corporation, including all appeals therefrom (a
"proceeding"), arising out of such service, provided, that such
indemnification shall not be effective with respect to (a) that portion of any
liabilities or
II-4
litigation expenses with respect to which the Claimant is entitled to receive
payment under any insurance policy or (b) any liabilities or litigation
expenses incurred on account of any of the Claimant's activities which were at
the time taken known or believed by the Claimant to be clearly in conflict
with the best interests of FNA.
Fabrene Group, Inc.
Fabrene Group is incorporated under the laws of the province of Prince
Edward Island, Canada. Under the Companies Act, every director of a company,
and his heirs, executors and administrators, and estate and effects, may, with
the consent of the company given at any general meeting, be indemnified and
saved harmless out of the funds of the company from and against all costs,
charges and expenses which he shall or may sustain or incur in any action or
proceeding which is brought or prosecuted against him for or in respect of any
act, deed, matter or thing made, done or permitted by him in or about the
execution of the duties of his office, and also from and against all other
costs, charges and expenses which he shall sustain or incur in or about or in
relation to the affairs thereof, except such costs, charges and expenses as
are occasioned by his own wilful neglect or default.
Section 10 of Article III, By-Law No. 1, of Fabrene Group's by-laws provides
that no director or officer of Fabrene Group shall be liable for the acts,
receipts, neglects or defaults of any other director or officer, or for
joining in any receipts or other act for conformity, or for any loss or
expense happening to Fabrene Group through the insufficiency or deficiency of
title to any property acquired by the order of the Board for or on behalf of
Fabrene Group, or for the insufficiency or deficiency of any security in or
upon which any of the moneys arising from the bankruptcy, insolvency or
tortious act of any person with whom any loss occasioned by any error of
judgment or oversight on his part, or for any other loss, damage or misfortune
whatever which shall happen in the execution of the duties of his office or in
relation thereto unless the same shall happen through his own dishonesty.
Section 11 of Article III, By-Law No. 1, of Fabrene Group's by-laws provides
that every director or officer of Fabrene Group and his heirs, executors and
administrators and estate and effects respectively shall, from time to time,
and at all times, be indemnified and saved harmless from and against all
costs, charges and expenses whatsoever which such director or officer sustains
or incurs in or about any action, suit or proceeding which is brought,
commenced or prosecuted against him, for or in respect of any act, deed,
matter or thing whatsoever, made, done or permitted by him, in or about the
execution of the duties of his office, and all other costs, charges and
expenses which he sustains or incurs in or about or in relation to the affairs
thereof except such costs, charges or expenses as are occasioned by his own
willful neglect or default.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
3.1(i) Form of Amended and Restated Certificate of Incorporation
of the Company.(1)
3.1(ii) Certificate of Designation of the Company.
3.2 Amended and Restated By-laws of the Company.(1)
3.3(i) Restated Certificate of Incorporation of Polymer Group,
Inc. (n/k/a PGI Polymer, Inc.)
3.3(ii) Certificate of Amendment to Certificate of Incorporation
of PGI Polymer, Inc.
3.3(iii) Certificate of Amendment to Certificate of Incorporation
of PGI Polymer, Inc.
3.3(iv) Certificate of Amendment to Certificate of Incorporation
of PGI Polymer, Inc.
3.4 Amended and Restated By-laws of PGI Polymer, Inc.
3.5 Certificate of Incorporation of FiberTech Group, Inc.
II-5
3.6 By-laws of FiberTech Group, Inc.
3.7 Articles of Incorporation of FiberGol Corporation
3.8 By-laws of FiberGol Corporation
3.9 Certificate of Incorporation of Technetics Group, Inc.
3.10 By-laws of Technetics Group, Inc.
3.11 Certificate of Incorporation of Chicopee Holdings, Inc.
3.12 By-laws of Chicopee Holdings, Inc.
3.13(i) Restated Certificate of Incorporation of Chicopee, Inc.
3.13(ii) Certificate of Amendment to Certificate of Incorporation
of Chicopee, Inc.
3.14 By-laws of Chicopee, Inc.
3.15(i) Articles of Incorporation of Petropar North America Corp.
(k/n/a PNA Corp.)
3.15(ii) Articles of Amendment to Articles of Incorporation of
Petropar North America Corp. (k/n/a PNA Corp.)
3.16 By-laws of Petropar North America Corp. (k/n/a PNA Corp.)
3.17(i) Articles of Incorporation of Atlas Corp. (k/n/a FNA
Polymer Corp.)
3.17(ii) Articles of Amendment to Articles of Incorporation of
Atlas, Corp. (k/n/a FNA Polymer Corp.)
3.17(iii) Articles of Amendment to Articles of Incorporation of
Fitesa North America Corp. (k/n/a FNA Polymer Corp.)
3.18 By-laws of Atlas Corp. (k/n/a FNA Polymer Corp.)
3.19(i) Certificate of Incorporation of Fabrene Corp.
3.19(ii) Certificate of Renewal of Fabrene Corp.
3.19(iii) Certificate of Renewal of Fabrene Corp.
3.20 By-laws of Fabrene Corp.
3.21 Certificate of Limited Liability Company of Fabrene Group
L.L.C.
3.22 Limited Liability Company Agreement of Fabrene Group
L.L.C.
3.23 Letters Patent Incorporating of Fabrene Group, Inc.
3.24 By-laws of Fabrene Group, Inc.
4.1 Indenture dated as of July 1, 1997 among the Company, the
Guarantors and Harris Trust and Savings Bank, as trustee.
4.2 Forms of Series A and Series B 9% Senior Subordinated
Notes due 2007 (contained in Exhibit 4.1 as Exhibit A and
B thereto, respectively).
4.3 Form of Guarantee (contained in Exhibit 4.2).
4.4 Registration Rights Agreement dated as of July 3, 1997
among the Company, the Guarantors and Chase Securities
Inc.
4.5 Amended and Restated Credit Agreement dated July 3, 1997
by and among the Company, the Guarantors named therein,
the lenders named therein and The Chase Manhattan Bank,
as agent.
The Registrant will furnish to the Commission, upon
request, each instrument defining the rights of holders
of long-term debt of the Registrant and its subsidiaries
where the amount of such debt does not exceed 10 percent
of the total assets of the Registrant and its
subsidiaries on a consolidated basis.
II-6
5.1 Opinion and consent of Kirkland & Ellis.*
10.1 Management Agreement dated October 21, 1992 by and among
PGI, FiberTech, GTC Fund III and Jerry Zucker.(2)**
10.2 Amendment No. 1 to Management Agreement dated June 24,
1994 by and among PGI, FiberTech, GTC Fund III and Jerry
Zucker.(2)**
10.3 Management Agreement dated October 21, 1992 by and among
PGI, FiberTech, GTC Fund III and James G. Boyd.(2)**
10.4 Amendment No. 1 to Management Agreement dated June 24,
1994 by and among PGI, FiberTech, GTC Fund III and James
G. Boyd.(2)**
10.5 Agreement dated June 24, 1994 among the Company, Jerry
Zucker and James G. Boyd.(2)
10.6 Lease Agreement dated as of September 1, 1993 by and
between ConX, Inc. and Technetics Group, Inc.(2)
10.7 Amendment No. 2 to Management Agreement dated March 15,
1995 by and among PGI, FiberTech, GTC Fund III and Jerry
Zucker.(2)**
10.8 Amendment No. 2 to Management Agreement dated March 15,
1995 by and among PGI, FiberTech, GTC Fund III and James
G. Boyd.(2)**
10.9 Amended and Restated Registration Agreement made as of
March 15, 1995 by and among the Company, InterTech, GTC
Fund III, Jerry Zucker, James G. Boyd, FTG, CMIHI, Leeway
& Co. ("Leeway") and California Public Employees'
Retirement System ("CalPERS").(2)
10.10 Management Agreement made as of March 15, 1995 by and
among the Company, Chicopee, Inc. and Jerry Zucker.(2)**
10.11 Management Agreement made as of March 15, 1995 by and
among the Company, Chicopee, Inc. and James G. Boyd.(2)**
10.12 Roll-In Agreement entered into as of November 18, 1994 by
and among ZB Holdings, InterTech, FTG, the Company,
Polypore, CMIHI, Jerry Zucker, James G. Boyd and GTC Fund
III.(2)
10.13 Senior Notes Indenture dated as of June 24, 1994 among
the Company, PGI, FiberTech and its subsidiaries and the
Trustee.(2)
10.14 Amended and Restated Credit Agreement dated as of June
24, 1994 by and among FiberTech, the Company, PGI, the
Subsidiary Guarantors identified therein, the Banks
identified therein and The Chase Manhattan Bank (National
Association),
as agent.(2)
10.15 Amended and Restated Security Agreement dated as of June
24, 1994 by and among FiberTech, the Subsidiary
Guarantors identified therein and The Chase Manhattan
Bank (National Association), as agent.(2)
10.16 Pledge Agreement dated as of June 24, 1994 by and among
the Company, PGI and The Chase Manhattan Bank (National
Association), as agent.(2)
10.17 Amendment No. 1 dated as of September 30, 1994 by and
among FiberTech, the Subsidiary Guarantors identified
therein, the Lenders signatory thereto and the Chase
Manhattan Bank (National Association), as agent.(2)
10.18 Amendment No. 2 dated as of March 8, 1995 by and among
FiberTech, the Subsidiary Guarantors identified therein,
the Lenders signatory thereto and the Chase Manhattan
Bank (National Association), as agent.(2)
10.19 Amendment No. 3 dated as of June 27, 1995 by and among
FiberTech, the Subsidiary Guarantors identified therein,
the Lenders signatory thereto and the Chase Manhattan
Bank (National Association), as agent.(2)
II-7
10.20 Amendment No. 4 dated as of December 22, 1995 by and among
FiberTech, the Subsidiary Guarantors and Parent Guarantors
identified therein, the Lenders signatory thereto and the
Chase Manhattan Bank (National Association), as agent.(1)
10.21 First Supplemental Indenture dated as of March 15, 1995
between the Company and the Trustees.(3)
10.22 Credit Agreement dated as of March 15, 1995 between
Chicopee, Chicopee Holdings B.V., Chicopee B.V., each of
the lenders party thereto, The Chase Manhattan Bank
(National Association), as administrative agent, and The
Chase Manhattan Bank (National Association), The Bank of
Nova Scotia and BHF-Bank, as co-agents.(3)
10.23 Second Supplemental Indenture dated as of September 14,
1995 among the Company, the Trustee and Harris Trust and
Savings Bank, as successor trustee.(2)
10.24 Supply Agreement dated as of March 15, 1995 between
Johnson & Johnson and Chicopee.(1)***
10.25 Stock Purchase Agreement dated as of January 10, 1996
between the Company and ConX II.(1)
10.26 1996 Key Employee Stock Option Plan of the Company.(1)
10.27 Form of Non-Qualified Stock Option Grant.(1)
10.28 Amendment No. 5 dated as of December 30, 1995 by and among
FiberTech, the Subsidiary Guarantors and Parent Guarantors
identified therein, the Lenders signatory thereto and the
Chase Manhattan Bank (National Association),
as agent.(1)
10.29 Form of Credit Agreement dated as of May 15, 1996 among
the Company, its subsidiaries, the financial institutions
named therein and the Chase Manhattan Bank as
administrative and operations agent.(1)
10.30 Form of Third Supplemental Indenture between the Company
and Harris Trust and Savings Bank, as successor trustee.(1)
10.31 Recapitalization Agreement, dated May 6, 1996, among GTC
Fund III, Zucker, Boyd, InterTech, FTG, CMIHI, Leeway and
CalPERS.
10.32 Voting Agreement, dated May 15, 1996, among the Company,
GTC Fund III, Zucker, Boyd, InterTech, FTG, CMIHI and
Leeway.
10.33 Amendment No. 1 to Management Agreement, dated May 15,
1996, by and between the Company, Chicopee and Zucker.**
10.34 Amendment No. 3 to Management Agreement, dated May 15,
1996, by and between PGI Polymer, GTC Fund III, FiberTech
and Zucker.**
10.35 Amendment No. 1 to Management Agreement, dated May 15,
1996, by and between the Company, Chicopee and Boyd.**
10.36 Amendment No. 3 to Management Agreement, dated May 15,
1996, between PGI Polymer, GTC Fund III, FiberTech and
Boyd.**
10.37 Amendment No. 1 to Roll-In Agreement, dated May 15, 1996,
by and among ZB Holdings, InterTech, the Company,
Polypore, CMIHI, Zucker, Boyd and GTC Fund III.
10.38 Indemnification Agreement, dated May 15, 1996, among the
Company, InterTech, GTC Fund III, GTCR, ConX, ConX II,
Zucker and Boyd.
10.39 Fourth Supplemental Indenture between the Company and
Harris Trust and Savings Bank, as successor trustee, dated
August 14, 1996.(4)
II-8
10.40 Fifth Supplemental Indenture between the Company and
Harris Trust and Savings Bank, as successor trustee, dated
June 19, 1997.
10.41 Purchase Agreement, dated June 30, 1997, by and among the
Company, the Guarantors named therein and Chase Securities
Inc., as Initial Purchaser, with respect to the 9% Senior
Subordinated Notes due 2007.
11 Statement of Computation of Per Share Earnings.
12 Statement Regarding Computation of Ratios of Earnings to
Fixed Charges.
13.1 Annual Report on Form 10-K for the fiscal year ended
December 28, 1996 (incorporated by reference from such
filing).
13.2 Quarterly Report on Form 10-Q for the fiscal quarter ended
March 29, 1997 (incorporated by reference from such
filing).
13.3 Quarterly Report on Form 10-Q for the fiscal quarter ended
June 28, 1997 (incorporated by reference from such
filing).
21 Subsidiaries of the Company.
23.1 Consent of Ernst & Young.
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
24 Powers of Attorney of Directors and Officers of the
Company and each Subsidiary Guarantor (contained in
signature pages).*
25 Statement of Eligibility of Trustee on Form T-1.
27 Financial Data Schedule.(5)(6)(7)
99.1 Offer to Purchase and Consent Solicitation Statement dated
June 5, 1997 to any and all holders of the 12-1/4% Senior
Notes due 2002, relating to the Tender Offer.(6)
99.2 Letter of Transmittal relating to the Tender Offer.(6)
99.3 Notice of Guaranteed Delivery relating to the Tender
Offer.(6)
99.4 Form of Letter of Transmittal relating to the Exchange
Offer.
99.5 Form of Notice of Guaranteed Delivery relating to the
Exchange Offer.
99.6 Form of Tender Instructions relating to the Exchange
Offer.
99.7 Press Release dated June 4, 1997 issued by Polymer Group,
Inc.(8)
99.8 Press Release dated June 18, 1997 issued by Polymer Group,
Inc.(8)
- --------
* Previously filed.
** Management contract or compensatory plan or arrangement.
*** Certain portions of the Agreement have been omitted and filed separately
with the Commission pursuant to an Application for Confidential Treatment.
The Company agrees to furnish supplementally to the Commission a copy of
any omitted schedule or exhibit to the Agreement upon request by the
Commission.
(1) Incorporated by reference to the respective exhibit to the Company's
Registration Statement on Form S-1 (Reg. No. 333-2424).
(2) Incorporated by reference to the respective exhibit to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862).
(3) Incorporated by reference to the respective exhibit to the Company's
Current Report on Form 8-K regarding the acquisition of Chicopee Holdings,
Inc. and its subsidiaries, filed on March 30, 1995.
(4) Incorporated by reference to the respective exhibit to the Company's Form
8-K dated August 14, 1996.
II-9
(5) Incorporated by reference to the respective exhibit to the Company's Form
10-K, dated March 28, 1997, for the fiscal year ended December 28, 1996.
(6) Incorporated by reference to the respective exhibit to the Company's Form
10-Q, dated August 12, 1997, for the fiscal quarter ended June 28, 1997.
(7) Incorporated by reference to the respective exhibit to the Company's Form
10-Q, dated August 13, 1996, for the fiscal quarter ended June 29, 1996.
(8) Incorporated by reference to the respective exhibit to the Company's Form
8-K, dated June 19, 1997.
(b) FINANCIAL STATEMENT SCHEDULES.
The information required of the Company by Schedule II--Condensed Valuation
and Qualifying Accounts for each of the three years in the period ended
December 28, 1996 is incorporated herein by reference to the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission for the
fiscal year ended December 28, 1996.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-10
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-11
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, POLYMER GROUP,
INC. HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NORTH CHARLESTON, STATE OF SOUTH CAROLINA, ON SEPTEMBER 3, 1997.
Polymer Group, Inc.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
SEPTEMBER 3, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chairman of the Board, Chief Executive
___________________________________________ Officer, President and Director
Jerry Zucker (Principal Executive Officer)
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer, Secretary and
James G. Boyd Director (Principal Financial and
Accounting Officer)
* Director
___________________________________________
Bruce V. Rauner
* Director
___________________________________________
David A. Donnini
* Director
___________________________________________
Michael J. McGovern
* Director
___________________________________________
L. Glenn Orr
* Director
___________________________________________
John F. Ruffle
- --------
* The undersigned, by signing his name hereto, does sign and execute this
Registration Statement on Form S-4 on behalf of the above named officers
and directors of the Company pursuant to the Power of Attorney executed by
such officers and directors and filed with the Securities and Exchange
Commission.
/s/ Jerry Zucker
- -------------------------------------
Jerry Zucker
Attorney-in-fact
II-12
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, PGI POLYMER,
INC. HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NORTH CHARLESTON, STATE OF SOUTH CAROLINA, ON SEPTEMBER 3, 1997.
PGI Polymer, Inc.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
SEPTEMBER 3, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chairman of the Board, Chief Executive
___________________________________________ Officer, President and Director
Jerry Zucker (Principal Executive Officer)
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer, Secretary and
James G. Boyd Director
(Principal Financial and Accounting
Officer)
* Director
___________________________________________
Bruce V. Rauner
* Director
___________________________________________
David A. Donnini
- --------
* The undersigned, by signing his name hereto, does sign and execute this
Registration Statement on Form S-4 on behalf of the above named officers
and directors of the Company pursuant to the Power of Attorney executed by
such officers and directors and filed with the Securities and Exchange
Commission.
/s/ Jerry Zucker
- -------------------------------------
Jerry Zucker
Attorney-in-fact
II-13
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FIBERTECH GROUP,
INC. HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NORTH CHARLESTON, STATE OF SOUTH CAROLINA, ON SEPTEMBER 3, 1997.
FiberTech Group, Inc.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
SEPTEMBER 3, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chairman of the Board, Chief Executive
___________________________________________ Officer, President and Director
Jerry Zucker (Principal Executive Officer)
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer, Secretary and
James G. Boyd Director (Principal Financial and
Accounting Officer)
* Director
___________________________________________
Bruce V. Rauner
* Director
___________________________________________
David A. Donnini
- --------
* The undersigned, by signing his name hereto, does sign and execute this
Registration Statement on Form S-4 on behalf of the above named officers
and directors of the Company pursuant to the Power of Attorney executed by
such officers and directors and filed with the Securities and Exchange
Commission.
/s/ Jerry Zucker
- -------------------------------------
Jerry Zucker
Attorney-in-fact
II-14
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FIBERGOL
CORPORATION HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4 TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NORTH CHARLESTON, STATE OF SOUTH CAROLINA, ON SEPTEMBER 3, 1997.
FiberGol Corporation
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
SEPTEMBER 3, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chairman of the Board, Chief Executive
___________________________________________ Officer, President and Director
Jerry Zucker (Principal Executive Officer)
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer, Secretary and
James G. Boyd Director (Principal Financial and
Accounting Officer)
* Director
___________________________________________
Bruce V. Rauner
* Director
___________________________________________
David A. Donnini
- --------
* The undersigned, by signing his name hereto, does sign and execute this
Registration Statement on Form S-4 on behalf of the above named officers
and directors of the Company pursuant to the Power of Attorney executed by
such officers and directors and filed with the Securities and Exchange
Commission.
/s/ Jerry Zucker
- -------------------------------------
Jerry Zucker
Attorney-in-fact
II-15
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, TECHNETICS
GROUP, INC. HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4 TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NORTH CHARLESTON, STATE OF SOUTH CAROLINA, ON SEPTEMBER 3, 1997.
Technetics Group, Inc.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
SEPTEMBER 3, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chairman of the Board, Chief Executive
___________________________________________ Officer, President and Director
Jerry Zucker (Principal Executive Officer)
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer, Secretary and
James G. Boyd Director (Principal Financial and
Accounting Officer)
* Director
___________________________________________
Bruce V. Rauner
* Director
___________________________________________
David A. Donnini
- --------
* The undersigned, by signing his name hereto, does sign and execute this
Registration Statement on Form S-4 on behalf of the above named officers
and directors of the Company pursuant to the Power of Attorney executed by
such officers and directors and filed with the Securities and Exchange
Commission.
/s/ Jerry Zucker
- -------------------------------------
Jerry Zucker
Attorney-in-fact
II-16
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, CHICOPEE
HOLDINGS, INC. HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF NORTH CHARLESTON, STATE OF SOUTH CAROLINA, ON SEPTEMBER 3, 1997.
Chicopee Holdings, Inc.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
SEPTEMBER 3, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chairman of the Board, Chief Executive
___________________________________________ Officer, President and Director
Jerry Zucker (Principal Executive Officer)
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer, Secretary and
James G. Boyd Director (Principal Financial and
Accounting Officer)
II-17
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, CHICOPEE, INC.
HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
NORTH CHARLESTON, STATE OF SOUTH CAROLINA, ON SEPTEMBER 3, 1997.
Chicopee, Inc.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
SEPTEMBER 3, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chairman of the Board, Chief Executive
___________________________________________ Officer, President and Director
Jerry Zucker (Principal Executive Officer)
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer, Secretary and
James G. Boyd Director (Principal Financial and
Accounting Officer)
II-18
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, PNA CORP. HAS
DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORTH
CHARLESTON, STATE OF SOUTH CAROLINA, ON SEPTEMBER 3, 1997.
PNA Corp.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
SEPTEMBER 3, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chairman of the Board, Chief Executive
___________________________________________ Officer, President and Director
Jerry Zucker (Principal Executive Officer)
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer, Secretary and
James G. Boyd Director (Principal Financial and
Accounting Officer)
II-19
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FNA POLYMER
CORP. HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NORTH CHARLESTON, STATE OF SOUTH CAROLINA, ON SEPTEMBER 3, 1997.
FNA Polymer Corp.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
SEPTEMBER 3, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chairman of the Board, Chief Executive
___________________________________________ Officer, President and Director
Jerry Zucker (Principal Executive Officer)
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer, Secretary and
James G. Boyd Director (Principal Financial and
Accounting Officer)
II-20
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FABRENE CORP.
HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
NORTH CHARLESTON, STATE OF SOUTH CAROLINA, ON SEPTEMBER 3, 1997.
Fabrene Corp.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
SEPTEMBER 3, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chairman of the Board, Chief Executive
___________________________________________ Officer, President and Director
Jerry Zucker (Principal Executive Officer)
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer, Secretary and
James G. Boyd Director (Principal Financial and
Accounting Officer)
* Director
___________________________________________
Peter C. Bourgeois
- --------
* The undersigned, by signing his name hereto, does sign and execute this
Registration Statement on Form S-4 on behalf of the above named officers
and directors of the Company pursuant to the Power of Attorney executed by
such officers and directors and filed with the Securities and Exchange
Commission.
/s/ Jerry Zucker
- -------------------------------------
Jerry Zucker
Attorney-in-fact
II-21
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FABRENE GROUP
L.L.C. HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NORTH CHARLESTON, STATE OF SOUTH CAROLINA, ON SEPTEMBER 3, 1997.
Fabrene Group L.L.C.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
SEPTEMBER 3, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chief Executive Officer and President
___________________________________________ (Principal Executive Officer)
Jerry Zucker
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer, Secretary
James G. Boyd (Principal Financial and Accounting
Officer)
Fabrene Corp. Member
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, President and Chief
Executive Officer
PGI Polymer, Inc. Member
/s/ James G. Boyd
By: _________________________________
James G. Boyd
Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary
/s/ Jerry Zucker Director of Fabrene Corp. and PGI Polymer,
___________________________________________ Inc.
Jerry Zucker
* Director of Fabrene Corp.
___________________________________________
Peter C. Bourgeois
II-22
/s/ James G. Boyd Director of PGI Polymer, Inc.
___________________________________________
James G. Boyd
* Director of PGI Polymer, Inc.
___________________________________________
Bruce V. Rauner
* Director of PGI Polymer, Inc.
___________________________________________
David A. Donnini
- --------
* The undersigned, by signing his name hereto, does sign and execute this
Registration Statement on Form S-4 on behalf of the above named officers
and directors of the Company pursuant to the Power of Attorney executed by
such officers and directors and filed with the Securities and Exchange
Commission.
/s/ Jerry Zucker
- -------------------------------------
Jerry Zucker
Attorney-in-fact
II-23
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FABRENE GROUP,
INC. HAS DULY CAUSED THIS AMENDED REGISTRATION STATEMENT ON FORM S-4 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF NORTH CHARLESTON, STATE OF SOUTH CAROLINA, ON SEPTEMBER 3, 1997.
Fabrene Group, Inc.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, Chief Executive Officer
and President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 AND POWER OF ATTORNEY HAVE BEEN SIGNED ON
SEPTEMBER 3, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chairman of the Board, Chief
___________________________________________ Executive Officer and President
Jerry Zucker (Principal Executive Officer)
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer and Director
James G. Boyd (Principal Financial and Accounting
Officer, and Authorized U.S.
Representative)
* Director
___________________________________________
Peter C. Bourgeois
- --------
* The undersigned, by signing his name hereto, does sign and execute this
Registration Statement on Form S-4 on behalf of the above named officers
and directors of the Company pursuant to the Power of Attorney executed by
such officers and directors and filed with the Securities and Exchange
Commission.
/s/ Jerry Zucker
- -------------------------------------
Jerry Zucker
Attorney-in-fact
II-24