AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1998
REGISTRATION NO. 333-55863
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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. FNA POLYMER CORP.
PGI POLYMER, INC. FABRENE CORP.
FIBERTECH GROUP, INC. FABRENE GROUP L.L.C.
FIBERGOL CORPORATION FABRENE GROUP, INC.
TECHNETICS GROUP, INC. POLY-BOND INC.
CHICOPEE HOLDINGS, INC. DOMINION TEXTILE (USA) INC.
CHICOPEE, INC. DOMTEX INDUSTRIES INC.
PNA CORP. LORETEX CORPORATION
FABPRO ORIENTED POLYMERS, 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, 2297131 N/A
CANADA 2297131 13-3571783
DELAWARE 2297131 13-2865428
DELAWARE 2297131 13-5601263
2297131 13-5538600
NEW YORK
2297131 57-1063695
NEW YORK
DELAWARE (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: (843) 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: (843) 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. [_]
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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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PROSPECTUS
JULY 1, 1998 LOGO
POLYMER GROUP, INC.
OFFER TO EXCHANGE ITS 8 3/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B
FOR ANY AND ALL OF ITS OUTSTANDING 8 3/4% SENIOR SUBORDINATED NOTES DUE 2008,
SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
AUGUST 5, 1998, UNLESS EXTENDED.
Polymer Group, Inc., a Delaware corporation ("Polymer Group" or 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 8 3/4% Senior Subordinated Notes due 2008,
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 8 3/4% Senior Subordinated Notes due 2008, Series A (the "Old
Notes"), of which $200,000,000 principal amount is outstanding. The form and
terms of the Exchange Notes are the same as the form and term 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 March 1, 1998 (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 August 5, 1998,
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 March 5, 1998 to Chase Securities
Inc. (the "Initial Purchaser" or "Chase") 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 March 1 and September 1 of each
year, commencing September 1, 1998, at the rate of 8 3/4% per annum. The Notes
will be redeemable, in whole or in part, at the option of the Company on or
after March 1, 2003, 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 March 1, 2001, 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 Equity Offerings (as defined) by the Company, at
a redemption price equal to 108.75% 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 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 all existing and 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"), by
each direct and indirect domestic Subsidiary of the Company (excluding
Unrestricted Subsidiaries) formed or acquired thereafter (the "Guarantors"),
and by Fabrene Group, Inc., a Canadian non-resident organization and wholly-
owned subsidiary of the Company. 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
Agreement). 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 April 4, 1998, the
aggregate principal amount of the Company's outstanding Senior indebtedness
was $252.0 million (excluding unused commitments) and the Company had no other
senior subordinated indebtedness outstanding other than the Old Notes and the
9% Notes (as defined). See "Description of the Exchange Notes--Ranking" and
"Description of the Exchange Notes--Guarantees" and "--Certain Covenants--
Additional 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. 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. The Company will pay all
the expenses incurred by it incident to the Exchange Offer. 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 SEPTEMBER 30, 1998 (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 OR 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, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. This Prospectus does not
iv
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 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 reporting and other
information requirements of the Exchange Act. 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.gov. 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 (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company was required to file such Forms, including for each a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereof by the Company's
independent certified public accountants and (ii) all reports that would be
required to be filed on Form 8-K if it were required to file such reports. In
addition, for so long as any of the Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser of the Notes or
beneficial owner of the Notes, 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 July 29, 1998 (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
January 3, 1998.
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
April 4, 1998.
3. The Company's Current Reports on Form 8-K and Form 8-K/A, dated February
13, 1998 and April 12, 1998.
4. The Company's Definitive Proxy Statement on Schedule 14A for the 1998
Annual Meeting of Stockholders on May 29, 1998.
v
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, that indicate on the cover
page thereof that they are to be incorporated by reference, 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.
vi
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, (i) the pro forma financial
information for the year ended January 3, 1998 gives effect to the June
Refinancing (as defined), the Nonwovens Transactions (as defined), the Oriented
Polymer Acquisition (as defined) and the Initial Offering as if each had
occurred on December 29, 1996 and (ii) the pro forma financial information for
the three months ended April 4, 1998 gives effect to the Oriented Polymer
Acquisition and the Initial Offering as if each had occurred on December 29,
1996. The pro forma financial information set forth herein with respect to the
Nonwovens Transactions includes the results of an additional business acquired
by the Company in the third quarter of 1997 not independently significant for
disclosure purposes. See "Use of Proceeds," "Recent Transactions" and
"Unaudited Pro Forma Financial Information."
THE COMPANY
Polymer Group, Inc. (the "Company") is a leading worldwide manufacturer and
marketer of a broad range of nonwoven and oriented polyolefin products. The
Company's principal lines of business include industrial and specialty,
reusable wiping, medical and hygiene products. The Company believes that it is
the third largest producer of nonwovens as well as the largest producer of
spunbond and spunmelt products in the world and that it employs the most
extensive range of nonwovens technologies of any nonwovens producer, which
allows it to supply products tailored to customers' needs at competitive
prices. 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 oriented polyethylene
materials in North America. Oriented polyolefin products include woven, slit
film fabrics, which are produced by weaving narrow tapes of slit film and are
characterized by high strength-to-weight ratios, and also include twisted slit
film or monofilament strands.
The Company supplies nonwovens to a number of the largest consumer products
manufacturers in the world and specifically targets market niches with high
margin, 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 Asia, as well as in developing markets such as South
America and North Africa. The Company's product offerings 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, electrical
insulation, cable wrap, alkaline battery cell separators, disposable diapers,
feminine hygiene products and automotive insulation products.
The Company is a leader in nonwovens and extrusion process technologies. The
Company operates twenty-two manufacturing facilities (including its joint
venture in Argentina) located in eight countries and is currently the only
nonwovens producer that utilizes essentially all of the established nonwovens
process technologies. The Company believes that the quality of its
manufacturing operations and the breadth of its technologies give it a
competitive advantage in meeting the current and future needs of its customers
and in leading the development of an expanding 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 the
installation and start-up of its fourth advanced spunbond/meltblown/spunbond
("SMS") line. This advanced technology enables the Company to produce highly
uniform structures with less material than conventional SMS technology. The
Company has also completed installation of a unique
spunbond/meltblown/meltblown/spunbond ("SMMS") line at its Waynesboro, Virginia
plant, which began initial commercial production in June 1998. The Company
believes that its broad technological base also 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
technological capabilities and depth of research and development resources to
develop and manufacture new products to specifically meet those customers'
needs.
Management has built the Company through a series of capital expansions and
strategic business acquisitions that have broadened the Company's technology
base, increased its product lines and expanded its global presence. The
Company's strategic acquisitions have helped it to establish strong positions
in both the nonwovens and oriented polyolefin markets. Moreover, the Company's
consolidated resources have enabled it to better meet the needs of existing
customers, to reach emerging geographic markets and to exploit niche market
opportunities through customer-driven product development. The Company
continues to develop technological improvements in the spunbond and spunmelt
processes and comprehensive process automation that are shared among its
facilities on a global basis.
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 (843) 566-7293.
RECENT TRANSACTIONS
THE ORIENTED POLYMER ACQUISITION
On March 16, 1998, the Company acquired (the "Oriented Polymer Acquisition")
the manufacturing and business assets of a leading North American manufacturer
of polypropylene-based commercial twine and polyethylene-based specialty
knitted products (the "Oriented Polymer Business"). The aggregate purchase
price of the Oriented Polymer Business was approximately $47.0 million.
THE NONWOVENS TRANSACTIONS
On January 29, 1998, DT Acquisition Inc., a special purpose subsidiary formed
by Polymer Group, Inc. ("DT Acquisition"), completed the acquisition of all
outstanding equity interests of Dominion Textile Inc., a Canadian corporation
("Dominion"). Immediately thereafter, the denim and careerwear business of
Dominion (the "Apparel Fabrics Business") was sold to Galey & Lord, Inc.
("Galey") for approximately $464.5 million, including related fees and
expenses, and the Company purchased the assets and liabilities of Dominion
which comprised the nonwovens and industrial fabrics operations (the "Nonwovens
Business"). The Company borrowed approximately $326.6 million under the Amended
Credit Facility (as defined) to finance the purchase of the Nonwovens Business
(the "Nonwovens Acquisition"), for which it paid a gross price of approximately
$351.6 million, including related fees and expenses.
2
The primary operations of the Nonwovens Business are conducted through Poly-
Bond Inc. ("Poly-Bond"), Nordlys S.A. ("Nordlys"), DIFCO Inc. ("DIFCO,"
formerly a division of Dominion), Geca-Tapes B.V. ("Geca") and Dominion
Nonwovens Sudamerica S.A. ("DNS"). Poly-Bond, based in Waynesboro, Virginia, is
a leading manufacturer of spunbond and spunmelt composite nonwovens used in
disposable diapers, adult incontinence and feminine hygiene products. Nordlys,
based in Bailleul, France, manufactures specialty dry-laid nonwovens for
industrial applications such as cable wrap, liquid filtration, medical end-uses
and electrical insulation. DIFCO, based in Magog, Quebec, produces custom
designed technical fabrics. Geca, based in Tilburg, Netherlands, manufactures
nonwovens products for industrial applications such as cable wrap and liquid
filtration media. DNS produces spunbond and spunmelt nonwovens to serve hygiene
markets in countries that are participants in the Mercosur free trade
agreement.
In connection with the Nonwovens Acquisition, the Company amended its Credit
Facility (as defined), among the Company, various lenders and The Chase
Manhattan Bank ("Chase Bank"), as administrative agent, to provide for a $125.0
million term loan and to modify certain terms of the revolving portion of the
Credit Facility. As amended, the Credit Facility provides for revolving credit
facilities with an aggregate commitment of up to $325.0 million. See "Recent
Transactions--The Nonwovens Refinancing" and "Certain Other Indebtedness--
Amended Credit Facility."
THE INITIAL OFFERING
Notes....................... The Old Notes were sold by the Company on March
5, 1998 to Chase Securities, Inc. (the "Initial
Purchaser" or "Chase") pursuant to a Purchase
Agreement dated February 27, 1998 (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
March 5, 1998 (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 rights which terminate upon the
consummation of the Exchange Offer.
3
THE EXCHANGE OFFER
Securities Offered.......... $200,000,000 aggregate principal amount of 8 3/4%
Senior Subordinated Notes due 2008, 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, $200,000,000
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
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
4
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 August 5, 1998
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."
Procedures for Tendering Each holder of Old Notes wishing to accept the
Old Notes................... Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof (or, in the case of book-entry
transfer, transmit an Agent's Message (as
defined) in lieu thereof), in accordance with the
instructions contained herein and in the Letter
of Transmittal, 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."
5
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 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
Statement................... If any holder of the Old Notes (other than any
such holder that 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 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.
6
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.
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 Exchange Notes."
The Old Notes and the Exchange Notes are referred
to herein collectively as the "Notes."
7
Issuer...................... Polymer Group, Inc.
Securities Offered.......... $200 million aggregate principal amount of 8 3/4%
Senior Subordinated Notes due 2008, Series B.
Maturity.................... March 1, 2008.
Interest Payment Dates...... March 1 and September 1 of each year, commencing
on September 1, 1998.
Sinking Fund................ None.
Optional Redemption......... Except as described below, the Company may not
redeem the Exchange Notes prior to March 1, 2003.
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 March 1, 2001, 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 108.75% 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
originally issued aggregate principal amount of
the Exchange Notes remains outstanding after each
such redemption. See "Description of the Exchange
Notes--Optional Redemption."
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"), by Fabrene Group, Inc.
("Fabrene Group"), a Canadian non-resident
organization, 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 (other than Fabrene
Group) have also guaranteed all obligations of
the Company under the Amended Credit Facility,
and each of such Guarantors 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
8
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 the 9% Notes and
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 April 4, 1998, the aggregate
principal amount of the Company's outstanding
Senior Indebtedness was approximately $252.0
million (excluding unused commitments) and the
Company had no senior subordinated Indebtedness
outstanding other than the 9% Notes and the
Notes. See "Description of the Exchange Notes--
Ranking" and "--Subordination of the 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 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 will also
prohibit 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 (i) to finance the Oriented
Polymer Acquisition, (ii) to repay a portion of
outstanding indebtedness under the Amended Credit
Facility and (iii) to pay related fees and
expenses of the Initial Offering of the Old
Notes. See "Use of Proceeds."
9
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, Inc. ("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 and pro forma financial information of the Company and PGI
Polymer. The statement of operations data for each of the three years in the
period ended January 3, 1998 and the balance sheet data as of December 30,
1995, December 28, 1996 and January 3, 1998 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, Inc. and its
subsidiaries ("Chicopee") 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 PNA Corp. and its subsidiary, FNA Polymer Corp. ("FNA") for the
period August 14, 1996 to December 28, 1996. The data as of and for the three
months ended April 4, 1998 and March 29, 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 June Refinancing, the Nonwovens
Transactions, the Oriented Polymer Acquisition and the Initial Offering as
described under "Use of Proceeds" and "Unaudited Pro Forma Financial
Information." The unaudited pro forma combined statement of operations for the
year ended January 3, 1998 gives effect to the June Refinancing, the Nonwovens
Transactions, the Oriented Polymer Acquisition and the Initial Offering as if
each had occurred on December 29, 1996. The unaudited pro forma combined
statement of operations for the three months ended April 4, 1998 gives effect
to the Oriented Polymer Acquisition and the Initial Offering as if each had
occurred on December 29, 1996. Certain pro forma financial information for the
Nonwovens Acquisition includes the results of an additional business acquired
by the Company in the third quarter of 1997 not independently significant for
disclosure purposes, and excludes a restructuring charge and certain allocated
costs. The pro forma financial information does not purport to represent what
the Company's results of operations would have been if the June Refinancing,
the Nonwovens Transactions, the Oriented Polymer Acquisition and the Initial
Offering 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 the Nonwovens Business and related notes thereto,
the unaudited pro forma financial information for the Company and the Nonwovens
Business and related notes thereto and other financial information included
elsewhere in this Prospectus.
11
PRO
FORMA
THREE
PRO FORMA MONTHS
YEAR ENDED YEAR ENDED THREE MONTHS ENDED ENDED
------------------------------------ ---------- -------------------- --------
DECEMBER 30, DECEMBER 28, JANUARY 3, JANUARY 3, MARCH 29, APRIL 4, APRIL 4,
1995 1996 1998 1998 1997 1998 1998
------------ ------------ ---------- ---------- --------- --------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS:
Net sales............... $437,638 $521,368 $ 535,267 $791,396 $128,947 $ 193,336 $201,954
Cost of goods sold...... 333,606 389,013 402,058 592,659 96,362 147,058 154,463
-------- -------- ---------- -------- -------- --------- --------
Gross profit........... 104,032 132,355 133,209 198,737 32,585 46,278 47,491
Selling, general and
administrative
expenses............... 61,744 70,207 74,600 97,955 18,656 26,025 26,349
-------- -------- ---------- -------- -------- --------- --------
Operating income....... 42,288 62,148 58,609 100,782 13,929 20,253 21,142
Other (income) expense:
Interest expense, net
(a)................... 37,868 33,641 30,499 68,463 6,834 15,980 16,322
Holding (gain) on
marketable securities. -- -- (11,880) (11,880) -- -- --
Foreign currency
transaction (gains)
losses, net........... 22,811 2,955 (452) (452) (320) 676 676
Income taxes........... 5,216 10,730 13,009 15,362 2,453 1,302 1,510
-------- -------- ---------- -------- -------- --------- --------
Income (loss) before
extraordinary item.... (23,607) 14,822 27,433 $ 29,289 4,962 2,295 $ 2,634
======== ========
Extraordinary item,
(loss) from
extinguishment of debt. -- (13,932) (12,005) -- (2,728)
-------- -------- ---------- -------- ---------
Net income (loss)....... $(23,607) $ 890 $ 15,428 $ 4,962 $ (433)
======== ======== ========== ======== =========
Redeemable preferred
stock dividends and
accretion.............. (4,839) (3,020) -- -- --
-------- -------- ---------- -------- ---------
Net income (loss)
applicable to common
stock.................. $(28,446) $ (2,130) $ 15,428 $ 4,962 $ (433)
======== ======== ========== ======== =========
Income before
extraordinary item per
common share--basic and
diluted................ $ (1.39) $ 0.43 $ 0.86 $ 0.92 $ 0.16 $ 0.07 $ 0.08
======== ======== ========== ======== ======== ========= ========
Average common shares
outstanding............ 20,500 27,688 32,000 32,000 32,000 32,000 32,000
======== ======== ========== ======== ======== ========= ========
OPERATING AND OTHER
DATA:
Cash provided by
operating activities... $ 11,556 $ 36,097 $ 18,362 -- $ 10,015 $ 27,542 --
Cash provided by (used
in) investing
activities............. (333,208) (86,422) (491,901) -- (14,885) 200,065 --
Cash provided by (used
in) financing
activities............. 327,636 64,391 485,953 -- 3,852 (211,417) --
EBITDA (b).............. 72,122 98,915 98,921 $155,223 23,830 34,022 $ 35,517
Ratio of earnings to
fixed charges (c)...... -- 1.6x 2.1x 1.6x 1.9x 1.1x 1.2x
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash
equivalents............ $ 18,088 $ 37,587 $ 50,190 -- $ 32,584 $ 64,339 --
Working capital......... 61,558 93,154 220,025 -- 90,881 190,974 --
Total assets............ 637,981 708,115 1,627,753 -- 706,477 1,271,906 --
Total debt, excluding
short-term bridge
financing.............. 450,878 382,242 745,136 -- 382,576 852,263 --
Shareholders' equity.... 13,752 195,918 199,090 -- 193,230 192,209 --
- -------
(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 net income before taxes to employees.
(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 and
the portion of rental expense on operating leases which the Company
estimates to be representative of the interest factor attributable to
rental expense. Fixed charges exceeded earnings for the year ended December
30, 1995 by approximately $20.0 million. 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 April 4, 1998,
the Company had outstanding long-term indebtedness of approximately $848.6
million and shareholders' equity of approximately $192.2 million. See "The
Refinancing," "Use of Proceeds" and "Capitalization." As of April 4, 1998, the
Company's ratio of earnings to fixed charges, on a pro forma basis, would have
been 1.2x.
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, the 9% Notes Indenture (as defined) 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, the 9% Notes Indenture 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. In addition, the Amended Credit Facility, the
9% Notes Indenture and the Indenture contain a number of financial covenants
that require the Company to meet certain financial ratios and financial
condition tests. See "Description of the Exchange Notes--Certain Covenants,"
"Description of Certain Indebtedness--Amended Credit Facility" and "--9%
Notes." 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, the 9% Notes
Indenture or the Indenture could result in an event of default under the
Amended Credit Facility or the 9% Notes Indenture or an Event of Default (as
defined) under the Indenture which, if not cured or waived, could permit
acceleration of the relevant indebtedness and acceleration
13
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 the 9% Notes Indenture 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 April 4, 1998,
the Company had approximately $252.0 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 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; 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."
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. The Exchange Notes will not, however, be guaranteed
by the Company's direct and indirect foreign
14
Subsidiaries (other than Fabrene Group). As a result, holders of the Exchange
Notes will not have a direct claim on the assets of such foreign Subsidiaries.
In 1997, approximately 41.7% of the Company's net sales (or $223.3 million)
were derived from operations conducted outside the United States. On a pro
forma basis, approximately 44.2% of the Company's net sales (or $349.4
million) were derived from operations conducted outside the United States in
1997.
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 1997, raw
materials accounted for approximately 44.1% 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
resins 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. Raw materials prices remained stable to slightly lower
in 1997. 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 its affiliates
("Johnson & Johnson") and The Procter & Gamble Company ("Procter & Gamble"),
each accounted for over 10% of the Company's net sales during 1997. Net sales
to Johnson & Johnson accounted for approximately 26% of the Company's net
sales in 1997. Net sales to Procter & Gamble, primarily of light weight
nonwoven fabric for diapers, accounted for approximately 16% of the Company's
net sales in 1997. A loss of one or more of these customers could have a
material adverse effect on the Company. See "Business--Products."
The Company also supplies private label disposable diapers to Paragon Trade
Brands, Inc. ("Paragon"). On January 7, 1998, Paragon filed for Chapter 11
bankruptcy protection under the Federal Bankruptcy Code following an adverse
decision in a patent infringement suit filed by Procter & Gamble. Paragon
continues to operate on an ordinary course of business basis with the Company.
The Company does not expect Paragon's actions in connection with the
bankruptcy reorganization to materially affect its business with Paragon on a
near-term basis. However, the loss of Paragon as a customer due to the
reorganization of Paragon or otherwise could adversely affect the Company's
results of operations. On a pro forma basis, Paragon accounted for
approximately 5.1% of net sales for fiscal 1997.
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 for thermal bond products due to expected conversion to spunmelt
products.
15
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
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 supplier of polypropylene fiber is FiberVisions L.L.C.
("FiberVisions"), a joint venture between Hercules Fibres Corp. ("Hercules")
and Danaklon a/s ("Danaklon"). Prior to the creation of the joint venture,
both Hercules and Danaklon were major suppliers to the Company. The Company's
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"), Montell North America Inc. ("Montell") and Exxon
Chemical Company ("Exxon"), and purchases its tissue paper from Crown Vantage
Inc. ("Crown Vantage"). As a result of the Nonwovens Acquisition, the Company
also purchases polyolefin films from Edison Plastics Company, a subsidiary of
Blessings Corporation ("Edison Plastics"), polyester fiber from Swicofil AG
Textile Services ("Swicofil") and Dupont, and polyacrylate powder (SAP) from
Elf Atochem.
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
The Company recently completed the Nonwovens Acquisition, which
significantly increased the Company's net sales. On March 16, 1998, the
Company also acquired the Oriented Polymer Business. As part of its long-term
strategy, the Company intends to acquire additional complementary businesses
where such transactions are economically and strategically justified. However,
there can be no assurance that the Company will continue to identify
attractive acquisition candidates in the future, or that it will succeed at
effectively managing the integration of acquired businesses (including the
Nonwovens Business and the Oriented Polymer Business) into the Company's
existing businesses. If the expected synergies from such transactions (either
present or future) do not materialize or the Company fails to successfully
integrate such new businesses into its existing businesses, the Company's
results of operations could be adversely affected.
POTENTIAL RISKS RELATING TO SIGNIFICANT OPERATIONS IN FOREIGN COUNTRIES
The Company manufactures certain of its products in Germany, France, Canada,
Mexico, Argentina and the Netherlands. On a pro forma basis, approximately
44.2% of the Company's sales
16
(or $349.4 million) were derived from operations conducted outside the United
States for the year ended January 3, 1998. 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 of such person or persons are or may be located
outside of 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
the United States.
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 and $15.4 million for the years ended December 28, 1996
and January 3, 1998, respectively.
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 ability to effectively integrate certain acquired businesses will
also depend on the efforts and abilities of officers or key employees retained
in connection with such acquisitions. The Company's operations could be
adversely affected if, for any reason, any of 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.
17
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 oriented polyolefin materials 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.
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.
In addition, because the Amended Credit Facility, the 9% Notes Indenture and
the Indenture 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 9% Notes and 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 9% Notes and 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 9% Notes and the Exchange Notes,
the Company could seek the consent of its lenders to purchase the 9% Notes and
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 9% Notes
and the Exchange Notes. In such case, the Company's failure to purchase
tendered 9% Notes and the Exchange Notes would constitute an Event of Default
under the 9% Notes Indenture and the Indenture. If, as a result thereof, a
default occurs with respect to any Indebtedness, the 9% Notes and the Exchange
Notes would require payment in full of the Amended Credit Facility before
repurchase of the 9% Notes and 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. Accordingly, the obligations of the Company
under the Notes may be subject to review
18
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 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.
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
19
holders who are entitled to participate in this Exchange Offer. 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 have advised the Company
that they currently intend to make a market in the Exchange Notes, but they
are 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.
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 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 Securities Exchange
Act of 1934, as amended (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,
20
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.
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 estimated fees and expenses) were utilized
by the Company to finance the Oriented Polymer Acquisition and to repay
outstanding indebtedness under the Amended Credit Facility.
22
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at April 4, 1998, which includes the effect of the Nonwovens
Transactions, the Oriented Polymer Acquisition and the Initial Offering
(including the application of the net proceeds therefrom).
APRIL 4, 1998
---------------
(DOLLARS IN
THOUSANDS)
Cash and cash equivalents....................................... $ 64,339
==========
Long-term debt, including current portion
Amended Credit Facility(a).................................... $ 244,909
9% Notes...................................................... 393,872
Old Notes..................................................... 200,000
Other(b)...................................................... 13,482
----------
Total Debt.................................................. 852,263
Shareholders' equity
Common Stock.................................................. 320
Additional paid-in capital.................................... 243,662
Deficit....................................................... (39,788)
Cumulative translation adjustment............................. (11,985)
----------
Total shareholders' equity.................................. 192,209
----------
Total capitalization........................................ $1,044,472
==========
- --------
(a) The Amended Credit Facility provides for revolving facilities with an
aggregate commitment of up to $325.0 million and a term loan of $125.0
million. Initial borrowing as of April 4, 1998 is $244.9 million, with
remaining availability under the revolving facilities of $205.1 million.
See "Description of Certain Indebtedness--Amended Credit Facility."
(b) Includes $4.4 million of outstanding 2003 Notes (as defined) and $0.3
million of outstanding 2006 Notes (as defined). See "Description of
Certain Indebtedness--2003 Notes and 2006 Notes."
23
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA -- THE COMPANY
The following table sets forth certain historical financial information of
the Company and PGI Polymer. The statement of operations data for each of the
five years in the period ended January 3, 1998, and the balance sheet data as
of January 3, 1998, December 28, 1996, December 30, 1995, December 31, 1994
and January 1, 1994 have been derived from audited financial statements. The
data as of and for the three months ended April 4, 1998 and March 29, 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 table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations--The
Company," the financial statements of the Company and related notes thereto
and other information included elsewhere in this Prospectus.
COMPANY
----------------------------------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
------------------------------------------------------------ --------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 28, JANUARY 3, MARCH 29, APRIL 4,
1994 1994 1995 1996 1998 1997 1998
---------- ------------ ------------ ------------ ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS:
Net sales............... $121,473 $165,333 $ 437,638 $521,368 $ 535,267 $128,947 $ 193,336
Cost of goods sold...... 97,291 129,071 333,606 389,013 402,058 96,362 147,058
-------- -------- --------- -------- ---------- -------- ---------
Gross profit........... 24,182 36,262 104,032 132,355 133,209 32,585 46,278
Selling, general and
administrative
expenses............... 13,022 20,699 61,744 70,207 74,600 18,656 26,025
-------- -------- --------- -------- ---------- -------- ---------
Operating income....... 11,160 15,563 42,288 62,148 58,609 13,929 20,253
Other (income) expense:
Interest expense, net
(a)................... 4,387 13,216 37,868 33,641 30,499 6,834 15,980
Holding (gain) on
marketable securities. -- -- -- -- (11,880) -- --
Foreign currency
transaction (gains)
losses, net........... 1,363 17,332 22,811 2,955 (452) (320) 676
Income taxes........... 1,970 3,353 5,216 10,730 13,009 2,453 1,302
-------- -------- --------- -------- ---------- -------- ---------
Income (loss) before
extraordinary item.... 3,440 (18,338) (23,607) 14,822 27,433 4,962 2,295
Extraordinary item,
(loss) from
extinguishment of
debt................... -- (4,372) -- (13,932) (12,005) -- (2,728)
-------- -------- --------- -------- ---------- -------- ---------
Net income (loss)....... $ 3,440 $(22,710) $ (23,607) $ 890 $ 15,428 $ 4,962 $ (433)
Redeemable preferred
stock dividends and
accretion.............. (2,480) (1,209) (4,839) (3,020) -- -- --
-------- -------- --------- -------- ---------- -------- ---------
Net income (loss)
applicable to common
stock.................. $ 960 $(23,919) $ (28,446) $ (2,130) $ 15,428 $ 4,962 $ (433)
======== ======== ========= ======== ========== ======== =========
Income (loss) before
extraordinary item per
common share--basic and
diluted................ $ 0.05 $ (0.95) $ (1.39) $ 0.43 $ 0.86 $ 0.16 $ 0.07
======== ======== ========= ======== ========== ======== =========
Average common shares
outstanding............ 20,500 20,500 20,500 27,688 32,000 32,000 32,000
======== ======== ========= ======== ========== ======== =========
OPERATING AND OTHER
DATA:
Cash provided by
operating activities... $ 6,888 $ 17,386 $ 11,556 $ 36,097 $ 18,362 $ 10,015 $ 27,542
Cash provided by (used
in) investing
activities............. (6,958) (61,375) (333,208) (86,422) (491,901) (14,885) 200,065
Cash provided by (used
in) financing
activities............. (1,038) 58,482 327,636 64,391 485,953 3,852 (211,417)
EBITDA (b).............. 16,115 23,864 72,122 98,915 98,921 23,830 34,022
Ratio of earnings to
fixed charges (c)...... 2.1x -- -- 1.6x 2.1x 1.9x 1.1x
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash
equivalents............ $ 2,694 $ 13,828 $ 18,088 $ 37,587 $ 50,190 $ 32,584 $ 64,339
Working capital
(deficit).............. (5,786) 31,060 61,558 93,154 220,025 90,881 190,974
Total assets............ 103,187 241,942 637,981 708,115 1,627,753 706,477 1,271,906
Total debt.............. 57,562 190,814 450,878 382,242 745,136 382,576 852,263
Shareholders' equity
(deficit).............. (592) 2,220 13,752 195,918 199,090 193,230 192,209
See Notes to Selected Consolidated Financial Data.
24
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(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 net income before taxes to employees.
(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 and
the portion of rental expense on operating leases which the Company
estimates to be representative of the interest factor attributable to
rental expense. Fixed charges exceeded earnings for the year ended
December 31, 1994 and the year ended December 30, 1995 by approximately
$15.0 million and $20.0 million, respectively.
25
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA -- NONWOVENS BUSINESS
The following table sets forth historical financial information of the
Nonwovens Business. The statement of operations data for each of the fiscal
years in the three-year period ended June 30, 1997 and the balance sheet data
as of June 30, 1996 and 1997 have been derived from audited financial
statements. The data as of and for the three months ended September 30, 1996
and 1997 are derived from the condensed combined unaudited interim financial
statements of the Nonwovens Business and include, in the opinion of management
of the Nonwovens Business, all adjustments (consisting of normal recurring
adjustments) necessary to fairly present the data for such periods. The
results of the three months ended September 30, 1997 are not necessarily
indicative of results to be expected for the full fiscal year. The table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations--The Nonwovens Business," the
financial statements of the Nonwovens Business and other related financial
information included elsewhere in this Prospectus.
THREE-MONTH
PERIOD ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------- -----------------
1995 1996 1997 1996 1997
-------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales..................... $168,394 $188,890 $202,133 $44,993 $ 47,510
Cost of goods sold............ 138,937 152,126 150,099 34,788 36,146
Restructuring charge.......... -- -- 894 -- --
-------- -------- -------- ------- --------
Gross profit................ 29,457 36,764 51,140 10,205 11,364
Selling, general and
administrative expenses...... 23,196 23,406 24,458 5,582 5,506
-------- -------- -------- ------- --------
Operating income............ 6,261 13,358 26,682 4,623 5,858
Other (income) expense:
Interest expense, net(a).... 9,914 7,207 7,549 1,982 1,556
Other miscellaneous (income)
expense.................... (777) (130) (102) (9) (25)
Income taxes (benefit)...... (1,230) 1,099 6,860 1,219 1,686
-------- -------- -------- ------- --------
Income (loss) before
extraordinary item........... (1,646) 5,182 12,375 1,431 2,641
Extraordinary item, (loss)
from extinguishment of debt.. -- (1,017) -- -- --
-------- -------- -------- ------- --------
Net income (loss)............. $ (1,646) $ 4,165 $ 12,375 $ 1,431 $ 2,641
======== ======== ======== ======= ========
OPERATING AND OTHER DATA:
Cash provided by operating
activities................... $ 8,487 $ 12,485 $ 36,849 $10,458 $ 10,752
Cash (used in) investing
activities................... (25,931) (19,278) (29,400) (3,148) (9,608)
Cash provided by (used in)
financing activities......... 15,955 2,400 2,188 (1,541) 3,096
EBITDA(b)..................... 18,811 26,438 41,399 8,399 9,879
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............... -- $ 40,046 $ 46,602 -- $ 46,766
Total assets.................. -- 213,184 232,581 -- 241,870
Total debt.................... -- 95,465 84,150 -- 88,539
Stockholders' equity.......... -- 64,766 91,840 -- 93,378
26
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(a) Represents interest expense, net of interest income and capitalized
interest.
(b) EBITDA is defined as operating income plus depreciation and amortization
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.
27
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
January 3, 1998 and have been prepared giving effect to the June Refinancing,
the Nonwovens Transactions, the Oriented Polymer Acquisition and the Initial
Offering as if each had occurred on December 29, 1996. The unaudited pro forma
combined statement of operations data for the three months ended April 4, 1998
have been prepared by giving effect to the Oriented Polymer Acquisition and
the Initial Offering as if each had occurred on December 29, 1996. The
unaudited pro forma financial information for the Nonwovens Business includes
the results of an additional business acquired by the Company in the third
quarter of 1997 not independently significant for disclosure purposes, and
excludes a restructuring charge and certain allocated costs.
The unaudited pro forma financial information has been prepared on the basis
of assumptions described in the notes thereto. In accordance with the purchase
method of accounting, the respective purchase price for the Nonwovens
Acquisition and Oriented Polymer Acquisition have each been allocated to the
underlying assets based on their fair values at the date of the acquisition.
Such allocations were based on preliminary estimates which may be revised at a
later date.
The unaudited pro forma financial information does not purport to represent
what the Company's results of operations would have been if the June
Refinancing, the Nonwovens Transactions, the Oriented Polymer Acquisition and
the Initial Offering 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 the Nonwovens Business and the related
notes thereto included elsewhere in this Prospectus.
See Notes to Unaudited Pro Forma Financial Information.
28
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 3, 1998
HISTORICAL
--------------------------------
ORIENTED
NONWOVENS POLYMER
COMPANY BUSINESS BUSINESS
TWELVE TWELVE TWELVE
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
JANUARY 3, JANUARY JANUARY 3,
1998 3, 1998 1998 ADJUSTMENTS PRO FORMA
---------- --------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS:
Net sales............... $ 535,267 $213,940 $42,189 -- $791,396
Cost of goods sold...... 402,058 163,511 33,566 $ (6,476)(b) 592,659
--------- -------- ------- -------- --------
Gross profit............ 133,209 50,429 8,623 6,476 198,737
Selling, general and ad-
ministrative expenses.. 74,600 17,413 3,760 2,182 (c) 97,955
--------- -------- ------- -------- --------
Operating income....... 58,609 33,016 4,863 4,294 100,782
Other (income) expense:
Interest expense, net.. 30,499 7,211 -- 30,753 (d) 68,463
Holding (gain) on
marketable securities. (11,880) -- -- -- (11,880)
Foreign currency
transaction (gains),
net................... (452) -- -- -- (452)
Income taxes........... 13,009 7,023 -- (4,670)(e) 15,362
--------- -------- ------- -------- --------
Income (loss) before ex-
traordinary item....... $ 27,433 $ 18,782 $ 4,863 $(21,789) $ 29,289
========= ======== ======= ======== ========
Income before
extaordinary item per
common share........... $ 0.86 $ 0.92
========= ========
Average common shares
outstanding............ 32,000 32,000
========= ========
OPERATING AND OTHER DA-
TA:
Cash provided by operat-
ing activities......... $ 18,362 -- -- -- --
Cash used in investing
activities............. (491,901) -- -- -- --
Cash provided by financ-
ing activities......... 485,953 -- -- -- --
EBITDA (a).............. 98,921 $ 48,229 $ 6,015 $ 2,058 $155,223
Ratio of earnings to
fixed charges(f)....... 2.1x -- -- -- 1.6x
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 4,
1998
HISTORICAL
-----------------------
ORIENTED
POLYMER
COMPANY BUSINESS
THREE FROM
MONTHS JANUARY 4,
ENDED 1998 THROUGH
APRIL 4, MARCH 15,
1998 1998 ADJUSTMENTS PRO FORMA
--------- ------------ ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
STATEMENT OF OPERATIONS:
Net sales...................... $ 193,336 $8,618 -- $201,954
Cost of goods sold............. 147,058 7,253 $ 152 (b) 154,463
--------- ------ ----- --------
Gross profit................... 46,278 1,365 (152) 47,491
Selling, general and adminis-
trative expenses.............. 26,025 489 (165)(c) 26,349
--------- ------ ----- --------
Operating income.............. 20,253 876 13 21,142
Other (income) expense:
Interest expense, net......... 15,980 -- 342 (d) 16,322
Foreign currency transaction
(gains), net................. 676 -- -- 676
Income taxes.................. 1,302 -- 208 (e) 1,510
--------- ------ ----- --------
Income (loss) before extraordi-
nary item..................... $ 2,295 $ 876 $(537) $ 2,634
========= ====== ===== ========
Income before extaordinary item
per common share.............. $ 0.07 $ 0.08
========= ========
Average common shares outstand-
ing........................... 32,000 32,000
========= ========
OPERATING AND OTHER DATA:
Cash provided by operating ac-
tivities...................... $ 27,452 -- -- --
Cash provided by investing ac-
tivities...................... 200,065 -- -- --
Cash used in financing activi-
ties.......................... (211,417) -- -- --
EBITDA (a)..................... 34,021 $1,169 $ 327 $ 35,517
Ratio of earnings to fixed
charges(f).................... 1.1x -- -- 1.2x
See Notes to Unaudited Pro Forma Financial Information.
29
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 net income before taxes to employees.
(b) Represents an increase (decrease) in depreciation expense on assignment of
the purchase price of the Nonwovens Business and Oriented Polymer Business
fair value of property. Such allocation has been based on preliminary
estimates which may be revised at a later date. Decrease in depreciation
expense results from increase in depreciable lives of acquired business,
consistent with those of the Company. The following table summarizes the
pro forma adjustments to cost of goods sold:
FISCAL YEAR ENDED THREE MONTHS ENDED
JANUARY 3, 1998 APRIL 4, 1998
----------------- ------------------
(IN THOUSANDS)
Pro forma depreciation for
property, plant and equipment
(estimated useful lives ranging
from 15 to 33 years):
Nonwovens Business.............. $ 7,475 $ --
Oriented Polymer Business....... 1,782 445
Less historical depreciation:
Nonwovens Business.............. (14,581) --
Oriented Polymer Business....... (1,152) (293)
-------- -----
$ (6,476) $ 152
======== =====
(c) The following table summarizes the pro forma adjustments to selling,
general and administrative expenses:
FISCAL YEAR ENDED THREE MONTHS ENDED
JANUARY 3, 1998 APRIL 4, 1998
----------------- ------------------
(IN THOUSANDS)
Pro forma amortization expense:
Goodwill:
Nonwovens Acquisition............. $3,554 $ --
Oriented Polymer Acquisition...... 119 30
Less historical amortization...... (616) --
Loan acquisition costs.............. 1,183 133
Elimination of allocated historical
Oriented Polymer Business costs.... (2,058) (327)
------ -----
$2,182 $(165)
====== =====
(d) Represents an increase in interest expense related to the 9% Notes, the
Old Notes, the June Refinancing, the Nonwovens Transactions and the
Oriented Polymer Acquisition. The following table summarizes the pro forma
adjustments to interest expense:
FISCAL YEAR ENDED THREE MONTHS ENDED
JANUARY 3, 1998 APRIL 4, 1998
----------------- ------------------
(IN THOUSANDS)
Pro forma interest expense, net..... $ 68,463 $ 16,322
Less historical interest expense,
net................................ (37,710) (15,980)
-------- --------
$ 30,753 $ 342
======== ========
(e) Represents the adjustment to income tax expense to arrive at pro forma
income tax expense equal to pro forma pre-tax income plus non-deductible
goodwill expense multiplied by the effective rate.
(f) 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.
30
RECENT TRANSACTIONS
THE ORIENTED POLYMER ACQUISITION
On March 16, 1998, the Company consummated the Oriented Polymer Acquisition
by acquiring the manufacturing and business assets of a leading North American
manufacturer of polypropylene-based commercial twine and polyethylene-based
specialty knitted products. The aggregate purchase price of the Oriented
Polymer Business was approximately $47.0 million. The Oriented Polymer
Business operates through the Company's newly formed subsidiary, FabPro
Oriented Polymers, Inc. ("FabPro").
THE NONWOVENS TRANSACTIONS
On January 29, 1998, the Company consummated the Nonwovens Acquisition and
the Nonwovens Acquisition Refinancing. The Nonwovens Acquisition and Nonwovens
Acquisition Refinancing are collectively referred to as the "Nonwovens
Transactions."
The Nonwovens Acquisition
On December 19, 1997, pursuant to the terms of its Offer to Purchase dated
October 29, 1997, as amended (the "Dominion Tender Offer"), DT Acquisition
completed the purchase of 98% of the outstanding Common Shares of Dominion for
Cdn$14.50 per share and 96% of the outstanding First Preferred Shares of
Dominion for Cdn$150 per share. On December 29, 1997, DT Acquisition acquired
an additional 331,207 Common Shares. The Company had previously announced that
it had entered into a Purchase Agreement, dated October 27, 1997, with Galey
to sell the Apparel Fabrics Business to Galey following the consummation of
the Dominion Tender Offer. The Dominion Tender Offer was financed with $215
million of borrowings under DT Acquisition's $600 million senior secured
credit facilities, and subordinated advances of $141 million, $69 million and
$25 million by Galey, ZB Holdings, Inc. ("ZB Holdings"), and the Company,
respectively. ZB Holdings is a wholly-owned subsidiary of InterTech, an
affiliate of the Company wholly-owned by Jerry Zucker and James G. Boyd.
On January 29, 1998, DT Acquisition acquired the remaining Common Shares and
First Preferred Shares of Dominion in a compulsory acquisition effectuated
pursuant to section 206 of the Canada Business Corporation Act, and acquired
all outstanding Second Preferred Shares pursuant to a notice of redemption
issued December 29, 1997. Dominion then underwent a "winding up" pursuant to
which all assets of Dominion were transferred to DT Acquisition, all
liabilities of Dominion were assumed by DT Acquisition and all of the
outstanding Common Shares and First Preferred Shares held by DT Acquisition
were redeemed. Pursuant to the 2003 Tender Offer and the 2006 Tender Offer
(each as defined), Dominion Textile (USA) Inc. ("DT USA"), then a wholly-owned
subsidiary of Dominion and the issuer of the 2003 Notes and the 2006 Notes,
accepted for purchase all 2003 Notes and 2006 Notes validly tendered and not
revoked. Immediately thereafter, the Apparel Fabrics Business was sold to
Galey for approximately $464.5 million, including related fees and expenses,
and the Company acquired the Nonwovens Business. The Company borrowed
approximately $326.6 million under the Amended Credit Facility to finance the
Nonwovens Acquisition, for which it paid a gross price of approximately $351.6
million, including related fees and expenses. In connection with the sale of
the Apparel Fabrics Business and the Nonwovens Business, DT Acquisition repaid
the subordinated advance from ZB Holdings in full.
31
The primary operations of the Nonwovens Business are conducted through Poly-
Bond, Nordlys, DIFCO, Geca and DNS. Poly-Bond, based in Waynesboro, Virginia,
is a leading manufacturer of spunbond and spunmelt composite nonwovens used in
disposable diapers, adult incontinence and feminine hygiene products. Nordlys,
based in Bailleul, France, manufactures dry-laid nonwovens for industrial
applications such as cable wrap, liquid filtration, medical end-uses, and
electrical insulation. DIFCO, based in Magog, Quebec, produces custom designed
technical fabrics. Geca, based in Tilburg, Netherlands, manufactures nonwovens
products for industrial applications such as cable wrap. DNS produces spunbond
and spunmelt nonwovens to serve hygiene markets in countries that are
participants in the Mercosur free trade agreement.
The Nonwovens Acquisition Refinancing
On January 29, 1998, in connection with the Nonwovens Acquisition, the
Company amended its Credit Facility to provide for a $125.0 million secured
term loan and to modify certain terms of the revolving portion of the Credit
Facility. The Amended Credit Facility provides for revolving credit facilities
with an aggregate commitment of up to $325.0 million. 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. All indebtedness
and related guarantees under the Amended Credit Facility 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 domestic
subsidiaries of the Company and of certain non-domestic 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 secured intercompany notes issued to the Company or one of its subsidiaries
by certain non-domestic subsidiaries. See "Description of Certain
Indebtedness--Amended Credit Facility."
Concurrent with the sale of the Apparel Fabrics Business, and pursuant to
the 2003 Tender Offer (as defined), DT USA purchased approximately $145.6
million of its $150.0 million outstanding 8 7/8% Guaranteed Senior Notes due
2003 (the "2003 Notes") for total consideration in cash equal to $1,065.32 per
$1,000 principal amount, plus accrued interest. At the same time, pursuant to
the 2006 Tender Offer (as defined), DT USA purchased approximately $124.5
million of its $125.0 million outstanding 9 1/4% Guaranteed Senior Notes due
2006 (the "2006 Notes") for total consideration in cash of $1,138.50 per
$1,000 principal amount, plus accrued interest. Pursuant to both the 2003
Tender Offer and the 2006 Tender Offer, DT USA received the requisite consents
from tendering holders to amend the indentures under which the 2003 Notes and
the 2006 Notes were issued to eliminate substantially all of the covenants
contained therein and paid a consent fee, included in the respective total
consideration discussed above, to holders who tendered their notes and
delivered consents prior to the expiration of the consent solicitations. See
"Description of Certain Indebtedness--2003 Notes and 2006 Notes."
The Company's amendment to the Credit Facility resulting in the Amended
Credit Facility and repurchase of the 2003 Notes and 2006 Notes pursuant to
the 2003 Tender Offer and 2006 Tender Offer are collectively referred to as
the "Nonwovens Acquisition Refinancing."
THE JUNE REFINANCING
In the June Refinancing (the "June Refinancing"), the Company (i) refinanced
its outstanding indebtedness under its 12 1/4% Senior Notes due 2002 (the
"Senior Notes") by consummating (a) the June Offering and subsequent September
Exchange Offer, and (b) the Senior Notes Tender Offer and Consent
Solicitation, and (ii) entered into the Credit Facility.
32
The Private Placement and September Exchange Offer
On July 3, 1997, the Company issued $400 million of 9% Senior Subordinated
Notes due 2007 (the "Privately Placed Notes") to Chase in a transaction not
registered under the Securities Act in reliance upon an exemption under the
Securities Act (the "Private Placement") pursuant to an indenture dated as of
July 1, 1997 among the Company, the guarantors named therein and Harris Trust
& Savings Bank, as trustee (the "9% Notes Indenture"). Chase subsequently
placed the Privately Placed Notes with qualified institutional buyers in
reliance under Rule 144A under the Securities Act. The Privately Placed Notes
accrued interest from their original issuance date at the rate of 9% per
annum, and had substantially similar provisions with respect to redemption
(including optional redemption in the first three years in connection with one
or more Public Equity Offerings (as defined herein), changes in control,
ranking, Asset Sales (as defined herein) and other restrictive covenants. The
Privately Placed Notes were unsecured senior subordinated obligations of the
Company and were subordinated in right of payment to all existing and future
Senior Indebtedness of the Company.
Pursuant to a Registration Statement on Form S-4 (Reg. No. 333-32605)
originally filed with the Commission on August 1, 1997 and declared effective
on September 3, 1997, as amended, the Company offered to exchange $1,000
principal amount of its 9% Senior Subordinated Notes due 2007, Series B (the
"9% Notes") for each $1,000 principal amount outstanding of the Privately
Placed Notes (the "September Exchange Offer"). The September Exchange Offer
was undertaken to comply with certain Registration Rights granted to holders
of the Original Notes in connection with the Private Placement pursuant to the
Registration Rights Agreement dated July 3, 1997. The form and terms of the 9%
Notes offered in the September Exchange Offer are the same as the form and
terms of the Privately Placed Notes (which they replaced) except that (i) the
9% Notes bear a Series B designation, (ii) the 9% Notes have been registered
under the Securities Act and, therefore, do not bear legends restricting the
transfer thereof, and (iii) the holders of the 9% Notes are not entitled to
any registration rights. The September Exchange Offer was consummated on
October 3, 1997, with all $400 million principal amount of Privately Placed
Notes being tendered for exchange. As a result, the Company currently has $400
million of 9% Notes outstanding; no Privately Placed Notes remain outstanding.
Senior Notes Tender Offer and Consent Solicitation
In connection with the Private Placement, pursuant to an independent 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 at a price equal to $1,103.64 per $1,000 aggregate principal
amount of Senior Notes (the "Senior Notes Tender Offer and Consent
Solicitation"). The price 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, the first date on which the Senior Notes were
redeemable) plus accrued interest payable through July 15, 1998, using 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 preceding the expiration date of the offer),
plus (y) 75 basis points, minus $10.00 per $1,000 principal amount of Senior
Notes. Each tendering holder also received accrued and unpaid interest up to,
but not including, the date on which payment for accepted Senior Notes was
made.
The Company also solicited consents from the tendering holders of Senior
Notes to certain proposed amendments to the Senior Notes indenture which
eliminated substantially all of the protective covenants contained in that
indenture. Holders who timely consented to the proposed amendments received a
consent payment equal to 1% of their principal amount of Senior Notes ($10.00
per $1,000 principal amount). In response to the Senior Notes Tender Offer and
Consent Solicitation, which was consummated on July 3, 1997, the Company
received tenders of, and consents relating to, all of its outstanding Senior
Notes.
33
Credit Facility
As part of the June Refinancing, the Company and certain of its subsidiaries
entered into revolving credit facilities (the "Credit Facility"), dated July
3, 1997, with a group of lenders and with The Chase Manhattan Bank ("Chase
Bank"), as administrative agent (the "Agent"), by amending and restating its
original credit facility dated May 15, 1996 (the "Old Credit Facility"). Prior
to the amendment consummated in connection with the Nonwovens Acquisition, the
Credit Facility provided for aggregate borrowings of up to $325.0 million.
34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE COMPANY
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 second and third 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. Raw materials prices were relatively stable in 1997.
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,
France, England 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 and establishment of
the Old Credit Facility, 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
35
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 financial data for the year ended December 30, 1995 include the results
of Chicopee for the period March 16, 1995 to December 30, 1995. The financial
data for the year ended December 28, 1996 includes the results of FNA for the
period August 14, 1996 to December 28, 1996. The financial data for the three
months ended April 4, 1998 includes the results of the Oriented Polymer
Business for the period March 16, 1998 to April 4, 1998.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships to net sales of
certain income statement items.
THREE MONTHS
YEAR ENDED ENDED
------------------------------------ -------------------
JANUARY 3, DECEMBER 28, DECEMBER 30, APRIL 4, MARCH 29,
1998 1996 1995 1998 1997
---------- ------------ ------------ -------- ---------
Net sales:
Hygiene................. 43.3% 44.4% 45.1% 41.5% 42.0%
Medical................. 16.2 17.6 16.7 11.8 16.7
Wiping.................. 19.7 17.4 16.7 13.6 20.4
Industrial and
specialty.............. 20.8 20.6 21.5 33.1 20.9
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...... 75.1 74.6 76.2 76.1 74.7
----- ----- ----- ----- -----
Gross profit.......... 24.9 25.4 23.8 23.9 25.3
Selling, general and
administrative
expenses............... 13.9 13.4 14.1 13.4 14.5
----- ----- ----- ----- -----
Operating income........ 11.0 12.0 9.7 10.5 10.8
Other (income) expense:
Interest expense, net. 5.7 6.5 8.7 8.3 5.3
Holding (gain) on
marketable
securities........... (2.2) -- -- -- --
Foreign currency
transaction (gains)
losses, net.......... (0.1) 0.5 5.2 0.3 (0.2)
----- ----- ----- ----- -----
Income (loss) before
income taxes and
extraordinary item..... 7.6 5.0 (4.2) 1.9 5.7
Income taxes............ 2.5 2.1 1.2 0.7 1.9
----- ----- ----- ----- -----
Income before
extraordinary item..... 5.1 2.9 (5.4) 1.2 3.8
Extraordinary item, net
of income tax benefit.. (2.2) (2.6) -- (1.4) --
----- ----- ----- ----- -----
Net income (loss)....... 2.9% 0.3% (5.4)% (0.2)% 3.8%
===== ===== ===== ===== =====
36
COMPARISON OF THREE MONTHS ENDED APRIL 4, 1998 AND MARCH 29, 1997
Net Sales. The following table sets forth components of the Company's net
sales by product category for the three months ended April 4, 1998 and the
corresponding increase/(decrease) over the comparable fiscal period in the
prior year:
%
FIRST QTR FIRST QTR INCREASE/ INCREASE/
1998 1997 (DECREASE) (DECREASE)
--------- --------- ---------- ----------
(DOLLARS IN THOUSANDS)
Net sales by product
category:
Hygiene................... $ 80,173 $ 54,198 $25,975 47.9%
Medical................... 22,827 21,460 1,367 6.4
Wiping.................... 26,260 26,303 (43) (0.2)
Industrial and specialty.. 64,076 26,986 37,090 137.4
-------- -------- -------
Total net sales......... $193,336 $128,947 $64,389 49.9
======== ======== =======
Consolidated net sales increased $64.4 million, or approximately 50.0%, from
$128.9 million for the three months ended March 29, 1997 to $193.3 million for
the three months ended April 4, 1998. The increase was comprised of $53.6
million in net sales due to the Nonwovens Acquisition and the Oriented Polymer
Acquisition and $14.2 million due to organic growth, offset by a $3.4 million
decline in net sales due to weak European currencies.
Hygiene product net sales increased 48.0%, or $26.0 million, from $54.2
million in 1997 to $80.2 million in 1998. The increase was due primarily to
(i) acquisition growth, including the addition of new key hygiene product
customers, (ii) additional manufacturing capacity and (iii) increased volume
output of other process technology. The increase was offset by $1.9 million
due to European currency translation losses.
Medical product net sales increased 6.4%, or $1.4 million, from $21.5
million in 1997 to $22.8 million in 1998. Medical product revenues represented
11.8% of consolidated net sales for the fiscal quarter. Increases in medical
product net sales were primarily a result of higher sales in surgical gowns
and drapes.
Wipes net sales were $26.3 million in the first quarter of 1998 and 1997.
North American sales of food service wiping applications and Handi-wipes
increased by approximately $1.1 million; however, this increase was offset by
$1.2 million from European currency translation losses.
Industrial and specialty product net sales increased 137.4%, or $37.1
million, from $27.0 million in 1997 to $64.1 million in 1998. Industrial and
specialty product revenues represented 33.1% of net sales for the fiscal
quarter. Approximately $35.5 million in growth is attributable to the
Nonwovens Acquisition and the Oriented Polymer Acquisition. Sales of existing
products increased $1.6 million due to strong sales of alkaline battery
separators, apparel lining materials, housewrap and crop cover materials.
Gross Profit. Gross profit increased to $46.3 million, or 23.9% of
consolidated net sales, for the first quarter of 1998 versus $32.6 million for
the comparable period of 1997. Raw material costs in the first quarter of 1998
were approximately $82.1 million, or 42.5% of net sales, compared to $55.5
million, or 43.1% of net sales, in the first quarter of 1997. The decline in
raw material costs as a percentage of net sales reflects the continued trend
in lower raw material costs versus prior periods. Direct labor costs were
$16.0 million, or 8.3% of net sales, in the first quarter of 1998 as compared
to $10.2 million, or approximately 8.0% of net sales, in the first quarter of
1997. Overhead costs were $48.9 million in the first quarter of 1998 versus
$30.6 million in the first quarter of 1997. The increase in overhead costs
between 1998 and 1997 resulted from higher depreciation on completed capital
expenditures and higher incremental overhead associated with the Nonwovens
Business.
37
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from 14.5% of net sales in the first quarter
of 1997 to 13.4% of net sales in the first quarter of 1998 as a result of
lower distribution costs and other general and administrative costs as a
percentage of sales. Selling, general and administrative expenses for the
first quarter of 1998 were $26.0 million, up approximately $7.3 million versus
$18.7 million for the first quarter of 1997 due primarily to additional costs
associated with the Nonwovens Acquisition and the Oriented Polymer
Acquisition.
Other. Interest expense increased $9.2 million, from $6.8 million in the
first quarter of 1997 to $16.0 million in the first quarter of 1998. Interest
expense as a percentage of net sales increased from 5.3% in the first quarter
of 1997 to 8.3% in the first quarter of 1998. The increase in interest expense
is principally due to a higher average amount of indebtedness outstanding.
Net foreign currency transaction losses were approximately $0.7 million
during the first quarter of 1998 versus gains of $0.3 million in the first
quarter of 1997.
The Company provided for income taxes of approximately $1.3 million for the
three months ended April 4, 1998, representing an effective tax rate of 36.2%.
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 higher
foreign tax rates and to an increase in non-deductible goodwill amortization
in 1998. The Company provided for income taxes of $2.5 million during the
first quarter of 1997, representing an effective tax rate of 33.1%.
Income Before Extraordinary Item. Income before extraordinary item was $2.3
million, or $0.07 per share, in the first quarter of 1998 as compared to $5.0
million, or $0.16 per share, for the comparable period in the previous year.
The approximate $2.7 million decrease between first quarter 1998 and first
quarter 1997 was attributable primarily to higher interest expense of $9.2
million resulting from the Nonwovens Acquisition.
Extraordinary Item. As a result of the Nonwovens Acquisition, the Company
recorded one-time charges of $2.7 million for the write-off of previously
capitalized deferred financing costs.
COMPARISON OF YEAR ENDED JANUARY 3, 1998 AND DECEMBER 28, 1996
Net Sales. Net sales increased approximately $14.0 million, or 2.7%, from
$521.4 million in 1996 to $535.3 million in 1997.
Hygiene product sales increased approximately $0.7 million from $231.2
million in 1996 to $231.9 million in 1997. Net sales increased $8.1 million
primarily as a result of the acquisition of FNA and $9.5 million as a result
of growth in adhesive bond fabric sales and customer contractual obligations.
Net sales in the hygiene category was unfavorably impacted by $16.9 million
due to weaker European foreign currency translation rates and lower thermal
bond product sales as customers converted to spunbond materials faster in 1997
compared to 1996.
Medical product sales decreased 5.4%, or approximately $5.0 million, from
$91.7 million in 1996 to $86.7 million in 1997. This decrease was a result of:
(i) lower net raw material costs passed through to customers in the form of
lower average selling prices, (ii) unfavorable European foreign currency
translation rates, and (iii) other net decreases, including lower exports of
surgical gown and drape fabric, which were partially offset by sales increases
attributable to the acquisition of FNA and customer contractual obligations.
Within the wiping product category, sales increased 16.1%, or $14.6 million,
from $90.6 million in 1996 to $105.2 million in 1997 despite unfavorable
foreign currency translation rates in Europe. Improved sales in this product
category were driven by higher volumes of food service and specialty wiping
products and by growth in rollgood sales and geographic and product line
extensions.
38
Sales in the industrial and specialty product category increased 3.4%, or
$3.7 million, from $107.8 million in 1996 to $111.5 million in 1997. Sales
growth was attributable to the acquisition of FNA and increased sales of woven
slit films offset by unfavorable European foreign currency translation rates
and lower sales of products for home fashions, automotive and apparel
interlining applications.
Gross Profit. Gross profit increased to $133.2 million in 1997 versus $132.4
million in 1996. The approximate $0.8 million increase in gross profit over
1996 reflected the benefit of the acquisition of FNA offset by volume declines
attributable to unforeseeable delays at two key customers, higher
manufacturing costs associated with program ramp-up delays in Europe and
reduced overhead absorption as a result of lower thermal bond volume offset
somewhat by lower raw material costs.
Raw material costs in 1997 were approximately $236.0 million, or 44.1% of
net sales, compared to $240.1 million, or 46.1% of net sales, in 1996. This
decrease reflects the continued trend in lower raw material costs, offset
somewhat by higher levels of material usage in North America and Europe.
Direct labor costs were $42.3 million, or 7.9% of net sales in 1997, compared
to $39.3 million, or 7.6% of net sales in 1996. Overhead costs were $109.5
million, or 20.9% of net sales, in 1996 versus $123.8 million, or 23.1% of net
sales, in 1997. The increase in overhead costs between 1997 and 1996 results
from higher depreciation on completed capital expenditures, incremental
overhead associated with the acquisition of FNA and unfavorable manufacturing
costs associated with program ramp-up delays and lower thermal bond volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were 13.9% of net sales, or $74.6 million, in 1997
compared to 13.4% of net sales, or $70.2 million, in 1996. Research and
development expense was $9.6 million in 1997 compared to $6.9 million in 1996.
Other. Interest expense in 1997 decreased $3.1 million, from $33.6 million
in 1996 to $30.5 million in 1997. Interest expense as a percentage of net
sales decreased from 6.5% in 1996 to 5.7% in 1997. The decrease in interest
expense is principally due to a lower average amount of indebtedness
outstanding in 1997 prior to the refinancing of the Company's indebtedness in
June of 1997. The Company recorded net investment income related to its gain
on marketable securities of $11.9 million during 1997.
Net foreign currency transaction gains were approximately $0.5 million in
1997 compared to foreign currency losses of approximately $3.0 million in
1996. The Company provided for income taxes of approximately $13.0 million in
1997, representing an effective tax rate of 32.2% before extraordinary item.
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 Company's Initial Public Offering in 1996.
Income Before Extraordinary Item. The Company's income before extraordinary
item was $27.4 million, or $.86 per common share, as compared to $14.8
million, or $.43 per common share in 1996. The approximate $12.6 million
increase between 1997 and 1996 is attributable to net investment income gains
of $11.9 million, lower interest expense and a lower effective tax rate,
offset by reduced overhead absorption due to lower thermal bond volume, offset
somewhat by lower raw material costs, higher manufacturing costs associated
with program ramp-up delays in Europe and volume declines associated with
delays at certain key customers.
Extraordinary Item. The Company recorded one-time charges of $12.0 million,
net of taxes, for the write-off of previously capitalized debt issue costs and
premiums paid in connection with the refinancing of its indebtedness in June
of 1997.
39
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, a 19.1%
($83.7 million) 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 Chicopee operations in 1996 as compared
to only nine and one half months in 1995. In addition, market demand was
higher 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 SMS expansion in
San Luis Potosi, Mexico 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 was 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 Mexico and the acquisition of FNA in August
1996. Anticipating continued strong growth for spunbond polypropylene
products, the Company announced its commitment to install a high volume multi-
polymer line at its Mooresville, North Carolina facility for completion 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 technology.
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 acquisitions of FNA and Chicopee were $17.2 million.
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 Chicopee
operations.
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 Chicopee. 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.
40
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 Nuenkirchen,
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 in August 1996 and a full year of expenses related to the Chicopee
operations, 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. During 1996, 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 will be
to develop greater value and functionality in its products and to introduce
new and improved products into the marketplace more quickly. 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.
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 consummated concurrently therewith 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
41
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 operations. 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 outstanding Senior Notes.
THE NONWOVENS BUSINESS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net Sales. Net sales were $47.5 million in the three months ended September
30, 1997 versus $45.0 million in the three months ended September 30, 1996.
The $2.5 million, or 5.6%, increase in net sales was due primarily to
increased hygiene product sales volume at Poly-Bond and to strong industrial
products sales volume growth at Nordlys.
Operating Income. Operating income in the three months ended September 30,
1997 was $5.9 million compared to $4.6 million in the three months ended
September 30, 1996. Operating income as a percentage of net sales increased
from 10.3% in the three months ended September 30, 1996 to 12.3% in the
comparable 1997 period. The increase in operating income was primarily a
result of higher sales volume, productivity improvements and increased
manufacturing efficiencies and lower selling, general and administrative
expenses.
Other. Interest expense was $1.6 million in the three months ended September
30, 1997 compared to approximately $2.0 million in the prior comparable
period. Interest expense expressed as a percentage of net sales decreased from
4.4% in the three months ended September 30, 1996 to 3.3% in the three months
ended September 30, 1997. Income tax expense increased from $1.2 million in
the three months ended September 30, 1996 to $1.7 million in the three months
ended September 30, 1997; however, the effective income tax rate decreased
from 46.0% to 39.0% during this same period.
42
Net Income. Net income for the three months ended September 30, 1997 was
$2.6 million compared to $1.4 million in the three months ended September 30,
1996. The $1.2 million improvement in net income was attributable primarily to
higher operating income resulting from increased sales volume, lower net
interest expense and a lower effective income tax rate.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND 1996
Net Sales. Net sales were $202.1 million in the fiscal year ended June 30,
1997 versus $188.9 million in the fiscal year ended June 30, 1996. The $13.2
million, or 7.0%, increase in net sales was due primarily to increased sales
volume in the hygiene markets offset by lower sales in the industrial products
market. Sales at Poly-Bond increased 39.6% in 1997 due primarily to a full-
year impact of capacity expansions completed in fiscal 1996 and to some
equipment upgrades completed during the year which also increased capacity.
Average selling prices at Poly-Bond were lower in 1997 due to a shift in
product mix to lightweight fabric costing less to produce. Net sales at
Nordlys decreased 6.2%, excluding the effects of foreign currency translation,
due to lower sales of filtration and interlining products offset by increased
sales of cablewrap products. In fiscal 1997, net sales at DIFCO increased
approximately 2.3% over the comparable prior period, excluding the effects of
foreign currency translation.
Operating Income. Operating income in the fiscal year ended June 30, 1997
was $26.7 million compared to $13.4 million in 1996. Operating income as a
percentage of net sales increased from 7.1% in the fiscal year ended June 30,
1996 to 13.2% in the comparable 1997 period. The increase in operating income
was primarily a result of higher sales volume and favorable operating
efficiencies at Poly-Bond and lower raw material and fixed costs as well as
improved operating efficiencies at Nordlys. Poly-Bond received business
interruption insurance proceeds of $4.1 million as settlement for a claim
applicable to the previous year.
Other. Interest expense was $7.5 million in the fiscal year ended June 30,
1997 compared to approximately $7.2 million in 1996. Interest expense
expressed as a percentage of net sales decreased from 3.8% in fiscal 1996 to
3.7% in the comparable period of 1997. Income tax expense increased from $1.1
million in fiscal 1996 to $6.9 million in the same period of 1997 due
primarily to higher pre-tax income.
Net Income. Net income for fiscal 1997 was $12.4 million compared to $4.2
million in 1996. The $8.2 million improvement in net income was attributable
primarily to higher operating income resulting from increased sales volume and
improved operating efficiencies. During fiscal 1996, the Nonwovens Business
recorded an extraordinary item related to debt prepayment premiums of
approximately $1.0 million.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
Net Sales. Net sales were $188.9 million in the fiscal year ended June 30,
1996 versus $168.4 million in the fiscal year ended June 30, 1995 resulting in
an approximate $20.5 million, or 12.2%, overall increase. In the fiscal year
ended June 30, 1996, Poly-Bond achieved a net sales increase of 45.7% over the
comparable period in 1995 which was primarily due to spunmelt capacity
expansions. Nordlys net sales remained comparable to 1995. Increased sales of
filtration, electrical insulation and medical products were offset by
decreased cablewrap sales which were impacted by an aggressive pricing
environment and by temporary quality problems. Excluding the effects of
foreign currency translation, DIFCO experienced a sales increase of
approximately 3.9% in fiscal 1996 compared to 1995 due to improvements in the
flame resistant and coating fabrics segments which were offset by lower sales
in the specialty fabrics business.
Operating Income. Operating income in the fiscal year ended June 30, 1996
was $13.4 million compared to $6.3 million in 1995. Operating income as a
percentage of net sales increased from 3.7%
43
in the fiscal year ended June 30, 1995 to 7.1% in the comparable 1996 period.
The increase in operating income was primarily a result of increased sales,
lower manufacturing cost and lower selling, general and administrative
expense.
Other. Interest expense was $7.2 million in the fiscal year ended June 30,
1996 compared to approximately $9.9 million in 1995. Interest expense
expressed as a percentage of net sales decreased from 5.9% in fiscal 1995 to
3.8% in the comparable period of 1996. Income tax expense increased from a tax
benefit of $1.2 million in fiscal 1995 to $1.1 million in the same period of
1996.
Net Income. Net income for fiscal 1996 was $4.2 million compared to a net
loss of $1.6 million in 1995. The $5.8 million improvement in net income was
attributable primarily to higher operating income resulting from increased
sales volume and improved operating efficiencies. During fiscal 1996, the
Nonwovens Business recorded an extraordinary item related to debt prepayment
premiums of approximately $1.0 million.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. During the three months ended April 4, 1998, the
Company's operations generated $27.5 million in cash. The Company's working
capital, excluding assets held for disposition and short-term bridge
financing, increased $6.3 million, from $184.7 million at January 3, 1998 to
$191.0 million at April 4, 1998. Cash and equivalents and marketable
securities were $72.5 million at April 4, 1998 as compared to $57.9 million at
January 3, 1998. This increase arose principally from increased operating
income during the first quarter of 1998.
During 1997, the Company's operations generated $18.4 million of cash. The
Company's working capital, including current portion of long-term debt,
increased $126.8 million, from $93.2 million at December 28, 1996 to $220.0
million at January 3, 1998. Cash and equivalents were $50.2 million at January
3, 1998 as compared to $37.6 million at December 28, 1996. This increase arose
principally from higher net income in 1997.
The Company's operations generated $36.1 million in cash in 1996, reflecting
an increase of $24.5 million from $11.6 million in 1995. This increase was
attributable to 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, mainly 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.
Investing and Financing Activities. Capital expenditures for the three
months ended April 4, 1998 totaled $19.1 million, related primarily to margin-
enhancing projects. For the remainder of fiscal 1998, the Company expects
capital expenditures to approximate $63.9 million.
Capital expenditures for 1997 totaled $60.1 million, an increase of $33.4
million over 1996 due primarily to expansion of adhesive bond and reticulon
capacity, and a new 4.2 meter wide SMS line at the Company's Mooresville,
North Carolina plant site. Commercialization of this new line was completed
during the fourth quarter of 1997. For fiscal 1998, the Company has budgeted
approximately $31.0 million for sustaining capital expenditures and
approximately $52.0 million for margin-enhancing capital expenditures.
On July 3, 1997, the Company refinanced its outstanding indebtedness by: (i)
consummating the offering of the Privately Placed Notes and the tender offer
and related consent solicitation for its Senior Notes; and (ii) amending and
restating its then existing credit facility. In connection with consummation
of the June Refinancing, the Company recorded one-time charges of $12.0
million (net of tax) for the write-off of previously capitalized debt issue
costs and premiums paid with respect to the repurchase of the Senior Notes.
44
On December 19, 1997, DT Acquisition completed the purchase of approximately
98% of the outstanding common shares of Dominion for Cdn$14.50 per share and
approximately 96% of the outstanding first preferred shares of Dominion for
Cdn$150 per share. Additionally, on December 29, 1997, DT Acquisition acquired
an additional 331,207 common shares. The acquisition, which was accounted for
using the purchase method of accounting, was financed with $215.9 million of
borrowings under DTA's $600.0 million senior secured credit facilities, and
subordinated advances of $141.0, $69.0, and $25.0 million by Galey, ZB
Holdings and the Company, respectively.
On January 29, 1998, DT Acquisition acquired all remaining common and
preferred shares of Dominion which then underwent a "winding up." All assets
of Dominion were transferred to DT Acquisition, all liabilities of Dominion
were assumed by DT Acquisition and all outstanding common shares and first
preferred shares held by DT Acquisition were redeemed. Immediately thereafter,
pursuant to a purchase agreement dated October 27, 1997, and a Master
Separation Agreement dated January 29, 1998, the Apparel Fabrics Business was
sold to Galey for approximately $464.5 million, including related fees and
expenses, and the Company acquired the Nonwovens Business of Dominion for
approximately $351.6 million, including fees and expenses. Concurrently, DT
USA purchased approximately $145.6 million of its $150.0 million outstanding 8
7/8% Guaranteed Senior Notes due 2003. At the same time, DT USA purchased
approximately $124.5 million of its $125.0 million outstanding 9 1/4%
Guaranteed Senior Notes due 2006. In addition, on January 29, 1998 and in
connection with acquisition of the Nonwovens Business, the Company amended its
credit facility to provide a term loan of $125.0 million and a revolving
credit commitment of $325.0 million.
On March 5, 1998 the Company issued $200 million of 8 3/4% Senior
Subordinated Notes due 2008 in the Initial Offering.
On March 16, 1998, the Company acquired the manufacturing and business
assets of a leading North American manufacturer of polypropylene-based,
commercial twine and polyethylene-based specialty knitted products for
approximately $47.0 million.
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.
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.
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.
Foreign Currency. The Company manufactures certain of its products in
Germany, Canada, Mexico, France, England and the Netherlands. The Company
accounts for and reports translation of foreign currency transactions and
foreign currency financial statements in accordance with FAS 52. 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.
Derivatives. The Company does not use derivative financial instruments for
trading purposes. Such products are used only to manage well-defined interest
rate and certain foreign currency risks,
45
as discussed below. Premiums paid for purchased interest rate cap agreements
are charged to expense over the rate cap period. Charges to expense in 1997
and 1996 related to derivative products were not significant.
The Company may enter into financial instruments, which are limited in
duration and scope, to manage its exposure to fluctuations of foreign currency
rates. These instruments are used for hedging purposes and are employed in
connection with an underlying asset, liability, firm commitment or anticipated
transaction. Gains and losses on hedges of existing assets and liabilities are
included in the carrying amounts of those assets or liabilities and are
ultimately recognized in income as part of those carrying amounts. Gains and
losses related to qualifying hedges of firm commitments or anticipated
transactions are also deferred and recognized in income or as adjustments of
carrying amounts when the hedged transaction occurs. Gains and losses, if any,
on financial instruments that do not qualify as hedges for accounting purposes
are recognized in the determination of net income.
New Accounting Standards. In 1997, Statement No. 128, "Earnings Per Share"
("FAS 128") was issued. FAS 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effect of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the FAS 128 requirements.
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("FAS 130") which is effective for fiscal
years beginning after December 15, 1997. FAS 130 establishes new rules for the
reporting and display of comprehensive income and its components. FAS 130
requires unrealized gains or losses on the Company's available-for-sale
securities and the foreign currency translation adjustments, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. The Company's comprehensive loss approximated $6.9
million and $2.7 million for the three months ended April 4, 1998 and March
29, 1997, respectively.
In 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131") which is effective for years beginning after December 15, 1997. FAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. FAS 131 does not require interim disclosures during the initial
year of application; however, the segment information must be reported for
comparative purposes in interim financial statements in the second year of
application. The Company has adopted FAS 131 and will defer reporting segment
information in the interim financial statements until the second year of
application.
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
46
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.
Year 2000. The Company has made an initial assessment of certain computer
systems' compatibility with the "Year 2000" issue and has determined that it
will need to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the Year 2000 and
beyond. The Company presently believes that with modifications to existing
software and conversions to new software, the Year 2000 issue will not pose
significant operational problems for its computer systems. The Company will
utilize both internal and external resources to reprogram, or replace, and
test the software for the Year 2000 modifications. Management does not
currently expect the total costs of the year 2000 conversion project to be
material to the financial condition of the Company taken as a whole. The costs
of the project and the date on which the Company believes it will complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ from those anticipated. Specific
factors that might cause material differences include, but are not limited to,
the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and similar uncertainties.
47
BUSINESS
GENERAL
The Company is a leading worldwide manufacturer and marketer of a broad
range of nonwoven and oriented polyolefin products. The Company's principal
lines of business include industrial and specialty, reusable wiping, medical
and hygiene products. The Company believes that it is the third largest
producer of nonwovens as well as the largest producer of spunbond and spunmelt
products in the world and that it employs the most extensive range of
nonwovens technologies of any nonwovens producer, which allows it to supply
products tailored to customers' needs at competitive prices. 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 oriented polyethylene materials in North America.
Oriented polyolefin products include woven, slit film fabrics, which are
produced by weaving narrow tapes of slit film and are characterized by high
strength-to-weight ratios, and also include twisted slit film or monofilament
strands.
The Company supplies nonwovens to a number of the largest consumer products
manufacturers in the world and specifically targets market niches with high
margin, 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 in developing markets such as South
America and North Africa. The Company's product offerings 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, electrical
insulation, cable wrap, alkaline battery cell separators, disposable diapers,
feminine hygiene products and automotive insulation products. The Company
supplies nonwovens to customers such as Johnson & Johnson for hygiene related
and healthcare products, including operating room gowns, and Procter & Gamble
for Pampers(R) and Luvs(R) diapers.
The Company is a leader in nonwovens and extrusion process technologies. The
Company operates twenty-two manufacturing facilities (including its joint
venture in Argentina) located in eight countries and is currently the only
nonwovens producer that utilizes essentially all of the established nonwovens
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. The Company currently operates four 4.2
meter advanced SMS lines and a unique SMMS line at its Waynesboro, Virginia
facility, which began initial commercial production in June 1998. This
advanced technology allows the Company to produce highly uniform structures
with less material than conventional SMS technology. 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 technological
capabilities and depth of research and development resources to develop and
manufacture new products to specifically meet their needs.
Management has built the Company through a series of capital expansions and
strategic business acquisitions that have broadened the Company's technology
base, increased its product lines and expanded its global presence. The
Company's strategic acquisitions have helped it to establish strong positions
in both the nonwoven and oriented polyolefin markets. Moreover, the Company's
consolidated resources have enabled it to better meet the needs of existing
customers, to reach emerging geographic markets and to exploit niche market
opportunities through customer-driven product development.
48
HISTORY OF THE COMPANY
The Company was organized on June 16, 1994 and, effective June 24, 1994,
acquired a 100% ownership interest in PGI Polymer, which was incorporated in
September 1992 by The InterTech Group, Inc. ("InterTech") and Golder, Thoma,
Cressey, Rauner, Inc. ("Golder, Thoma") to act as a holding company for
entities engaged in the development, manufacturing and marketing of polyolefin
products.
At the time of its formation, PGI Polymer acquired from InterTech
approximately 27% of the issued and outstanding shares of stock of Fabrene,
Inc. ("Fabrene"), a leading manufacturer of industrial and commercial oriented
polyolefins. In addition, in October 1992, through its wholly-owned subsidiary
FiberTech Group, Inc. ("FiberTech"), PGI Polymer acquired the Nonwoven
Products Division (the "Predecessor") of Scott Paper Company, a major supplier
of nonwovens for diapers and other hygiene products. Together, Fabrene and
FiberTech offered substantial representation in both the nonwoven and oriented
polyolefin markets.
In connection with the Company's formation (at which point it became the
100% parent owner of PGI Polymer), the Company purchased from Cydsa, S.A. all
of the outstanding shares of Bonlam, S.A. de C.V. ("Bonlam"), the largest
manufacturer of spunbond nonwoven fabrics in Mexico (the "Bonlam
Acquisition"). The Bonlam Acquisition not only presented the opportunity to
meet existing customers' needs in Mexico, but also provided the Company with
the additional nonwoven capacity necessary to meet growing demand in North
American and Latin American markets.
In March 1995, the Company purchased the Johnson & Johnson Advanced Material
Company and Chicopee B.V. (collectively, "Chicopee"), leading manufacturers
and marketers of nonwoven roll and converted products in North America and
Europe (the "Chicopee Acquisition"), and consummated certain other
transactions restructuring and financing transactions. Through the Chicopee
Acquisition, the Company gained substantial manufacturing and technological
resources, consumer market recognition of certain of Chicopee's branded
product lines and a significant presence in the nonwovens markets for wipes
and medical products.
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. In connection
with the Initial Public Offering, the Company recapitalized its multiple
classes of common stock into a single class of common stock, and split the
common stock at an approximate 19.97 to 1 ratio. The Company also refinanced
its outstanding indebtedness by retiring a portion of its 12 1/4% Senior Notes
due 2002 issued in 1994 and establishing its Amended and Restated Credit
Facility, dated May 15, 1996 (the "Old Credit Facility"), with Chase Bank.
In August 1996, the Company completed its acquisition of the business of
FNA, a North Carolina based nonwovens producer. The acquisition, which was
financed through borrowings under the Old Credit Facility, strengthened the
Company's strategic position in the hygiene materials market and broadened its
offering of medical and agricultural materials.
On July 3, 1997, the Company consummated its offering of $400,000,000 of 9%
Senior Subordinated Notes due 2007, amended its Amended and Restated Credit
Facility, dated May 15, 1996 (as amended, the "Credit Facility"), and
repurchased and retired all of its outstanding 12 1/4% Senior Notes due 2002.
Subsequent to the fiscal year ended January 3, 1998, the Company also
completed the Initial Offering of $200,000,000 of 8 3/4% Senior Subordinated
Notes due 2008, Series A, and acquired the Nonwovens Business and the Oriented
Polymer Business. See "Recent Transactions."
INDUSTRY OVERVIEW
The Company competes primarily in the worldwide market for nonwovens, which
is approximately a $7.5 billion market, according to industry sources. The
nonwovens industry began in the 1950s when
49
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 of
North America, Western Europe and Japan will increase 4-5% in each of the next
five years, while the emerging markets are forecasted to grow at a rate of 8-
9% 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 per capita income rises in these countries. 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 (approximately 85% of
worldwide consumer sales, according to industry sources), which is the
category in which the Company primarily competes, or durable (approximately
15% of worldwide consumer sales, according to industry sources). The largest
end uses for disposable nonwovens are for hygiene applications, including
disposable 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, cable wrap, electrical insulation, alkaline
battery cell separators, automotive components, geotextiles, roofing
membranes, carpet backing, agricultural fabrics, durable papers and coated and
laminated structures for wallcoverings, upholstery, shoes and luggage.
The Company also competes in the North American market for oriented
polyolefin products. Chemical polyolefin products include woven, slit-film
fabrics produced by wearing narrow tapes of slit film and characterized by
high strength-to-weight ratios, and also include twisted slit film or
monofilament strands. While the broad uncoated oriented 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 nonwovens and oriented polyolefin
products. The Company is currently the only nonwovens producer that
utilizes all of the established nonwoven process technologies and holds
various patents on yield- and efficiency-enhancing manufacturing processes.
In addition, the Company enjoys exclusive use of the proprietary APEX(R)
structural web technology. The depth and expertise of the Company's
research and development staff have enabled the Company to develop
innovative products, frequently in response to specific customer needs. In
addition, the Company focuses its research and development efforts on
increasing its production capacity and
50
improving its production processes, developing innovative products for new
markets based on the Company's existing technologies, and developing new
process technologies to enhance existing business and to enter new markets.
The Company's multinational presence enables it to globally coordinate
advanced production initiatives and to co-develop new products directly
with international customers.
State-of-the-Art Manufacturing Capabilities. The Company believes that it
has state-of-the-art manufacturing capabilities in both its nonwovens and
oriented polyolefin product lines. As a result, the Company is one of the
lowest cost producers in the markets in which it participates. The Company
currently operates three state-of-the-art SMS lines, located at its
Waynesboro, Virginia, Mooresville, North Carolina and San Luis Potosi,
Mexico facilities, and a fourth is located at the DNS joint venture
facility. The Company has also completed construction of a unique SMMS line
at its Waynesboro, Virginia facility, which began initial commercial
production in June 1998. The Company employs, among others, manufacturing
technology by Reifenhauser GmbH & Co., the recognized leader in advanced
SMS commercial equipment. Additionally, the Company continues to enhance
its production lines with internally developed, proprietary manufacturing
technologies.
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 oriented uncoated material 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, as well as a global leader in the nonwovens
cable wrap and alkaline battery cell separator markets. The Company
believes it has been able to secure and maintain its position in these
markets 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 as well as increasing asset utilization and
productivity. Management also has a successful track record of acquiring,
improving and integrating complementary businesses into the Company. Senior
management currently owns approximately 23% of the common equity of the
Company.
Key Customer Relationships. The Company has successfully cultivated long-
term relationships with key customers, such as Johnson & Johnson and
Procter & Gamble, who are market leaders in their industries. The Company
currently works closely as a partner with Procter & Gamble and other
customers to develop advanced components for next generation disposable
diapers and other hygiene products. The Company has negotiated a favorable,
long-term supply agreement with Johnson & Johnson, under which it is the
exclusive provider of nonwoven fabric requirements for Johnson & Johnson
until March 2000 and, so long as the Company's prices remain competitive
with the marketplace, extends through March 2005. Similarly, the Company
enjoys an exclusive, long-term supply contract with Bulldog Bag Ltd. for
its oriented polyolefin 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, management has
positioned the Company to address the current and future needs of the
nonwovens and oriented polyolefin markets by providing high value, low cost
products to converters and end-use customers in specialty niche application
markets on a global basis.
51
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 services 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. For example, on January
29, 1998, the Company completed the acquisition of the Nonwovens Business,
which served to consolidate the Company's position as the leading supplier
of spunbond and spunmelt nonwovens in North America, to expand its presence
in the rapidly growing spunbond nonwovens market in Latin America and to
develop a significant operating base in the specialty dry-laid nonwovens
market in Western Europe. The Company believes that as a result of the
Nonwovens Acquisition, it is now the third largest producer of nonwovens in
the world as well as the largest producer of spunbond and spunmelt products
in the world. In addition, on March 16, 1998 the Company acquired the
Oriented Polymer Business, which expanded the Company's product offerings
and enhanced raw materials purchasing opportunities. See "Recent
Transactions."
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 higher
levels of product consistency and reduced waste. The Company also holds
several patents protecting yield- and efficiency-enhancing manufacturing
processes developed by its research and development staff. As a result, the
Company's manufacturing processes utilize less material and produce a
higher quality finished product than many of its competitors. 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 and in filtration
applications. The Company also recently introduced a new line of meltblown
materials for a wide range of wet and dry filtration applications. The
Company has taken steps to begin commercialization of additional medical
gown and drape technologies as well as new, high-margin wiping applications
incorporating antibacterial agents. Other recent developments include the
proprietary APEX(R) structural web technology, which is a surface-forming
process that produces nonwoven fabrics with intricate, three-dimensional
patterns. The Company believes its next generation nonwovens, produced
using the APEX(R) structural web technology and marketed under the brand
name MIRATEC(R), have the potential to replace certain woven and knit
applications at a lower cost. These advanced nonwovens are currently in
commercial production for Johnson &
Johnson for medical applications such as woven-like gauze and surgical lap-
pads. The Company is actively developing market opportunities for
MIRATEC(R) in a variety of other applications, including home furnishings,
automotive headliners 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
52
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. The Nonwovens Acquisition further
enhanced the Company's presence in Western Europe, Latin America, North
Africa and the Far East. Over the past five years, the Company's sales from
manufacturing facilities outside the United States have increased from
approximately $28 million in 1993 to approximately $223 million in 1997. 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 and
enhance production technologies. Since 1992, the Company has invested in
capital improvements to debottleneck existing operations and to add new
capabilities and capacity. The latest of these projects are the state-of-
the-art SMMS line at the Waynesboro, Virginia facility, and the recently
completed 4.2 meter SMS line at the Mooresville, North Carolina facility.
The Mooresville facility began commercial production in the fourth quarter
of 1997 and now has committed capacity utilization in excess of 80%,
subject to completion of qualifying programs (a process previously
undergone at the San Luis Potosi facility). The Waynesboro facility SMMS
line began initial commercial production in June 1998. Once operating at
full capacity (which at present is fully committed), the Company believes
that the SMMS line will be the most productive line in the world, producing
1.44 billion square yards of nonwovens annually. The Company recently
committed to install a new, heavyweight APEX(R) line at its Benson, North
Carolina facility, which is expected to be commercialized in early 1999. In
addition, the Company's oriented polyolefin business has completed a series
of expansions and debottlenecking projects since 1990, which have
cumulatively increased capacity (exclusive of the capacity gained in the
Oriented Polymer Acquisition) by 57%. The expansions include facilities in
North Bay, Ontario, Portland, Oregon, Vancouver, British Columbia and
Albany, New York.
Through the implementation of its business strategy, management has achieved
an increase in net sales from $165.3 million in 1994 to $535.3 million in
1997. At the same time, the Company has continued to develop new, proprietary
product technologies, to enter new geographical customer markets and to expand
its state-of-the-art manufacturing facilities in North America, South America
and Europe.
PRODUCTS
The Company develops, manufactures and sells a broad array of nonwovens,
oriented 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 industrial and specialty, reusable wiping, medical
and hygiene 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 enable the Company to better understand its customers' needs
and have been a significant factor in the Company's success. 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.
53
Industrial and Specialty Products
The industrial and specialty products category represented approximately
21%, 21% and 22%, or $111.5 million, $107.8 million and $94.0 million, of the
Company's 1997 net sales, 1996 net sales and 1995 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, alkaline battery cell separators, cable wrap, electrical
insulation, 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 cell separators, cable wrap, electrical insulation,
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, 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 oriented 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
oriented bags for animal feed, specialty chemicals and mineral fibers. The
Company is a leading supplier of several of these products, including wetlaid
alkaline battery cell separators, oriented lumberwrap, fiberglass packaging
and bottom board fabric and cable wrap.
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
Alkaline battery cell separators
Microporous rollgoods Liquid filtration
Kiara(R) Automotive insulation
Key Bak(R) Lumberwrap
Arbrene(R) and Lumber Guard(R) Housewrap
Airgard(R) Corrugated box reinforcement
Fab-Strip(TM) Protective coverings and laminated
Fabrene(TM) structures
Agricultural fabric Crop covers
Dust cover Furniture and bedding
Top Swell(TM) Water blocking cable wrap
Bale-lock Agricultural twine
The Company's industrial and specialty products are produced primarily using
wetlaid, adhesive bond, through-air fusible fiber bond, spunbond, oriented
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 converters/distributors, except for alkaline
battery cell separators, fiberglass packaging, cable wrap, electrical
insulation, and lumberwrap in the U.S. Pacific Northwest, which are sold by
the Company's own sales team.
54
Wiping Products
The wiping products category represented approximately 20%, 17% and 17%, or
$105.2 million, $90.6 million and $73.0 million, of the Company's 1997 net
sales, 1996 net sales and 1995 net sales, respectively. 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
two 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 to contain more opportunities for 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 and consumer categories and is a leading producer
for the industrial category. Industry sources estimate that the North American
volume growth for nonwovens used in disposable wipes will be approximately 7%
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
Food service
Chix(R) and Chix Plus(R) Heavyweight food service
Fresh Guy(R) Industrial
Durawipe(R) Sanitizing/food service
Quix(TM) Consumer and janitorial
Worxwell(R) Janitorial
Masslinn(R) Janitorial
Stretch 'N Dust(R) Specialized, clean rooms
Duralace(R) Consumer--Europe
Chifonet(TM) Food service--Europe
Lerette(TM) Catering--Europe
Napkins and tablecloths Consumer
Handiwipes(R) and Heavywipes(R)/1/
- --------
/1/Handiwipes(R) and Heavywipes(R) are registered trademarks of Colgate
Palmolive. The Company produces wipes exclusively for Colgate-Palmolive under
a 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 2003,
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
55
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, aggressive sales and marketing team 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 16%, 18% and 17%, or
$86.7 million, $91.7 million and $73.0 million, of the Company's 1997 net
sales, 1996 net sales and 1995 net sales, respectively. 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 two years still remain, the Company enjoys
significantly favorable pricing terms. In addition, other preferential terms
continue throughout the duration of the contract.
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 through 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
proprietary APEX(R) structural web technology. A recently developed product
using the APEX(R) structural web 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
Surgical gowns and drapes
Duralace(R) Sponges
Mirasorb(R) Nonwoven gauze
Nugauze(R)
- --------
/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.
56
Hygiene Products
The hygiene products category represented approximately 43%, 44% and 45%, or
$231.9 million, $231.2 million and $197.6 million, of the Company's 1997 net
sales, 1996 net sales and 1995 net sales, respectively. The Company produces a
variety of nonwoven materials 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 6-8% 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 4-5% annually through 2000.
The Company has a broad product offering and provides customers with a full
range of specialized components for unique or distinctive products, including
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
Coverstock
Isolite(TM) Transfer sublayer
Multi-Strike(TM) Clothlike backsheet
Soft Touch(TM) Leg cuff for diapers
Dry-Fit(TM) Sanitary protection facing
Reticulon(R) Absorbent cores
Ensorb(R) Topsheets
Novaspun Consumer--Europe
Baby wipes Protective apparel (solid barrier)
Poly-Safe(TM) Protective apparel (breathable
Poly-Breathe(TM) barrier)
- --------
/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. The
Company's marketing and research and development teams work closely as
partners with Procter & Gamble and other customers 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 such
customers' future product designs. The Company also has significant
relationships with private-label producers of diaper products and is 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
57
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 businesses and allow
entry into new businesses. The depth and expertise of the Company's research
and development staff, who work closely with manufacturing and marketing
personnel, have 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, has the potential to displace
traditional woven textile, knitted and composite products in many applications
because of its favorable price to value ratio. The advanced APEX(R) structural
web process produces low-cost textile replacement fabrics with intricate,
three-dimensional patterns marketed under the name MIRATEC(R). This
technology, which can be applied to most sheet structures fabricated from
fibers or films, 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) structural web
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)
structural web 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 Los Alamos National
Laboratories ("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 58%, 20%, 12% and 10% of the Company's 1997 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 26% of the Company's 1997 net sales while
Procter & Gamble accounted for 16% of net sales for the same period. Sales to
the Company's top 20 customers represented approximately 61% of the Company's
1997 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
58
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 regions in which the
Company's products are utilized. The oriented polyolefin products are sold
primarily through a well-established network of converters and distributors,
most of whom have been doing business with the Company (or its respective
predecessors) 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 oriented 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, SMMS, thermal and
adhesive bond, spunlace, wet-laid, dry-laid, film extrusion and aperturing,
through-air bond and ultrasonic bond among other processes.
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
59
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
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 and SMMS are integrated processes 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.
Oriented Polyolefins. The oriented/film process begins with plastic resin,
which is extruded into a thin plastic film or into monofilament strands. The
film is slit into narrow tapes. The slit tapes or monofilament strands are
then stretched or "oriented," the process through which it derives its high
strength. The tapes are wound onto spools which feed weaving machines or
twisters. In the finishing process, the product is coated for water or
chemical resistance, ultraviolet stabilization and protection, flame
retardancy, color and other specialized characteristics. In the twisting
process, either oriented slit tapes or monofilament strands are twisted and
packaged on tightly spooled balls for distribution as agricultural and
commercial twine. 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 oriented 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 recently extended its long-term
manufacturing and distribution contract with BMR for an additional five years,
through August 2003. The agreement provides for 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. ("Freudenberg"), Kimberly-
Clark Corporation ("Kimberly-Clark"), Dexter Nonwovens Division, Kuraray Co.,
Ltd., Veratec (a subsidiary of BBA Group plc), Reemay Inc. (a subsidiary of
BBA Group plc), Lohmann GmbH & Company and Lantor International for nonwoven
products; and Intertape Polymer Group Inc. and Amoco Fabrics and Fibers Co.
for oriented polymer 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 James Corporation ("Fort
James"), Atlantic Mills Inc. and Kimberly-
60
Clark. 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.
The Company's primary competitors in its medical product markets are Du Pont
and FiberWeb Group, Inc. (a subsidiary of BBA Group plc) in the United States
and Freudenberg and Molnlycke AB in Europe. 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 and FiberWeb Group, Inc. in North America, Corovin GmbH (a subsidiary
of BBA Group plc) 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. 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 resins
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, thereby reducing
prices. The Company expects that such price reductions 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. Raw materials prices remained
stable to slightly lower in 1997.
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 supplier of polypropylene fiber is FiberVisions L.L.C.,
while its major supplier of polyethylene is Novacor Chemicals Inc. The
Company's major suppliers of rayon fiber are Lenzing Fibers Corp. and
Courtaulds Fibers, Inc., while its major suppliers of polyester are Wellman,
Inc. and E.I. Du Pont de Nemours & Co. ("Du Pont"). The Company primarily
purchases its polypropylene resin from Indelpro, S.A. de C.V., Montell North
America Inc. and Exxon Chemical Company, and purchases its tissue paper from
Crown Vantage Inc. As a result of the Nonwovens Acquisition, the Company is
also a purchaser of polyolefin films from Edison Plastics Company, a
61
subsidiary of Blessings Corporation, polyester fiber from Swicofil A.G.
Textile Services and Du Pont, and polyacrylate powder (SAP) from Elf Atochem.
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.
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
62
registered trademarks and over 75 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.
INVENTORY AND BACKLOGS
Unfilled orders as of January 3, 1998 and December 28, 1996 amounted to
approximately $87.2 million and $76.8 million, respectively. The Company's
unfilled order position has increased over the past year as a result of the
acquisition of the Nonwovens Business.
RESEARCH AND DEVELOPMENT
The Company continually invests in research and development, focusing its
efforts on increasing production capacity, improving production processes, and
developing new product and process technologies. For the fiscal years ended
January 3, 1998, December 28, 1996 and December 30, 1995, the Company spent
approximately $9.6 million, $6.9 million and $6.4 million on research and
development.
SEASONALITY
Use and consumption of the Company's products exhibits some seasonality,
with lighter volumes generally experienced in the first quarter of the fiscal
year.
EMPLOYEES
As of April 4, 1998, the Company employed approximately 3,820 persons. As of
January 4, 1998, the Company employed approximately 3,600 persons. Of that
total, approximately 1,600 employees are represented by labor unions or trade
councils that have entered into separate collective bargaining agreements with
the Company. Approximately 31% of the Company's labor force is covered by
collective bargaining agreements which expire in 1998. The Company considers
its employee relations to be very good.
63
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 Company's credit facilities.
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
Kingman, Kansas............... 182,000 Manufacturing, Marketing, Warehousing
and Administration
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
Albany, New York.............. 60,000 Manufacturing and Warehousing
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.....................
Clearfield, Utah.............. 100,000 Manufacturing and Warehousing
Waynesboro, Virginia.......... 175,000 Manufacturing, Warehousing, Marketing
and Research and Development
Waynesboro, Virginia.......... 125,500 Warehousing
Buenos Aires, Argentina....... 79,000(4) Manufacturing, Marketing, Warehousing
and Administration
Vancouver, British Columbia... 60,000(1) Manufacturing
Mississauga, Ontario.......... 2,900(1) Sales and Marketing
North Bay, Ontario............ 350,000 Manufacturing
North Bay, Ontario............ 80,000(1) Warehousing
Magog, Quebec................. 990,100 Manufacturing, Marketing, Warehousing
and Administration
Sherbrooke, Quebec............ 16,823 Warehousing
Denton, Manchester (England).. 12,500 Manufacturing, Warehousing and
Administration
Bailleul, France.............. 305,584 Manufacturing, Marketing, Warehousing
and Administration
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
Tilburg, Netherlands.......... 29,052 Manufacturing, Marketing, Warehousing
and Administration
64
- --------
(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."
(4) This facility relates to Dominion Nonwovens Sudamerica (DNS), in which the
Company holds a 50% joint venture interest with The Sauler Group.
65
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers as of June 1, 1998:
NAME AGE POSITION
---- --- --------
Jerry Zucker............ 48 Chairman, President, Chief Executive Officer
and Director
James G. Boyd........... 53 Executive Vice President, Chief Financial
Officer, Treasurer, Secretary and Director
S. Grant Reeves......... 42 Vice President--Operational Analysis and Chief
Operating Officer--Oriented Polymer Division
Thomas E. Phillips...... 48 Group Vice President--Sales (Americas),
Finance, Information Technology and Human
Resources, Nonwovens
James L. Schaeffer...... 47 Group Vice President--Operations and General
Manager (Americas), Nonwovens
Gregg Wilkinson......... 46 Group Vice President--Marketing and
International Business Development, Nonwovens
Richard L. Ferencz...... 53 Group Vice President--Advanced Technology and
Engineering, Nonwovens
Peter C. Bourgeois...... 54 Group Vice President and General Manager,
Fabrene
Bruce V. Rauner......... 42 Director
David A. Donnini........ 33 Director
Michael J. McGovern..... 35 Director
L. Glenn Orr, Jr. ...... 57 Director
John F. ("Jack") Ruffle. 61 Director
The following table sets forth certain information concerning the
Guarantors' directors and officers as of June 1, 1998. Officers of the
Guarantors serve at the discretion of the respective board of directors.
NAME AGE POSITIONS
---- --- ---------
Jerry Zucker....... 48 Chairman, President, Chief Executive Officer and
Director of PGI Polymer, FiberTech, FiberGol,
Technetics, Chicopee Holdings, Chicopee, PNA, FNA,
Fabrene Corp., Fabrene Group L.L.C., Poly-Bond, DT
USA, Domtex Industries, Loretex and FabPro.
Chairman, President and Chief Executive Officer of
Fabrene Group.
James G. Boyd...... 53 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., Fabrene
Group, Poly-Bond, DT USA, Domtex Industries,
Loretex and FabPro.
Peter C. Bourgeois. 54 Director of Fabrene Corp. and Fabrene Group.
Bruce V. Rauner.... 42 Director of PGI Polymer, FiberTech, FiberGol and
Technetics.
David A. Donnini... 33 Director of PGI Polymer, FiberTech, FiberGol and
Technetics.
JERRY ZUCKER has served as Chairman, President, Chief Executive Officer and
a Director of the Company, PGI Polymer, FiberTech, Technetics, Chicopee
Holdings, Chicopee and Fabrene Corp. since their inception, and in the same
capacities for Poly-Bond, DT USA and Domtex Industries since
66
January 1998, and for FabPro since March 1998. Mr. Zucker has served as
Chairman, President and Chief Executive Officer of Fabrene Group since its
inception, and Chairman, President, Chief Executive Officer and a Director of
Loretex since September 1997 and of PNA and FNA since August 1996. In addition
to his duties with the Company, 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, Chief Financial
Officer, Treasurer, Secretary and a Director of the Company, PGI Polymer,
FiberTech, Technetics, Chicopee Holdings, Chicopee, Fabrene Corp., Fabrene
Group L.L.C. and Fabrene Group since their inception, and in the same
capacities for Poly-Bond, DT USA and Domtex Industries since January 1998, and
for FabPro since March 1998. Mr. Boyd has served as Executive Vice President,
Treasurer, Secretary and a Director of Loretex since September 1997 and of PNA
and FNA since August 1996. 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--Operational Analysis and Chief
Operating Officer--Oriented Polymer Division since February 1998. From June
1994 through February 1998, Mr. Reeves served as a Vice President of the
Company. Mr. Reeves joined lnterTech in 1986, where he served as contoller of
Reemay, Inc., a former InterTech affiliate ("Reemay"), and served as General
Manager at Fabrene from 1991 through June 1994.
THOMAS E. PHILLIPS has served as Group Vice President--Sales (Americas),
Finance, Information Technology and Human Resources, Nonwovens since February
1998. Mr. Phillips served as Group Vice President--Finance, Systems and
Administration, Nonwovens from March 1995 through February 1998. 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, where his
responsibilities included financial, systems, human resources and
administrative functions.
JAMES L. SCHAEFFER has served as Group Vice President--Operations and
General Manager (Americas), Nonwovens since February 1998. Mr. Schaeffer
served as Group Vice President--Operations/Engineering, Nonwovens from March
1995 through February 1998. 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
International Business Development, Nonwovens since February 1998. Mr.
Wilkinson served as Group Vice President--Marketing and Sales, Nonwovens from
March 1995 through February 1998. 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.
RICHARD L. FERENCZ has served as Group Vice President--Advanced Technology
and Engineering, Nonwovens since February 1998. From March 1996 to February
1998, Mr. Ferencz served as Vice President--Advanced Technology and
Engineering of the Company. From 1992 to 1996 Mr. Ferencz served as Vice
President of Engineering of the Company. Prior to joining the Company, Mr.
Ferencz served as Director of Systems of Reemay (1986-1992).
PETER C. BOURGEOIS has served as Group Vice President and General Manager,
Fabrene since February 1998. Mr. Bourgeois served as Vice President, Wovens
from 1993 through February 1998. Mr. Bourgeois served as Vice President--
Marketing and Sales for Fabrene from June 1989 until 1993. Mr. Bourgeois has
served as a Director of Fabrene Corp. and Fabrene Group since their inception.
67
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 of Golder, Thoma, Cressey, Rauner, Inc. ("Golder, Thoma") since
1984, and has been a Principal of GTCR Golder Rauner, L.L.C. ("Golder Rauner")
since January 1998, 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 Province Healthcare Company,
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 and a Principal of Golder Rauner since
January 1998. 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 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 firm, 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 currently serves as a consultant to J.P. Morgan & Co.
Incorporated, where he served as Vice Chairman and a director 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, 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. Zucker's
and Rauner's terms expiring in 1999, Messrs. Donnini's, Orr's and Ruffles's
terms expiring in 2000, and Messrs. Boyd's and McGovern's terms expiring in
2001. 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, Orr 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,
68
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.
EMPLOYMENT AND MANAGEMENT AGREEMENTS
Pursuant to management agreements originally entered into in October 1992
(the "PGI Polymer Management Agreements"), Messrs. Zucker and Boyd
(collectively, the "Executives") have agreed to serve as President and Chief
Executive Officer, and Executive Vice President and Treasurer, respectively,
of PGI Polymer. Pursuant to management agreements entered into in March 1995
(the "Chicopee Management Agreements" and, together with the PGI Polymer
Management Agreements, the "Management Agreements"), the Executives have
agreed to serve in the same capacities for the Company's subsidiary, Chicopee,
Inc. ("Chicopee"). The Management Agreements provide that the Executives'
employment thereunder will continue until the Executive's resignation,
permanent disability, death or termination by the Board of Directors.
The PGI Management Agreements provide for an annual base salary of $250,000
to be paid to Mr. Zucker and an annual base salary of $150,000 to be paid to
Mr. Boyd, while the Chicopee Management Agreements provide for an annual base
salary of $400,000 to be paid to Mr. Zucker and an annual base salary of
$200,000 to be paid to Mr. Boyd, all of which amounts may be increased as
determined in good faith by the Board of Directors. The Management Agreements
also provide for a bonus to be paid at the end of each fiscal year to each of
the Executives in an amount determined by the Board of Directors, as the case
may be, but not to exceed such Executive's base salary.
The Management Agreements provide that upon the termination of either
Executive's employment, such Executive is entitled to receive severance
payments equal to either one-half (in the case of death, disability,
resignation without good reason or termination for cause) or three times (in
all other cases) his annual salary.
The Company has not entered into written employment contracts with any of
its other executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Corporation's Compensation Committee are Messrs. Donnini
and Rauner. Mr. Rauner, a director of the Corporation, is also a general
partner of Golder, Thoma, Cressey & Rauner, L.P. Golder, Thoma, Cressey &
Rauner, L.P. is the general partner of GTC Fund III, which owns 22.2% of the
Corporation's Common Stock. Messrs. Zucker, Rauner and Donnini served as
members of the Compensation Committee of the Board during fiscal year 1995.
Mr. Zucker was an officer and an employee of the Corporation during such
period.
69
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE NONWOVENS TRANSACTIONS
On January 29, 1998, DT Acquisition consummated the Nonwovens Acquisition
and the Nonwovens Acquisition Refinancing, which together are referred to as
the "Nonwovens Transactions."
The Nonwovens Acquisition
On December 19, 1997, pursuant to the Dominion Tender Offer, DT Acquisition
completed the purchase of 98% of the outstanding Common Shares of Dominion for
Cdn$14.50 per share and 96% of the outstanding First Preferred Shares of
Dominion for Cdn$150 per share. On December 29, 1997, DT Acquisition acquired
an additional 331,207 Common Shares. The Company had previously entered into
an agreement to sell the Apparel Fabrics Business to Galey following the
consummation of the Dominion Tender Offer. The Dominion Tender Offer was
financed with $215 million of borrowings under DT Acquisition's $600 million
senior secured credit facilities, and subordinated advances of $141 million,
$69 million and $25 million by Galey, ZB Holdings and the Company,
respectively. ZB Holdings is a wholly-owned subsidiary of InterTech, an
affiliate of the Company wholly-owned by Jerry Zucker and James G. Boyd.
On January 29, 1998, DT Acquisition acquired the remaining Common Shares and
First Preferred Shares of Dominion in a compulsory acquisition effectuated
pursuant to Section 206 of the Canada Business Corporation Act, and acquired
all outstanding Second Preferred Shares pursuant to a notice of redemption
issued December 29, 1997. Dominion then underwent a "winding up" pursuant to
which all assets of Dominion were transferred to DT Acquisition, all
liabilities of Dominion were assumed by DT Acquisition and all of the
outstanding Common Shares and First Preferred Shares held by DT Acquisition
were redeemed. Pursuant to the 2003 Tender Offer and the 2006 Tender Offer DT
USA accepted for purchase all 2003 Notes and 2006 Notes validly tendered and
not revoked. Immediately thereafter, the Apparel Fabrics Business was sold to
Galey for approximately $464.5 million, including related fees and expenses,
and the Company acquired the Nonwovens Business. The Company borrowed
approximately $326.6 million under the Amended Credit Facility (as defined
below) to finance the Nonwovens Acquisition, for which it paid a gross price
of approximately $351.6 million, including related fees and expenses. In
connection with the sale of the Apparel Fabrics Business and the Nonwovens
Business, DT Acquisition repaid the subordinated advance from ZB Holdings in
full, with accrued interest to date.
In connection with the formation of DT Acquisition and commencement of the
Dominion Tender Offer, (i) the Company transferred 3,108,000 common shares of
Dominion ("Dominion Common Shares") to DT Acquisition and received 60 common
shares of DT Acquisition and a subordinated promissory note of $25.0 million
(the "Corporation Contribution Note") and $6.7 million in cash, (ii) InterTech
transferred 1,470,000 Dominion Common Shares to DT Acquisition and received 28
common shares of DT Acquisition and a subordinated promissory note of $15.0
million (the "InterTech Contribution Note"), and (iii) ZB Holdings transferred
$54.0 million cash to DT Acquisition in exchange for a subordinated promissory
note in the same amount from DT Acquisition (the "ZB Holdings Contribution
Note"). The Company agreed to pay interest on the InterTech Contribution Note
and the ZB Holdings Contribution Note at an effective rate of 9.5% per annum.
The amounts paid to the Company and to InterTech in exchange for their
respective shares contributed to DT Acquisition were determined using the
Cdn$14.50 per share price offered to all holders of Dominion Common Shares in
the Dominion Tender Offer, converted using the then-current exchange rate of
Cdn$1.4225 to U.S.$1.00. Interest paid on the InterTech Contribution Note and
the ZB Holdings Contribution Note was determined using prevailing market rates
for similar investments.
70
InterTech purchased its 1,470,000 Dominion Common Shares transferred to DT
Acquisition at a total cost of approximately $8.4 million. In addition to the
gain realized through the contribution of such shares, InterTech also received
$398,900 of accrued interest on the InterTech Contribution Note. DT
Acquisition paid ZB Holdings $621,195 of accrued interest on the ZB Holdings
Contribution Note. Mr. Zucker also tendered 1,377,000 of personally held
Dominion Common Shares in the Dominion Tender Offer for total consideration of
$13.9 million, reflecting a gain of $6.2 million. Following the consummation
of the Dominion Tender Offer and the sale of the Nonwovens Business and the
Apparel Fabrics Business, all shares of DT Acquisition held by InterTech were
redeemed for Cdn$1.00 per share. Mr. Zucker is also one of three trustees of a
charitable foundation which held and tendered 265,000 Dominion Common Shares
to DT Acquisition in the Dominion Tender Offer. Mr. Zucker had no beneficial
ownership of or pecuniary interest in such shares.
In connection with the acquisition by the Company of the Nonwovens Business
of Dominion, ZB Holdings requested consideration from the Company in return
for providing a portion of the financing required by the Company to complete
the tender offer for the outstanding Common Shares and First Preferred Shares
of Dominion, which was the first step in the Nonwovens Acquisition. The
members of the Board of Directors of the Company who are "disinterested" for
purposes of this transaction have engaged independent legal counsel, and
intend to retain an independent investment banking firm, to examine this
request and advise such directors.
The Nonwovens Acquisition Refinancing
On January 29, 1998, in connection with the Nonwovens Acquisition, the
Company amended its Credit Facility with Chase Bank to provide for a $125.0
million secured term loan and to modify certain terms of the revolving portion
of the Credit Facility. The Amended Credit Facility provides for revolving
credit facilities with an aggregate commitment of up to $325.0 million.
Concurrent with the sale of the Apparel Fabrics Business, and pursuant to the
2003 Tender Offer and 2006 Tender Offer, DT USA purchased approximately $145.6
million of its $150.0 million outstanding 2003 Notes and approximately $124.5
million of its $125.0 million outstanding 2006 Notes. Pursuant to both the
2003 Tender Offer and the 2006 Tender Offer, DT USA received the requisite
consents from tendering holders to amend the indentures under which the 2003
Notes and the 2006 Notes were issued and paid a consent fee to holders who
tendered their notes and delivered consents prior to the expiration of the
consent solicitations.
The Company's amendment to the Credit Facility resulting in the Amended
Credit Facility and repurchase of the 2003 Notes and 2006 Notes pursuant to
the 2003 Tender Offer and 2006 Tender Offer (described more fully below) are
collectively referred to as the "Nonwovens Acquisition Refinancing."
2003 Tender Offer and 2006 Tender Offer
On November 1, 1993, DT USA issued $150.0 million of 8 7/8% Guaranteed
Senior Notes due 2003 (the "2003 Notes") pursuant to an indenture, dated as of
November 1, 1993, among DT USA, Dominion, as the Parent Guarantor, and First
Union National Bank, as successor trustee (the "2003 Notes Indenture"). On
April 1, 1996, DT USA issued an additional $125.0 million of 9 1/4% Guaranteed
Senior Notes due 2006 (the "2006 Notes") pursuant to an indenture, dated as of
April 1, 1996, among DT USA, Dominion and First Union National Bank, as
successor trustee (the "2006 Notes Indenture"). Both the 2003 Notes and 2006
Notes are senior indebtedness of DT USA and are guaranteed on a joint and
several basis by DT USA and DT Acquisition (formerly Dominion).
On December 23, 1997, following the initial take-up of Dominion shares by DT
Acquisition in the Dominion Tender Offer, DT USA made tender offers to
purchase any and all outstanding 2003 Notes
71
and 2006 Notes (the "2003 Tender Offer" and "2006 Tender Offer,"
respectively), and solicited consents to certain proposed amendments to the
2003 Notes Indenture and 2006 Notes Indenture. The tender of notes in the 2003
Tender Offer and 2006 Tender Offer was contingent upon such holder's consent
to the proposed amendments to the 2003 Notes Indenture and the 2006 Notes
Indenture, until, in each case, such time that the requisite number of
consents to approve the proposed amendments had been obtained and a
supplemental indenture relating thereto had been executed. The proposed
amendments eliminated substantially all of the protective covenants in each of
the 2003 Notes Indenture and the 2006 Notes Indenture.
The total consideration offered for each validly tendered 2003 Note and
properly delivered consent was $1,065.32, which was equal to the present value
of $1,043.75 (the amount for which each 2003 Note could be repurchased at
November 1, 1998, its earliest call date) and any interest payments due from
the payment date to such call date, discounted using the yield rate of a
chosen reference security plus a fixed spread. The total consideration offered
for each validly tendered 2006 Note and properly delivered consent was
$1,138.50, which was equal to the present value of $1,046.25 (the amount for
which each 2003 Note could be repurchased at April 1, 2001, its earliest call
date), and any interest payments due from the payment date to such call date,
discounted using the yield rate of a chosen reference security plus a fixed
spread. Holders who tendered in the 2003 Tender Offer and the 2006 Tender
Offer prior to each respective expiration date for consents received a consent
payment equal to 1% of the outstanding principal amount of notes tendered
(included in the total consideration described above).
On January 28, 1998, the expiration date for the 2003 Tender Offer and the
2006 Tender Offer, DT USA accepted for repurchase $145.6 million of 2003 Notes
and $124.5 million of 2006 Notes. DT USA currently has $4.4 million aggregate
principal amount of 2003 Notes and $0.3 million aggregate principal amount of
2006 Notes outstanding. DT USA repurchased $25,000 of 2003 Notes in the Change
of Control Offer, which expired on March 17, 1998 and $0.2 million of 2006
Notes in a subsequent, privately negotiated transaction.
THE JUNE REFINANCING
In the June Refinancing, the Company (i) refinanced its outstanding
indebtedness under its Senior Notes by consummating (a) the June Offering and
subsequent September Exchange Offer, and (b) the Senior Notes Tender Offer and
Consent Solicitation, and (ii) entered into the Credit Facility.
The Private Placement and September Exchange Offer
On July 3, 1997, the Company issued $400 million of 9% Senior Subordinated
Notes due 2007 (the "Privately Placed Notes") to Chase in a transaction not
registered under the Securities Act in reliance upon an exemption under the
Securities Act (the "Private Placement"). Chase subsequently placed the
Privately Placed Notes with qualified institutional buyers in reliance under
Rule 144A under the Securities Act. The Privately Placed Notes accrued
interest from their original issuance date at the rate of 9% per annum, and
had customary provisions with respect to redemption (including optional
redemption in the first three years in connection with one or more public
equity offerings), changes in control, ranking, asset sales and other
restrictive covenants. The Privately Placed Notes were unsecured senior
subordinated obligations of the Company and were subordinated in right of
payment to all existing and future senior indebtedness of the Company.
Pursuant to a Registration Statement on Form S-4 (Reg. No. 333-32605)
originally filed with the Commission on August 1, 1997 and declared effective
on September 3, 1997, as amended, the Company offered to exchange $1,000
principal amount of its 9% Senior Subordinated Notes due 2007, Series B (the
"9% Notes") for each $1,000 principal amount outstanding of the Privately
Placed Notes (the "September Exchange Offer"). The September Exchange Offer
was undertaken to comply
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with certain Registration Rights granted to holders of the Original Notes in
connection with the Private Placement pursuant to the Registration Rights
Agreement dated July 3, 1997. The form and terms of the 9% Notes offered in
the September Exchange Offer are substantially the same as the form and terms
of the Privately Placed Notes (which they replaced). The September Exchange
Offer was consummated on October 3, 1997, with all $400 million principal
amount of Privately Placed Notes being tendered for exchange.
Senior Notes Tender Offer and Consent Solicitation
In connection with the Private Placement, pursuant to an independent 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 at a price equal to $1,103.64 per $1,000 aggregate principal
amount of Senior Notes. The price offered was equal to the present value on
the payment date of $1,061.25 (the amount for which each Senior Note could be
repurchased on July 15, 1998, its earliest call date) and any interest
payments due from the payment date to such call date, discounted using the
yield rate of a chosen reference security plus a fixed spread.
The Company also solicited consents from the tendering holders of Senior
Notes to certain proposed amendments to the Senior Notes indenture which
eliminated substantially all of the protective covenants contained in that
indenture. Holders who timely consented to the proposed amendments received a
consent payment equal to 1% of their principal amount of Senior Notes ($10.00
per $1,000 principal amount). In response to the Senior Notes Tender Offer,
which was consummated on July 3, 1997, the Company received tenders of, and
consents relating to, all of its outstanding Senior Notes.
Credit Facility
As part of the June Refinancing, the Company and certain of its subsidiaries
entered into the Credit Facility, dated July 3, 1997, with a group of lenders
and with Chase Bank, as administrative agent (the "Agent"), by amending and
restating its original credit facility dated May 15, 1996. Prior to the
amendment consummated in connection with the Nonwovens Acquisition, the Credit
Facility provided for aggregate borrowings of up to $325.0 million in term and
revolving commitments.
THE FNA ACQUISITION
On August 14, 1996, PGI Polymer, a Delaware corporation and wholly owned
subsidiary of the Company, acquired the business of PNA Corp., a North
Carolina corporation ("PNA"), and its wholly owned subsidiary FNA Polymer
Corp. ("FNA") (the "FNA Acquisition"). The acquisition was consummated
pursuant to the terms of a Stock Purchase Agreement dated as of July 15, 1996
among Pertropar S.A., a corporation incorporated under the laws of the Federal
Republic of Brazil, Alicorno Comercio e Servicios Lda., a corporation
incorporated under the laws of Madeira, and PGI Polymer, and was accounted for
using the purchase method of accounting. Total consideration paid in the
transaction was $48.0 million, as determined in negotiations among the parties
to the Stock Purchase Agreement, and was financed through borrowings under the
Company's Old Credit Facility (as defined) and working capital.
FNA produced and continues to produce polypropylene fabrics for the
nonwovens industry utilizing spunbond and SMS technologies. Among other assets
acquired in the FNA Acquisition, the Company purchased FNA's modern
manufacturing facility, which was built in 1992 and expanded in 1994. The FNA
Acquisition strengthened the Company's strategic position in the hygiene
materials market and broadened its offering of medical and agricultural
materials.
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INITIAL PUBLIC OFFERING AND RECAPITALIZATION
In May 1996, the Company completed the Initial Public Offering (the "Initial
Public Offering"), in which the Company offered and sold 11.5 million shares
of Common Stock at a price of $18.00 per share. 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 the Company's Class C Common Stock were exercised and the
outstanding shares of the Company's Class A-1 Common Stock, Class A-2 Common
Stock, Class A-3 Common Stock, Class B Common Stock and Class C Common Stock
were converted into a single class of Common Stock concurrently with the
Initial Public Offering. In connection with the Initial Public Offering, the
Company's Board of Directors approved an approximately 19.97 to 1 stock split.
In addition, the Company (i) effectively repaid all outstanding indebtedness
under the 1995 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, Inc. for approximately $46.9 million, and (iii) redeemed the Company
Preferred Stock (as defined) for approximately $10.5 million.
THE 1995 TRANSACTIONS
In the 1995 Transactions, the following transactions were consummated: (i)
pursuant to a Recapitalization Agreement among the Company, InterTech, GTC
Fund III, Mr. Zucker, Mr. Boyd, Chase Manhattan Investment Holdings, Inc. and
FTG, (a) GTC Fund III exchanged 1,207,767 shares of existing Class A Common
Stock for 111,825 shares of Class A-1 Common Stock, 115,000 shares of Class A-
3 Common Stock, and 185,902 shares of new Class B Common Stock, (b) CMIHI
exchanged 81,000 shares of existing Class A Common Stock and 10,835 shares of
existing Class B Common Stock of the Company, par value $.01 per share, for
17,248 shares of Class A-1 Common Stock and 14,136 shares of Class B Common
Stock, (c) InterTech exchanged 111,236 shares of existing Class A Common Stock
for 46,760 shares of Class B Common Stock, (d) FTG exchanged 36,385 shares of
existing Class A Common Stock for 15,295 shares of Class B Common Stock, (e)
Mr. Zucker exchanged 51,864 shares of existing Class A Common Stock for 21,802
shares of Class B Common Stock, and (f) Mr. Boyd exchanged 17,287 shares of
existing Class A Common Stock for 7,267 shares of new Class B Common Stock;
(ii) pursuant to a Stock Purchase Agreement, (a) GTC Fund III purchased 78,452
shares of Class A-1 Common Stock for $9.0 million in cash, (b) InterTech
purchased 163,655 shares of Class B Common Stock for $8,675,000 in cash, (c)
CMIHI purchased 8,584 shares of Class A-1 Common Stock and 35,000 shares of
Class A-2 Common Stock for $5.0 million in cash, and (d) each of Leeway & Co.
("Leeway") and the California Public Employees' Retirement System ("CalPERS")
purchased 26,150 shares of Class A-1 Common Stock for $3.0 million in cash;
(iii) pursuant to the Chicopee Management Agreements, (a) Mr. Zucker purchased
61,809 shares of Class B Common Stock in exchange for 100,663 shares of
existing Class A Common Stock and $993,750 in cash, and (b) Mr. Boyd purchased
20,603 shares of Class B Common Stock in exchange for 33,553 shares of
existing Class A Common Stock and $331,250 in cash; and (iv) Leeway, CalPERS,
Chicopee and the Company entered into a Securities Purchase Agreement pursuant
to which each of Leeway and CalPERS purchased 20,000 shares of Preferred Stock
of Chicopee for $19,550,000 in cash and, for $250,000 in cash, warrants to
purchase 35,500 shares of the Company's Class C Common Stock.
In connection with the 1995 Transactions, the Company, GTC Fund III,
InterTech, Mr. Zucker, Mr. Boyd, FTG, CMIHI, Leeway and CalPERS (collectively,
the "Stockholders") entered into an Amended and Restated Stockholders
Agreement, which (i) provides for the designation of the Board, (ii) imposes
certain restrictions on transfer of shares of the Company, (iii) requires the
Company to offer the Company to offer shares to the Stockholders under certain
circumstances upon authorization of an issuance or sale of shares, (iv) grants
the Stockholders certain participation rights in connection with a
74
sale of shares and (v) imposes certain restrictive covenants on the Company
regarding fundamental corporate transactions. The Amended and Restated
Stockholders Agreement was terminated concurrently with the Initial Public
Offering.
In connection with the 1995 Transactions, the Company and the Stockholders
entered into an Amended and Restated Registration Agreement, pursuant to which
the Stockholders have the right, in certain circumstances and subject to
certain conditions, to require the Company to register shares of the Company's
Common Stock held by them under the Securities Act of 1933. Under the
Registration Agreement, except in certain limited circumstances, the Company
is obligated to pay all expenses in connection with such registration.
RIGHT OF FIRST REFUSAL, REGISTRATION AGREEMENT AND VOTING AGREEMENT
In June 1994, Messrs. Zucker and Boyd entered into an agreement with the
Corporation pursuant to which Messrs. Zucker and Boyd granted to the
Corporation the prior right to acquire any business identified by either of
them (while employed by the Corporation), or their affiliates, engaged in, or
planning 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 Corporation. To the extent the Corporation
does not elect to pursue any such acquisition, Messrs. Zucker and Boyd are
free to acquire such business. See "Risk Factors--Other Business Opportunities
and Potential Conflict of Interest of Management."
In June 1995, the Corporation and certain of the stockholders entered into
an Amended and Restated Registration Agreement, pursuant to which such
stockholders have the right, in certain circumstances and subject to certain
conditions, to require the Corporation to register shares of the Corporation's
Common Stock held by them under the Securities Act of 1933. Under the
Registration Agreement, except in certain limited circumstances, the
Corporation is obligated to pay all expenses in connection with such
registration.
In May 1996, certain of the Corporation's stockholders entered into an
agreement (the "Voting Agreement") providing, among other things, for the
nomination and voting for up to six directors of the Corporation by such
stockholders. As of June 1, 1998, such stockholders owned approximately 47.8%
of the outstanding Common Stock of the Corporation. Under the Voting
Agreement, each of the stockholders thereto has agreed to vote its shares in
favor of the Corporation's Chief Executive Officer and Executive Vice
President, two nominees designated by GTC Fund III and two outside directors
to be jointly designated by GTC Fund III and InterTech. 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 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 Corporation and thus, if acting in unison or in various combinations,
could likely elect a majority of the directors of the Corporation even if the
Voting Agreement were not in place.
OTHER TRANSACTIONS
The Corporation'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
Corporation. Such amounts approximated $1.8 million during 1997.
On September 1, 1993, ConX, Inc. ("ConX"), a subsidiary of InterTech,
acquired a manufacturing facility in Vineland, New Jersey for the benefit of
Technetics Group, Inc. ("Technetics"), a wholly owned subsidiary of FiberTech,
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
75
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 Corporation authorized and issued 10,000 shares of
the Corporation's Redeemable Preferred Stock (the "Company Preferred Stock")
to ConX II for $10.0 million in cash. Of the $10.0 million purchase price, an
aggregate of $4.0 million was loaned to ConX II by InterTech, ZB Holdings 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 Redeemable
Preferred Stock was redeemed by the Corporation in May 1996, at a price of $10
million, plus accrued but unpaid interest of $500,000.
INVESTMENT BANKING SERVICES AND RELATIONSHIP TO CREDIT FACILITY
Chase and its affiliates perform various investment banking and commercial
banking services on a regular basis for the Corporation and its affiliates.
Mr. McGovern is a Managing Director in the Global Investment Banking Division
of Chase. Chase is an affiliate of Chase Bank, which is agent bank and a
lender to the Corporation under the Amended Credit Facility. Chase acted as
Initial Purchaser for the Initial Offering and for the June 1997 offering of
the Corporation's 9% Notes, and as Dealer Manager and Solicitation Agent for
the June 1997 12 1/4% Senior Notes Tender Offer and Consent Solicitation. In
addition, Chase acted as Dealer Manager and Solicitation Agent in connection
with DT USA's 2003 Tender Offer and 2006 Tender Offer in December 1997, and as
the Dealer Manager for DT Acquisition's Dominon Tender Offer in the United
States.
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 acted as Solicitation Agent in connection
with the solicitation of such consents. Chase also acted as co-manager and
representative in the Initial Public Offering. In connection therewith, Chase
received customary fees and discounts, and was indemnified against certain
liabilities, including liabilities under the Securities Act.
Chase Bank acted as agent and lender under the Old Credit Facility and the
1995 FiberTech and Chicopee credit facilities. As previously noted, Chase Bank
acts as lender and agent under the Amended Credit Facility. For each such
facility, Chase Bank received or will receive customary syndication fees,
commitment fees and annual agency fees. Chase Bank also acted as solicitation
agent in connection with the 1995 solicitation of consents from holders of the
Senior Notes relating to the Chicopee Acquisition, and as private placement
agent for Chicopee's Redeemable Preferred Stock and Warrants to Purchase Class
C Common Stock. In connection therewith, Chase Bank received customary fees
and discounts, and was indemnified against certain liabilities, including
liabilities under the Securities Act.
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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 five 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 June 1, 1998, except as
otherwise indicated.
COMMON STOCK
---------------------
NUMBER OF PERCENT OF
NAME SHARES(1) CLASS(2)
- ---- ---------- ----------
Jerry Zucker(3)(4)(5).................................... 6,952,727 21.7%
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......................................... 10,000 *
Michael J. McGovern...................................... 0 *
John F. ("Jack") Ruffle.................................. 5,000 *
L. Glenn Orr, Jr......................................... 1,000 *
S. Grant Reeves.......................................... 4,000 *
Thomas E. Phillips....................................... 1,500 *
James L. Schaeffer....................................... 5,000 *
Gregg Wilkinson.......................................... 100 *
Leeway & Co.(5)(9)....................................... 795,838 2.5
First Pacific Advisors, Inc.(10)......................... 3,607,000 11.3
All directors and executive officers as a group (13
persons)(11)............................................ 14,595,694 45.5
- --------
(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.
(3) Includes 3,082,979 shares held by Mr. Zucker, 4,080 held by Mr. Zucker's
wife, 4,460 held in trust for Mr. Zucker's children, 3,599,557 shares
held by InterTech, and 261,651 shares held by FTG, Inc. ("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") would acquire
additional shares of Common Stock from Golder, Thoma, Cressey Fund III
Limited Partnership ("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.
77
(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 Leeway & Co. is c/o State Street Bank and Trust Co.,
Master Trust Division--Q4W, P.O. Box 1992, Boston, MA 02110.
(10) First Pacific Advisors, Inc. reported as of December 31, 1997, shared
voting power over 1,360,000 shares and shared dispositive power over
3,607,000 shares. FPA Paramount Fund, Inc. reported sole voting power
over 2,037,000 shares and shared dispositive power over 2,037,000 shares.
The information set forth herein is based solely on Form 13Gs filed by
such entities for the year ended December 31, 1997. The address for such
entities, as so reported, was 11400 West Olympic Boulevard, Suite 1200,
Los Angeles, CA 90064.
(11) Includes shares held by GTC Fund III, InterTech and FTG.
78
DESCRIPTION OF CERTAIN INDEBTEDNESS
AMENDED CREDIT FACILITY
General. In connection with the Nonwovens Acquisition, the Company, the
other "Borrowers" named therein and the "Domestic Non-Borrower Guarantors"
named therein entered into the Amended Credit Facility (the "Amended Credit
Facility") with a group of lenders (the "Lenders") and with Chase Bank, as
Agent, by amending the Credit Facility. The Amended Credit Facility provides
for secured revolving credit borrowings with aggregate commitments of up to
$325,000,000 and a term loan of $125,000,000. Subject to certain terms and
conditions set forth in the Amended Credit Facility, a portion of the Amended
Credit Facility may be used for letters of credit. A portion of the Amended
Credit Facility may be denominated in Dutch guilders and in Canadian dollars.
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.
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
domestic subsidiaries of the Company and of certain non-domestic 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 or one of
its subsidiaries by non-domestic subsidiaries.
Maturity; Prepayment. The revolving credit portion of the Amended Credit
Facility terminates in June 2003. The term loan portion terminates in December
2005. 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 based on, in the case of U.S. dollar denominated loans, the
Base Rate referred to therein or the Eurocurrency Base Rate referred to
therein for U.S. dollars, at the Company's option, plus a specified margin. In
the event that a portion of the Amended Credit Facility is denominated in
Dutch guilders, the applicable interest rate is based on the applicable
Eurocurrency Base Rate referred to therein for Dutch guilders, plus a
specified margin. In the event that a portion of the Amended Credit Facility
is denominated in Canadian dollars, the applicable interest rate is based on
the Canadian Base Rate referred to therein (plus a specified margin) or the
Bankers' Acceptance Discount Rate referred to therein at the Company's option.
The applicable margin for loans bearing interest based on the Base Rate or
Canadian Base Rate will range from 0% to 1.25% and for loans bearing interest
on a Eurocurrency Rate will range from 0.75% to 2.50%, 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.
9% NOTES
On July 3, 1997, the Company issued the Privately Placed Notes to Chase in a
transaction not registered under the Securities Act in reliance upon an
exemption under the Securities Act pursuant to the 9% Notes Indenture. Chase
subsequently placed the Privately Placed Notes with qualified institutional
buyers in reliance on Rule 144A under the Securities Act. The Privately Placed
Notes accrued interest from their original issuance date at the rate of 9% per
annum, and had substantially similar provisions as the Notes with respect to
redemption (including optional redemption in the first three years in
connection with one or more Public Equity Offerings (as defined herein)),
changes in control, ranking, Asset Sales (as defined herein) and other
restrictive covenants. The Privately Placed Notes were unsecured senior
subordinated obligations of the Company and were subordinated in right of
payment to all existing and future Senior Indebtedness of the Company.
79
On September 3, 1997, pursuant to its Registration Statement on Form S-4
(Reg. No. 333-32605), the Company offered to exchange $1,000 principal amount
of the 9% Notes for each $1,000 principal amount outstanding of the Privately
Placed Notes (the "September Exchange Offer"). The September Exchange Offer
was undertaken to comply with certain Registration Rights granted to holders
of the Privately Placed Notes in connection with the June Offering pursuant to
the Registration Rights Agreement dated July 3, 1997. The form and terms of
the 9% Notes exchanged in the September Exchange Offer are the same as the
form and terms of the Privately Placed Notes (which they replaced) except that
(i) the 9% Notes bear a Series B designation, (ii) the 9% Notes have been
registered under the Securities Act and, therefore, do not bear legends
restricting the transfer thereof, and (iii) the holders of the 9% Notes are
not entitled to any registration rights. The September Exchange Offer was
consummated on October 3, 1997, with all $400 million principal amount of
Privately Placed Notes being tendered for exchange. As a result, the Company
currently has $400 million of 9% Notes outstanding; no Privately Placed Notes
remain outstanding.
The 9% Notes Indenture contains several covenants, including: limitations on
indebtedness; limitations on certain restricted payments; limitations on
transactions with affiliates; restrictions on the disposition of proceeds of
asset sales; limitations on liens; limitations on dividend and other payment
restrictions affecting certain subsidiaries; limitations on guarantees by
certain subsidiaries; and limitations on mergers, sales of assets, etc.
Reference is made to the 9% Notes Indenture, which was filed as an Exhibit to
the Registration Statement for a complete description of such covenants.
2003 NOTES AND 2006 NOTES
On November 1, 1993, DT USA issued $150.0 million of 8 7/8% Guaranteed
Senior Notes due 2003 (the "2003 Notes") pursuant to an indenture, dated as of
November 1, 1993, among DT USA, Dominion, as the Parent Guarantor, and First
Union National Bank, as successor trustee (the "2003 Notes Indenture"). On
April 1, 1996, DT USA issued an additional $125.0 million of 9 1/4% Guaranteed
Senior Notes due 2006 (the "2006 Notes") pursuant to an indenture, dated as of
April 1, 1996, among DT USA, Dominion and First Union National Bank, as
successor trustee (the "2006 Notes Indenture"). Both the 2003 Notes and 2006
Notes are senior Indebtedness of DT USA and are guaranteed on a joint and
several basis by DT USA and Dominion. DT USA became a wholly-owned subsidiary
of Polymer Group, Inc. in connection with the Nonwovens Acquisition.
On December 23, 1997, following the initial take-up of Dominion shares by DT
Acquisition in the Dominion Tender Offer, DT USA made tender offers to
purchase any and all outstanding 2003 Notes and 2006 Notes (the "2003 Tender
Offer" and "2006 Tender Offer," respectively), and solicited consents to
certain proposed amendments to the 2003 Notes Indenture and 2006 Notes
Indenture. The tender of notes in the 2003 Tender Offer and 2006 Tender Offer
was contingent upon such holder's consent to the proposed amendments to the
2003 Notes Indenture and the 2006 Notes Indenture, until, in each case, such
time that the requisite number of consents to approve the proposed amendments
had been obtained and a supplemental indenture relating thereto had been
executed. The proposed amendments eliminated substantially all of the
protective covenants in each of the 2003 Notes Indenture and the 2006 Notes
Indenture.
The total consideration offered for each validly tendered 2003 Note and
properly delivered consent was $1,065.32, which was equal to the present value
of $1,043.75 (the amount for which each 2003 Note could be repurchased at
November 1, 1998, its earliest call date) and any interest payments due from
the payment date to such call date, discounted using the yield rate of a
chosen reference security plus a fixed spread. The total consideration offered
for each validly tendered 2006 Note and properly delivered consent was
$1,138.50, which was equal to the present value of $1,046.25 (the amount for
80
which each 2003 Note could be repurchased at April 1, 2001, its earliest call
date), and any interest payments due from the payment date to such call date,
discounted using the yield rate of a chosen reference security plus a fixed
spread. Holders who tendered in the 2003 Tender Offer and the 2006 Tender
Offer prior to each respective expiration date for consents also received a
consent payment equal to 1% of the outstanding principal amount of notes
tendered (included in the total consideration described above).
On January 16, 1998, DT USA made a separate, unconditional offer to purchase
any and all outstanding 2003 Notes at a price equal to 101% of their aggregate
principal amount (the "Change of Control Offer"). The Change of Control Offer
was made solely for the purpose of satisfying certain provisions of the 2003
Indenture, which required such an offer to be made within 30 days of a change
in control of DT USA or Dominion. DT USA accepted for repayment $25,000 of
2003 Notes in the Change of Control Offer, which expired on March 17, 1998.
On January 28, 1998, the expiration date for the 2003 Tender Offer and the
2006 Tender Offer, DT USA accepted for repurchase $145.6 million of 2003 Notes
and $124.5 million of 2006 Notes. DT USA currently has $4.4 million aggregate
principal amount of 2003 Notes and $0.3 million aggregate principal amount of
2006 Notes outstanding. DT USA intends to exercise its rights under Article IV
of the 2003 Notes Indenture and Article IV of the 2006 Notes Indenture to
satisfy and discharge the 2003 Notes and the 2006 Notes at the permitted times
described therein.
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 could 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 Credit Facility.
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
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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 June Refinancing, the Company repurchased the remaining $100 million of
outstanding Senior Notes in connection with the Senior Notes Tender Offer and
Consent Solicitation. See "Recent Transactions--The June Refinancing."
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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 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 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 at 88 Pine 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.
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
April 4, 1998, the Company had approximately $252.0 million of Senior
Indebtedness outstanding (exclusive of unused commitments). All debt incurred
under the Amended Credit Facility is Senior Indebtedness of the Company, is
guaranteed by each of the Guarantors (except Fabrene Group) on a senior basis
and is secured by substantially all of the assets of the Company and such
Guarantors.
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes will be limited to $200.0 million aggregate principal amount and
will mature on March 1, 2008. Cash interest on the Notes will accrue at a rate
of 8 3/4% per annum and will be payable semi-annually in arrears on each March
1 and September 1, commencing September 1, 1998, to the holders of record of
Notes at the close of business on February 15 and August 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 March 5, 1998. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
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OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after March 1, 2003, 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 March 1 of the years indicated below:
REDEMPTION
YEAR PRICE
---- ----------
2003.......................... 104.375%
2004.......................... 102.917%
2005.......................... 101.458%
2006 and thereafter........... 100.000%
In addition, at any time and from time to time on or prior to March 1, 2001,
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 108.75% 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.
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.
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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.
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
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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 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
86
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).
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, the 9% Notes and other Indebtedness on
the Issue Date;
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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)
(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 October 1, 1997 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
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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 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 $75.0 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.
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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 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
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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.
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.
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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 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
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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) 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
93
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 $40.0 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 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.
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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.
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,
95
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 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
96
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 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
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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 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
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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.
"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.
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"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 Amended, Restated and Consolidated
Credit Agreement, dated as of July 3, 1997, as amended as of July 3, 1997 and
January 29, 1998, 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 further 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) 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.
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"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 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
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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 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
102
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 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, (B) with respect to foreign joint ventures, to the extent that
cash is available for distribution (without restriction and not committed for
other purposes) during such period to the Company or a Restricted Subsidiary
as a dividend or other distribution, but is not distributed due to adverse tax
or other business reasons, such cash shall be included and (C) 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
103
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.
"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.
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"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 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;
105
(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 9% 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, 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
106
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.
"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
107
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 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
108
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 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
109
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.
"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.
110
"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 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 9% 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.
111
"Senior Subordinated Indebtedness" means the Notes, the 9% Senior
Subordinated Notes, Series B due 2007 of the Company 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.
"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.
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"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 Old Notes offered and sold in connection with the Initial Offering were
sold solely to "qualified institutional buyers," as defined in Rule 144A under
the Securities Act ("QIBs"), pursuant to Rule 144A. Following the Initial
Offering of the Old Notes, the Old Notes may have been sold to QIBs pursuant
to Rule 144A, to persons other than "U.S. persons" (as defined in Regulation S
under the Securities Act) in reliance on Regulation S and pursuant to other
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act including sales to institutional
"accredited investors," as defined in Rule 501(a)(1), (2), (3) and (7) under
the Securities Act ("Institutional Accredited Investors"), that are not QIBs.
THE GLOBAL NOTES
Rule 144A Global Note. The Old Notes offered and sold in the Initial
Offering were sold to QIBs pursuant to Rule 144A and were issued in the form
of one or more registered notes in global form, without interest coupons
(collectively, the "Rule 144A Global Note"). The Rule 144A Global Note was
deposited on the date of issuance of the sale of the Notes with, or on behalf
of, The Depository Trust Company ("DTC") and registered in the name of Cede &
Co., as nominee of DTC, but remains in the custody of the Trustee pursuant to
the FAST Balance Certificate Agreement between DTC and the Trustee.
Exchange Offer Global Note. The Exchange Notes offered hereby will be issued
in the form of one or more registered notes in global form, without interest
coupons (collectively, the "Exchange Offer Global Note"). The Exchange Offer
Global Note will be deposited upon issuance with, or on behalf of, a custodian
for DTC and held in the custody of the Trustee in the manner described in the
preceding paragraph for credit to the respective accounts of the holders.
Except as set forth below, the Rule 144A Global Note and the Exchange Offer
Global Note (collectively, the "Global Notes") may be transferred, in whole
and not in part, solely to another nominee of DTC or to a successor of DTC or
its nominee. Beneficial interests in the Global Notes may not be exchanged for
Notes in physical, certificated form ("Certificated Notes") except in the
limited circumstances described below.
All interests in the Global Notes may be subject to the procedures and
requirements of DTC.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC set forth below are
provided solely as a matter of convenience. These operations and procedures
are solely within the control of DTC and are subject to change by DTC from
time to time. The Company takes no responsibility for these operations or
procedures, and investors are urged to contact DTC or its participants
directly to discuss these matters.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking
organization" within the meaning of the New York Banking Law, (iii) a member
of the Federal Reserve System, (iv) a "clearing corporation" within the
meaning of the Uniform Commercial Code, as amended, and (v) a "clearing
agency" registered pursuant to Section 17A of the Exchange Act. DTC was
created to hold securities for its participants
113
(collectively, the "Participants") and facilitates the clearance and
settlement of securities transactions between Participants through electronic
book-entry changes to the accounts of its Participants, thereby eliminating
the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers, banks and trust
companies, clearing corporations and certain other organizations. Indirect
access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Investors who are not Participants
may beneficially own securities held by or on behalf of DTC only through
Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of a Global Note, DTC will credit the accounts of Participants with an
interest in the Global Note and (ii) ownership of the Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the interests of Participants) and the
records of Participants and the Indirect Participants (with respect to the
interests of persons other than Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its Participants, who in turn act on behalf of persons who
hold interests through Participants, the ability of a person having an
interest in Notes represented by a Global Note to pledge or transfer such
interest to persons or entities that do not participate in DTC's system, or to
otherwise take actions in respect of such interest, may be affected by the
lack of a physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by the Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any direction, instruction or approval to the Trustee
thereunder. Accordingly, each holder owning a beneficial interest in a Global
Note must rely on the procedures of DTC and, if such holder is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such holder owns its interest, to exercise any rights of a
holder of Notes under the Indenture or such Global Note. The Company
understands that under existing industry practice, in the event that the
Company requests any action of holders of Notes, or a holder that is an owner
of a beneficial interest in a Global Note desires to take any action that DTC,
as the holder of such Global Note, is entitled to take, DTC would authorize
the Participants to take such action and the Participants would authorize
holders owning through such Participants to take such action or would
otherwise act upon the instruction of such holders. Neither the Company nor
the Trustee will have any responsibility or liability for any aspect of the
records relating to or payments made on account of Notes by DTC, or for
maintaining, supervising or reviewing any records of DTC relating to such
Notes.
Payments with respect to the principal of, and premium, if any, interest and
Additional Interest, if any, on, any Notes represented by a Global Note
registered in the name of DTC or its nominee on the applicable record date
will be payable by the Trustee to or at the direction of DTC or its nominee in
its capacity as the registered holder of the Global Note representing such
Notes under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names the Notes, including the
Global Notes, are registered as the owners thereof for the purpose of
receiving payment thereon and for any and all other purposes whatsoever.
Accordingly, neither the
114
Company nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to owners of beneficial interests in a Global Note
(including principal, premium, if any, interest and Additional Interest, if
any). Payments by the Participants and the Indirect Participants to the owners
of beneficial interests in a Global Note will be governed by standing
instructions and customary industry practice and will be the responsibility of
the Participants or the Indirect Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures and will be settled in same-day funds.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of Notes in definitive form under the Indenture or (iii) upon the occurrence
of certain other events as provided in the Indenture, then, upon surrender by
DTC of the Global Notes, Certificated Notes will be issued to each person that
DTC identifies as the beneficial owner of the Notes represented by the Global
Notes. Upon any such issuance, the Trustee is required to register such
Certificated Notes in the name of such person or persons (or the nominee of
any thereof) and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners
of the related Notes and each such person may conclusively rely on, and shall
be protected in relying on, instructions from DTC for all purposes (including
with respect to the registration and delivery, and the respective principal
amounts, of the Notes to be issued).
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: March 5, 1998, the closing date of the Initial Offering of the
Old Notes.
Effectiveness Date: The 210th 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 prior to the 210th 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 35th 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 35 days, the Expiration Date shall mean the last
date of such period.
Filing Date: The 90th 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 90th
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.
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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 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 March 5, 1998 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 have agreed 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 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")) 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 have agreed to 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").
116
(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").
(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
117
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 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 va lidly 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 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.
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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, $200,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
June 25, 1998 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.
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
August 5, 1998, 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 issue a press
release with the announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date.
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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 (via press release or otherwise) 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 September 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 March 1 and
September 1, commencing on September 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 in 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 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
below 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.
By executing the Letter of Transmittal (or an Agent's Message thereof), each
holder will make to the Company the representations set forth below in the
second paragraph under the heading "--Resale of the Exchange Notes."
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.
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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 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 Issuer, 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
121
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 of
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 upon 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.
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
122
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 determine 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.
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: By Hand or Overnight Courier:
c/o Harris Trust Company of New York c/o Harris Trust Company of New York
Wall Street Station Receive Window
P.O. Box 1023 Wall Street Plaza
New York, NY 10268-1023 88 Pine Street, 19th Floor
New York, NY 10005
Facsimile Transmission:
(for Eligible Institutions Only)
(212) 701-7636 or 7637
For Information Telephone (call collect):
(212) 701-7624
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
123
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 face value, the same carrying value
as the Old Notes 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. The 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 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
124
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 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 will 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
125
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 September 30, 1998, (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.
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 of Polymer Group, Inc. included herein
and appearing in Polymer Group, Inc.'s Annual Report (Form 10-K) as of January
3, 1998 and December 28, 1996 and for each of the three years ended January 3,
1998 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, including the financial statement schedule,
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
The combined financial statements of the Nonwovens Business as of June 30,
1997 and 1996, and for the three years ended June 30, 1997 included in this
Prospectus have been audited by Deloitte & Touche ("Deloitte & Touche"),
chartered accountants, as stated in their report appearing herein. The
combined financial statements of the Nonwovens Business as of September 30,
1997 and for the three months ended September 30, 1997 and 1996 have been
reviewed by Deloitte & Touche.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
In connection with the Nonwovens Acquisition on January 29, 1998, the
Company appointed Ernst & Young LLP, independent auditors, as independent
accountants for the subsidiaries comprising the Nonwovens Business to replace
Deloitte & Touche, whom the Company dismissed as of January 29, 1998.
126
During the two fiscal years prior to the Nonwovens Acquisition, there were
no disagreements with Deloitte & Touche on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure
nor did Deloitte & Touche's reports on the financial statements for such
period contain an adverse opinion or disclaimer of opinion, nor were such
reports qualified or modified as to uncertainty, audit scope or accounting.
Deloitte & Touche has been provided with a copy of this disclosure and
requested by the Company to furnish a letter addressed to the Commission
stating whether they agree with the above statements. A copy of Deloitte &
Touche's letter to the Commission is filed as an exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended January 3, 1998.
127
POLYMER GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
POLYMER GROUP, INC.
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheets as of January 3, 1998 and December 28, 1996.. F-3
Consolidated Statements of Operations for the fiscal years ended January
3, 1998, December 28, 1996 and December 30, 1995........................ F-4
Consolidated Statements of Shareholders' Equity for the fiscal years
ended January 3, 1998, December 28, 1996 and December 30, 1995.......... F-5
Consolidated Statements of Cash Flows for the fiscal years ended January
3, 1998, December 28, 1996 and December 30, 1995........................ F-6
Notes to Consolidated Financial Statements for the fiscal years ended
January 3, 1998, December 28, 1996 and December 30, 1995................ F-7
Condensed Consolidated Balance Sheets as of April 4, 1998 (unaudited) and
January 3, 1998 ........................................................ F-36
Consolidated Statements of Operations (unaudited) for the three months
ended
April 4, 1998 and March 29, 1997........................................ F-37
Condensed Consolidated Statements of Cash Flows (unaudited) for the three
months
ended April 4, 1998 and March 29, 1997.................................. F-38
Notes to Consolidated Financial Statements (unaudited) for the three
months ended
April 4, 1998 and March 29, 1997........................................ F-39
NONWOVENS BUSINESS
Report of Deloitte & Touche, Chartered Accountants....................... F-44
Combined Balance Sheets as of June 30, 1997 and 1996..................... F-45
Combined Statements of Income and Deficit for the fiscal years ended
June 30, 1997, 1996 and 1995.......................................... F-46
Combined Statements of Cash Flows for the fiscal years ended
June 30, 1997, 1996 and 1995.......................................... F-47
Basis of Presentation, Significant Accounting Policies and Notes to
Combined Financial Statements for the fiscal years ended June 30,
1997, 1996 and 1995..................................................... F-48
Condensed Combined Statements of Income and Deficit (unaudited) for the
three months ended September 30, 1997 and 1996.......................... F-64
Condensed Combined Balance Sheets as of September 30, 1997 (unaudited)
and
June 30, 1997......................................................... F-65
Condensed Combined Statements of Cash Flows (unaudited) for the three
months
ended September 30, 1997 and 1996..................................... F-66
Basis of Presentation for the three months ended
September 30, 1997 and 1996........................................... F-67
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 January 3, 1998 and December 28, 1996 and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended January 3, 1998. 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 January 3, 1998 and December 28, 1996 and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended January 3, 1998 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Greenville, South Carolina
March 25, 1998
F-2
POLYMER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JANUARY 3, DECEMBER 28,
ASSETS 1998 1996
------ ---------- ------------
Current assets:
Cash and equivalents................................ $ 50,190 $ 37,587
Marketable securities............................... 7,754 10,892
Accounts receivable, net............................ 107,328 64,752
Inventories......................................... 94,128 55,637
Deferred income taxes............................... 4,161 5,172
Assets held for disposition, net.................... 464,524 --
Other............................................... 26,985 10,387
---------- --------
Total current assets.............................. 755,070 184,427
Property, plant and equipment, net.................... 606,260 406,527
Intangibles, loan acquisition and organization costs,
net.................................................. 229,391 96,932
Deferred income taxes................................. 9,183 10,741
Other................................................. 27,849 9,488
---------- --------
Total assets...................................... $1,627,753 $708,115
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................... $ 52,165 $ 36,059
Accrued liabilities................................. 52,133 33,130
Income taxes payable................................ 1,242 1,196
Deferred income taxes............................... 284 1,391
Short-term bridge financing......................... 425,945 --
Current portion of long-term debt................... 3,276 19,497
---------- --------
Total current liabilities......................... 535,045 91,273
Long-term debt, less current portion.................. 741,860 362,745
Deferred income taxes................................. 82,213 52,115
Other noncurrent liabilities.......................... 14,815 6,064
Minority interest..................................... 54,730 --
Shareholders' equity:
Series preferred stock--$.01 par value, 10,000,000
shares authorized at 1997 and 1996; 0 shares issued
and outstanding at 1997 and 1996................... -- --
Common stock--$.01 par value, 100,000,000 shares
authorized at 1997 and 1996; 32,000,000 shares
issued and outstanding at 1997 and 1996............ 320 320
Non-voting common stock--$.01 par value; 3,000,000
shares authorized at 1997 and 1996; 0 shares issued
and outstanding at 1997 and 1996................... -- --
Additional paid-in capital.......................... 243,662 243,662
(Deficit)........................................... (39,355) (54,783)
Cumulative translation adjustment................... (5,544) 6,790
Unrealized holding gain (loss) on marketable
securities......................................... 7 (71)
---------- --------
199,090 195,918
---------- --------
Total liabilities and shareholders' equity........ $1,627,753 $708,115
========== ========
See accompanying notes.
F-3
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE FISCAL YEARS ENDED
-----------------------------------
JANUARY
3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
-------- ------------ ------------
Net sales................................. $535,267 $521,368 $437,638
Cost of goods sold........................ 402,058 389,013 333,606
-------- -------- --------
Gross profit.............................. 133,209 132,355 104,032
Selling, general and administrative
expenses................................. 74,600 70,207 61,744
-------- -------- --------
Operating income.......................... 58,609 62,148 42,288
Other (income) expense:
Interest expense, net................... 30,499 33,641 37,868
Investment income--(gain) on marketable
securities, net........................ (11,880) -- --
Foreign currency transaction (gains)
losses, net............................ (452) 2,955 22,811
-------- -------- --------
18,167 36,596 60,679
-------- -------- --------
Income (loss) before income taxes and
extraordinary item....................... 40,442 25,552 (18,391)
Income taxes.............................. 13,009 10,730 5,216
-------- -------- --------
Income (loss) before extraordinary item... 27,433 14,822 (23,607)
Extraordinary item, loss from
extinguishment of debt, net of income tax
benefit of $5,959 in 1997 ($7,492 in
1996).................................... (12,005) (13,932) --
-------- -------- --------
Net income (loss)......................... 15,428 890 (23,607)
Redeemable preferred stock dividends and
accretion................................ -- (3,020) (4,839)
-------- -------- --------
Net income (loss) applicable to common
stock.................................... $ 15,428 $ (2,130) $(28,446)
======== ======== ========
Net income (loss) per common share:
Basic:
Average common shares outstanding..... 32,000 27,688 20,500
Income (loss) before extraordinary
item................................. $ .86 $ .43 $ (1.39)
Extraordinary item, net of income tax
benefit.............................. (.38) (.51) --
-------- -------- --------
Net income (loss) per common share--
basic................................ $ .48 $ (.08) $ (1.39)
======== ======== ========
Diluted:
Average common shares outstanding..... 32,000 27,688 20,500
Income (loss) before extraordinary
item................................. $ .86 $ .43 $ (1.39)
Extraordinary item, net of income tax
benefit.............................. (.38) (.51) --
-------- -------- --------
Net income (loss) per common share--
diluted.............................. $ .48 $ (.08) $ (1.39)
======== ======== ========
See accompanying notes.
F-4
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JANUARY 3, 1998, DECEMBER 28, 1996 AND DECEMBER 30,
1995
(IN THOUSANDS, EXCEPT SHARE DATA)
UNREALIZED
HOLDING GAIN
ADDITIONAL CUMULATIVE (LOSS) ON
COMMON PAID-IN TRANSLATION MARKETABLE
STOCK CAPITAL (DEFICIT) ADJUSTMENT SECURITIES TOTAL
------ ---------- --------- ----------- ------------- --------
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
Net income.............. -- -- 15,428 -- -- 15,428
Foreign currency
translation
adjustments............ -- -- -- (12,334) -- (12,334)
Unrealized holding gain
on marketable
securities............. -- -- -- -- 78 78
---- -------- -------- -------- ----- --------
Balance--January 3,
1998................... $320 $243,662 $(39,355) $ (5,544) $ 7 $199,090
==== ======== ======== ======== ===== ========
See accompanying notes.
F-5
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE FISCAL YEARS ENDED
------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
---------- ------------ ------------
Operating activities
Net income (loss)....................... $ 15,428 $ 890 $ (23,607)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Extraordinary item, net of income tax
benefit................................ 12,005 13,932 --
Depreciation and amortization expense... 40,312 36,767 29,834
Foreign currency transaction (gains)
losses, net............................ (452) 2,955 22,811
Gain on marketable securities classified
as trading, net........................ (11,880) -- --
Provision for losses on accounts
receivable and price concessions....... 7,337 9,060 5,788
Provision for deferred income taxes..... 5,985 7,831 (1,375)
Changes in operating assets and
liabilities, net of effect of
acquisitions:
Accounts receivable................... (19,157) (11,966) (16,160)
Inventories........................... (6,453) (6,353) (7,799)
Accounts payable and accrued expenses. (4,304) (5,860) (2,666)
Other, net............................ (20,459) (11,159) 4,730
-------- --------- ---------
Net cash provided by operating
activities......................... 18,362 36,097 11,556
Investing activities
Purchases of property, plant and
equipment.............................. (60,144) (26,739) (47,842)
Purchases of marketable securities
classified as available for sale....... (15,251) (22,879) (22,521)
Proceeds from sales of marketable
securities classified as available for
sale................................... 17,003 16,713 19,929
Acquisition of businesses, net of cash
acquired............................... (429,559) (52,466) (281,358)
Organization and other costs............ (3,950) (1,051) (1,416)
-------- --------- ---------
Net cash (used in) investing
activities......................... (491,901) (86,422) (333,208)
Financing activities
Issuance of common stock, net of costs
incurred............................... -- 190,838 30,000
Proceeds from debt...................... 480,846 308,277 273,654
Proceeds from short-term bridge
financing.............................. 425,945 -- --
Payments of debt........................ (402,282) (375,989) (13,638)
Issuance of redeemable preferred stock
and warrants........................... -- 10,000 40,000
Redemption of preferred stock........... -- (57,359) --
Loan acquisition, debt prepayment and
other costs, net....................... (18,556) (11,376) (2,380)
-------- --------- ---------
Net cash provided by financing
activities......................... 485,953 64,391 327,636
Effect of exchange rate changes on cash... 189 5,433 (1,724)
-------- --------- ---------
Net increase in cash and
equivalents........................ 12,603 19,499 4,260
Cash and equivalents at beginning of
year............................... 37,587 18,088 13,828
-------- --------- ---------
Cash and equivalents at end of year. $ 50,190 $ 37,587 $ 18,088
======== ========= =========
Noncash investing and financing activities
Cumulative dividends on redeemable
preferred stock and accretion.......... $ -- $ 3,020 $ 4,839
Approximate 19.97 to 1 stock split...... -- 194 --
Supplemental information
Cash paid for interest.................. 40,768 38,111 43,186
Cash paid for income taxes.............. 7,419 6,602 5,027
Acquisition of businesses
Fair value of assets acquired........... 391,920 61,946 358,814
Fair value of assets acquired--held for
disposition............................ 464,524 -- --
Liabilities assumed and incurred........ (426,885) (9,480) (77,456)
Acquisition of businesses, net of cash
acquired............................... 429,559 52,466 281,358
See accompanying notes.
F-6
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Polymer Group, Inc. (the "Company") operates in one business segment,
manufacturing and marketing woven and nonwoven polyolefin fabric. The
Company's principal lines of business include hygiene, medical, wiping and
industrial and specialty products. The Company operates manufacturing
facilities located in the United States, Canada, Mexico, The Netherlands,
France, Germany and England.
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements of the Company, 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 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 Company recorded minority interest in
the consolidated balance sheet of $54.7 million at January 3, 1998. This
minority interest represents the minority shareholders' interest in the
shareholders' equity of Dominion Textile Inc. ("Dominion"). 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. The
Company's investment in DNS (as defined in "Note 2. Acquisitions") is
accounted for on the equity method.
Revenue Recognition
Revenue from product sales is recognized at the time ownership of goods
transfers to the customer and the earnings process is complete.
Cash Equivalents and Interest Income
Investment securities with maturities of three months or less at the time of
acquisition are considered cash equivalents. Interest income approximated $2.4
and $1.9 million during 1997 and 1996, respectively, and consists primarily of
income from highly liquid investment sources. Interest expense in the
consolidated statements of operations is net of interest income and
capitalized interest. Interest income was not significant in 1995.
Marketable Securities
The Company accounts for its investments using Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("FAS 115"). The statement requires that certain debt and
equity securities be adjusted to market value at the end of each accounting
period. Market value gains and losses are charged to earnings if the
securities are traded for short-term profit. Otherwise, such gains and losses
are charged or credited to a separate component of shareholders' equity.
Management determines the proper classifications of investments at the time of
purchase and reevaluates such designation as of each balance sheet date. At
January 3, 1998 and December 28, 1996, all securities covered by FAS 115 were
designated as available-for-sale. Accordingly, these securities are stated at
fair value, with unrealized gains and losses reported in a separate component
of shareholders' equity. Realized gains and losses on sales of investments,
F-7
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
as determined on the specific identification basis, are included in the
determination of net income. Marketable securities as of January 3, 1998 and
December 28, 1996 consist of the following:
1997 1996
------ -------
(IN THOUSANDS)
Marketable securities (common and preferred stock):
Cost.................................................... $7,747 $10,963
Unrealized gains........................................ 7 --
Unrealized (losses)..................................... -- (71)
------ -------
Gross fair value........................................ $7,754 $10,892
====== =======
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 $5.5 and $3.8 million at
January 3, 1998 and December 28, 1996, 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 26% and 16%, respectively, of the
Company's sales in 1997. In 1996, J&J and P&G accounted for approximately 29%
and 14%, respectively, of the Company's sales. In 1995, J&J and P&G accounted
for approximately 28% and 15%, respectively, of the Company's sales.
Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out method of accounting and, as of January 3, 1998 and December 28,
1996, consist of the following:
1997 1996
------- -------
(IN THOUSANDS)
Finished goods........................................... $48,769 $26,809
Work in process and stores and maintenance parts......... 11,201 3,328
Raw materials............................................ 34,158 25,500
------- -------
Total................................................ $94,128 $55,637
======= =======
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 $1.6, $0.8 and $1.9 million of interest costs during
1997, 1996 and 1995, respectively.
F-8
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intangibles, Loan Acquisition and Organization Costs
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Assets to be
Disposed Of" ("FAS 121"). FAS 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the expected future cash flows of those assets are less than the assets'
carrying amount. FAS 121 also addresses the accounting for long-lived assets
that are expected to be sold or discarded. The Company adopted FAS 121 on
December 31, 1995. The effect of adoption was not material to the Company's
financial condition or results of operations.
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
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 discounted cash flows.
Derivatives
The Company does not use derivative financial instruments for trading
purposes. Such products are used only to manage well-defined interest rate and
certain foreign currency risks, as discussed below. Premiums paid for
purchased interest rate cap agreements are charged to expense over the rate
cap period. The Company entered into a London Interbank Offered Rate-based
interest rate cap agreement during 1996. The agreement 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 1997, such amount did not exceed 9%. Charges
to expense in 1997 and 1996 related to derivative products were not
significant.
The Company may enter into financial instruments, which are limited in
duration and scope, to manage its exposure to fluctuations of foreign currency
rates. These instruments are used for hedging purposes and are employed in
connection with an underlying asset, liability, firm commitment or anticipated
transaction. Gains and losses on hedges of existing assets and liabilities are
included in the carrying amounts of those assets or liabilities and are
ultimately recognized in income as part of those carrying amounts. Gains and
losses related to qualifying hedges of firm commitments or anticipated
transactions are also deferred and recognized in income or as adjustments of
carrying amounts when the hedged transaction occurs. Gains and losses, if any,
on financial instruments that do not qualify as hedges for accounting purposes
are recognized in the determination of net income.
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,
F-9
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, accounts payable and derivative financial
instruments 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 debt at January 3, 1998 and December 28, 1996 was $1.2 billion and
$391.2 million, respectively. During 1997, the Company utilized standby
letters of credit which collateralized the Company's debt obligations to third
parties. Outstanding standby letters of credit totaled approximately $8.7
million at January 3, 1998. The contract amounts of these letters of credit
approximate their fair value.
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.
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 $9.6, $6.9 and
$6.4 million of research and development expense during 1997, 1996 and 1995,
respectively.
Foreign Currency Translation
The assets and liabilities of the Company's Canadian and European
subsidiaries are translated into U.S. dollars at the period end exchange rates
and revenues and expenses are translated at average exchange rates during the
reporting period. At the beginning of fiscal 1997, the Company changed the
functional currency of its Mexican subsidiary to the U.S. dollar. The
cumulative inflation index in Mexico approximated 100% over a three year
period ended December 28, 1996; therefore, Mexico is considered to be a
"highly inflationary" economy in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" ("FAS 52"). As a
result of this change, the dollar-translated amounts of nonmonetary assets at
the end of fiscal 1996 became the accounting basis for those assets at the
beginning of fiscal 1997 and for subsequent periods. Additionally, the
Mexican-related cumulative translation adjustment accumulated in shareholders'
equity prior to this change in functional currency remains a separate
component of shareholders' equity.
Net Income (Loss) Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" ("FAS 128"). FAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share
F-10
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all periods
have been presented, and where appropriate, restated to conform to the FAS 128
requirements. The numerator for both basic and diluted earnings per share is
net income (loss) applicable to common stock. The denominator for both basic
and diluted earnings per share is average common shares outstanding.
Comprehensive Income
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("FAS 130") which is effective for fiscal
years beginning after December 15, 1997. FAS 130 establishes new rules for the
reporting and display of comprehensive income and its components. FAS 130
requires unrealized gains or losses on the Company's available-for-sale
securities and the foreign currency translation adjustments, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. The Company will adopt the new requirements
retroactively in the first quarter of 1998.
NOTE 2. ACQUISITIONS
On December 19, 1997, DT Acquisition Inc. ("DTA"), a special-purpose
subsidiary of the Company, completed the purchase of approximately 98% of the
outstanding common shares of Dominion for Cdn$14.50 per share and
approximately 96% of the outstanding first preferred shares of Dominion for
Cdn$150 per share. The acquisition, which was accounted for using the purchase
method of accounting, was financed with $215.9 million of borrowings under
DTA's $600.0 million senior secured credit facilities, and subordinated
advances of $141.0, $69.0, and $25.0 million by Galey & Lord, Inc. ("Galey"),
ZB Holdings, Inc. ("ZB Holdings") and the Company, respectively. ZB Holdings
is a wholly-owned subsidiary of The InterTech Group, Inc., an affiliate of the
Company.
On January 29, 1998, DTA acquired all remaining common and preferred shares,
at which time Dominion underwent a "winding up." All assets of Dominion were
transferred to DTA, all liabilities of Dominion were assumed by DTA and all
outstanding common shares and first preferred shares held by DTA were
redeemed. Immediately thereafter, pursuant to a purchase agreement dated
October 27, 1997, the apparel fabrics business of Dominion was sold to Galey
for approximately $464.5 million, including related fees and expenses, and the
Company acquired (the "Nonwovens Acquisition") the assets and liabilities of
Dominion that comprised the nonwovens and industrial fabrics operations (the
"Nonwovens Business") for approximately $351.6 million, including fees and
expenses. The Nonwovens Business includes a 50% interest in Argentina-based
Dominion Nonwovens Sudamerica S.A. ("DNS"). DNS manufactures and markets
nonwovens to hygiene markets in South America. Concurrently, Dominion Textile
(USA) Inc. ("DT USA"), a wholly-owned subsidiary of Dominion, purchased
approximately $145.6 million of its $150.0 million outstanding 8.875%
Guaranteed Senior Notes due 2003 and, at the same time, purchased
approximately $124.5 million of its $125.0 million outstanding 9.25%
Guaranteed Senior Notes due 2006 as more fully described in "Note 7. Debt."
Net assets of the apparel business of Dominion have been classified as assets
held for disposition on the Company's consolidated balance sheet at January 3,
1998. Results of operations of Dominion have not been included in the results
of the Company's consolidated financial statements, as their effect is not
considered to be material to the Company's consolidated results of operations.
F-11
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On August 14, 1996, the Company completed the acquisition (the "FNA
Acquisition") of the business of FNA Polymer Corp. ("FNA") (formerly known as
Fitesa North America) 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 following pro forma information in the table below is based on
historical financial statements of the Company, FNA and the Nonwovens Business
adjusted to give effect to the Nonwovens Acquisition, the June Refinancing (as
defined in "Note 7. Debt"), the FNA Acquisition, the IPO and the financing
thereof as if such events occurred on December 29, 1996 and December 31, 1995.
The unaudited pro forma financial information includes the results of a
business acquired by the Company in the third quarter of 1997 which is not
independently significant for disclosure purposes. In accordance with the
purchase method of accounting, the purchase price for the Nonwovens
Acquisition has been allocated to the underlying assets based on their
respective fair values at the date of the acquisition. Such allocation has
been based on preliminary estimates which may be revised at a later date. The
accompanying 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 Nonwovens Acquisition, the June Refinancing, the FNA 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
-----------------
1997 1996
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
Net sales.............................................. $748,832 $741,088
Income before extraordinary item....................... 18,247 13,956
Net income............................................. 6,242 24
Per share--basic:
Income before extraordinary item..................... $ .57 $ .44
Net income........................................... .19 --
Per share--diluted:
Income before extraordinary item..................... $ .57 $ .44
Net income........................................... .19 --
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of January 3, 1998 and December 28, 1996,
consist of the following:
1997 1996
-------- --------
(IN THOUSANDS)
Cost:
Land................................................ $ 9,288 $ 9,272
Buildings and land improvements..................... 111,031 84,089
Machinery, equipment and other...................... 527,257 365,464
Construction in progress............................ 50,228 12,915
-------- --------
697,804 471,740
Less accumulated depreciation......................... (91,544) (65,213)
-------- --------
$606,260 $406,527
======== ========
Depreciation charged to expense was $31.2, $27.2 and $21.0 million during
1997, 1996 and 1995, respectively.
F-12
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. INTANGIBLES, LOAN ACQUISITION AND ORGANIZATION COSTS
Intangibles, loan acquisition and organization costs as of January 3, 1998
and December 28, 1996, consist of the following:
1997 1996
-------- -------
(IN THOUSANDS)
Cost:
Goodwill............................................. $187,026 $61,801
Identified intangibles:
Supply agreement................................... 13,431 13,431
Proprietary technology............................. 24,100 24,100
Other.............................................. 997 902
Loan acquisition costs............................... 19,063 8,302
Organization costs................................... 8,741 6,752
-------- -------
253,358 115,288
Less accumulated amortization.......................... (23,967) (18,356)
-------- -------
$229,391 $96,932
======== =======
Amortization charged to expense was $9.2, $9.6 and $8.9 million during 1997,
1996 and 1995, respectively. The approximate $125.2 million increase in
goodwill between 1997 and 1996 results primarily from the acquisition of
Dominion.
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities as of January 3, 1998 and December 28, 1996, consist of
the following:
1997 1996
------- -------
(IN THOUSANDS)
Accrued liabilities:
Interest payable....................................... $ 7,377 $ 6,778
Salaries, wages and other fringe benefits.............. 13,813 7,116
Restructuring costs.................................... 5,484 10,036
Organization costs..................................... 7,422 --
Other.................................................. 18,037 9,200
------- -------
$52,133 $33,130
======= =======
During 1995, management of the Company adopted a plan to relocate
manufacturing equipment, corporate offices and certain equipment used in an
acquired business' research and development activities to other sites in the
United States. Accordingly, the Company provided for accrued restructuring
costs of approximately $17.9 million at the time of the acquisition. During
1997, 1996, and 1995, the Company charged $6.5, $3.5 and $2.4 million,
respectively, against the accrued restructuring reserve. Substantially all of
the charges against the reserve during 1997 related to the relocation of the
acquiree's corporate offices and certain equipment. Management estimates that
the remainder of the accrued restructuring reserve, $5.5 million, will be
incurred during 1998; therefore, this amount has been recognized as a current
liability in the consolidated balance sheet.
F-13
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. 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 $1.7, $2.4 and $2.3 million in 1997, 1996 and
1995, respectively. Rental income approximated $0.6, $2.2 and $2.3 million in
1997, 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 January 3, 1998 are:
GROSS NET
MINIMUM LEASE AND MINIMUM
RENTAL SUB-LEASE RENTAL
PAYMENTS (INCOME) PAYMENTS
-------- --------- --------
(IN THOUSANDS)
1998.......................................... $ 4,595 $ (1,375) $3,220
1999.......................................... 4,192 (1,275) 2,917
2000.......................................... 4,020 (1,275) 2,745
2001.......................................... 3,797 (1,275) 2,522
2002.......................................... 2,797 (1,275) 1,522
Thereafter.................................... 3,368 (12,219) (8,851)
------- -------- ------
$22,769 $(18,694) $4,075
======= ======== ======
Purchase Commitments
At January 3, 1998, the Company had commitments of approximately $74.7,
$9.3, and $1.0 million related to the purchase of raw materials and converting
services, capital projects, and foreign currency, respectively.
Collective Bargaining Agreements
At January 3, 1998, the Company had a total of approximately 3,600 employees
worldwide. Of this total, approximately 1,600 employees are represented by
labor unions or trade councils that have entered into separate collective
bargaining agreements with the Company. Approximately 31% 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
F-14
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
NOTE 7. DEBT
Long-term debt as of January 3, 1998 and December 28, 1996, consists of the
following:
1997 1996
-------- --------
(IN THOUSANDS)
Senior Subordinated Notes, due July 2007, interest rate 9%. $400,000 $ --
Senior Notes, due July 2002, interest rate 12.25%, repaid
in full in 1997........................................... -- 100,000
Revolving Credit Facility, due July 2003, interest at rates
ranging from 7.25% to 7.5%................................ 61,569 80,894
Term Loans, Facility A, B and C; interest rate 7.25%,
repaid in full in 1997.................................... -- 199,189
DT USA Guaranteed Senior Notes, due April 2006, interest
rate 9.25%, $124.5 million tendered in January 1998....... 128,052 --
DT USA Guaranteed Senior Note due November 2003, interest
rate 8.875%, $145.6 million tendered in January 1998...... 153,288 --
Other...................................................... 8,460 2,159
-------- --------
751,369 382,242
Less: Unamortized discount on Senior Subordinated Notes.... (6,233) --
-------- --------
745,136 382,242
Less: Current maturities................................... (3,276) (19,497)
-------- --------
Total...................................................... $741,860 $362,745
======== ========
Long-term debt maturities consist of the following (in thousands):
1998.............................................................. $ 3,276
1999.............................................................. 2,181
2000.............................................................. 1,010
2001.............................................................. 735
2002.............................................................. 710
Thereafter........................................................ 737,224
The June Refinancing
On June 5, 1997, the Company commenced an offer (the "Tender Offer") to
purchase for cash its 12.25% Senior Notes due 2002 (the "Original Notes") and
solicited consents to certain proposed amendments which eliminated
substantially all of the protective covenants. Proceeds from the Privately
Place Notes (as defined below) were used to purchase the Original Notes at a
price equal to $1,103.64 for each Original Note. Holders who tendered in the
Tender Offer prior to the expiration date for consents also received a consent
payment equal to 1% of the outstanding principal amount of notes tendered
(included in the total consideration described above). On July 3, 1997 the
Company received tenders of, and consents relating to, all of its Original
Notes.
On July 3, 1997, the Company issued $400.0 million of 9% Senior Subordinated
Notes due 2007 (the "Privately Placed Notes") to qualified institutional
buyers pursuant to Rule 144A under the Securities Act. The Company
subsequently registered the Privately Placed Notes with the Securities
F-15
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Exchange Commission pursuant to a Registration Statement on Form S-4 declared
effective September 3, 1997. The Senior Subordinated Notes are unsecured and
are guaranteed by all of the Company's direct and indirect domestic
subsidiaries. The Senior Subordinated Notes are subject to redemption at any
time on or after July 1, 2002 at the option of the Company based on certain
redemption prices plus accrued interest. As of January 3, 1998, the Company
was in compliance with covenant provisions associated with the Senior
Subordinated Notes which include restrictions on the payment of dividends. If
a change of control occurs at any time, each holder shall have the right to
require that the Company purchase the Senior Subordinated Notes in whole or in
part at an amount equal to 101% of the principal amount held plus accrued
interest.
As part of the June Refinancing, the Company amended its credit facilities.
The amended credit facility provides for secured revolving credit up to $325.0
million, and a portion of the borrowings may be denominated in Dutch guilders
and/or Canadian dollars at the request of the Company. The applicable interest
rates are as follows (plus a margin in each case depending upon certain
leverage ratios):
U.S. dollar-denominated loans LIBOR
Canadian dollar-denominated loans Canadian base rate
Dutch guilder-denominated loans Eurocurrency rate
All indebtedness under the amended credit facility is guaranteed by each of
the direct and indirect domestic subsidiaries of the Company and by Fabrene
Group, Inc., a wholly-owned Canadian subsidiary of the Company. The amended
credit facility is secured by substantially all of the assets of the Company
and pledges of stock and intercompany notes and certain of its subsidiaries.
The amended credit facility contains covenants customary for financings of
this type which the Company is in compliance with as of January 3, 1998.
Commitment fees on the amended credit facility are generally equal to a
percentage of the daily unused average amount of such commitment. At January
3, 1998, unused commitments under the amended credit facility approximated
$254.8 million. Loan acquisition costs, including commitment fees,
approximated $18.6 and 5.3 million in 1997 and 1996, respectively.
DT USA Guaranteed Senior Notes
During 1993, DT USA issued $150.0 million of 8.875% Guaranteed Senior Notes
due 2003 (the "2003 Notes") and during 1996, issued an additional $125.0
million of 9.25% Guaranteed Senior Notes due 2006 (the "2006 Notes"). Both the
2003 Notes and the 2006 Notes are senior indebtedness of DT USA and are
guaranteed by DT USA and Dominion.
On December 23, 1997, following the initial purchase of Dominion shares by
DTA, DT USA made tender offers to purchase the outstanding 2003 Notes and 2006
Notes (the "2003 Tender Offer" and "2006 Tender Offer," respectively), and
solicited consents to certain proposed amendments to facilities which
eliminated substantially all of the protective covenants. The total
consideration paid was $1,065.32 and $1,138.50 for each 2003 Note and 2006
Note, respectively. Holders who tendered in the 2003 Tender Offer and the 2006
Tender Offer prior to each respective expiration date for consents also
received a consent payment equal to 1% of the outstanding principal amount of
notes tendered (included in the total consideration described above).
On January 16, 1998, DT USA made a separate, unconditional offer to purchase
all outstanding 2003 Notes at a price equal to 101% of their aggregate
principal amount (the "Change of Control Offer"). The Change of Control Offer
was made solely for the purpose of satisfying certain provisions,
F-16
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
which require such an offer to be made within 30 days of a change in control
of DT USA or Dominion. The Change of Control Offer expired on March 17, 1998.
On January 28, 1998, the expiration date for the 2003 Tender Offer and the
2006 Tender Offer, DT USA accepted for repurchase $145.6 million of 2003 Notes
and $124.5 million of 2006 Notes. DT USA intends to exercise its rights to
satisfy and discharge the 2003 Notes and the 2006 Notes at the permitted
times.
Short-term Bridge Financing
The Company received short-term bridge financing to consummate the
acquisition of Dominion as discussed in "Note 2. Acquisitions." Such
indebtedness was either repaid or canceled in January 1998 pursuant to the
disposition of the apparel business of Dominion to Galey. Short-term bridge
financing consisted of the following at January 3,1998 (in thousands):
DTA Credit Facility, original maturity of June 1998, interest rate
9.5%, repaid in full in January 1998................................. $215,945
Subordinated advance--ZB Holdings, interest rate 9.5%, repaid in full
in January 1998...................................................... 69,000
Subordinated advance--Galey, interest rate imputed at 9.5%, canceled
in January 1998...................................................... 141,000
--------
$425,945
========
NOTE 8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
Payment of the Company's Senior Subordinated Notes is unconditionally
guaranteed, jointly and severally, on a senior subordinated basis by certain
of the Company's wholly-owned subsidiaries. Management has determined that
separate complete financial statements of the guarantor entities would not be
material to users of the financial statements; therefore, the following sets
forth condensed consolidating financial statements (in thousands):
F-17
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 3, 1998
COMBINED
COMBINED NON-
GUARANTOR GUARANTOR THE RECLASSIFICATIONS
ASSETS SUBSIDIARIES SUBSIDIARIES COMPANY AND ELIMINATIONS CONSOLIDATED
------ ------------ ------------ -------- ----------------- ------------
Cash and cash
equivalents............ $ 8,721 $ 37,752 $ 3,717 $ -- $ 50,190
Marketable securities... -- -- 7,754 -- 7,754
Accounts receivable,
net.................... 42,281 65,047 -- -- 107,328
Inventories............. 40,324 54,164 -- (360) 94,128
Due from affiliates..... 66 2,223 -- (2,289) --
Assets held for
disposition, net....... -- 464,524 -- -- 464,524
Other................... 22,367 6,004 1,482 1,293 31,146
---------- ---------- -------- ----------- ----------
Total current
assets............. 113,759 629,714 12,953 (1,356) 755,070
Due from affiliates..... 436,795 1,884 508,249 (946,928) --
Investment in
subsidiaries........... 273,967 11,553 410,893 (684,860) 11,553
Property, plant and
equipment, net......... 302,905 303,010 -- 345 606,260
Intangibles, loan
acquisition and
organization costs, net 29,773 180,319 14,767 4,532 229,391
Other................... 7,443 15,066 12,084 (9,114) 25,479
---------- ---------- -------- ----------- ----------
Total assets........ $1,164,642 $1,141,546 $958,946 $(1,637,381) $1,627,753
========== ========== ======== =========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Accounts payable,
accrued liabilities and
other.................. $ 44,000 $ 65,226 $ 8,853 $ (12,255) $ 105,824
Short-term bridge
financing.............. -- 425,945 -- -- 425,945
Current portion of long-
term debt.............. 900 1,376 1,000 -- 3,276
---------- ---------- -------- ----------- ----------
Total current
liabilities........ 44,900 492,547 9,853 (12,255) 535,045
Due to affiliates....... 515,331 99,935 307,398 (922,664) --
Long-term debt, less
current portion........ 1,150 340,944 424,767 (25,001) 741,860
Deferred income taxes
and other.............. 17,182 125,400 9,152 24 151,758
Shareholders' equity.... 586,079 82,720 207,776 (677,485) 199,090
---------- ---------- -------- ----------- ----------
Total liabilities
and shareholders'
equity............. $1,164,642 $1,141,546 $958,946 $(1,637,381) $1,627,753
========== ========== ======== =========== ==========
F-18
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 28, 1996
COMBINED
COMBINED NON-
GUARANTOR GUARANTOR THE RECLASSIFICATIONS
ASSETS SUBSIDIARIES SUBSIDIARIES COMPANY AND ELIMINATIONS CONSOLIDATED
------ ------------ ------------ -------- ----------------- ------------
Cash and 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 and
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 AND
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-19
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
COMBINED
COMBINED NON- RECLASSIFICA-
GUARANTOR GUARANTOR THE TIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------ ------- ------------- ------------
Net sales............... $354,206 $195,465 $ -- $(14,404) $535,267
Cost of goods sold...... 280,112 136,315 35 (14,404) 402,058
-------- -------- ------- -------- --------
Gross profit........ 74,094 59,150 (35) -- 133,209
Selling, general and
administrative
expenses............... 47,700 32,967 (6,067) -- 74,600
-------- -------- ------- -------- --------
Operating income.... 26,394 26,183 6,032 -- 58,609
Other (income) expense,
net.................... 13,941 7,212 (2,986) -- 18,167
-------- -------- ------- -------- --------
Income before income
taxes and
extraordinary item. 12,453 18,971 9,018 -- 40,442
Income taxes............ (785) 3,101 10,693 -- 13,009
-------- -------- ------- -------- --------
Income before
extraordinary item. 13,238 15,870 (1,675) -- 27,433
Extraordinary item...... (4,587) (839) (6,579) -- (12,005)
Equity in earnings of
subsidiaries........... -- -- 15,031 (15,031) --
-------- -------- ------- -------- --------
Net income (loss)....... $ 8,651 $ 15,031 $ 6,777 $(15,031) $ 15,428
======== ======== ======= ======== ========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
COMBINED
COMBINED NON- RECLASSIFICA-
GUARANTOR GUARANTOR THE TIONS 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 (loss) 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)
======== ======== ======== ======== ========
F-20
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
COMBINED COMBINED
GUARANTOR NON-GUARANTOR THE RECLASSIFICATIONS
SUBSIDIARIES SUBSIDIARIES COMPANY AND 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-21
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
COMBINED COMBINED THE RECLASSIFICATIONS
GUARANTOR NON-GUARANTOR COMPANY AND ELIMINATIONS CONSOLIDATED
--------- ------------- -------- ----------------- ------------
Net cash provided by
operating activities... $ 52,917 $ 29,290 $ 18,763 $ (82,608) $ 18,362
Investing activities
Purchases of property,
plant and equipment.. (50,933) (9,208) (3) -- (60,144)
Purchases of
marketable securities
classified as
available for sale... -- -- (15,251) -- (15,251)
Proceeds from sales of
marketable securities
classified as
available for sale... -- -- 17,003 -- 17,003
Business acquisitions,
net.................. -- (424,645) (4,914) -- (429,559)
Organization and other
costs................ -- (3,554) (396) -- (3,950)
-------- -------- -------- --------- --------
Net cash (used in)
investing activities... (50,933) (437,407) (3,561) -- (491,901)
Financing activities
Proceeds from debt.... 19,675 28,478 432,693 -- 480,846
Proceeds from short-
term bridge
financing............ -- 425,945 -- -- 425,945
Payments of debt...... (160,675) (69,682) (171,925) -- (402,282)
Intercompany
transactions, net.... 131,425 46,496 (260,529) 82,608 --
Loan acquisition
costs, net........... (17) (3,622) (14,917) -- (18,556)
-------- -------- -------- --------- --------
Net cash provided by
(used in) financing
activities............. (9,592) 427,615 (14,678) 82,608 485,953
Effect of exchange rate
changes on cash........ -- -- 189 -- 189
-------- -------- -------- --------- --------
Net increase (decrease)
in cash and
equivalents............ (7,608) 19,498 713 -- 12,603
Cash and equivalents at
beginning of year...... 16,329 18,254 3,004 -- 37,587
-------- -------- -------- --------- --------
Cash and equivalents at
end of year............ $ 8,721 $ 37,752 $ 3,717 $ -- $ 50,190
======== ======== ======== ========= ========
F-22
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
COMBINED COMBINED
GUARANTOR NON-GUARANTOR THE RECLASSIFICATIONS
SUBSIDIARIES SUBSIDIARIES COMPANY AND 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 (used in)
provided by 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............ $ 16,329 $ 18,254 $ 3,004 $ -- $ 37,587
========= ======== ======== ========= =========
F-23
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-
GUARANTOR GUARANTOR THE RECLASSIFICATIONS
SUBSIDIARIES SUBSIDIARIES COMPANY AND 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 (used in)
provided by financing
activities............. (15,454) 44,046 320,660 (21,616) 327,636
Effect of exchange rate
changes on cash........ -- -- (1,724) -- (1,724)
-------- ------- -------- ------- --------
Net (decrease) increase
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-24
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. INCOME TAXES
Significant components of the provision for income taxes are as follows:
FISCAL YEAR
------------------------
1997 1996 1995
------- ------- ------
(IN THOUSANDS)
Current:
Federal and state.................................. $ 315 $ -- $1,461
Foreign............................................ 6,709 2,899 5,130
Deferred:
Federal and state.................................. 7,108 8,324 (826)
Foreign............................................ (1,123) (493) (549)
------- ------- ------
Income tax before extraordinary item................. 13,009 10,730 5,216
Income tax benefit from:
Extraordinary item, loss from early extinguishment
of debt........................................... (5,959) (7,492) --
------- ------- ------
Total income tax expense............................. $ 7,050 $ 3,238 $5,216
======= ======= ======
F-25
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's provision for income taxes in 1997 includes the benefit of
utilizing net operating loss carryforwards of approximately $5.8 million. At
January 3, 1998, the Company had: (i) operating loss carryforwards of
approximately $16.8 million for federal income tax purposes expiring in the
years 2007-2012; (ii) Canadian capital loss carryforwards of approximately
$3.7 million and Canadian operating loss carryforwards of approximately $1.7
million which expire in 2005; and (iii) operating loss carryforwards of
approximately $8.0 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 January 3, 1998 and
December 28, 1996 are as follows:
1997 1996
-------- --------
(IN THOUSANDS)
Deferred tax assets:
Provision for restructuring.............................. $ 869 $ 2,566
U.S. net operating loss carryforward..................... 5,883 10,057
Foreign net operating and capital loss carryforward...... 3,603 6,821
Foreign tax credits...................................... 3,359 1,356
Other.................................................... 5,557 9,262
-------- --------
Total deferred tax assets.............................. 19,271 30,062
Valuation allowance for deferred tax assets................ (5,927) (14,149)
-------- --------
Net deferred tax assets.................................... 13,344 15,913
Deferred tax liabilities:
Depreciation and amortization............................ (26,548) (22,159)
Basis difference on fixed assets......................... (52,207) (23,561)
Provision for undistributed foreign earnings not
considered to be retained indefinitely for reinvestment. -- (3,301)
Other, net............................................... (3,742) (4,485)
-------- --------
Total deferred tax liabilities......................... (82,497) (53,506)
-------- --------
Net deferred taxes..................................... $(69,153) $(37,593)
======== ========
Taxes on income are based on earnings (loss) before taxes as follows:
FISCAL YEAR
------------------------
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
Domestic........................................ $18,688 $11,018 $ 1,611
Foreign......................................... 21,754 14,534 (20,002)
------- ------- --------
$40,442 $25,552 $(18,391)
======= ======= ========
F-26
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
------------------------
1997 1996 1995
------- ------ -------
(IN THOUSANDS)
Computed tax (benefit) expense at the
statutory rate............................... $14,155 $8,943 $(6,437)
Valuation allowance........................... (2,387) 418 7,521
Withholding taxes............................. 471 964 1,244
Effect of foreign operations, net............. 314 347 2,375
Other, net.................................... 456 58 513
------- ------ -------
Provision for income taxes before
extraordinary item........................... 13,009 10,730 5,216
Income tax benefit related to extraordinary
item......................................... (5,959) (7,492) --
------- ------ -------
Provision for income taxes.................... $ 7,050 $3,238 $ 5,216
======= ====== =======
F-27
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
Stock Option Plan
In connection with the IPO, the Company adopted the 1996 Key Employee Stock
Option Plan ("1996 Plan"). The 1996 Plan is administered by the Stock Option
Committee, which is composed of 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. The options were not considered in the calculation of
diluted earnings per share as their effect was antidilutive; however, these
options could have a dilutive effect in future years. The following table
summarizes the transactions of the 1996 Plan for the two year period ended
January 3, 1998:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
Unexercised options outstanding--December 30, 1995 -- $ --
Granted.............................................. 130,330 18.00
Exercised............................................ -- --
Forfeited............................................ -- --
Expired/canceled..................................... -- --
------- ------
Unexercised options outstanding--December 28, 1996..... 130,330 18.00
Granted.............................................. 595,000 14.25
Exercised............................................ -- --
Forfeited............................................ (5,555) 18.00
Expired/canceled..................................... -- --
------- ------
Unexercised options outstanding--January 3, 1998....... 719,775 $14.90
======= ======
Exercisable options:
December 30, 1995.................................... -- --
December 28, 1996.................................... -- --
January 3, 1998...................................... 143,955 $14.90
Shares available for future grant...................... 780,225 --
In connection with the IPO, the Company adopted the provisions of Statement
of Financial Accounting Standards 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, no
compensation cost has been recognized in the Company's 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 1997 and 1996, respectively;
dividend yield of 0.0% both years; expected volatility of 0.56 and 0.55; risk-
free interest rate of 6.1% for both years and weighted average expected lives
of 5 years for both years. Had compensation cost
F-28
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for the Company's 1996 Plan been determined based on the fair value at the
grant date for such awards in 1997 and 1996 consistent with the provisions of
FAS 123, the Company's net income available to common shareholders and net
income per common share would have been reduced to the pro forma amounts
indicated below.
FISCAL YEAR
---------------
1997 1996
------- -------
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
Net income (loss) available to common shareholders--basic:
As reported................................................. $15,428 $(2,130)
Pro forma................................................... 15,075 (2,228)
Net income (loss) per common share--basic:
As reported................................................. $ .48 $ (.08)
Pro forma................................................... .47 (.08)
Net income (loss) available to common shareholders--diluted:
As reported................................................. $15,428 $(2,130)
Pro forma................................................... 15,075 (2,228)
Net income (loss) per common share--diluted:
As reported................................................. $ .48 $ (.08)
Pro forma................................................... .47 (.08)
Weighted average fair value of options granted under the 1996
Plan......................................................... $ 7.79 $ 9.72
The pro forma impact of these options is not likely to be representative of
the effects on reported net income for future years.
Employee Stock Purchase Plan
At the beginning of fiscal 1997, the Company adopted the Stock Purchase Plan
for Employees of Polymer Group, Inc. ("Purchase Plan") which allows employee
participants to purchase common stock of the Company through payroll
deductions. The Purchase Plan is administered by a third party and all
administrative costs of the Purchase Plan are covered by the Company. In
accordance with the Purchase Plan, share purchases by the administrator are
made at the fair value of the Company's common stock on the date of purchase.
The cost of the Purchase Plan was not material during 1997.
NOTE 11. SHAREHOLDERS' EQUITY
On May 15, 1996, the Company completed the initial public offering ("IPO"),
in which it offered and sold 11.5 million shares of its common stock at a
price of $18.00 per share. Pursuant to a recapitalization agreement, 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. In
addition, the Company's Board of Directors ("Board") approved an approximate
19.97 to 1 stock split; therefore, all common shares and warrant data in the
consolidated financial statements have been restated to reflect such stock
split.
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, direct the
issuance of shares of preferred stock and may determine the
F-29
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
rights, preferences, conversion features, dividend rate (including whether
such dividend shall be cumulative or noncumulative) and limitations of each
issue. 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 before any payment is made to common shareholders.
In connection with the IPO, the Company adopted a rights plan ("Rights
Plan"). On April 15, 1996, the Company's Board 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 the earlier of the stock acquisition
date and the expiration date as defined in the Rights Plan. Prior to exercise
of a right, the holder 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. Following the IPO, 100,000 shares of junior preferred stock were
reserved for issuance in connection with the Rights Plan.
NOTE 12. RETIREMENT PLANS
The Company sponsors several defined contribution plans through its domestic
subsidiaries covering employees who meet certain service requirements. The
Company makes contributions to the plans based upon a percentage of the
employees' contribution in the case of its 401(k) plans or upon a percentage
of the employees' salary or hourly wages in the case of its noncontributory
money purchase plans. The cost of the plans was $1.7, $1.7, and $1.6 million
for 1997, 1996 and 1995, respectively. In addition, the Company sponsors
defined benefit retirement plans covering employees at certain of its
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 January 3, 1998, 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 Company also sponsors, through its Nonwovens Business, a Supplemental
Executive Retirement Plan ("SERP") which provides certain personnel with
supplemental benefits in addition to those available under the Company's
retirement plans. These supplemental retirement benefits are provided by a
nonqualified, noncontributory plan and are based on years of service and
compensation. Contributions are made based upon the estimated requirements of
the plan.
The data presented in the following tables illustrate the funded status for
such plans as of the respective periods, components of pension expense and
assumptions used in accounting for the defined benefit retirement plans.
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 1997, 1996 and 1995.
F-30
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheet as of January 3, 1998 and December 28, 1996:
1997 1996
----------------------- -----------------------
PLAN 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....................... $36,601 $ -- $21,368 $ 231
Non-vested................... 1,122 -- 1,172 181
------- ------ ------- -----
37,723 -- 22,540 412
Benefits attributable to future
salaries...................... 5,205 -- 3,942 --
------- ------ ------- -----
Projected benefit obligation... 42,928 -- 26,482 412
Plan assets at fair value...... 57,683 -- 34,036 175
------- ------ ------- -----
Excess (deficit) of plan assets
over projected benefit
obligation.................... 14,755 -- 7,554 (237)
Unrecognized transition net
asset......................... (169) -- (360) --
Unrecognized net (gain) loss... (2,412) -- (1,635) --
------- ------ ------- -----
Prepaid pension cost (pension
liability).................... $12,174 $ -- $ 5,559 $(237)
======= ====== ======= =====
Pension expense included in the determination of net income for 1997, 1996
and 1995 is as follows:
FISCAL YEAR
-------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
Current service costs............................. $ 1,566 $ 1,523 $ 1,286
Interest costs on projected benefit obligation.... 1,813 1,673 1,160
Return on plan assets............................. (2,659) (2,158) (1,400)
Net amortization of transition obligation......... (26) (52) 5
------- ------- -------
Pension expense, net.............................. $ 694 $ 986 $ 1,051
======= ======= =======
Significant assumptions used in accounting for the defined benefit
retirement plans are as follows:
FISCAL YEAR
-------------------------------
1997 1996 1995
---------- ---------- ---------
(IN THOUSANDS)
Return on plan assets:
U.S. Plan................................ 8.0%-9.0% 9.0% 9.0%
Non U.S. Plans........................... 6.5%-8.5% 6.5%-13.0% 6.5%-8.0%
Discount rate on projected benefit
obligations:
U.S. Plan................................ 7.5%-7.75% 7.5% 7.5%
Non U.S. Plans........................... 6.0%-8.5% 6.0%-8.5% 6.0%-8.0%
Salary and wage escalation rate:
U.S. Plan................................ 0.0%-5.0% -- --
Non U.S. Plans........................... 3.0%-6.5% 3.0%-4.0% 3.0%-4.0%
F-31
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors several defined benefit postretirement plans covering
certain 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 that 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 7.5% and 6.5%, respectively. The assumed annual
composite rate of increase in the per capita cost of Company provided health
care benefits begins at 10.0% for 1997, gradually decreases to 5.0% by 2003
and remains at that level thereafter. A 1% increase in these health care cost
trend rates would cause the accumulated obligation to increase by $0.5
million. The effect of such increase on the aggregate of the service and
interest components of the 1997 net postretirement benefit cost is not
significant. During 1997, the Company terminated a defined benefit plan which
was not replaced. The Company recorded approximately $1.7 million in net pre-
tax curtailment gains related to the termination of this plan. Net
postretirement benefit cost included in the determination of net income for
1997, 1996 and 1995 is included in the following table:
FISCAL YEAR
--------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
Service cost--benefits earned during the period........... $107 $169 $109
Interest costs on accumulated postretirement benefit
obligation............................................... 203 238 174
---- ---- ----
Net postretirement benefit cost........................... $310 $407 $283
==== ==== ====
The following table sets forth the funded status of the Company's obligation
under FAS 106 as of January 3, 1998 and December 28, 1996:
1997 1996
------ ------
(IN
THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees................................................. $2,676 $ --
Fully eligible active plan participants.................. 1,054 885
Other active plan participants........................... 1,831 3,016
------ ------
Accrued postretirement benefit obligation.................. $5,561 $3,901
====== ======
F-32
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS)
FISCAL YEAR ENDED JANUARY 3, 1998
Net sales............................... $128,947 $131,508 $129,711 $145,101
Gross Profit............................ 32,585 34,716 31,196 34,712
Income (loss) before extraordinary item. 4,962 6,012 8,948 7,511
Extraordinary item...................... -- -- (12,005) --
Net income (loss) attributable to common
stock.................................. 4,962 6,012 (3,057) 7,511
Net income (loss) per common share:
Basic:
Income before extraordinary item.... $ .16 $ .19 $ .28 $ .23
Extraordinary item.................. -- -- (.38) --
-------- -------- -------- --------
Net income (loss) per common share--
basic.............................. $ .16 $ .19 $ (.10) $ .23
======== ======== ======== ========
Diluted:
Income before extraordinary item.... $ .16 $ .19 $ .28 $ .23
Extraordinary item.................. -- -- (.38) --
-------- -------- -------- --------
Net income (loss) per common share--
diluted............................ $ .16 $ .19 $ (.10) $ .23
======== ======== ======== ========
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 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) per common share:
Basic:
Income (loss) before extraordinary
item............................... $ (.13) $ .06 $ .17 $ .22
Extraordinary item.................. -- (.53) -- --
-------- -------- -------- --------
Net income (loss) per common share--
basic.............................. $ (.13) $ (.47) $ .17 $ .22
======== ======== ======== ========
Diluted:
Income (loss) before extraordinary
item............................... $ (.13) $ .06 $ .17 $ .22
Extraordinary item.................. -- (.53) -- --
-------- -------- -------- --------
Net income (loss) per common share--
diluted............................ $ (.13) $ (.47) $ .17 $ .22
======== ======== ======== ========
During the third quarter of 1997 and second quarter of 1996 the Company
recorded an extraordinary item of $12.0 million (net of tax) and $13.9 million
(net of tax), respectively, for the write-off of previously capitalized debt
issue costs and prepayment premiums related to the refinancing of
indebtedness.
F-33
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15. 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 $83.0, $43.8, and $16.1 million during
1997, 1996 and 1995, respectively.
FISCAL YEAR
-----------------------------
1997 1996 1995
---------- -------- --------
(IN THOUSANDS)
Net sales to unaffiliated customers:
United States................................. $ 311,923 $312,000 $255,296
Canada........................................ 61,747 57,371 59,417
Europe........................................ 109,714 108,563 99,180
Mexico........................................ 51,883 43,434 23,745
---------- -------- --------
Total....................................... $ 535,267 $521,368 $437,638
========== ======== ========
Income from operations:
United States................................. $ 34,399 $ 35,625 $ 16,918
Canada........................................ 7,105 9,045 13,485
Europe........................................ 3,327 7,350 4,994
Mexico........................................ 13,778 10,128 6,891
---------- -------- --------
Total....................................... 58,609 62,148 42,288
Other (income) expense, net:
Interest expense, net......................... 30,499 33,641 37,868
Investment income--(gain) on marketable
securities, net.............................. (11,880) -- --
Foreign currency transaction (gains) losses,
net.......................................... (452) 2,955 22,811
---------- -------- --------
Income (loss) before income taxes and
extraordinary item............................. $ 40,442 $ 25,552 $(18,391)
========== ======== ========
Identifiable assets:
United States................................. $ 695,042 $388,240 $324,088
Canada........................................ 642,523 92,670 88,100
Europe........................................ 226,117 171,676 180,978
Mexico........................................ 64,071 55,529 44,815
---------- -------- --------
Total....................................... $1,627,753 $708,115 $637,981
========== ======== ========
In 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"), which is effective for years beginning after December 15, 1997. FAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. The Company will adopt the new requirements retroactively in the
first quarter of 1998.
F-34
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16. 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 $1.8, $2.1, and $2.3 million
in 1997, 1996, and 1995, 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 rate which the Company
believes 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 1997, 1996 and 1995, 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.
NOTE 17. SUBSEQUENT EVENTS
On January 29, 1998, the Company (i) acquired all remaining outstanding
shares of Dominion (as described in "Note 2. Acquisitions") and (ii) amended
its credit facility in connection with the acquisition of Dominion. This
amendment provides for a $125.0 million secured term loan and modification of
certain terms of the revolving portion of the credit facility. The Company
borrowed approximately $326.6 million under the amendment to finance the
Nonwovens Acquisition, for which it paid a gross price of approximately $351.6
million, including related fees and expenses. The Company also refinanced its
outstanding indebtedness under the DTA Credit Facility, repaid its
subordinated advance from ZB Holdings and repaid a substantial portion of the
DT USA Guaranteed Senior Notes with borrowings under this facility. Related to
the refinancing of this debt, the Company expects to incur an extraordinary
item for the write-off of loan acquisition costs associated with the DTA
Credit Facility during the first quarter of 1998.
On March 5, 1998, the Company issued $200.0 million of 8.75% Senior
Subordinated Notes due 2008 (the "2008 Notes") to qualified buyers pursuant to
Rule 144A under the Securities Act. Proceeds from the sale of the 2008 Notes
were used to finance the Oriented Polymer Acquisition (as defined) and to
repay existing revolving obligations.
On March 16, 1998, the Company completed the acquisition (the "Oriented
Polymer Acquisition") of a leading North American manufacturer of
polypropylene-based commercial twine and polyethylene-based specialty knitted
products for approximately $47.0 million.
F-35
POLYMER GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
APRIL 4, JANUARY 3,
ASSETS 1998 1998
------ ----------- ----------
(UNAUDITED)
Current assets:
Cash and equivalents................................. $ 64,339 $ 50,190
Marketable securities................................ 8,167 7,754
Accounts receivable, net............................. 115,800 107,328
Inventories.......................................... 106,379 94,128
Assets held for disposition, net..................... -- 464,524
Other................................................ 26,920 31,146
---------- ----------
Total current assets............................... 321,605 755,070
Property, plant and equipment, net..................... 641,155 606,260
Intangibles, loan acquisition and organization costs,
net................................................... 262,340 229,391
Other.................................................. 46,806 37,032
---------- ----------
Total assets....................................... $1,271,906 $1,627,753
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, accrued liabilities and other...... $ 130,631 $ 105,824
Short-term bridge financing.......................... -- 425,945
Current portion of long-term debt.................... 3,711 3,276
---------- ----------
Total current liabilities.......................... 134,342 535,045
---------- ----------
Long-term debt, less current portion................... 848,552 741,860
Deferred income taxes.................................. 81,339 82,213
Other noncurrent liabilities........................... 15,464 14,815
Minority interest...................................... -- 54,730
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)............................................ (39,788) (39,355)
Other ............................................... (11,985) (5,537)
---------- ----------
192,209 199,090
---------- ----------
Total liabilities and shareholders' equity......... $1,271,906 $1,627,753
========== ==========
See accompanying notes.
F-36
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED
------------------
MARCH
APRIL 4, 29,
1998 1997
-------- --------
Net sales..................... $193,336 $128,947
Cost of goods sold............ 147,058 96,362
-------- --------
Gross profit.................. 46,278 32,585
Selling, general and
administrative expenses...... 26,025 18,656
-------- --------
Operating income.............. 20,253 13,929
Other (income) expense:
Interest expense, net....... 15,980 6,834
Foreign currency transaction
(gains) losses, net........ 676 (320)
-------- --------
16,656 6,514
-------- --------
Income before income taxes and
extraordinary item........... 3,597 7,415
Income taxes.................. 1,302 2,453
-------- --------
Income before extraordinary
item......................... 2,295 4,962
Extraordinary item, (loss)
from extinguishment of debt.. (2,728) --
-------- --------
Net income (loss)....... $ (433) $ 4,962
======== ========
Net income (loss) per common
share:
Basic:
Average common shares
outstanding.............. 32,000 32,000
Income before
extraordinary item....... $ 0.07 $ 0.16
Extraordinary item, (loss)
from extinguishment of
debt..................... (0.09) --
-------- --------
Net income (loss) per
common share--basic.... $ (0.02) $ 0.16
======== ========
Diluted:
Average common shares
outstanding.............. 32,000 32,000
Income before
extraordinary item....... $ 0.07 $ 0.16
Extraordinary item, (loss)
from extinguishment of
debt..................... (0.09) --
-------- --------
Net income (loss) per
common share--diluted.. $ (0.02) $ 0.16
======== ========
See accompanying notes.
F-37
POLYMER GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
--------------------
APRIL 4, MARCH 29,
1998 1997
--------- ---------
Operating activities
Net income (loss)....................................... $ (433) $ 4,962
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary item.................................... 2,728 --
Depreciation and amortization expense................. 13,769 9,901
Foreign currency transaction (gains) losses, net...... 676 (320)
Changes in operating assets and liabilities, net of
effects of business acquisition:
Accounts receivable................................... (223) (2,539)
Inventories........................................... (6,962) (1,144)
Accounts payable and other............................ 17,987 (845)
--------- --------
Net cash provided by operating activities........... 27,542 10,015
--------- --------
Investing activities
Purchases of property, plant and equipment.............. (19,122) (13,369)
Purchases of marketable securities classified as
available for sale..................................... (3,990) (7,335)
Proceeds from sales of marketable securities classified
as available for sale.................................. 3,540 5,965
Proceeds from sale of assets, net of canceled
subordinated advance................................... 323,524 --
Minority interest....................................... (54,730) --
Other, including business acquisition................... (49,157) (146)
--------- --------
Net cash provided by (used in) investing activities. 200,065 (14,885)
--------- --------
Financing activities
Proceeds from debt...................................... 576,531 7,150
Payment of debt......................................... (778,572) (3,284)
Loan acquisition costs, net............................. (9,376) (14)
--------- --------
Net cash provided by (used in) financing activities. (211,417) 3,852
--------- --------
Effect of exchange rate changes on cash................... (2,041) (3,985)
--------- --------
Net increase (decrease) in cash and equivalents........... 14,149 (5,003)
Cash and equivalents at beginning of period............... 50,190 37,587
--------- --------
Cash and equivalents at ending of period.................. $ 64,339 $ 32,584
========= ========
See accompanying notes.
F-38
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 oriented polyolefin fabrics. The
Company's principal lines of business include hygiene, medical, wiping and
industrial and specialty products. The Company operates manufacturing
facilities in the United States, Canada, Mexico, Germany, the Netherlands,
France and England.
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 months ended April 4, 1998, are not
necessarily indicative of the results that may be expected for fiscal 1998.
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:
APRIL 4, JANUARY 3,
1998 1998
----------- ----------
(UNAUDITED)
Inventories:
Finished goods.................................. $ 58,321 $48,769
Work in process and stores and maintenance
parts.......................................... 11,402 11,201
Raw materials................................... 36,656 34,158
-------- -------
Total......................................... $106,379 $94,128
======== =======
NOTE 3. NET INCOME (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" ("FAS 128"). FAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. The numerator for both basic and diluted earnings per
share is net income (loss) applicable to common stock. The denominator for
both basic and diluted earnings per share is average common shares
outstanding.
NOTE 4. ACQUISITIONS
On December 19, 1997, DT Acquisition Inc. ("DTA"), a special-purpose
subsidiary of the Company, completed the purchase of approximately 98% of the
outstanding common shares of Dominion Textile Inc. ("Dominion") for Cdn$14.50
per share and approximately 96% of the outstanding first preferred
F-39
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. ACQUISITIONS--(CONTINUED)
shares of Dominion for Cdn$150 per share. The acquisition, which was accounted
for using the purchase method of accounting, was financed with $215.9 million
of borrowings under DTA's $600.0 million senior secured credit facilities, and
subordinated advances of $141.0, $69.0 and $25.0 million by Galey & Lord, Inc.
("Galey"), ZB Holdings, Inc. ("ZB Holdings") and the Company, respectively. ZB
Holdings is a wholly-owned subsidiary of The InterTech Group, Inc., an
affiliate of the Company.
On January 29, 1998, DTA acquired all remaining common and preferred shares,
at which time Dominion underwent a "winding up". All assets of Dominion were
transferred to DTA, all liabilities of Dominion were assumed by DTA and all
outstanding common shares and first preferred shares held by DTA were
redeemed. Immediately thereafter, pursuant to a purchase agreement dated
October 27, 1997, the apparel fabrics business of Dominion was sold to Galey
for approximately $464.5 million, including related fees and expenses, and the
Company acquired (the "Nonwovens Acquisition") the assets and liabilities of
Dominion that comprised the nonwovens and industrial fabrics operations (the
"Nonwovens Business") for approximately $351.6 million, including fees and
expenses. The Nonwovens Business includes a 50% interest in Argentina-based
Dominion Nonwovens Sudamerica S.A. ("DNS"). DNS manufactures and markets
nonwovens to hygiene markets in South America. Concurrently, Dominion Textile
(USA) Inc. ("DT USA"), a wholly-owned subsidiary of Dominion, purchased
approximately $145.6 million of its $150.0 million outstanding 8.875%
Guaranteed Senior Notes due 2003 and, at the same time, purchased
approximately $124.5 million of its $125.0 million outstanding 9.25%
Guaranteed Senior Notes due 2006. Net assets of the apparel fabrics business
of Dominion were classified as assets held for disposition on the Company's
consolidated balance sheet at January 3, 1998. Operating results of the
apparel fabrics business of Dominion have been excluded from the Company's
results of operations for the three months ended April 4, 1998.
In connection with the Nonwovens Acquisition and related transactions, the
Company also amended its senior secured credit facility to provide for $125.0
million in term loans. The Company used borrowings under the credit facility,
as amended, to finance the purchase of the Nonwovens Business, in part by
retiring amounts outstanding under the DTA $600.0 million credit facility and
repaying the subordinated advance made by ZB Holdings.
On March 5, 1998, the Company issued $200.0 million of 8.75% Senior
Subordinated Notes due 2008 (the "2008 Notes") to qualified buyers pursuant to
Rule 144A under the Securities Act (the "March 1998 Offering"). Proceeds from
the sale of the 2008 Notes were used, in part, to finance the Oriented Polymer
Acquisition (as defined below) and to repay existing revolving obligations.
On March 16, 1998, the Company completed the acquisition (the "Oriented
Polymer Acquisition") of a leading North American manufacturer of
polypropylene-based commercial twine and polyethylene-based specialty knitted
products for approximately $47.0 million in a transaction accounted for by the
purchase method of accounting. Supplemental pro forma information for the
Oriented Polymer Acquisition is not presented because the acquisition was not
material to the consolidated results of operations.
F-40
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. SELECTED FINANCIAL DATA OF GUARANTORS
Payment of the 2007 Notes and 2008 Notes is guaranteed jointly and severally
on a senior subordinated basis by certain of the Company's subsidiaries.
Management has determined that separate complete financial statements of the
guarantors are not material to users of the financial statements. The
following sets forth selected financial data of the guarantor and non-
guarantor subsidiaries (in thousands):
CONDENSED CONSOLIDATING SELECTED BALANCE SHEET FINANCIAL DATA
AS OF APRIL 4, 1998
COMBINED COMBINED
GUARANTOR NON-GUARANTOR THE RECLASSIFICATIONS
SUBSIDIARIES SUBSIDIARIES COMPANY AND ELIMINATIONS CONSOLIDATED
------------ ------------- ---------- ----------------- ------------
Working capital......... $ 91,662 $ 104,588 $ (9,050) $ 63 $ 187,263
Total assets............ 1,983,879 985,657 1,409,259 (3,106,889) 1,271,906
Total debt.............. 1,237,332 779,475 1,187,730 (2,352,274) 852,263
Shareholders' equity.... 621,547 133,030 192,209 (754,577) 192,209
CONDENSED CONSOLIDATING SELECTED BALANCE SHEET FINANCIAL DATA
AS OF JANUARY 3, 1998
COMBINED COMBINED
GUARANTOR NON-GUARANTOR THE RECLASSIFICATIONS
SUBSIDIARIES SUBSIDIARIES COMPANY AND ELIMINATIONS CONSOLIDATED
------------ ------------- ---------- ----------------- ------------
Working capital......... $ 68,859 $ 137,167 $ 3,100 $ 10,899 $ 220,025
Total assets............ 1,164,642 1,141,546 950,260 (1,628,695) 1,627,753
Total debt.............. 2,050 342,320 425,767 (25,001) 745,136
Shareholders' equity.... 586,079 82,720 199,090 (668,799) 199,090
F-41
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. SELECTED FINANCIAL DATA OF GUARANTORS--(CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SELECTED FINANCIAL DATA
FOR THE THREE MONTHS ENDED APRIL 4, 1998
COMBINED COMBINED RECLASSIFICA-
GUARANTOR NON-GUARANTOR THE TIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ------------- ------------
Net sales............... $119,933 $77,010 $ 59 $(3,666) $193,336
Operating income........ 12,353 6,491 1,409 -- 20,253
Income (loss) before
income taxes and
extraordinary item..... 4,686 3,314 (4,403) -- 3,597
Income taxes (benefit).. 93 1,328 (119) -- 1,302
Income (loss) before
extraordinary item..... 4,593 1,986 (4,284) -- 2,295
Extraordinary item...... -- (2,728) -- -- (2,728)
Equity in earnings
(loss) of subsidiaries. -- -- 3,851 (3,851) --
Net income (loss)....... 4,593 (742) (433) (3,851) (433)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SELECTED FINANCIAL DATA
FOR THE THREE MONTHS ENDED MARCH 29, 1997
COMBINED COMBINED RECLASSIFICA-
GUARANTOR NON-GUARANTOR THE TIONS AND
SUBSIDIARIES SUBSIDIARIES COMPANY ELIMINATIONS CONSOLIDATED
------------ ------------- ------- ------------- ------------
Net sales............... $82,007 $48,762 $ -- $ (1,822) $128,947
Operating income........ 5,163 7,343 1,423 -- 13,929
Income (loss) before
income taxes and
extraordinary item..... 3,969 6,567 (3,121) -- 7,415
Income taxes (benefit).. (298) 502 2,249 -- 2,453
Income (loss) before
extraordinary item..... 4,267 6,065 (5,370) -- 4,962
Extraordinary item...... -- -- -- -- --
Equity in earnings of
subsidiaries........... -- -- 10,332 (10,332) --
Net income.............. 4,267 6,065 4,962 (10,332) 4,962
NOTE 6. OTHER
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("FAS 130") which is effective for fiscal
years beginning after December 15, 1997. FAS 130 establishes new rules for the
reporting and display of comprehensive income and its components. FAS 130
requires unrealized gains or losses on the Company's available-for-sale
securities and the foreign currency translation adjustments, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. The Company's comprehensive loss approximated $6.9
million and $2.7 million for the three months ended April 4, 1998 and March
29, 1997, respectively.
F-42
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. OTHER (CONTINUED)
In 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131") which is effective for years beginning after December 15, 1997. FAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. FAS 131 does not require interim disclosures during the initial
year of application; however, the segment information must be reported for
comparative purposes in interim financial statements in the second year of
application. The Company has adopted FAS 131 and will defer reporting segment
information in the interim financial statements until the second year of
application.
F-43
INDEPENDENT AUDITORS' REPORT
To Boards of Directors and stockholders of:
Galey & Lord, Inc. and
Polymer Group, Inc.
We have audited the accompanying combined balance sheets of the Nonwovens
Business of Dominion Textile Inc. (the "Business") as of June 30, 1996 and
1997, and the related combined statements of income and deficit and cash flows
for the years ended June 30, 1995, 1996 and 1997. These financial statements
are the responsibility of the Business' management. Our responsibility is to
express an opinion on these combined 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
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, based on our audits, such combined financial statements
present fairly, in all material respects, the combined financial position of
the Business as of June 30, 1996 and 1997, and the combined results of its
operations and its cash flows for the years ended June 30, 1995, 1996 and
1997, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Business and may not necessarily be
indicative of the conditions that would have existed or of the results of
operations if the Business had been operated as a separate entity for all
periods presented. Portions of certain income, expenses, assets and
liabilities represent allocations made from Dominion Textile Inc.'s
headquarters, as explained in the basis of presentation.
Deloitte & Touche
Chartered Accountants
January 29, 1998
F-44
NONWOVENS BUSINESS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, JUNE 30,
1997 1996
-------- --------
ASSETS
------
Current assets
Cash and cash equivalents................................ $ 11,690 $ 2,644
Accounts receivable, net of allowance for doubtful
accounts of $471 (1996--$593)........................... 33,484 35,366
Other receivables........................................ 6,043 3,335
Inventories (Note 4)..................................... 25,753 25,507
Other current assets..................................... 1,448 3,918
-------- --------
78,418 70,770
Investment in Dominion Nonwovens Sudamericana S.A. (Note
5)........................................................ 9,481 --
Property, plant and equipment, net (Note 6)................ 121,737 117,689
Intangible assets, net (Note 7)............................ 19,042 20,116
Other assets (Note 8)...................................... 3,903 4,609
-------- --------
Total assets........................................... $232,581 $213,184
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Short-term borrowings.................................... $ -- $ 6,277
Accounts payable......................................... 14,054 15,090
Interest payable......................................... 1,844 1,712
Income taxes payable..................................... 363 78
Payroll, related taxes and other employee related liabil-
ities................................................... 4,571 4,445
Other accrued liabilities................................ 10,061 2,136
Long-term debt due within one year (Note 9).............. 923 986
-------- --------
31,816 30,724
Long-term debt (Note 9).................................... 83,227 94,479
Deferred income taxes (Note 3)............................. 18,209 17,660
Other non-current liabilities.............................. 7,489 5,555
-------- --------
Total liabilities...................................... 140,741 148,418
-------- --------
Stockholders' equity
Additional paid-in capital............................... 99,141 79,362
Deficit.................................................. (3,789) (16,164)
Cumulative translation adjustment (Note 11).............. (3,512) 1,568
-------- --------
Total stockholders' equity............................. 91,840 64,766
-------- --------
Total liabilities and stockholders' equity............. $232,581 $213,184
======== ========
See notes to the combined financial statements
F-45
NONWOVENS BUSINESS
COMBINED STATEMENTS OF INCOME AND DEFICIT
(IN THOUSANDS)
FOR THE FISCAL YEARS ENDED
JUNE 30,
----------------------------
1997 1996 1995
-------- -------- --------
Sales............................................ $202,133 $188,890 $168,394
Cost of goods sold............................... 150,099 152,126 138,937
Restructuring charge (Note 1).................... 894 -- --
-------- -------- --------
Gross profit..................................... 51,140 36,764 29,457
-------- -------- --------
Selling expenses................................. 9,030 9,744 8,903
Administrative expenses.......................... 14,692 12,917 13,615
Goodwill amortization............................ 736 745 678
-------- -------- --------
24,458 23,406 23,196
-------- -------- --------
Operating income................................. 26,682 13,358 6,261
Interest expense, net............................ (7,549) (7,207) (9,914)
Other income, net (Note 2)....................... 102 130 777
-------- -------- --------
Income (loss) before provision for (recovery of)
income taxes.................................... 19,235 6,281 (2,876)
Provision for (recovery of) income taxes (Note
3).............................................. 6,860 1,099 (1,230)
-------- -------- --------
Net income (loss) before extraordinary loss...... 12,375 5,182 (1,646)
Extraordinary loss on early extinguishment of
debt............................................ -- (1,017) --
-------- -------- --------
Net income (loss)................................ 12,375 4,165 (1,646)
-------- -------- --------
Deficit, at beginning............................ (16,164) (20,329) (18,683)
-------- -------- --------
Deficit, at end.................................. $ (3,789) $(16,164) $(20,329)
======== ======== ========
See notes to the combined financial statements
F-46
NONWOVENS BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE FISCAL YEARS ENDED
JUNE 30,
----------------------------
1997 1996 1995
-------- -------- --------
Operating activities
Net income (loss).............................. $ 12,375 $ 4,165 $ (1,646)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary loss on early extinguishment of
debt........................................ -- 1,017 --
Depreciation and amortization................ 14,717 13,080 12,550
Deferred income taxes........................ 550 4,506 (137)
Loss (gain) on disposal of property, plant
and equipment............................... 307 (61) (188)
Changes in assets and liabilities
Receivables, net............................. (903) (2,462) (5,439)
Inventories.................................. (435) 4,513 (4,795)
Other current assets......................... 2,356 (1,167) (257)
Other assets................................. 697 1,891 (203)
Current liabilities.......................... 7,431 (10,308) 5,822
Other liabilities............................ 1,933 574 915
Other, net..................................... (2,179) (3,263) 1,865
-------- -------- --------
Net cash provided by operating activities.. 36,849 12,485 8,487
Investing activities
Capital expenditures........................... (21,856) (21,819) (22,273)
Proceeds from sale of property, plant and
equipment..................................... (64) 471 1,940
Investment in Dominion Nonwovens Sudamericana
S.A........................................... (9,481) -- --
Other, net..................................... 2,001 2,070 (5,598)
-------- -------- --------
Net cash used in investing activities...... (29,400) (19,278) (25,931)
Financing activities
Repayment of short-term borrowings............. (12,159) (3,503) (7,312)
Repayment of long-term debt.................... (11,314) (82,396) (48,417)
Issue of short-term borrowings................. 5,882 637 1,551
Issue of long-term debt........................ -- 88,572 35,656
Changes in additional paid-in capital.......... 19,779 (910) 34,477
-------- -------- --------
Net cash provided by financing activities.. 2,188 2,400 15,955
Effect of changes in exchange rates on cash and
cash equivalents................................ (592) (54) 1,825
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................... 9,045 (4,447) 336
Cash and cash equivalents, beginning of
year...................................... 2,644 7,091 6,755
-------- -------- --------
Cash and cash equivalents, end of year..... $ 11,689 $ 2,644 $ 7,091
======== ======== ========
Supplemental disclosure of cash flow information
Net cash paid (received) during the year for:
Interest....................................... $ 6,771 $ 6,784 $ 10,012
Income taxes................................... 6,025 (128) (923)
See notes to the combined financial statements
F-47
NONWOVENS BUSINESS
BASIS OF PRESENTATION
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
GENERAL
The consolidated financial statements of Dominion Textile Inc. (the
"Corporation"), a Canadian company, have been issued to stockholders.
All dollar amounts in the combined financial statements are stated in US
dollars.
The combined financial statements of the Nonwovens Business of Dominion
Textile Inc. (the "Business") include the operations of Poly-Bond Inc.,
Nordlys S.A., Dominion Nonwovens Sudamericana S.A. and of Dominion Industrial
Fabrics Company, which were operated as subsidiaries or divisions of Dominion
Textile Inc. On December 19, 1997, pursuant to a takeover offer, DT
Acquisition Inc., an affiliate of Polymer Group, Inc. ("PGI") acquired all
shares tendered which approximated 98% of the outstanding common stock of the
Corporation. In connection with the change of control, PGI entered into a
preliminary agreement with Galey & Lord, Inc., to sell it certain operations.
In contemplation of the change in control and the subsequent sale of certain
operations, the operations and the net assets of the Corporation have been
essentially divided into two groups: the Apparel Fabrics Business and the
Nonwovens Business.
The combined financial statements have been prepared using the Corporation's
historical basis in the assets and liabilities and historical results of
operations related to the Business. Changes in additional paid-in capital
represent the Corporation's contribution of its net operating investment plus
net cash transfers to or from the Corporation. The combined financial
statements reflect the results of operations, financial position and cash
flows of the Business as if it had operated as a separate entity for all
periods presented and may not be indicative of actual results of operations
and financial position of the Business under different ownership.
Additionally, the combined financial statements include allocations of
certain corporate headquarters assets, liabilities (excluding deferred income
taxes), and net expenses. All significant intergroup transactions and balances
have been eliminated.
ALLOCATIONS
The liabilities of the Business include outstanding direct third-party
indebtedness and the amount of debt based on the ratio of the Business'
average net operating investment to the aggregate net operating investment of
the two groups. Interest expense shown in the combined financial statements
reflects the interest expense associated with the aggregate borrowings for
each period presented principally based on a blend of the Corporation's long-
term weighted average interest rates for the applicable period.
General corporate overhead related to the Corporation's headquarters has
been allocated to the Business based on the ratio of the Business' sales to
the aggregate sales of the Corporation. The costs of these services charged to
the Business are not necessarily indicative of the costs that would have been
incurred if the Business had performed these functions as a stand-alone
entity. Additionally, income taxes on allocated general corporate overhead are
calculated using the Corporation's statutory rate.
Management believes that the basis of allocation is reasonable.
F-48
NONWOVENS BUSINESS
BASIS OF PRESENTATION--(CONTINUED)
The following table illustrates the results of applying the allocation
method described above on various financial statement items:
FOR THE YEARS ENDED
JUNE 30,
-------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
Net impact on gross profit.................... $(1,143) $ (305) $ (166)
General corporate overhead, net............... (1,923) (2,421) (6,170)
Recovery of income taxes...................... 805 1,087 2,039
Extraordinary loss on early extinguishment of
debt......................................... -- (1,017) --
------- ------- -------
$(2,261) $(2,656) $(4,297)
======= ======= =======
AS OF JUNE 30,
----------------
1997 1996
------- -------
(IN THOUSANDS)
Net assets excluding long-term debt........... $ 4,732 $ 118
Long-term debt................................ 77,950 87,424
Cumulative translation adjustment............. (1,408) (167)
F-49
NONWOVENS BUSINESS
SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
The combined financial statements have been prepared in accordance with U.S.
generally accepted accounting principles. 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 and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. The most significant accounting policies are as follows:
The combined financial statements include the accounts of Poly-Bond Inc.,
Nordlys S.A., Dominion Nonwovens Sudamericana S.A. and of Dominion Industrial
Fabrics Company, plus certain allocations from the corporate headquarters as
explained in the basis of presentation. All significant intercompany
transactions are eliminated.
The business acquisitions are accounted for using the purchase method. The
assets and liabilities of the acquired entities are adjusted to appropriate
carrying values.
NATURE OF OPERATIONS
The Business produces nonwoven fabrics used in hygiene, medical and
industrial markets. The Business also supplies custom designed technical
fabrics for inherently flame resistant protective wear, cloth coated abrasives
and a variety of other industrial applications.
FISCAL YEAR
The Business' fiscal year is the 52- or 53-week ending on the last Saturday
in June. Fiscal 1995 includes operations for a 52-week period, whereas fiscal
1996 includes operations for a 53-week period and fiscal 1997 includes
operations for a 52-week period.
TRANSLATION OF FOREIGN CURRENCIES
Unrealized translation gains and losses on assets and liabilities
denominated in foreign currencies are reflected in income of the period.
Unrealized translation gains or losses on debt designated as a hedge of
foreign self-sustaining operations are included in the cumulative translation
adjustment in stockholders' equity.
The assets and liabilities of foreign operations, all of which are self-
sustaining, are translated at exchange rates in effect at the balance sheet
dates. Revenue and expense items are translated at average exchange rates
prevailing during the period. The resulting gains and losses are accumulated
in the cumulative translation adjustment in stockholders' equity.
FINANCIAL INSTRUMENTS
The Business enters into a variety of financial instruments to manage its
exposure to foreign currency rates. These instruments are used for hedging
purposes and are employed in connection with an underlying asset, liability,
firm commitment or anticipated transaction.
F-50
NONWOVENS BUSINESS
SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Gains and losses on hedges of existing assets and liabilities are included
in the carrying amounts of those assets and liabilities and are ultimately
recognized in income as part of those carrying amounts. Gains and losses
related to qualifying hedges of firm commitments or anticipated transactions
are also deferred and recognized in income or as adjustments of carrying
amounts when the hedged transaction occurs. Gains and losses on financial
instruments that do not qualify as hedges for accounting purposes are
recognized in income.
CASH EQUIVALENTS
Cash equivalents include all highly liquid short-term instruments purchased
with a maturity of three months or less.
INVENTORY VALUATION
Inventories are valued at the lower of cost (determined substantially on the
first-in, first-out method) and net realizable value or replacement value for
certain supplies. The cost of work in process and finished goods includes raw
materials, direct labor and certain manufacturing overhead expenses. Adequate
provision is made for slow moving and obsolete inventories.
DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at historical cost. Depreciation is
provided on a straight-line basis at varying rates which allocate the cost of
the assets over their estimated economic lives. Buildings are amortized
primarily over 25 years and machinery and equipment over 3 to 15 years.
Goodwill which represents, at the acquisition date, the excess of cost over
the fair value of companies acquired, is amortized on a straight-line basis
over a maximum of 40 years. The Business evaluates the carrying value of
goodwill for potential permanent impairment on an ongoing basis. In order to
determine if such a permanent impairment exists, the Business' management
considers each business unit's financial condition and expected future cash
flows, using projected financial performance. A permanent impairment in the
value of goodwill is written off against income in the year such impairment is
recognized.
Other intangible assets are amortized over their respective estimated useful
lives for periods ranging from 4 to 25 years. Deferred refinancing costs are
amortized over the term of the related debt.
ADOPTION OF NEW ACCOUNTING STANDARD
During 1997, the Business adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of." SFAS 121 establishes
accounting standards for recording the impairment of long-lived assets,
certain identifiable intangibles, goodwill and assets to be disposed of. The
management determined that no impairment loss was needed to be recognized for
applicable assets of its operations. Such determination does not envisage the
change of control described in the basis of presentation.
F-51
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1. RESTRUCTURING CHARGE
In the fourth quarter of 1997, the Business recorded a $0.9 million
provision for its share in a company-wide cost reduction program. This charge
provided for severance payments and rationalization costs in the general and
administrative areas to be implemented in 1998.
2. OTHER INCOME, NET
FOR THE YEARS
ENDED JUNE 30,
------------------
1997 1996 1995
----- ----- ----
(IN THOUSANDS)
Gain (loss) on disposal of property, plant and
equipment............................................ $(307) $ 61 $188
Business' share in gain realized upon termination of
pension plan......................................... 926 739 --
Other items, net...................................... (517) (670) 589
----- ----- ----
$ 102 $ 130 $777
===== ===== ====
3. INCOME TAXES
The Business follows Statement of Financial Accounting Standards No. 109 in
accounting for income taxes.
Dominion Textile Inc., as a Canadian company, is subject to Canadian tax
legislation. The combined income taxes differ from the income taxes calculated
using the Canadian statutory rates for the following reasons:
1997 1996 1995
------- ------ -------
(IN THOUSANDS)
Income (loss) before income taxes.............. $19,235 $6,281 $(2,876)
Statutory income tax rates in Canada........... 38.83% 38.95% 38.80%
Income taxes based on combined basic Canadian
federal and provincial rates.................. $ 7,469 $2,446 $(1,116)
Increase (decrease) in income taxes resulting
from:
Nondeductible items.......................... 200 172 --
Revenue not currently taxable................ (476) (1,100) (277)
Utilization of tax benefits carried forward.. (140) (1,103) (327)
Other........................................ (193) 684 490
------- ------ -------
$ 6,860 $1,099 $(1,230)
======= ====== =======
Income taxes (recovery)
Current...................................... $ 6,676 $ 474 $ (778)
Deferred..................................... 184 625 (452)
------- ------ -------
Total income taxes......................... $ 6,860 $1,099 $(1,230)
======= ====== =======
F-52
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
At June 30, 1997 and 1996, the deferred tax assets (included in other
current assets) and the deferred tax liability are as follows:
1997 1996
------- -------
(IN THOUSANDS)
Deferred tax assets
Accounts receivable................................... $ (7) $ 28
Non-deductible items.................................. 890 441
------- -------
$ 883 $ 469
======= =======
Deferred tax liability
Property, plant and equipment......................... $18,209 $17,660
The Internal Revenue Service is examining the income tax returns of Dominion
Textile (USA) Inc., a company under common control, for the years 1987 through
1989. Management is of the opinion that it has adequately provided for any
additional income taxes that may be assessed as a result of this examination.
Foreign tax credits would offset the amount of undistributed income of
international subsidiaries which would be subject to additional income taxes
if distributed.
4. INVENTORIES
1997 1996
------- -------
(IN THOUSANDS)
Finished goods................................................. $10,557 $12,722
Work in process, including greige fabric for further
processing.................................................... 5,499 5,932
Raw materials and supplies..................................... 9,697 6,853
------- -------
$25,753 $25,507
======= =======
5. INVESTMENT IN DOMINION NONWOVENS SUDAMERICANA S.A.
During the year, the Business invested $9.5 million, including related
costs, for a 50% interest in a newly formed company located in Argentina,
Dominion Nonwovens Sudamericana S.A. (DNS). DNS will manufacture and market
nonwovens to hygiene markets in South America. Commercial operations have
started in November 1997.
6. PROPERTY, PLANT AND EQUIPMENT, NET
1997 1996
-------- --------
(IN THOUSANDS)
Land........................................................ $ 264 $ 329
Buildings and leasehold improvements........................ 28,881 30,519
Less: Accumulated depreciation.............................. (9,037) (9,200)
-------- --------
20,108 21,648
-------- --------
Machinery and equipment..................................... 174,986 161,608
Less: Accumulated depreciation.............................. (73,357) (65,567)
-------- --------
101,629 96,041
-------- --------
$121,737 $117,689
======== ========
F-53
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation and amortization of property, plant and equipment amounts to
$13,982, $12,336 and $11,871 in 1997, 1996 and 1995, respectively.
7. INTANGIBLE ASSETS, NET
1997 1996
------- -------
(IN THOUSANDS)
Goodwill...................................................... $24,410 $24,743
Other......................................................... 2,987 3,033
------- -------
27,397 27,776
Less: Accumulated amortization................................ (8,355) (7,660)
------- -------
$19,042 $20,116
======= =======
Total intangible asset amortization charged to income amounts to $735, $744
and $679, in 1997, 1996 and 1995, respectively.
8. OTHER ASSETS
1997 1996
------ ------
(IN
THOUSANDS)
Deferred refinancing and other costs............................. $3,903 $2,363
Note receivable (a).............................................. -- 2,246
------ ------
$3,903 $4,609
====== ======
- --------
(a) The $10.0 million note received on the sale of Wayn-Tex Inc., a former
subsidiary of the Corporation, and due in August 1999, was prepaid
subsequent to year-end and accordingly has been reclassified in other
current receivables at June 30, 1997. The Business was allocated a portion
of the note based on the allocation method explained in the basis of
presentation. The interest rate on the note was 11.75%.
9. LONG-TERM DEBT
The Business' long-term debt is as follows:
1997 1996
------- -------
(IN THOUSANDS)
Secured
Capital lease (a).................................... $ 5,433 $ 6,760
Unsecured
Business' share in general corporate long-term debt
(b)................................................. 77,950 87,424
Other................................................ 767 1,281
------- -------
84,150 95,465
Long-term debt due within one year..................... (923) (986)
------- -------
$83,227 $94,479
======= =======
- --------
(a) The capital lease is payable in French francs and is due through July 15,
2004 and bears interest based on governmental debt average rates.
F-54
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(b) As of June 30, 1997 and 1996, the general corporate long-term debt is as
follows:
1997 1996
-------- --------
(IN THOUSANDS)
Unsecured and Guaranteed Senior Notes, Due November 2003
(i).................................................... $150,000 $150,000
Unsecured and Guaranteed Senior Notes, Due April 2006
(ii)................................................... 125,000 125,000
Unsecured Revolving Credit Facility..................... -- 57,000
Other................................................... -- 686
-------- --------
275,000 332,686
Long-term debt due within one year...................... -- (56)
-------- --------
$275,000 $332,630
======== ========
- --------
(i) These notes were issued by Dominion Textile (USA) Inc. and are
unconditionally guaranteed by the Corporation.
(ii) In 1996, the Corporation completed a refinancing plan which included
the issue by Dominion Textile (USA) Inc. of $125 million of Guaranteed
Senior Notes and the concurrent arrangement of the Revolving Credit
Facility. Proceeds of the senior notes and from certain simultaneous
borrowings under the Revolving Credit Facility were used to prepay
secured loans outstanding (including prepayment premiums and accrued
interest).
The Revolving Credit Facility of $100 million will mature on April 1,
2001 and bears interest at a floating rate equal to, at the borrower's
option (i) the higher of the prime rate or Federal Funds Rate plus
0.5%; or (ii) Libor plus a margin which is subject to change within a
range of 0.5% and 2.0% depending on the consolidated debt to cash flow
ratio of the Corporation. Interest payment dates vary in accordance
with the maturity period selected for each borrowing made under the
facility. The facility also provides for availability of letters of
credit.
The credit facilities governing the long-term indebtedness of the
Corporation contain covenants which include, among others, covenants
restricting certain investments, capital expenditures, other
indebtedness, disposition of assets, mergers and acquisitions, liens
and encumbrances, and also set out certain financial covenants. These
financial covenants include, among others, requirements for the
Corporation to maintain various consolidated financial ratios and net
worth levels in excess of predefined levels.
In addition, the change of control, discussed in the basis of
presentation, will cause Dominion Textile (USA) Inc. to offer, within
30 days after the change of control, to repurchase all outstanding
senior notes at a predefined price.
As of June 30, 1997, letters of credit aggregating $4.3 million were
issued, representing contingent liabilities of the Corporation under
the Revolving Credit Facility and $95.7 million was unutilized and
available.
(c) The payments required on the long-term debt are as follows:
BUSINESS'
CORPORATION SHARE
----------- ---------
(IN THOUSANDS)
1998................................................... $ -- $ 923
1999................................................... -- 827
2000................................................... -- 721
2001................................................... -- 787
2002................................................... -- 860
2003 and subsequent years.............................. 275,000 80,032
-------- -------
$275,000 $84,150
======== =======
F-55
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(d) Interest expense related to long-term debt totaled $8.4 million, $6.9
million and $7.7 million, in 1997, 1996 and 1995, respectively.
(e) The following table presents the interest rates as of June 30, 1997:
Canadian prime rate................ 4.75%
US prime rate...................... 8.50%
Federal Funds rate................. 5.63%
Libor--3-month period.............. 5.81%
(f) As of June 30, 1997, the Business maintained other available bank lines of
credit for general corporate purposes, at the bank's prime rate of
interest or equivalents, to meet normal operating requirements.
10. FINANCIAL INSTRUMENTS
Risk management
The Business operates internationally and is exposed to market risks from
changes in foreign exchange rates.
Foreign currency hedging
During the period, the Business used forward contracts to hedge certain
operating and capital cash flows. As of June 30, 1997, $20.9 million notional
amount of forward exchange contracts were outstanding.
Interest rates
Substantially all long-term debt is issued at fixed interest rates.
Fair values
Fair values approximate amounts at which financial instruments could be
exchanged between willing parties, based on current markets for instruments of
the same risk, principal and remaining maturities. Fair values are based on
estimates using present value and other valuation techniques which are
significantly affected by the assumptions used concerning the amount and
timing of future cash flows and discount rates which reflect varying degrees
of risk.
Therefore, due to the use of subjective judgment and uncertainties, the
aggregate fair value amount should not be interpreted as being realizable in
an immediate settlement of the instruments.
As of June 30, 1997 and 1996 the carrying value of all financial instruments
approximates fair value with the following exceptions:
1997 1996
------------------------- -------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
(IN THOUSANDS)
Long-term debt.......... $84,150 $86,380 $95,470 $92,386
Forward exchange
contract position...... -- (1,172) -- --
F-56
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Credit risk
The Business is exposed to credit-related losses in the event of non-
performance by counterparties to financial instruments, but it does not expect
any counterparties to fail to meet their obligations, given their high credit
ratings. Where appropriate, the Business obtains collateral in the form of
rights to securities or arranges master netting agreements. The credit
exposure of the financial instruments is represented by the fair value of
contracts with a positive fair value at the reporting date, reduced by the
effects of master netting agreements.
The Business is exposed to credit risk from customers. However, the Business
has a large number of diverse customers which minimizes the concentration of
this risk. Sales to one customer represented 11% in 1995 and sales to two
customers represented 18% and 33% in 1996 and 1997, respectively, of the
Business' combined sales.
Guarantees
As of June 30, 1997, the Corporation had outstanding guarantees of $4.3
million (1996 - nil) representing financial guarantees issued in the normal
course of business.
11. CUMULATIVE TRANSLATION ADJUSTMENT
The changes in the cumulative translation adjustment are as follows:
1997 1996
------- -------
(IN THOUSANDS)
Balance at beginning.................................... $ 1,568 $ 3,732
Changes during the year................................. (5,080) (2,164)
------- -------
Balance at end.......................................... $(3,512) $ 1,568
======= =======
12. EMPLOYEE BENEFITS
Defined benefit pension plans
The Corporation maintains defined benefit pension plans that provide for
pensions for both hourly and salaried employees based on length of service and
rate of pay. The Corporation funding policy is to make contributions to its
pension funds based on various actuarial cost methods as permitted by pension
regulatory bodies. The companies are responsible to adequately fund the plans.
Plan assets at June 30, 1997 and 1996 consisted primarily of listed stocks,
mutual funds and bonds. Contributions reflect actuarial assumptions concerning
future investment returns, salary projections and future service benefits.
The cost of pensions is accrued and charged to income over employees'
working lives. Pension expense was calculated using a value of assets adjusted
to market over periods of up to five years. The weighted average discount rate
was 7.75% in 1997, 1996 and 1995, the rate of increase in future compensation
levels used in determining the actuarial present value of the accrued pension
benefits was 5.0% in 1997 (1996 and 1995 - 5.0% to 6.5%), and the expected
long-term rate of return on plan assets was 8.0% in 1997 and 1996.
F-57
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the Corporation's defined benefit pension plans as of
the most recent valuation dates for June 30, 1997 and 1996, is as follows:
1997 1996
----------------------- -----------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
(IN THOUSANDS)
Actuarial present value
of benefit obligation... $(22,174) $(30,166) $(38,794) $(29,374)
-------- -------- -------- --------
Accumulated benefit
obligation.............. (22,331) (30,846) (39,116) (29,905)
-------- -------- -------- --------
Projected benefit
obligation for service
rendered to date........ (23,277) (33,828) (39,998) (31,659)
Plan assets at fair
value................... 32,742 26,339 53,957 23,115
-------- -------- -------- --------
Projected benefit
obligation less than (in
excess of) plan assets.. 9,465 (7,489) 13,959 (8,544)
Unrecognized net (gain)
loss.................... (9,210) 353 (13,200) 1,854
Additional minimum
liability recognized.... -- (1,912) (105) (2,263)
Prior service cost not
yet recognized in net
periodic pension cost... 370 2,753 413 3,088
Unrecognized net (asset)
liability at transition. (263) 1,719 (596) 425
-------- -------- -------- --------
Pension asset
(liability)............. $ 362 $ (4,576) $ 471 $ (5,440)
======== ======== ======== ========
The Corporation's net pension cost for 1997, 1996 and 1995 includes the
following:
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
Service cost--benefits earned during the
year....................................... $ 1,726 $ 1,665 $ 2,026
Interest cost on projected benefit
obligation................................. 3,183 2,891 8,034
Actual return on plan assets................ (5,254) (7,235) (14,907)
Settlement loss............................. 466 -- --
Net amortization and deferral............... 2,752 5,492 7,560
------- ------- --------
$ 2,873 $ 2,813 $ 2,713
======= ======= ========
Termination of pension plans
In 1996, Dominion Textile Inc. terminated the Staff Retirement Income Plan
for Employees at Locations in a Province Other Than Quebec (the "Ontario
Plan") and proposed to its members to share the surplus equally between the
members and the Corporation. The proposal was approved in 1997 by the members
and by the Pension Commission of Ontario. A gain of $0.9 million representing
the Business' share of the Ontario Plan surplus has been recorded and included
under the caption "Other income, net", in the combined statements of income.
F-58
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In 1995, Dominion Textile Inc. terminated the Staff Retirement Income Plan
for Employees at Locations in the Province of Quebec (the "Quebec Plan") and
proposed to its members to share the surplus equally between the members and
the Corporation. The proposal was approved by the members in 1996 and Dominion
Textile Inc. received $17.5 million, representing its share of the Quebec Plan
surplus. A gain of $0.7 million representing the Business' share of proceeds
received in excess of the net pension asset was recorded.
Capital accumulation plans
The Business' expense with respect to capital accumulation plans amounted to
$0.6 million in 1997, $0.6 million in 1996 and $0.3 million in 1995.
Other benefits
In addition to its pension plans, the Corporation provides certain health
care and life insurance benefits for a large number of its retired employees
in North America who have met the eligibility conditions. The cost of the
other benefits is charged to income as expenditures are incurred.
The following table sets forth the status of the Corporation's plan based on
the latest actuarial valuations:
1997 1996
------- -------
(IN THOUSANDS)
Retirees................................................. $ 7,626 $ 9,194
Fully eligible active plan participants.................. 1,772 2,125
Other active plan participants........................... 4,490 4,439
------- -------
13,888 15,758
Unrecognized gain........................................ 1,112 518
------- -------
Postretirement obligation................................ $15,000 $16,276
======= =======
The Corporation's net periodic postretirement benefit cost for 1997, 1996
and 1995 consisted of the following components:
1997 1996 1995
----- ------ ------
(IN THOUSANDS)
Service cost--benefits earned during the period... $ 414 $ 407 $ 537
Interest cost on accumulated postretirement
benefit obligation............................... 983 1,146 1,526
Net gain (including $0.7 million in 1997 for
settlements)..................................... (724) (112) (306)
----- ------ ------
$ 673 $1,441 $1,757
===== ====== ======
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10%, 14% and 14%, gradually declining to
6% and 5% by 2003 in 1997, 1996 and 1995, respectively, after which it remains
constant. A one-percentage-point increase in the assumed health care cost
trend rate would increase the accumulated postretirement benefit obligation by
approximately 8%, 9%, and 11% and would increase the periodic service and
interest costs by approximately 9%, 16% and 17%, during fiscal 1997, 1996 and
1995, respectively. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% during fiscal 1997,
1996 and 1995.
F-59
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Summary
The Business' share in the Corporation's employee benefit plans, based on
its proportionate number of employees, is as follows:
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
Net benefit costs
Pension plans........................................... $629 $616 $594
Postretirement benefit other than pensions.............. 147 316 385
1997 1996
------ ------
(IN
THOUSANDS)
Unfunded obligation, net
Pension plans............................................. $ 923 $1,110
Postretirement benefit other than pensions................ 3,285 3,565
13. COMMITMENTS AND CONTINGENT LIABILITIES
Lease commitments
As of June 30, 1997, the future minimum payments for building and equipment
leases with initial non-cancellable lease terms in excess of one year are as
follows:
1998.............................. $1,267
1999.............................. 1,192
2000.............................. 1,030
2001.............................. 947
2002.............................. 769
2003 and subsequent years......... 24
------
$5,229
======
Other commitments
As of June 30, 1997, the Business had outstanding purchase contracts for
cotton and other fibers of approximately $8.0 million and commitments for
capital expenditures of approximately $33.0 million.
Environmental matters
The Business, primarily as a result of its manufacturing operations, is
subject to numerous environmental laws and regulations and exposed to
liabilities and compliance costs arising from its past and current generation,
management and disposition of hazardous substances and wastes. Based on
information presently available, management believes that the existing
accruals are sufficient to satisfy probable and reasonably estimable
environmental liabilities related to known environmental matters.
Litigation
In the normal course of operations, the Business becomes involved in various
claims and legal proceedings. While the final outcome with respect to claims
and legal proceedings pending at June 30, 1997 cannot be predicted with
certainty, it is the opinion of management that their resolution will not have
an adverse material effect on the Business' combined financial position or
results of operations.
F-60
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
14. SEGMENTED INFORMATION
The nonwovens arm of the Business produces and markets nonwoven fabrics used
in hygiene, medical and industrial markets. The industrial products arm
produces woven fabrics for protective apparel and industrial applications.
INDUSTRIAL
NONWOVENS PRODUCTS TOTAL
--------- ---------- --------
(IN THOUSANDS)
1997
Sales to customers....................... $144,501 $57,632 $202,133
Operating income......................... 24,459 2,223 26,682
Depreciation and amortization............ 13,169 1,548 14,717
Capital expenditures..................... 17,413 4,443 21,856
Identifiable assets...................... 189,136 43,445 232,581
1996
Sales to customers....................... $132,151 $56,739 $188,890
Operating income......................... 9,980 3,378 13,358
Depreciation and amortization............ 11,656 1,424 13,080
Capital expenditures..................... 19,190 2,629 21,819
Identifiable assets...................... 175,729 37,455 213,184
1995
Sales to customers....................... $113,370 $55,024 $168,394
Operating income......................... 3,842 2,419 6,261
Depreciation and amortization............ 10,964 1,586 12,550
Capital expenditures..................... 21,299 974 22,273
F-61
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
UNITED
CANADA STATES INTERNATIONAL ELIMINATIONS TOTAL
------- ------- ------------- ------------ --------
(IN THOUSANDS)
1997
Sales to customers (a). $57,736 $76,594 $67,803 $ -- $202,133
Transfers between
geographic areas (b).. 8 -- -- (8) --
------- ------- ------- ------- --------
57,744 76,594 67,803 (8) 202,133
Income from operations. 438 23,107 3,137 -- 26,682
Identifiable assets.... 33,686 133,128 65,767 -- 232,581
1996
Sales to customers (a). 56,946 55,307 76,637 -- 188,890
Transfers between
geographic areas (b).. 40 42,306 -- (42,346) --
------- ------- ------- ------- --------
56,986 97,613 76,637 (42,346) 188,890
Income from operations. 3,206 8,488 1,664 -- 13,358
Identifiable assets.... 36,357 118,556 58,271 -- 213,184
1995
Sales to customers (a). 55,170 37,990 75,234 -- 168,394
Transfers between
geographic areas (b).. 35 58,599 -- (58,634) --
------- ------- ------- ------- --------
55,205 96,589 75,234 (58,634) 168,394
Income from operations. 648 1,687 3,926 -- 6,261
- --------
(a) Canadian sales include export sales of $27.9 million (1996--$27.1 million,
1995--$24.7 million) made primarily to the United States.
(b) Transfers between geographic areas are accounted for at prices comparable
to open market prices for similar products and services.
F-62
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS)
1997
Sales.................................. $44,993 $48,059 $53,787 $55,294
Gross profit........................... 10,205 11,691 14,686 14,558
Operating income....................... 4,623 5,447 8,393 8,219
Net income............................. 1,431 1,137 5,504 4,303
1996
Sales.................................. 43,236 46,820 45,730 53,104
Gross profit........................... 7,962 8,306 8,546 11,950
Operating income....................... 2,250 2,353 2,867 5,888
Net income (loss)...................... 11 (122) 1,805 2,471
F-63
NONWOVENS BUSINESS
UNAUDITED CONDENSED COMBINED STATEMENTS OF INCOME AND DEFICIT
(IN THOUSANDS)
THREE MONTHS
ENDED SEPTEMBER
30,
-----------------
1997 1996
------- --------
Sales....................................................... $47,510 $ 44,993
Cost of goods sold.......................................... 36,146 34,788
------- --------
Gross profit................................................ 11,364 10,205
------- --------
Selling expenses............................................ 1,775 2,067
Administrative expenses..................................... 3,542 3,321
Goodwill amortization....................................... 189 194
------- --------
5,506 5,582
------- --------
Operating income............................................ 5,858 4,623
Interest expense, net....................................... (1,556) (1,982)
Other income, net........................................... 25 9
------- --------
Income before provision for income taxes.................... 4,327 2,650
Provision for income taxes.................................. 1,686 1,219
------- --------
Net income.................................................. 2,641 1,431
Deficit, at beginning....................................... (3,789) (16,164)
------- --------
Deficit, at end............................................. $(1,148) $(14,733)
======= ========
See notes to the unaudited condensed combined financial statements
F-64
NONWOVENS BUSINESS
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, JUNE 30,
1997 1997
------------- --------
ASSETS
------
Current assets
Cash and cash equivalents............................ $ 15,862 $ 11,690
Accounts receivable, net of allowance for doubtful
accounts of $486 ($471 as of June 30, 1997)......... 31,349 33,484
Other receivables.................................... 3,479 6,043
Inventories.......................................... 29,166 25,753
Other current assets................................. 2,178 1,448
-------- --------
82,034 78,418
Investment in Dominion Nonwovens Sudamericana S.A...... 9,551 9,481
Property, plant and equipment, net..................... 127,484 121,737
Intangible assets, net................................. 18,801 19,042
Other assets........................................... 4,000 3,903
-------- --------
Total assets....................................... $241,870 $232,581
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable..................................... $ 14,986 $ 14,054
Interest payable..................................... 3,316 1,844
Income taxes payable................................. 886 363
Payroll, related taxes and other employee related
liabilities......................................... 2,837 4,571
Other accrued liabilities............................ 12,307 10,061
Long-term debt due within one year................... 936 923
-------- --------
35,268 31,816
Long-term debt......................................... 87,603 83,227
Deferred income taxes.................................. 18,319 18,209
Other non current liabilities.......................... 7,302 7,489
-------- --------
Total liabilities.................................. 148,492 140,741
-------- --------
Stockholders' equity
Additional paid-in capital........................... 97,848 99,141
Deficit.............................................. (1,148) (3,789)
Cumulative translation adjustment.................... (3,322) (3,512)
-------- --------
Total stockholders' equity......................... 93,378 91,840
-------- --------
Total liabilities and stockholders' equity......... $241,870 $232,581
======== ========
See notes to the unaudited condensed combined financial statements
F-65
NONWOVENS BUSINESS
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS
ENDED
SEPTEMBER 30,
-----------------
1997 1996
-------- -------
Operating activities
Net income................................................ $ 2,641 $ 1,431
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization........................... 4,021 3,776
Deferred income taxes................................... 110 (1,686)
Loss on disposal of property, plant and equipment....... 5 --
Changes in assets and liabilities
Receivables, net........................................ 4,213 5,864
Inventories............................................. (3,550) (2,903)
Other current assets.................................... (756) 131
Other assets............................................ (176) (251)
Current liabilities..................................... 3,799 3,910
Other liabilities....................................... (11) 387
Other, net.............................................. 456 (201)
-------- -------
Net cash provided by operating activities............. 10,752 10,458
-------- -------
Investing activities
Capital expenditures...................................... (10,333) (3,441)
Proceeds from sale of property, plant and equipment....... 16 9
Investment in Dominion Nonwovens Sudamericana S.A......... (69) --
Other, net................................................ 778 284
-------- -------
Net cash used in investing activities................. (9,608) (3,148)
-------- -------
Financing activities
Repayment of short-term borrowings........................ -- (7,286)
Repayment of long-term debt............................... (253) (9,612)
Issue of short-term borrowings............................ -- 1,148
Issue of long-term debt................................... 4,642 (2,902)
Additional paid-in capital................................ (1,293) 17,111
-------- -------
Net cash (used in) provided by financing activities... 3,096 (1,541)
-------- -------
Effect of changes in exchange rates on cash and cash
equivalents................................................ (68) (83)
-------- -------
Net increase in cash and cash equivalents............. 4,172 5,686
Cash and cash equivalents, beginning of period........ 11,690 2,644
-------- -------
Cash and cash equivalents, end of period.............. $ 15,862 $ 8,330
======== =======
Supplemental disclosure of cash flow information
Net cash paid (received) during the period for:
Interest................................................ $ 326 $ (161)
Income taxes............................................ (360) (181)
See notes to the unaudited condensed combined financial statements
F-66
NONWOVENS BUSINESS
BASIS OF PRESENTATION
FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
GENERAL
The consolidated financial statements of Dominion Textile Inc. (the
"Corporation"), a Canadian company, have been issued to stockholders.
All dollar amounts in the combined financial statements are stated in US
dollars.
The combined financial statements of the Nonwovens Business of Dominion
Textile Inc. (the "Business") include the operations of Poly-Bond Inc.,
Nordlys S.A., Dominion Nonwovens Sudamericana S.A. and of Dominion Industrial
Fabrics Company, which were operated as subsidiaries or divisions of Dominion
Textile Inc. On December 19, 1997, pursuant to a takeover offer, DT
Acquisition Inc., an affiliate of Polymer Group, Inc. ("PGI") acquired all
shares tendered which approximated 98% of the outstanding common stock of the
Corporation. In connection with the change of control, PGI entered into a
preliminary agreement with Galey & Lord, Inc., to sell it certain operations.
In contemplation of the change in control and the subsequent sale of certain
operations, the operations and the net assets of the Corporation have been
essentially divided into two groups: the Apparel Fabrics Business and the
Nonwovens Business.
The combined financial statements have been prepared using the Corporation's
historical basis in the assets and liabilities and historical results of
operations related to the Business. Changes in additional paid-in capital
represent the Corporation's contribution of its net operating investment plus
net cash transfers to or from the Corporation. The combined financial
statements reflect the results of operations, financial position and cash
flows of the Business as if it had operated as a separate entity for all
periods presented and may not be indicative of actual results of operations
and financial position of the Business under different ownership.
Additionally, the combined financial statements include allocations of
certain corporate headquarters' assets, liabilities (excluding deferred income
taxes), and net expenses. All significant intergroup transactions and balances
have been eliminated.
ALLOCATIONS
The liabilities of the Business include outstanding direct third-party
indebtedness and the amount of debt based on the ratio of the Business'
average net operating investment to the aggregate net operating investment of
the two groups. Interest expense shown in the combined financial statements
reflects the interest expense associated with the aggregate borrowings for
each period presented principally based on a blend of the Corporation's long-
term weighted average interest rates for the applicable period.
General corporate overhead related to the Corporation's headquarters has
been allocated to the Business based on the ratio of the Business' sales to
the aggregate sales of the Corporation. The costs of these services charged to
the Business are not necessarily indicative of the costs that would have been
incurred if the Business had performed these functions as a stand-alone
entity. Additionally, income taxes on allocated general corporate overhead are
calculated using the Corporation's statutory rate.
Management believes that the basis of allocation is reasonable.
F-67
NONWOVENS BUSINESS
BASIS OF PRESENTATION--(CONTINUED)
The following table illustrates the results of applying the allocation
method described above on various financial statement items:
THREE-MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
------------- -------
(IN THOUSANDS)
Net impact on gross profit........................ $ (350) $ 249
General corporate overhead, net................... (891) (780)
Recovery of income taxes.......................... 353 158
------- -------
$ (888) $ (373)
======= =======
JUNE
SEPTEMBER 30, 30,
1997 1997
------------- -------
(IN THOUSANDS)
Net assets excluding long-term debt............... $ 2,901 $ 4,732
Long-term debt.................................... 82,593 77,951
Cumulative translation adjustment................. (891) (1,408)
F-68
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS 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
Use of Proceeds............................................................ 22
Capitalization............................................................. 23
Selected Historical Consolidated Financial Data--The Company............... 24
Selected Historical Consolidated Financial Data--Nonwovens Business........ 26
Unaudited Pro Forma Financial Information.................................. 28
Recent Transactions........................................................ 31
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 35
Business................................................................... 48
Management................................................................. 66
Certain Relationships and Related Transactions............................. 70
Security Ownership......................................................... 77
Description of Certain Indebtedness........................................ 79
Description of the Exchange Notes.......................................... 83
Registration Rights........................................................ 115
The Exchange Offer......................................................... 116
Certain Federal Income Tax Consequences.................................... 125
Plan of Distribution....................................................... 125
Legal Matters.............................................................. 126
Experts.................................................................... 126
Index to Financial Statements.............................................. F-1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PROSPECTUS
$200,000,000
POLYMER GROUP, INC.
OFFER TO EXCHANGE ITS
8 3/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B FOR ANY AND ALL
OUTSTANDING 8 3/4% SENIOR SUBORDINATED NOTES DUE 2008, SERIES A
LOGO
JULY 1, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company, PGI Polymer, FiberTech, FiberGol, Technetics, Chicopee Holdings,
Chicopee, Fabrene Corp., Poly-Bond, DT USA and FabPro.
The Company and each of PGI Polymer, FiberTech, FiberGol, Technetics,
Chicopee Holdings, Chicopee, Fabrene Corp., Poly-Bond, DT USA and FabPro (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 except DT USA 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 certificates of incorporation, as
amended, of Fabrene Corp. and Poly-Bond exclude 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
II-1
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
II-2
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
II-3
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.
Loretex and Domtex Industries
Loretex and Domtex Industries are incorporated under the laws of the State
of New York. Section 722 ("Section 722") of the New York Business Corporation
Law (the "NYBCL") provides that a New York corporation may indemnify any
person made, or threatened to be made, a party to an action or proceeding
(other than one by or in the right of the corporation to procure a judgment in
its favor), whether civil or criminal, including an action by or in the right
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, which any director or officer of the corporation
served in any capacity at the request of the corporation, by reason of the
fact that he was a director or officer of the corporation, or served such
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise in any capacity. The indemnity may include judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees
actually and necessarily incurred as a result of such action or proceeding, or
any appeal therein, if such director or officer acted, in good faith, for a
purpose which he reasonably believed to be in, or not opposed to, the best
interests of the corporation. In criminal actions, such director or officer
must also have had no reasonable cause to believe that his conduct was
unlawful.
II-5
Section 722 also provides that a corporation may indemnify a director or
officer against an action by or in the right of the corporation to procure a
judgment in its favor for similar amounts if such director or officer acted,
in good faith, for a purpose which he reasonably believed to be in, or not
opposed to, the best interests of the corporation, except that no
indemnification may be made in respect of (1) a threatened action, or a
pending action which is settled or otherwise disposed of, or (2) any claim,
issue or matter as to which such person shall have been adjudged to be liable
to the corporation, unless and only to the extent that the court in which the
action was brought, or, if no action was brought, any court of competent
jurisdiction, determines upon application that, in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such portion of the settlement amount and expenses as the court
deems proper.
The amended and restated certificates of incorporation of Loretex and Domtex
Industries 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 of its stockholders. Article XII of the
by-laws of Loretex provides for indemnification of officers and directors to
the extent and on the conditions described above. Article XII of the by-laws
of Loretex provides similar indemnification for employees or agents.
Article VI of the by-laws of Domtex Industries provides that the corporation
shall indemnify, to the fullest extent permitted by the NYBCL, any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that he is or was a
director or officer of such corporation, or is or was serving at the request
of such corporation as a director or officer of another entity .
Section 726 of the NYBCL further authorizes a corporation to purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the corporation against any liability asserted against him and incurred by
him in any such capacity.
Article XII of the by-laws of Loretex provides that the corporation may
purchase and maintain insurance on its own behalf and on behalf of any person
who is or was a director, officer, employee, or agent of the corporation or
was serving at the request of the 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 Article XII of its
by-laws.
All of the directors and officers of Loretex and Domtex Industries are
covered by insurance policies maintained and held in effect by such
corporation against certain liabilities for actions taken in such capacities,
including liabilities under the Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
2.1 Agreement dated October 27, 1997, among Polymer Group,
Inc., Galey & Lord, Inc. and DT Acquisition Inc.(1)
2.2 Letter Agreement, dated October 27, 1997, among Polymer
Group, Inc., Galey & Lord, Inc. and DT Acquisition Inc.(2)
2.3 Operating Agreement, dated December 19, 1997, among
Polymer Group, Inc., Galey & Lord, Inc. and DT Acquisition
Inc.(1)
2.4 DT Acquisition Inc. Offers to Purchase Statement for all
outstanding Common Shares and all outstanding First
Preferred Shares of Dominion Textile Inc., dated October
29, 1997.(2)
II-6
2.5 Notice of Extension and Variation by DT Acquisition Inc.
in respect of its Offers to Purchase, dated November 18,
1997.(2)
2.6 Notice of Extension by DT Acquisition Inc. in respect of
its Offers to Purchase, dated December 2, 1997.(2)
2.7 Notice of Extension and Variation by DT Acquisition Inc.
in respect of its Offers to Purchase, dated December 8,
1997.(2)
2.8 Notice of Extension by DT Acquisition Inc. in respect of
its Offers to Purchase, dated December 17, 1997.(2)
2.9 Letter Agreement between DT Acquisition Inc., Polymer
Group, Inc. and Dominion Textile Inc. dated November 16,
1997.(2)
2.10 Notice of Redemption pursuant to the provisions of Section
206 of the Canada Business Corporations Act in regard to
holders of Common Shares of Dominion Textile Inc., dated
December 30, 1997.(2)
2.11 Notice of Redemption pursuant to the provisions of Section
206 of the Canada Business Corporations Act in regard to
holders of First Preferred Shares of Dominion Textile
Inc., dated December 30, 1997.(2)
2.12 Notice of Redemption in regard to holders of Second
Preferred Shares, Series D of Dominion Textile Inc., dated
December 23, 1997.(2)
2.13 Notice of Redemption in regard to holders of Second
Preferred Shares, Series E of Dominion Textile Inc., dated
December 23, 1997.(2)
2.14 Indenture, winding up Dominion Textile Inc. pursuant to
the Canada Business Corporations Act, dated January 29,
1998.(2)
2.15 Master Separation Agreement, among Polymer Group, Inc.,
Galey & Lord, Inc. and DT Acquisition Inc., dated January
29, 1998.(3)***
3.1(i) Form of Amended and Restated Certificate of Incorporation
of the Company.(4)
3.1(ii) Certificate of Designation of the Company.(5)
3.2 Amended and Restated By-laws of the Company.(4)
3.3(i) Restated Certificate of Incorporation of Polymer Group,
Inc. (n/k/a PGI Polymer, Inc.)(5)
3.3(ii) Certificate of Amendment to Certificate of Incorporation
of PGI Polymer, Inc.(5)
3.3(iii) Certificate of Amendment to Certificate of Incorporation
of PGI Polymer, Inc.(5)
3.3(iv) Certificate of Amendment to Certificate of Incorporation
of PGI Polymer, Inc.(5)
3.4 Amended and Restated By-laws of PGI Polymer, Inc.(5)
3.5 Certificate of Incorporation of FiberTech Group, Inc.(5)
3.6 By-laws of FiberTech Group, Inc.(5)
3.7 Articles of Incorporation of FiberGol Corporation(5)
3.8 By-laws of FiberGol Corporation(5)
3.9 Certificate of Incorporation of Technetics Group, Inc.(5)
3.10 By-laws of Technetics Group, Inc.(5)
3.11 Certificate of Incorporation of Chicopee Holdings, Inc.(5)
3.12 By-laws of Chicopee Holdings, Inc.(5)
3.13(i) Restated Certificate of Incorporation of Chicopee, Inc.(5)
II-7
3.13(ii) Certificate of Amendment to Certificate of Incorporation
of Chicopee, Inc.(5)
3.14 By-laws of Chicopee, Inc.(5)
3.15(i) Articles of Incorporation of Petropar North America Corp.
(k/n/a PNA Corp.)(5)
3.15(ii) Articles of Amendment to Articles of Incorporation of
Petropar North America Corp. (k/n/a PNA Corp.)(5)
3.16 By-laws of Petropar North America Corp. (k/n/a PNA
Corp.)(5)
3.17(i) Articles of Incorporation of Atlas Corp. (k/n/a FNA
Polymer Corp.)(5)
3.17(ii) Articles of Amendment to Articles of Incorporation of
Atlas, Corp. (k/n/a FNA Polymer Corp.)(5)
3.17(iii) Articles of Amendment to Articles of Incorporation of
Fitesa North America Corp. (k/n/a FNA Polymer Corp.)(5)
3.18 By-laws of Atlas Corp. (k/n/a FNA Polymer Corp.)(5)
3.19(i) Certificate of Incorporation of Fabrene Corp.(5)
3.19(ii) Certificate of Renewal of Fabrene Corp.(5)
3.19(iii) Certificate of Renewal of Fabrene Corp.(5)
3.20 By-laws of Fabrene Corp.(5)
3.21 Certificate of Limited Liability Company of Fabrene Group
L.L.C.(5)
3.22 Limited Liability Company Agreement of Fabrene Group
L.L.C.(5)
3.23 Letters Patent Incorporating of Fabrene Group, Inc.(5)
3.24 By-laws of Fabrene Group, Inc.(5)
3.25 Certificate of Incorporation of Poly-Bond Inc.
3.26 By-laws of Poly-Bond Inc.
3.27 Certificates of Incorporation and Merger of Dominion
Textile (USA) Inc.
3.28 By-laws of Dominion Textile (USA) Inc.
3.29 Certificate of Incorporation of Domtex Industries Inc.
3.30 By-laws of Domtex Industries Inc.
3.31 Certificate of Incorporation of Loretex Corporation
3.32 By-laws of Loretex Corporation
3.33 Certificate of Incorporation of FabPro Oriented Polymers,
Inc.
3.34 By-laws of FabPro Oriented Polymers, Inc.
4.1 Indenture dated as of July 1, 1997 among the Company, the
Guarantors and Harris Trust and Savings Bank, as
trustee.(5)
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.(5)
4.5 Indenture, dated as of March 1, 1998, among Polymer
Group, Inc., the Guarantors named therein and Harris
Trust & Savings Bank, as trustee.(6)
4.6 Forms of Series A and Series B 8 3/4% Senior Subordinated
Notes due 2008 (contained in Exhibit 4.1 as Exhibit A and
B thereto, respectively).
4.7 Form of Guarantee (contained in Exhibit 4.2)
II-8
4.8 Registration Rights Agreement, dated as of March 5, 1998,
among Polymer Group, Inc., the Guarantors named therein
and Chase Securities Inc.(6)
4.9 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.(5)
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.
4.10 First Supplemental Indenture, dated October 27, 1997,
between Polymer Group Inc., Harris Trust and Savings Bank
and Loretex Corporation.(2)
4.11 Second Supplemental Indenture dated January 29, 1998, to
Indenture dated as of June 30, 1997, among Polymer Group,
Inc., Dominion Textile (USA) Inc., DomTex Industries,
Inc., Poly-Bond Inc. and Harris Trust & Savings Bank with
respect to the 9% Senior Subordinated Notes due 2007.(2)
5 Opinion and consent of Kirkland & Ellis.
9 Voting Agreement, dated May 15, 1996, among the Company,
GTC Fund III, Zucker, Boyd, InterTech, FTG, CMIHI and
Leeway.(4)
10.1 Management Agreement dated October 21, 1992 by and among
PGI, FiberTech, GTC Fund III and Jerry Zucker.(7)**
10.2 Amendment No. 1 to Management Agreement dated June 24,
1994 by and among PGI, FiberTech, GTC Fund III and Jerry
Zucker.(7)**
10.3 Management Agreement dated October 21, 1992 by and among
PGI, FiberTech, GTC Fund III and James G. Boyd.(7)**
10.4 Amendment No. 1 to Management Agreement dated June 24,
1994 by and among PGI, FiberTech, GTC Fund III and James
G. Boyd.(7)**
10.5 Agreement dated June 24, 1994 among the Company, Jerry
Zucker and James G. Boyd.(7)
10.6 Lease Agreement dated as of September 1, 1993 by and
between ConX, Inc. and Technetics Group, Inc.(7)
10.7 Amendment No. 2 to Management Agreement dated March 15,
1995 by and among PGI, FiberTech, GTC Fund III and Jerry
Zucker.(7)**
10.8 Amendment No. 2 to Management Agreement dated March 15,
1995 by and among PGI, FiberTech, GTC Fund III and James
G. Boyd.(7)**
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").(7)
10.10 Management Agreement made as of March 15, 1995 by and
among the Company, Chicopee, Inc. and Jerry Zucker.(7)**
10.11 Management Agreement made as of March 15, 1995 by and
among the Company, Chicopee, Inc. and James G. Boyd.(7)**
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.(7)
10.13 Senior Notes Indenture dated as of June 24, 1994 among
the Company, PGI, FiberTech and its subsidiaries and the
Trustee.(7)
II-9
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.(7)
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.(7)
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.(7)
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.(7)
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.(7)
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.(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.(4)
10.21 First Supplemental Indenture dated as of March 15, 1995
between the Company and the Trustees.(8)
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.(8)
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.(4)***
10.25 Stock Purchase Agreement dated as of January 10, 1996
between the Company and ConX II.(4)
10.26 1996 Key Employee Stock Option Plan of the Company.(4)
10.27 Form of Non-Qualified Stock Option Grant.(4)
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.(4)
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.(4)
10.30 Form of Third Supplemental Indenture between the Company
and Harris Trust and Savings Bank, as successor trustee.(4)
10.31 Recapitalization Agreement, dated May 6, 1996, among GTC
Fund III, Zucker, Boyd, InterTech, FTG, CMIHI, Leeway and
CalPERS.(5)
II-10
10.32 Amendment No. 1 to Management Agreement, dated May 15,
1996, by and between the Company, Chicopee and
Zucker.**(5)
10.33 Amendment No. 3 to Management Agreement, dated May 15,
1996, by and between PGI Polymer, GTC Fund III, FiberTech
and Zucker.**(5)
10.34 Amendment No. 1 to Management Agreement, dated May 15,
1996, by and between the Company, Chicopee and Boyd.**(5)
10.35 Amendment No. 3 to Management Agreement, dated May 15,
1996, between PGI Polymer, GTC Fund III, FiberTech and
Boyd.**(5)
10.36 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.(5)
10.37 Indemnification Agreement, dated May 15, 1996, among the
Company, InterTech, GTC Fund III, GTCR, ConX, ConX II,
Zucker and Boyd.(5)
10.38 Fourth Supplemental Indenture between the Company and
Harris Trust and Savings Bank, as successor trustee, dated
August 14, 1996.(9)
10.39 Fifth Supplemental Indenture between the Company and
Harris Trust and Savings Bank, as successor trustee, dated
June 19, 1997.(5)
10.40 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.(5)
10.41 Purchase Agreement, dated February 27, 1998, by and among
Polymer Group, Inc., the Guarantors named therein and
Chase Securities Inc., as Initial Purchaser, with respect
to the 8 3/4% Senior Subordinated Notes due 2008.(5)
10.42 Amendment No. 2, dated January 29, 1998, to the Amended,
Restated and Consolidated Credit Agreement dated July 3,
1997 by and among Polymer Group, Inc., the Guarantors
named therein, the lenders named therein and The Chase
Manhattan Bank, as agent.(5)
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
January 3, 1998 (incorporated by reference from such
filing).
13.2 Quarterly Report on Form 10-Q for the fiscal quarter ended
April 4, 1998 (incorporated by reference from such
filing).
16 Letter of Deloitte & Touche regarding a change in certi-
fied accountants.(2)
21 Subsidiaries of the Company.(2)
23.1 Consent of Ernst & Young LLP
23.2 Consent of Deloitte & Touche
23.3 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.(2)(6)
99.1 Letter of Transmittal
99.2 Notice of Guaranteed Delivery
99.3 Instructions to Holders
- --------
* 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.
II-11
(1) Incorporated by reference to the respective exhibit to the Company's Form
8-K, dated February 13, 1998.
(2) Incorporated by reference to the respective exhibit to the Company's Form
10-K, dated April 3, 1998, for the fiscal year ended January 3, 1998.
(3) Incorporated by reference to the Company's Form 8-K/A, dated April 14,
1998.
(4) Incorporated by reference to the respective exhibit to the Company's
Registration Statement on Form S-1 (Reg. No. 333-2424).
(5) Incorporated by reference to the respective exhibit to the Company's
Registration Statement on Form S-4 (Reg. No. 333-32605).
(6) Incorporated by reference to the respective exhibit of the Company's Form
10-Q, dated May 19, 1998, for the fiscal quarter ended April 4, 1998.
(7) Incorporated by reference to the respective exhibit to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862).
(8) 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.
(9) Incorporated by reference to the respective exhibit to the Company's Form
8-K dated August 14, 1996.
(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
January 3, 1998 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 January 3, 1998.
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;
II-12
(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.
(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-13
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 JUNE 30, 1998.
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 HAS BEEN SIGNED ON JUNE 30, 1998 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, Jr.
* 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-14
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 JUNE 30, 1998.
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 HAS BEEN SIGNED ON JUNE 30, 1998 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, 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 JUNE 30, 1998.
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 HAS BEEN SIGNED ON JUNE 30, 1998 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, 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 JUNE 30, 1998.
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 HAS BEEN SIGNED ON JUNE 30, 1998 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-17
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 JUNE 30, 1998.
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 HAS BEEN SIGNED ON JUNE 30, 1998 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-18
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 JUNE 30, 1998.
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 HAS BEEN SIGNED ON JUNE 30, 1998 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, 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 JUNE 30, 1998.
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 HAS BEEN SIGNED ON JUNE 30, 1998 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, 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 JUNE 30, 1998.
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 HAS BEEN SIGNED ON JUNE 30, 1998 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-21
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 JUNE 30, 1998.
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 HAS BEEN SIGNED ON JUNE 30, 1998 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-22
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 JUNE 30, 1998.
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
JUNE 30, 1998 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 and Secretary
James G. Boyd (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-23
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 JUNE 30, 1998.
Fabrene Group L.L.C.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chief Executive Officer and
President
* * * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDED
REGISTRATION STATEMENT ON FORM S-4 HAS BEEN SIGNED ON JUNE 30, 1998 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 and 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-24
/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-25
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 JUNE 30, 1998.
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 HAS BEEN SIGNED ON JUNE 30, 1998 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE CAPACITY
--------- --------
/s/ Jerry Zucker Chairman of the Board, Chief Executive
___________________________________________ Officer and Director
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-26
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, POLY-BOND 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 JUNE 30, 1998.
Poly-Bond 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 HAS BEEN SIGNED ON JUNE 30, 1998 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-27
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, DOMINION TEXTILE
(USA) 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 JUNE 30, 1998.
Dominion Textile (USA) 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 HAS BEEN SIGNED ON JUNE 30, 1998 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-28
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, LORETEX
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 JUNE 30, 1998.
Loretex 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
JUNE 30, 1998 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-29
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, DOMTEX
INDUSTRIES 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 JUNE 30, 1998.
Domtex Industries 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
JUNE 30, 1998 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-30
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FABPRO ORIENTED
POLYMERS, 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 JUNE 30, 1998.
FabPro Oriented Polymers, 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 HAS BEEN SIGNED ON JUNE 30, 1998 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-31