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Prospectus
Filed Pursuant to Rule 424(B)(3)
Registration No. 333-29293
TULTEX CORPORATION
OFFER TO EXCHANGE
ALL OUTSTANDING
$75,000,000 9 5/8% SENIOR NOTES DUE 2007
($75,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR $75,000,000 9 5/8% SENIOR NOTES DUE 2007
The Exchange Offer Will Expire at 5:00 p.m., Richmond Time
on August 21, 1997, Unless Extended
Tultex Corporation, Inc., a Virginia corporation, hereby offers (the "Exchange
Offer"), upon the terms and subject to the 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 new 9 5/8%
Senior Notes due 2007 (the "Exchange Notes") for each $1,000 principal amount of
its outstanding 9 5/8% Senior Notes due 2007 (the "Old Notes"), of which
$75,000,000 aggregate principal amount is outstanding. The form and terms of the
Exchange Notes are substantially identical to the form and terms of the Old
Notes, except that the Exchange Notes will have been registered under the
Securities Act of 1933, as amended (the "Securities Act"). All references herein
to the "Notes" shall be references to the Old Notes and/or the Exchange Notes,
whichever was, is or will be outstanding in the particular context. See "The
Exchange Offer" and "Description of Exchange Notes."
This Prospectus and Letter of Transmittal are being mailed to all holders of the
Old Notes on July 22, 1997.
See "Risk Factors" Beginning On Page 11 For A Discussion Of Certain Factors That
Should Be Considered In Connection With The Exchange Offer And An Investment In
The Exchange Notes Offered Hereby.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 7, 1997.
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The Exchange Notes will be issued under the Indenture (as defined
below). See '"Description of Exchange Notes."
The Exchange Notes will be fully and unconditionally guaranteed on a
joint and several basis by all direct and indirect Material Subsidiaries (as
defined) of the Company. Presently, the Guarantors are Dominion Stores, Inc.,
Tultex International, Inc., LogoAthletic, Inc., LogoAthletic/Headwear, Inc.,
AKOM, Ltd., Tultex Canada, Inc., and SweatJet Incorporated, Inc., which,
together with any subsequent Guarantors, are collectively referred to as
"Guarantors." See "Description of Exchange Notes--Guarantees of Exchange Notes."
The Company will accept for exchange any and all Old Notes validly
tendered and not withdrawn prior to 5:00 p.m., Richmond time, on August 21,
1997, unless extended by the Company in its sole discretion (the "Expiration
Date"). Tenders of Old Notes may be withdrawn prior to the Expiration Date. Old
Notes may be tendered only in integral multiples of $1,000 principal amount. See
"The Exchange Offer."
The Old Notes were sold on April 10, 1997 in a transaction exempt from
registration under the Securities Act. Payment for the Old Notes was made by
J.P. Morgan Securities Inc. and NationsBanc Capital Markets, Inc. (the "Initial
Purchasers") on April 17, 1997 (the "Closing Date"). The Exchange Notes are
being offered to satisfy certain obligations of the Company under the
Registration Rights Agreement (as defined below) relating to the Old Notes. See
"The Exchange Offer--Purpose and Effect of the Exchange Offer." Exchange Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by the holders thereof (other than
any 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 requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holders' business and
such holders have no arrangement with any person to participate in the
distribution of such Exchange Notes. Each 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 acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and "Plan of Distribution."
The Notes constitute securities for which there is no established
trading market. Any Old Notes not tendered and accepted in the Exchange Offer
will remain outstanding. To the extent that any Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Old Notes
could be adversely affected. No assurance can be given as to the liquidity of
the trading market for either the Old Notes or the Exchange Notes. See "Risk
Factors."
Interest on the Exchange Notes shall accrue from the last April 15 or
October 15 (an "Interest Payment Date") on which interest was paid on the Old
Notes so surrendered, or, if no interest has been paid on such Old Notes, from
April 17, 1997. No interest will be paid on Old Notes accepted for exchange.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. 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. NEITHER THE DELIVERY OF THIS PROSPECTUS 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.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
UPON REQUEST FROM TULTEX CORPORATION, 101 COMMONWEALTH BOULEVARD,
MARTINSVILLE, VIRGINIA, 24401, ATTENTION: KATHY H. ROGERS, SECRETARY,
TELEPHONE 540/632-2961, EXTENSION 3830. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY FIVE BUSINESS DAYS PRIOR TO
EXPIRATION DATE.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION....................................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 4
PROSPECTUS SUMMARY.......................................................... 5
RISK FACTORS................................................................ 11
USE OF PROCEEDS............................................................. 14
CAPITALIZATION.............................................................. 14
SELECTED CONSOLIDATED FINANCIAL DATA........................................ 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................... 17
BUSINESS.................................................................... 21
MANAGEMENT.................................................................. 31
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS................................... 32
THE EXCHANGE OFFER.......................................................... 33
DESCRIPTION OF EXCHANGE NOTES............................................... 38
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS..................... 55
PLAN OF DISTRIBUTION........................................................ 58
LEGAL MATTERS............................................................... 59
EXPERTS..................................................................... 59
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE
"PROSPECTUS SUMMARY," "THE COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED
ELSEWHERE HEREIN REGARDING THE COMPANY'S FINANCIAL POSITION AND BUSINESS
STRATEGY, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE 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 IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH
THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK
FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
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AVAILABLE INFORMATION
The Company and the Guarantors have filed with the Commission a
Registration Statement on Form S-4 under the Securities Act for the registration
of the securities offered hereby. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain items of which are contained in exhibits and
schedules to the Registration Statement as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company, the Guarantors and the securities offered hereby, reference is made to
the Registration Statement, including the exhibits thereto, and financial
statements and notes filed as a part thereof. Statements made in this Prospectus
concerning the contents of any document referred to herein are not necessarily
complete. With respect to each such document filed with the Commission as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Any reports, proxy statements and other information filed with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices in
Chicago, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and in
New York, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such material may also be obtained by mail from the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants who file electronically with the
Commission. In addition, such reports, proxy statements and other information
can be inspected at the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005, on which exchange the common stock of the Company is
listed.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
1. Annual Report on Form 10-K for the fiscal year ended December 28,
1996; and
2. Quarterly Report on Form 10-Q for the fiscal quarter ended
April 5, 1997.
All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the termination of the offering of the New Securities offered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part of
this Prospectus from the date of filing of such document. Any statement
contained herein or 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 or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this
Prospectus including the documents incorporated or deemed to be incorporated
herein by reference, as the same may be amended, supplemented or otherwise
modified from time to time. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein do not purport to
be complete, and where reference is made to the particular provisions of such
contract or other document, such provisions are qualified in all respects by
reference to all of the provisions of such contract or other document. The
Company will provide without charge to any person to whom this Prospectus is
delivered, on the written or oral request of such person, a copy of any or all
of the foregoing documents incorporated by reference herein (other than exhibits
not specifically incorporated by reference into the texts of such documents).
Requests for such documents should be directed to: Tultex Corporation, 101
Commonwealth Boulevard, Martinsville, Virginia, 24401, Attention: Kathy H.
Rogers, Secretary, Telephone 540/632-2961, extension 3830.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and the Company's Annual
Report on Form 10-K for the year ended December 28, 1996 and its Quarterly
Report on Form 10-Q for the fiscal quarter ended April 5, 1997, which are
incorporated by reference in this Prospectus. Unless the context requires
otherwise, "Tultex" or the "Company" refers to Tultex Corporation and its
consolidated subsidiaries. "Guarantors" refers to the Company's wholly owned
subsidiaries that have guaranteed the Notes. Capitalized terms used in this
summary under the caption "The Offering" and not otherwise defined are defined
below under the caption "Description of Exchange Notes--Certain Definitions."
References to "year end" refer to the Company's fiscal year end.
The Company
Tultex Corporation is one of the world's largest marketers and manufacturers of
activewear and licensed sports apparel for consumers and sports enthusiasts. The
Company's diverse product line includes fleeced sweats, jersey products
(outerwear T-shirts), decorated jackets and caps. These products are sold under
the Company's own brands led by the Discus Athletic and LogoAthletic premium
labels and under private labels, including Nike, Reebok and Pro Spirit. In
addition, the Company has numerous professional and college sports licenses to
market and manufacture embroidered and screen-printed products with team logos
and designs under its Discus Athletic, LogoAthletic, Logo 7 and TrackGear
brands. The Company is a licensee of professional sports apparel, holding
licenses from the National Football League, Major League Baseball, the National
Basketball Association, the National Hockey League and the National Association
for Stock Car Auto Racing to manufacture a full range of apparel for adults and
children.
Historically a producer of quality fleecewear, in recent years Tultex has
successfully pursued a strategy to enhance its competitiveness and to capitalize
on growth opportunities by becoming a consumer-oriented apparel maker able to
compete in a changing industry. This strategy includes the following elements:
. Promoting Higher-Margin Products. The Company continues to strengthen its
competitiveness through (i) the development of branded and private label,
higher-quality and higher-margin products to supplement its traditionally
strong position in the lower-priced segment of the business and (ii) since
1991, the manufacture of jersey products. The Company has developed its own
brands, promoting Discus Athletic and LogoAthletic for its premium products
and using the Tultex and Logo 7 labels for the value-oriented and wholesale
segments of the market. Discus Athletic's highly visible advertising during
televised broadcasts of college football and basketball on the ESPN and ABC
television networks and sports marketing sponsorships, such as ProBeach
Women's Volleyball, have contributed to significant annual increases in
sales of this brand since 1992. In addition, Tultex has partnering
arrangements to supply higher-quality, private label products to companies
such as Reebok and Nike, none of which accounted for more than 10% of the
Company's consolidated sales during 1996. Sales of the higher-margin
branded and premium private label products have grown from 13.8% of
consolidated sales in 1993 to 37.6% in 1996.
. Expanding into Licensed Apparel Business to Complement Activewear Business.
Tultex's 1992 acquisitions of Logo 7, Inc. ("LogoAthletic"), a marketer of
licensed sports apparel, and Universal Industries, Inc.
("LogoAthletic/Headwear"), a marketer of sports licensed headwear,
contributed to the Company's achieving the third largest market share
(11.8%) in the higher-margin licensed apparel business in 1995, and created
opportunities for significant manufacturing and distribution synergies with
the Company's activewear business. The promotion of the LogoAthletic brand
of licensed apparel through television and print advertising, as well as
promotional arrangements featuring Dallas Cowboys' Troy Aikman, Miami
Dolphins' Dan Marino, Denver Broncos' John Elway, Kansas City Chiefs'
Marcus Allen, and the Buffalo Bills' Bruce Smith, among others, has helped
to increase the visibility and sales of LogoAthletic products.
. Strengthening Customer Relationships. Tultex actively pursues strong
relationships with department, sporting goods and other specialty stores,
such as Sears, JC Penney, Modell's, Dillard's, Foot Locker, Champs and
Sports Authority, to distribute its higher margin branded and private label
products. In addition, the Company continues to strengthen its
relationships with high volume retailers such as Wal-Mart, Kmart and Target
by supplying private label, Tultex and Logo 7 products. Tultex provides
customers with exceptional service and support; as an example, its
distribution capabilities are highly responsive to customers' changing
delivery and inventory management requirements.
. Increasing Emphasis on Wholesale Distribution. In recent years, Tultex has
placed increased emphasis on distribution channels acquiring California
Shirt Sales, Inc., Fullerton, California ("California Shirt"), a major
jerseywear distributor in 11 western states and Hawaii, in April 1997 and
acquiring T-Shirt City, Inc.,
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a major distributor of fleecewear and jerseywear in the Midwest, in May
1997. See "Business--Recent Developments."
. Vertically Integrating. The Company's activewear business is vertically
integrated, spinning approximately 80-85% of the yarn it requires in three
yarn plants located in North Carolina (the balance is purchased under yarn
supply contracts) and knitting, dyeing and cutting fabric and sewing
finished goods in eight plants in Virginia and North Carolina and one plant
in Jamaica. The Company's licensed apparel operations are conducted from
one plant in Indiana, one plant in Massachusetts, and one plant in North
Carolina.
The Company's strategy has improved its sales mix. While net sales increased
8.7% in fiscal 1996 over 1995, net sales of Discus Athletic activewear,
LogoAthletic licensed apparel and premium private label products increased 23.7%
to $239.3 million. Sales of jersey products were $112.4 million for the fiscal
year ended December 28, 1996, representing 27.5% of the Company's activewear
sales during such period compared to 24.0% for fiscal 1995.
Trademarks and service marks of the Company are italicized where they appear in
this Prospectus. Tultex(R), Discus Athletic(R) and The Sweatshirt Company(R) are
registered trademarks of the Company. Logo 7(R) and LogoAthletic(R) are
registered trademarks of the Company's subsidiary, LogoAthletic, Inc.
TrackGear(TM) is a trademark of the Company's TrackGear subsidiary. The
Company's principal executive offices are located at 101 Commonwealth Boulevard,
Martinsville, Virginia 24112, telephone 540/632-2961.
The Financing
Net proceeds of the offering of the Old Notes were used to repay approximately
$65 million of borrowings outstanding under the Company's Senior Credit Facility
with a group of commercial banks (the "Senior Credit Facility"). Concurrently,
the borrowing availability under the Senior Credit Facility was reduced from
$225,000,000 to $187,500,000. The balance of the net proceeds was used to
redeem, at a cost of $7,687,500, 75,000 of the 150,000 outstanding shares of the
Company's Cumulative Convertible Preferred Stock, $7.50 Series B, issued as part
of the purchase price in the Company's acquisition of LogoAthletic in 1992 (the
offering and sale of the Old Notes, together with the use of proceeds therefrom,
is referred to herein as the "Financing"). The Company will not receive any
proceeds from the Exchange Offer.
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Description of Exchange Notes
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Securities Offered...................... $75 million aggregate principal amount
of 9 5/8% Senior Notes due 2007.
Maturity Date........................... April 15, 2007.
Interest Payment Dates.................. April 15 and October 15, commencing
October 15, 1997.
Optional Redemption by the Company...... Exchange Notes are not redeemable prior
to April 15, 2002, except as set forth
below. The Exchange Notes will be
redeemable at the option of the
Company, in whole or in part, at any
time on or after April 15, 2002, at the
redemption prices set forth herein,
together with accrued and unpaid
interest to the redemption date.
Sinking Fund............................ None.
Ranking................................. Exchange Notes are general unsecured
obligations of the Company and rank
pari passu in right of payment with all
other unsubordinated Indebtedness
(including Old Notes not exchanged for
Exchange Notes, the 1995 Notes (as
defined below), and the Senior Credit
Facility) of the Company.
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Guarantees.............................. Exchange Notes are guaranteed on a
joint and several basis by each of the
Guarantors. The Guarantees are general
unsecured obligations of the Guarantors
and will rank pari passu in right of
payment with all other unsubordinated
indebtedness of the Guarantors. The
Guarantors' liability under the
Guarantees is limited as described
herein, and Guarantees will be
dispositions. See "Description of Notes--
Guarantees."
Change of Control Offer................. Upon a Change of Control, the Company
will be required to make an offer to
purchase all outstanding Exchange Notes
at a purchase price of 101% of the
principal amount thereof, plus accrued
and unpaid interest to the repurchase
date.
Certain Covenants....................... The Indenture contains certain
covenants that, among other things,
limit the ability of the Company or any
of its Subsidiaries to incur additional
Indebtedness, make certain Restricted
Payments, make certain Investments,
create Liens, engage in Sale and
Leaseback Transactions, permit dividend
or other payment restrictions to apply
to Subsidiaries, enter into certain
transactions with Affiliates or Related
Persons or consummate certain merger,
consolidation or similar transactions.
In addition, in certain circumstances,
the Company is required to offer to
purchase Exchange Notes at 100% of the
principal amount thereof with the net
proceeds of certain asset sales. These
covenants are subject to a number of
significant exceptions and
qualifications. See "Description of
Notes."
Registration Requirements............... The Company is obligated to commence an
exchange offer (the "Exchange Offer")
pursuant to an effective registration
statement or cause the resale of the
Exchange Notes to be registered under
the Securities Act and, if (i) the
Exchange Offer Registration Statement
is not filed with the Commission on or
prior to the 60th day following the
original issue of the Old Notes, (ii)
the Exchange Offer Registration
Statement is not declared effective by
the Commission on or prior to the 120th
day following the original issuance of
the Old Notes, or (iii) the Exchange
Offer is not consummated or a
registration statement with respect to
resales of the Old Notes is not
declared effective on or prior to the
150th day following the original
issuance of the Old Notes, then certain
additional interest (in addition to the
interest otherwise due on the Old
Notes) will accrue on the Old Notes.
Upon the subsequent consummation of the
Exchange Offer or the declaration of
effectiveness of such resale
registration statement with respect to
the Old Notes, such additional interest
will cease accruing. See "Description
of Exchange Notes -Registration
Rights."
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The Exchange Offer
The Old Notes were sold on April 10, 1997 in a transaction exempt from
registration under the Securities Act. Payment for the Old Notes was made on
April 17, 1997 (the "Closing Date"). In connection therewith, the Company and
the Guarantors executed and delivered, for the benefit of the holders of the Old
Notes, the Registration Rights Agreement dated as of April 15, 1997 (the
"Registration Rights Agreement"). The Registration Rights Agreement grants the
holders of Old Notes certain exchange and registration rights. The Exchange
Offer is intended to satisfy certain of such rights, which terminate upon
consummation of the Exchange Offer. Thereafter, holders of Exchange Notes will
not be entitled to any exchange or registration rights with respect to the
Exchange Notes.
The Company is obligated to commence an Exchange Offer pursuant to an effective
registration statement (the "Exchange Offer Registration Statement") or cause
the Old Notes to be registered under the Securities Act and, if (i) the Exchange
Offer Registration Statement is not filed with the Commission on or prior to the
60th day following the original issuance of the Old Notes, (ii) the Exchange
Offer Registration Statement is not declared effective by the Commission on or
prior to the 120th day following the original issuance of the Old Notes, or
(iii) the Exchange Offer is not consummated or a registration statement with
respect to resales of the Old Notes is not declared effective on or prior to the
150th day following the original issuance of the Old Notes (each such event
referred to in clauses (i) through (iii), a "Registration Default"), then the
Company will pay additional interest (in addition to the interest otherwise due
on the Old Notes) to each holder of Old Notes during the first 90-day period
immediately following the occurrence of each such Registration Default in an
amount equal to 0.25% per annum. The amount of interest will increase by an
additional 0.25% per annum for each subsequent 90-day period until such
Registration Default is cured, up to a maximum amount of additional interest of
1.00% per annum. Such additional interest will cease accruing on such Old Notes
when the Registration Default has been cured. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer."
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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, $75,000,000 aggregate
principal amount of Old Notes is
outstanding. The terms of the Exchange
Notes are substantially identical
(including principal amount, interest
rate and maturity) to the terms of the
Old Notes for which they may be
exchanged pursuant to the Exchange
Offer, except that the Exchange Notes
will have been registered under the
Securities Act and will not bear
legends restricting their transfer.
See "The Exchange Offer--Terms of the
Exchange Offer" and "The Exchange
Offer--Procedures for Tendering."
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 or beneficial owner thereof
(other than any such holder or
beneficial owner which is an
"affiliate" of the Company within the
meaning of Rule 405 under the
Securities Act or a "broker" or
"dealer" registered under the Exchange
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 or beneficial owner's
business and that such holder or
beneficial owner is not engaged in,
does not intend to engage in and has
no arrangement or understanding with
any person to participate in the
distribution of such Exchange Notes.
See "Plan of Distribution."
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Expiration Date......................... 5:00 p.m., Richmond time, on August 21,
1997, unless the Exchange Offer is
extended by the Company in its sole
discretion, in which case the term
"Expiration Date" means the latest date
and time to which the Exchange Offer is
extended. See "The Exchange Offer--
Expirations; Extensions; Amendments."
Interest................................ Interest on the Exchange Notes shall
accrue from the last Interest Payment
Date on which interest was paid on the
Old Notes so surrendered, or, if no
interest has been paid on such Old
Notes, from April 17, 1997. No interest
will be paid on the Old Notes accepted
for exchange. See "The Exchange Offer--
Interest."
Procedures for Tendering................ Each holder of Old Notes wishing to
accept the Exchange Offer must
complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions
contained herein and therein, and mail
or otherwise deliver such Letter of
Transmittal, or such facsimile,
together with the Old Notes and any
other required documentation to First
Union National Bank of Virginia (the
"Exchange Agent") at the address set
forth herein. By executing the Letter
of Transmittal, each holder will
represent to the Company, among other
things, that (i) 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, (ii)
neither the holder nor any such other
person is engaged in, intends to engage
in or has an arrangement or
understanding with any person to
participate in the distribution of such
Exchange Notes and (iii) neither the
holder nor any such other person is an
"affiliate," as defined under Rule 405
under the Securities Act, of the
Company. See "The Exchange Offer--
Procedures for Tendering."
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. See "The
Exchange Offer--Procedures for
Tendering."
Brokers or Dealers...................... Any broker or dealer participating in
the Exchange Offer will be required to
acknowledge that it will deliver a
prospectus in connection with any
resales of the Exchange Notes received
by it in the Exchange Offer. A broker
or dealer registered under the Exchange
Act that acquired Old Notes for its own
account pursuant to its market-making
or other trading activities (other than
Old Notes acquired directly from the
Company or an affiliate of the Company)
may participate in the Exchange Offer
but may be deemed an underwriter under
the Securities Act and, therefore, must
deliver a prospectus relating to the
Exchange Notes in connection with any
resales by it of Exchange Notes
acquired by it for its own account in
the Exchange Offer; only such brokers
or dealers may use this Prospectus in
connection with resales of the Exchange
Notes. See "Plan of Distribution."
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Guaranteed Delivery Procedures.......... Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are
not immediately available or who cannot
deliver their Old Notes, the Letter of
Transmittal or any other documents
required by the Letter of Transmittal
to the Exchange Agent on or prior to
the Expiration Date, must tender their
Old Notes according to the guaranteed
delivery procedures set forth under
"The Exchange Offer--Guaranteed
Delivery Procedures."
Exchanging Book-Entry Old Notes......... Financial institutions that have an
account with The Depository Trust
Company ("DTC") may utilize DTC's
Automatic Tender Offer Program ("ATOP")
to tender Old Notes. See "The Exchange
Offer--Exchanging Book-Entry Old
Notes."
Withdrawal Rights....................... Old Notes tendered pursuant to the
Exchange Offer may be withdrawn on or
prior to the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders."
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 the Expiration Date. The
Exchange Notes issued pursuant to the
Exchange Offer will be delivered on the
earliest practicable date following the
Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Certain U.S. Income Tax
Considerations......................... An exchange of Old Notes for Exchange
Notes pursuant to the Exchange Offer
should not be treated as an exchange or
otherwise as a taxable event for United
States federal income tax purposes.
Accordingly, the Exchange Notes should
have the same issue price as the Old
Notes and each holder should have the
same adjusted basis and holding period
in the Exchange Notes as it had in the
Old Notes immediately before the
Exchange Offer. See "Certain United
States Federal Income Tax
Considerations."
Effect on Holders of the Old
Notes.................................. As a result of the making of, and upon
acceptance for exchange of all validly
tendered Old Notes pursuant to the
terms of, the Exchange Offer, the
Company will have fulfilled certain of
its obligations contained in the
Registration Rights Agreements. Holders
of the Old Notes who do not tender
their Old Notes will be entitled to all
the rights and limitations applicable
thereto under the Indenture (as
defined) and the Registration Rights
Agreement, except for any rights under
the Indenture or the Registration
Rights Agreement which by their terms
terminate or cease to have further
effect as a result of the making of,
and the acceptance for exchange of all
validly tendered Old Notes pursuant to,
the Exchange Offer. All untendered Old
Notes will continue to be subject to
the restrictions on transfer provided
for in the Old Notes and in the
Indentures.
Use of Proceeds......................... There will be no cash proceeds to the
Company from the exchange pursuant to
the Exchange Offer. See "Use of
Proceeds."
Exchange Agent.......................... First Union National Bank of Virginia,
as Trustee, is serving as Exchange
Agent in connection with the Exchange
Offer. See "The Exchange Offer--
Exchange Agent."
</TABLE>
10
<PAGE>
RISK FACTORS
Prospective investors should consider carefully all the information contained in
this Prospectus including the following risk factors.
Substantial Leverage
As of April 5, 1997, after giving effect to the Financing, the Company's total
indebtedness would have been approximately $247.0 million, all of which was
unsubordinated, and total stockholders' equity would have been approximately
$192.1 million, resulting in a pro forma total debt to total capitalization
ratio of 56.3%. In addition, at such date and after giving effect to the
Financing, approximately $104.9 million of additional borrowing capacity would
have been available (pursuant to the borrowing base formula) under the Senior
Credit Facility. The Indenture permits the Company and its subsidiaries to incur
certain additional specified indebtedness. See "Description of Exchange Notes."
The Company's borrowing needs are seasonal. The maximum amount of indebtedness
outstanding at any fiscal month end in 1996 was approximately $285.0 million at
August 24, 1996. See "--Seasonality and Cyclicality."
The Company currently has incurred, and will continue to incur, significant
annual cash interest expense. After giving effect to the Financing, the pro
forma ration of EBITDA to interest expense would have been 2.89 to 1 for the
fiscal year ended December 28, 1996 (0.63 for the fiscal quarter ended April 5,
1997), compared to 3.28 to 1 before the Financing (0.71 for the fiscal quarter
ended April 5, 1997). After giving effect to the Financing, the pro forma ratio
of earnings to fixed charges for the fiscal year ended December 28, 1996 would
have been 1.82 to 1 compared to 2.03 to 1 before the Financing. After giving
effect to the Financing, pro forma earnings did not cover fixed charges by $7.7
million for the fiscal quarter ended April 5, 1997. Earnings for the fiscal
quarter ended April 5, 1997 did not cover fixed changes by $7.0 million before
considering the Financing. See "Use of Proceeds" and "Capitalization."
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions,
debt service requirements, general corporate purposes or other purposes may be
restricted, (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of the Company's interest expense,
(iii) the Company is more highly leveraged than certain of its competitors,
which may place the Company at a competitive disadvantage and (iv) the Company's
borrowings under the Senior Credit Facility, which will be reduced as a result
of the Financing, will accrue interest at variable rates, which could result in
increased interest expense in the event of higher interest rates.
The Company's ability to make interest payments on the Notes will be dependent
on the Company's future operating performance, which is itself dependent on a
number of factors, many of which are beyond the Company's control. The Company's
ability to repay the Notes at maturity will depend upon these same factors and
the ability of the Company to raise additional funds. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition, Liquidity and Capital Resources."
Restrictive Covenants in the Senior Credit Facility and the 1995 Notes
The Senior Credit Facility and the Company's 10 5/8% Senior Notes due 2005 (the
"1995 Notes") contain material restrictions on the operation of the Company's
business.
The Senior Credit Facility includes covenants restricting, among other things,
the ability of the Company and certain subsidiaries to incur indebtedness,
create liens on the Company's property, guarantee obligations, alter the
character of the Company's business, consolidate, merge, purchase or sell the
Company's assets, make investments or advance funds, prepay indebtedness and
transact business with affiliates. The Senior Credit Facility also contains
certain financial covenants, including covenants that require the Company to
maintain a minimum tangible net worth, leverage ratio, and a fixed charge
coverage ratio, as well as customary representations and warranties, funding
conditions and events of default. At April 5, 1997, the Company was in
compliance with all such financial covenants. A breach of one or more covenants
under the Senior Credit Facility could result in an acceleration of the
Company's obligations thereunder, and the inability of the Company to borrow
additional amounts under the Senior Credit Facility. In addition, a default
under the Notes or the 1995 Notes constitutes an event of default under the
Senior Credit Facility.
The 1995 Notes contain covenants that limit the ability of the Company and its
subsidiaries to incur additional indebtedness, make certain restricted payments,
make certain investments, create liens, engage in sale and lease
11
<PAGE>
transactions and merge, consolidate or engage in similar transactions; that
impose dividend and other payment restrictions on subsidiaries; and that
prohibit certain transactions with affiliates or related persons. In certain
circumstances, the Company must also purchase the 1995 Notes at par with the net
proceeds of asset sales. A default under the Notes or the Senior Credit Facility
constitutes an event of default under the 1995 Notes.
Restrictive Covenants in Indenture
The Indenture contains material restrictions on the Company's operations,
including covenants that restrict or limit (i) indebtedness that may be incurred
by the Company and its subsidiaries, (ii) the ability of the Company and its
subsidiaries to pay dividends or make other distributions, purchase or redeem
stock and make other investments, (iii) the creation of liens, (iv) the
disposition of assets, (v) sale and leaseback transactions, (vi) the issuance
and sale of capital stock of the Company's subsidiaries, (vii) transactions with
affiliates, (viii) a change of control of the Company and (ix) mergers,
consolidations and certain sales of assets by the Company. A breach of one or
more covenants under the Indenture could result in an acceleration of the
Company's obligations thereunder. See "Description of Notes."
Competition
The domestic activewear and licensed apparel industries are highly competitive.
Since the 1980s, the activewear industry, and in recent years the licensed
apparel industry, have been characterized by the acquisition of existing
competitors by larger companies with substantial financial resources and
manufacturing and distribution capabilities. Certain participants in these
industries have greater financial and other resources than the Company.
Increased competition from these and future competitors could reduce sales and
prices, adversely affecting the Company's results of operations. Because of the
Company's high leverage, it may be less able to respond effectively to such
competition than other participants.
The Company's products are also subject to foreign competition. The extent of
import protection afforded to domestic manufacturers has been, and is likely to
remain, subject to considerable political deliberation. Beginning in 1995, the
General Agreement on Tariffs and Trade ("GATT") eliminated over a period of 10
years restrictions on imports of apparel. In addition, on January 1, 1994, the
North American Free Trade Agreement ("NAFTA") became effective.
Licenses and Trademarks
Professional and collegiate athletic licensors successfully have increased their
royalty percentages and minimum guaranteed payments in contracts with licensees,
such as the Company's subsidiaries. In addition, the Company's material licenses
are non-exclusive, and new or existing competitors may obtain similar licenses.
If a significant license or licenses were not renewed or replaced, the Company's
sales and results of operations likely would be materially and adversely
affected. See "Business--Licenses."
Because of its growing emphasis on branded products, the Company relies on the
strength of its trademarks. The Company has in the past and may in the future be
required to expend significant resources protecting these trademarks, and the
loss or limitation of the exclusive right to use them could adversely affect the
Company's sales and results of operations. See "Business--Industry--Competition"
and "--Trademarks."
Raw Materials
The principal raw materials used by the Company in the manufacture of its
products are cotton of various grades and staple lengths and polyester in staple
form. Any shortage in the cotton supply by reason of weather, crop disease or
other factors, or significant increase in the price of cotton or polyester,
could adversely affect the Company's results of operations. Tultex makes advance
purchases of raw cotton based on projected demand. The Company has contracted to
purchase substantially all of its raw cotton needs for 1997 and has fixed the
price on approximately 60% of its raw cotton needs. To the extent cotton prices
increase before the Company fixes the price for the remainder of its raw cotton
needs, the Company's results of operations could be adversely affected.
See "Business--Raw Materials."
12
<PAGE>
Seasonality and Cyclicality
Historically, the fleecewear and licensed apparel industries have been seasonal,
with peak sales occurring in the third and fourth quarters of the calendar year,
coinciding with cooler weather and the playing seasons for some of the most
popular professional and college sports, notably football and basketball. The
licensed apparel industry also is cyclical, in substantial part because of the
changing allegiances of sports fans as their teams win or lose, the fluctuating
popularity of a particular sport, and the possibility of sports related labor
disruptions. The Company's performance may be negatively affected by the
foregoing factors and by changing retailer and consumer demands and downturns in
consumer spending. See "Business--Industry" and "--Seasonality."
Environmental Laws and Regulations
The Company is subject to various federal, state, local and foreign
environmental laws and regulations governing the discharge, emission, storage,
handling and disposal of a variety of substances and wastes used in or resulting
from the Company's operations. The Company returns dyeing waste for treatment to
the City of Martinsville, Virginia's municipal wastewater treatment system
operated under a permit issued by the state. While the Company believes it is in
material compliance with these laws and regulations, there can be no assurance
that environmental requirements will not become more stringent in the future or
that the Company will not incur substantial costs in the future to comply with
such requirements. See "Business--Environmental Matters."
Fraudulent Conveyance Considerations
Each Guarantor's Guarantee of the obligations of the Company under the Notes may
be subject to review under relevant federal and state fraudulent conveyance
statutes in a bankruptcy, reorganization or rehabilitation case or similar
proceeding or a lawsuit by or on behalf of unpaid creditors of such Guarantor.
If a court were to find under relevant fraudulent conveyance statutes that, at
the time the Notes were issued, (a) a Guarantor guaranteed the Notes with the
intent of hindering, delaying or defrauding current or future creditors or
(b)(i) a Guarantor received less than reasonably equivalent value or fair
consideration for guaranteeing the Notes and (ii)(A) was insolvent or was
rendered insolvent by reason of such Guarantee, (B) was engaged, or about to
engage, in a business or transaction for which its assets constituted
unreasonably small capital or (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), such court could avoid or subordinate such Guarantee to
presently existing and future indebtedness of such Guarantor and take other
action detrimental to the holders of the Notes, including, under certain
circumstances, invalidating such Guarantee. See "Description of Exchange
Notes--The Guarantees."
Lack of Public Market
The Notes are a new issue of securities for which there is no trading market.
Because the Old Notes were sold pursuant to an exemption from registration under
the applicable securities laws and, therefore, may not be publicly offered, sold
or otherwise transferred in any jurisdiction where such registration may be
required, no public market for the Old Notes had developed. The Old Notes are
eligible for trading in the PORTAL market. The Company has been advised by the
Initial Purchasers that they intend to make a market in the Notes. Any
market-making activities with respect to the Notes may be discontinued at any
time without notice. In addition, such market-making activity is subject to the
limits imposed by the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and may be limited during the Exchange Offer and
the pendency of any shelf registration statement. Although under the
Registration Rights Agreement the Company is required to consummate an offer to
exchange the Old Notes for equivalent registered securities, or to register the
Old Notes under the Securities Act, there can be no assurance that an active
trading market for the Old Notes and/or the Exchange Notes will develop. If a
market were to exist, the Exchange Notes could trade at prices that may be lower
than the initial offering price thereof depending on many factors, including
prevailing interest rates and the markets for similar securities, general
economic conditions and the financial condition and performance of, and
prospects for, the Company. See "Description of Notes--Registration Rights."
13
<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the exchange of Old Notes for Exchange
Notes. The net proceeds from the offering of Old Notes were approximately
$72,500,000. Net proceeds were used to repay approximately $65 million of
borrowings outstanding under the Company's Senior Credit Facility .
Concurrently, the borrowing availability under the Senior Credit Facility was
reduced from $225,000,000 to $187,500,000. The balance of the net proceeds was
used to redeem, at a cost of $7,687,500, 75,000 of the 150,000 outstanding
shares of Cumulative Convertible Preferred Stock, $7.50 Series B, issued as part
of the purchase price in the Company's acquisition of LogoAthletic in 1992. The
Company believes that the extended maturity of the Notes will provide more
permanent support for the Company's long-term growth strategies than the Senior
Credit Facility, which will be used primarily for seasonal working capital
needs.
CAPITALIZATION
The following table sets forth the capitalization of the Company at April 5,
1997, and as adjusted to give effect to the consummation of the Financing and
the use of the net proceeds from the offering and sale of Old Notes as set forth
in "Use of Proceeds." See the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended April 5, 1997, which is incorporated by reference in this
Prospectus.
<TABLE>
<CAPTION>
As of April 5, 1997
In thousands, except share amounts Actual As Adjusted
------ -----------
<S> <C> <C>
Short-Term Indebtedness:
Notes payable to bank $ 7,525 $ 7,525
Current maturities of long-term indebtedness 423 423
-------- --------
Total short-term indebtedness 7,948 7,948
-------- --------
Long-Term Indebtedness, Less Current Maturities:
10 5/8% Senior Notes due 2005 110,000 110,000
9 5/8% Senior Notes due 2007 75,000
Notes payable to banks (Senior Credit Facility) 118,850 54,038
Other long-term indebtedness 11 11
-------- --------
Total long-term indebtedness 228,861 239,049
-------- --------
Total indebtedness 236,809 246,997
-------- --------
Stockholders' Equity:
5% Cumulative Preferred Stock, $100 par value per share;
22,000 shares authorized, 1,975 shares outstanding 198 198
Cumulative Convertible Preferred Stock,
$7.50 Series B, no par value;
150,000 shares authorized and outstanding 15,000 15,000
Common Stock, par value $1 per share;
60,000,000 shares authorized;
29,503,571 shares issued and outstanding 29,504 29,504
Capital in excess of par value 4,057 4,057
Retained earnings 151,339 151,151
Less notes receiveable from stockholders (356) (356)
-------- --------
Total stockholders' equity 199,742 192,054
-------- --------
Total capitalization $436,551 $439,051
======== ========
</TABLE>
- ----------------
(1) Gives effect to the $188 premium associated with the redemption of 75,000
shares of Cumulative Convertible Preferred Stock $7.50 Series B.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of income and balance sheet data set forth
below for each of the five fiscal years in the period ended December 28, 1996 is
derived from the Consolidated Financial Statements of the Company, as audited by
Price Waterhouse LLP, independent accountants. In addition, the selected
consolidated statement of income and balance sheet data for each of the fiscal
quarters ended April 5, 1997 and March 30, 1996 is derived from the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended April 5, 1997. The
data presented below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements, related notes, and other financial data
included elsewhere in or incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
Fiscal Quarter Ended Year Ended
------------------------- ------------------------------------------------------
In thousands, except ratios April 5 March 30, Dec. 28 Dec. 30 Dec. 31 Jan. 1 Jan. 2
and per share data 1997 1996 1996 1995 1994 1994(1) 1993(1)(2)
---- ---- ---- ---- ---- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales and other income $99,630 $95,303 $636,341 $585,289 $565,433 $533,611 $503,946
Cost of products sold 73,881 70,019 469,715 432,062 419,769 395,727 368,027
Depreciation 5,092 5,736 21,497 23,163 23,973 23,364 20,831
Selling, general and administrative 22,156 23,595 96,454 99,164 93,510 88,433 81,297
------ ------ -------- -------- -------- -------- --------
Income from operations (1,499) (4,047) 48,675 30,900 28,181 26,087 33,791
Gain on sale of facilities - - -- -- 4,405 -- --
Interest expense 5,453 4,854 21,742 21,952 18,151 16,996 13,540
----- ----- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary loss on early
extinguishment of debt (6,952) (8,901) 26,933 8,948 14,435 9,091 20,251
Income taxes (benefit) (2,717) (3,381) 10,234 3,400 5,485 3,188 7,060
------- ------- -------- -------- -------- -------- --------
Income (loss) before extraordinary loss
on early extinguishment of debt (4,235) (5,520) 16,699 5,548 8,950 5,903 13,191
Extraordinary loss on early
extinguishment of debt (net of income
taxes of $2,296) - - -- (3,746) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) ($4,235) ($5,520) $ 16,699 $ 1,802 $ 8,950 $ 5,903 $ 13,191
======== ======== ======== ======== ======== ======== ========
Per Common Share Data:
Income (loss) before extraordinary loss
on early extinguishment of debt ($0.15) ($0.19) $ 0.53 $ 0.15 $ 0.26 $ 0.16 $ 0.42
Net income (loss) (0.15) (0.19) 0.53 0.02 0.26 0.16 0.42
Dividends declared 0.00 0.00 0.00 0.00 0.05 0.20 0.20
Pro Forma Data(3)
(unaudited):
Pro forma income (loss) from
continuing operations ($4,692) $ 14,841
Pro forma income (loss) per common
share from continuing operations (0.16) 0.48
Balance Sheet Data (end of period):
Working capital $266,439 $251,355 $275,491 $274,844 $122,854 $243,553 $126,717
Total assets 493,728 459,285 500,780 475,799 456,809 474,965 435,818
Total debt 236,809 214,626 229,668 227,685 216,355 239,438 200,531
Total stockholders' equity 199,742 183,290 202,928 189,057 187,101 179,197 178,793
Other Data:
EBITDA(4) $3,897 $1,993 $ 71,389 $ 55,279 $ 53,371 $ 50,668 $ 55,559
Capital expenditures 12,504 4,999 29,048 17,337 8,624 22,250 30,330
Ratio of EBITDA to interest
expense(4) 0.71 0.41 3.28 2.52 2.94 2.98 4.10
Ratio of EBITDA minus capital
expenditures to interest
expense(4)(6) 1.95 1.73 2.47 1.67 1.86
Ratio of total debt to EBITDA(4) 3.22 4.12 4.05 4.73 3.61
Ratio of earnings to fixed
charges(5)(7) 2.03 1.34 1.59 1.41 2.11
</TABLE>
15
<PAGE>
- --------------------
(1) During the fourth quarter of fiscal 1993, the Company changed its method of
determining the cost of inventories from the last-in, first-out (LIFO) method to
the first-in, first-out (FIFO) method. Under the current economic environment of
low inflation, the Company believes that the FIFO method will result in a better
measurement of operating results. The operating results of all years prior to
fiscal 1993 have been restated to apply the new method retroactively. The effect
of the accounting change on net income as previously reported was to reduce net
income by $4,001 for fiscal 1992. In addition, earnings per common share were
reduced by $0.14 for fiscal 1992.
(2) Includes 53 weeks. All other years presented include 52 weeks.
(3) Pro forma income from continuing operations and pro forma income per common
share from continuing operations have been calculated by adjusting historical
results of operations to give effect to the transactions described in "Use of
Proceeds" as if they had been consummated at December 31, 1995. For purposes of
preparing the pro forma financial information, the Company assumed interest
rates of 9.625% and 6.9% on the Notes and the Senior Credit Facility,
respectively.
(4) EBITDA represents earnings before taking into consideration interest
expense, income taxes, extraordinary item, depreciation and amortization and
excludes gain on sale of facilities. EBITDA is included herein to provide
additional information related to the Company's ability to service debt. EBITDA
should not be considered as an alternative measure of the Company's net income,
operating performance, cash flow or liquidity computed in accordance with
generally accepted accounting principles. After giving effect to the Financing,
for the year ended December 28, 1996, EBITDA would have been $71,389, pro forma
ratio of EBITDA to interest expense would have been 2.89 and pro forma ratio of
EBITDA minus capital expenditures to interest expense would have been 1.71.
After giving effect to the Financing, for the fiscal quarter ended April 5,
1997, EBITDA would have been $3,897, pro forma ratio of EBITDA to interest
expense would have been 0.63 and pro forma EBITDA would not have covered capital
expenditures by $8,607.
(5) For purposes of computing this ratio, earnings consist of earnings before
income taxes, extraordinary items and fixed charges. Fixed charges consist of
interest expense, amortization of deferred debt issuance costs and one-third of
rental expense (the portion considered representative of the interest factor).
After giving effect to the Financing, the pro forma ratio of earnings to fixed
charges would have been 1.82 for the year ended December 28, 1996. After giving
effect to the Financing, the pro forma earnings did not cover fixed charges by
$7,701 for the fiscal quarter ended April 5, 1997.
(6) EBITDA did not cover capital expenditures by $8,607 and $3,006 for the
fiscal quarters ended April 5, 1997 and March 30, 1996, respectively.
(7) Earnings did not cover fixed charges by $6,952 and $8,901 for the fiscal
quarters ended April 5, 1997 and March 30, 1996, respectively.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended April 5, 1997 and March 30, 1996
Results of Operations
The following table presents the Company's consolidated statement of operations
items as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
April 5, 1997 March 30, 1996
----------------- ----------------
<S> <C> <C>
Net sales and other income 100.0% 100.0%
----------- -----------
Cost of products sold 74.2 73.4
Depreciation 5.1 6.0
Selling, general and administrative 22.2 24.8
Interest 5.5 5.1
------------ -----------
Total costs and expenses 107.0 109.3
------------ -----------
Income (loss) before income taxes (7.0) (9.3)
Benefit (provision) for income taxes 2.7 3.5
------------ -----------
Net income (loss) (4.3)% (5.8)%
============ ===========
</TABLE>
Note: Certain items have been rounded to cause the columns to add to 100%.
Net sales and other income for the three months ended April 5, 1997, increased
$4.3 million, or 4.5%, from the first quarter of 1996. Activewear sales of $57.6
million represent an increase of $3.0 million, or 5.4%, as compared to the first
quarter of 1996. Licensed apparel sales of $42.0 million in the first quarter of
1997 represent an increase of $1.4 million, or 3.3%, as compared to the first
three months of 1996. During the first quarter of 1997, sales of higher margin
branded and premium private label products increased 10.1%, compared to the same
period of the prior year. Sales of jersey products were $31.5 million
representing a 5.0% increase over the first quarter of 1996.
Cost of products sold as a percentage of sales increased to 74.2% for the first
quarter of 1997 compared to 73.4% for the comparable first quarter of last year.
The decrease in margin as a percentage of sales reflects the shift in product
mix toward jersey products which typically carry a lower margin than the
Company's fleece products.
Depreciation expense decreased $644,000, or 11.2%, during the first quarter of
1997. This decrease was the result of certain assets becoming fully depreciated
during 1996. The Company invested $12.5 million in fixed assets during the first
three months of 1997.
Selling, general and administrative expenses (S, G&A) decreased $1.4 million for
the first quarter of 1997 compared to the same period of 1996. The primary
reason for this decrease was a $1.3 million reduction in advertising expense for
the first quarter of 1997 compared to the same period of 1996. As a percentage
of sales, S,G&A expenses were 22.2% compared to 24.8% for the first three months
of 1996.
Interest expense as a percentage of sales increased from 5.1% for the first
quarter of 1996 to 5.5% for the comparable period of 1997. Interest expense
increased from $4.9 million for the first quarter of 1996 to $5.5 million for
the first three months of 1997 due to higher average borrowings. The nature of
the Company's business requires extensive seasonal borrowings to support its
working capital needs. For the first three months of 1997 working capital
borrowings averaged $115.2 million at an average rate of 7.0% compared to $105.7
million and 7.0%, respectively, for the comparable period of the prior year.
Benefit (provision) for income taxes reflects an effective rate for combined
federal and state income taxes of 39% for the first three months of 1997 and 38%
for the comparable period of 1996.
17
<PAGE>
Financial Condition, Liquidity and Capital Resources
Net working capital at April 5, 1997, decreased $9.1 million from year-end 1996
due primarily to lower accounts receivable partially offset by higher
inventories. Net accounts receivable decreased $51.7 million from December 28,
1996, to April 5, 1997, due to the seasonality of the Company's products.
Receivables normally peak in September and October and begin to decline in
December as shipment volume decreases and cash is collected.
Inventories traditionally increase during the first half of the year to support
second-half shipments. Compared to December 28, 1996, inventories increased
$35.7 million, or 22.0%.
The current ratio at April 5, 1997 was 6.4 compared to 5.9 at December 28, 1996.
The increase in the ratio from the beginning of the year was mainly due to lower
accounts payable.
Total long-term debt at April 5, 1997 included the senior notes totaling $110
million and $118.9 million outstanding under the revolving credit facility. At
the end of the first quarter of 1997, the Company was in compliance with all
debt covenants.
On April 15, 1997 the Company sold $75 million of 9 5/8% Senior Notes due 2007.
Proceeds from the sale of the Senior Notes were used to repay existing
indebtedness and to redeem $7,500,000 of the Series B, $7.50 cumulative
convertible preferred stock. The Company has renegotiated the terms of its
revolving credit facility with a group of banks headed by NationsBank, N.A. The
terms of the new facility are substantially equivalent to those of the current
revolving credit facility, except that the maximum borrowing amount under the
new facility will be $187 million, compared with $225 million under the old
facility. Reduction of the borrowing limit reflects the sale of $75 million
Senior Notes.
On March 20, 1996, the Company's Board of Directors authorized the purchase of
up to 750,000 shares of the Company's common stock. On October 29, 1996 the
Company's Board of Directors authorized the purchase of an additional 250,000
shares. As of April 5, 1997, a total of 534,800 shares had been purchased and
retired. Stockholders' equity decreased $3.2 million during the first three
months of 1997 as a result of net loss for the period of $4.2 million, dividends
of $284,000 and stock repurchases of $248,000 partially offset by proceeds from
stock plans of $1.6 million. Debt as a percentage of total capitalization was
54.2% compared to 53.9% at March 30, 1996.
On April 28, 1997, the Company called for mandatory redemption 75,000 shares of
the 150,000 outstanding shares of its $7.50 Series B, $100 stated value
Preferred Stock at a redemption price (including accrued but unpaid dividends)
of $103.75 per share.
For the first three months of 1997 net cash provided by operations was $6.2
million versus $22.3 million for the same period last year. The reduction in
operating cash was due to a decrease of $4.0 million in accounts payable and
accrued expenses compared to an increase of $9.2 million for the comparable
period of the prior year. Cash used for capital asset additions increased $7.5
million in 1997 compared to the first three months of 1996. Cash provided by
financing activities increased $21.5 million from the first three months of 1997
primarily as a result of higher seasonal borrowing requirements. The Company
expects that annual cash flows from income and non-cash items, supplemented by
the revolving credit facility, will be adequate to support requirements for the
remainder of 1997.
New Accounting Standard
In February 1997, the Financial Accounting Standards Board (the "Board") adopted
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS
128"), which replaces the presentation of primary and fully diluted earnings per
share ("EPS") with basic and diluted EPS, respectively. FAS 128 simplifies the
standards for computing earnings per share and makes them comparable to
international EPS standards. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
The Company must adopt this Statement in the fourth quarter of 1997. Pro forma
basic and diluted EPS were both $(.15) for the quarter ended April 5, 1997 and
$(.19) for the quarter March 30, 1996.
18
<PAGE>
Two Years Ended December 28, 1996
Results of Operations
The following table presents the Company's consolidated statement of operations
as a percentage of net sales and other income:
<TABLE>
<CAPTION>
December 28, 1996 December 30, 1995 December 31, 1994
(52 weeks) (52 weeks) (52 weeks)
---------- ---------- ----------
<S> <C> <C> <C>
Net sales and other income 100.0% 100.0% 100.0%
---------------- ---------------- ---------------
Cost of products sold 73.8 73.8 74.2
Depreciation 3.4 4.0 4.2
Selling, general and administrative 15.2 16.9 16.5
Gain on sales of facilities -- -- (0.7)
Interest 3.4 3.8 3.2
---------------- -------------- ---------------
Total costs and expenses 95.8 98.5 97.4
---------------- -------------- ---------------
Income before income taxes and extraordinary loss
on early extinguishment of debt 4.2 1.5 2.6
Benefit (Provision) for income taxes (1.6) (0.6) (1.0)
---------------- --------------- ---------------
Income before extraordinary loss on early
extinguishment of debt 2.6 0.9 1.6
Extraordinary loss on early extinguishment of debt
(net of income taxes) -- (0.6) --
---------------- ---------------- ---------------
Net income 2.6% 0.3% 1.6%
================ ================ ===============
</TABLE>
- --------------------
Note: Certain items have been rounded to cause the columns to add to 100%.
Fiscal Year 1996 Compared to Fiscal Year 1995
Net sales and other income of $636.3 million for the year ended December 28,
1996, represents an increase of $51.1 million, or 8.7%, over the prior year.
This increase was primarily the result of increased sales volumes, and was
further supported by a shift in sales mix to premium products. Activewear sales
of $408.2 million in 1996 represent an increase of $20.4 million, or 5.3%, as
compared to 1995. Licensed sales of $228.1 million in 1996 represent an increase
of $30.7 million, or 15.5%, as compared to fiscal 1995. Licensed apparel sales
in 1995 were adversely effected by professional sports labor issues which were
resolved prior to fiscal 1996. During 1996, sales of higher margin branded and
premium private label products increased 23.7%, and sales to the screenprint and
distributor channels increased 10.2%. Sales of jersey products were $112.4
million for fiscal 1996, representing 27.5% of the Company's activewear sales as
compared to 24.0% for fiscal 1995.
Cost of products sold as a percentage of sales was 73.8% for both 1996 and 1995.
The increased margins achieved from the sale of premium products in 1996 were
offset by higher raw material costs and the increased percentage of jersey
product sales which are at lower margins. The higher raw material costs were due
to raw cotton and polyester prices which peaked in the first half of 1996. These
prices began to decline in the second half of the year, and the Company expects
its raw material prices for 1997 to decline from 1996 levels. As of February 20,
1997, the Company has fixed the price on approximately 60% of its planned cotton
purchases for fiscal 1997.
Depreciation expense as a percentage of sales was 3.4% for fiscal 1996 and 4.0%
for fiscal 1995. The $1.7 million decline in depreciation expense from the 1995
amount of $23.2 million was the result of certain assets becoming fully
depreciated during 1996. This decrease was partially offset by depreciation
expense incurred on 1996 capital additions of $29.0 million.
Selling, general and administrative ("SG&A") expenses decreased $2.7 million in
1996. As a percentage of sales, SG&A expenses were 15.2% in 1996 and 16.9% in
1995. The 1995 percentage includes a one-time charge of $5.0 million, or .8% of
sales, in deferred advertising costs which were charged off as required by the
Accounting Standards Executive Committee's Statement on Reporting Advertising
Costs. This statement first became effective for the Company at the beginning of
fiscal 1995. Excluding the effect of this charge in 1996, SG&A expenses reflect
higher advertising costs which were used to support the increase in sales. This
increase in advertising spending was partially offset by a decrease in the bad
debt provision resulting from improved collection experience.
Operating income (income before interest and income taxes) increased 57.6%
during the 1996 fiscal year to $48.7 million compared to $30.9 million for
fiscal 1995. This increase results from both the higher revenues achieved and
the effects of improved cost controls.
19
<PAGE>
Interest expense as a percentage of sales decreased from 3.8% in 1995 to 3.4% in
1996. Interest expense decreased from $22.0 million to $21.7 million in 1996,
primarily as a result of lower average rates. The nature of the Company's
primary business requires extensive seasonal borrowings to support its working
capital needs. During fiscal 1996, working capital borrowings averaged $137.5
million at an average rate of 6.9% compared to $136.4 million and 7.6%
respectively, for the comparable period of the prior year.
Provision for income taxes is a function of pretax earnings and the combined
effective rate of federal and state income taxes. This combined rate was 38% in
both 1996 and 1995. The provision for income taxes increased $6.8 million in
1996 as a result of higher pretax earnings, representing 1.6% of net sales as
compared to 0.6% in fiscal 1995.
Fiscal Year 1995 Compared to Fiscal Year 1994
Net sales and other income of $585.3 million for fiscal 1995 increased $19.9
million, or 3.5%, over the 1994 level of $565.4 million. The 1995 sales growth
was due to increased sales volume in the activewear line, and was partially
offset by decreases in licensed apparel and headwear sales volume which resulted
from professional sports labor issues. Sales of premium products increased in
1995, with Discus Athletic activewear up 29.9% to $75.8 million, and
LogoAthletic licensed apparel up 42.8% to $92.0 million. Sales of jersey
products were $93.1 million for 1995, representing 24.0% of the Company's
activewear sales as compared to 16.5% for 1994.
Cost of products sold as a percentage of sales improved in fiscal 1995,
decreasing from 74.2% in fiscal 1994 to 73.8%. This reduction resulted primarily
from manufacturing efficiencies realized from increased production schedules and
higher average selling prices. Costs were reduced in spite of growth in jersey
volume, which typically produces lower margins, and increased raw material
costs. Raw material costs were higher in 1995 than in 1994 as a result of the
increased price of both raw cotton and polyester fiber.
Depreciation expense as a percentage of sales decreased from 4.2% for 1994 to
4.0% for 1995. Depreciation expense decreased from $24.0 million in 1994 to
$23.2 million in 1995, due to relatively low capital expenditures.
SG&A expenses increased as a percentage of sales to 16.9% for 1995 from 16.5%
for 1994. This increase is primarily due to the one-time charge of $5.0 million
for deferred advertising costs required to be recognized in 1995. In addition,
the bad debt provision was increased in 1995 in response to collection
difficulties.
Interest expense as a percentage of sales increased from 3.2% in 1994 to 3.8% in
1995. Interest expense increased from $18.2 million in 1994 to $22.0 million in
1995 due to higher interest rates. Average borrowing requirements of $136.4
million at an average rate of 7.6% in 1995 compared with $155.3 million and 5.2%
for 1994, respectively.
Provision for income taxes reflects an effective rate for combined federal and
state income of 38% for both 1995 and 1994.
Financial Condition, Liquidity and Capital Resources
Net working capital at December 28, 1996 of $275.4 million was $0.6 million
higher than the December 30, 1995 amount of $274.8 million. Net accounts
receivable increased $17.4 million from December 30, 1995 to December 28, 1996
due to the strong fourth quarter sales increase.
Inventories traditionally increase through the first half of the year to support
second-half shipments. In 1996, inventories peaked on May 25, 1996 at $220.9
million and then dropped to $162.3 million on December 28, 1996. As of December
28, 1996, inventories had increased $4.3 million or 2.7% from December 30, 1995.
This increase was primarily due to additional jersey inventories produced to
meet anticipated first quarter 1997 demand. The current ratio (ratio of current
assets to current liabilities) at December 28, 1996, was 5.9 compared to 7.8 for
December 30, 1995. The decrease in the ratio was mainly due to higher current
liabilities required to meet the increase in receivables and inventories.
Total indebtedness at December 28, 1996 consisted primarily of the 1995 Notes
totaling $110 million and $113.6 million outstanding under the Senior Credit
Facility. The Company's average credit facility borrowings during fiscal 1996
were $137.5 million and its peak borrowing was $175.5 million at September 11,
1996. At December 28, 1996, the Company was in compliance with all debt
covenants.
20
<PAGE>
On March 20, 1996, the Company's Board of Directors authorized the purchase of
up to 750,000 shares of the Company's common stock. On October 29, 1996, the
Company's Board of Directors authorized the purchase of an additional 250,000
shares. As of December 28, 1996, a total of 497,800 shares had been purchased
and retired. Stockholders' equity increased $13.9 million during fiscal 1996 as
a result of net income for the period of $16.7 million and net proceeds from the
employee stock purchase plan of $0.8 million partially offset by repurchases of
common stock totalling $2.5 million and preferred dividends of $1.1 million.
In fiscal 1996, net cash provided by operations was $31.2 million compared to
$6.9 million in fiscal 1995, reflecting the improved earnings in 1996. Cash used
for capital expenditures increased $11.7 million in fiscal 1996 from $17.3
million to $29.0 million primarily as a result of the purchase of the Asheville
dyeing facility. The Company has budgeted $21.0 million for capital expenditures
in fiscal 1997. Cash used by financing activities was $0.6 million for fiscal
1996 compared to cash provided by financing activities of $7.4 million in 1995
as a result of payments on the revolving credit facility and stock repurchases.
The Company expects that its short-term borrowing needs, including that required
for the acquisition of California Shirt Sales, Inc., will be met through cash
generated from operations and borrowings under the Senior Credit Facility. See
"Business--Recent Development." Debt as a percentage of capitalization was 53.1%
at December 28, 1996 compared to 54.6% at December 30, 1995.
BUSINESS
General
The Company is one of the world's largest marketers and manufacturers of
activewear and licensed sports apparel for consumers and sports enthusiasts. The
Company's diverse product line includes fleeced sweats, jersey products
(outerwear T-shirts), decorated jackets and caps. These products are sold under
the Company's own brands led by the Discus Athletic and LogoAthletic premium
labels and under private labels, including Nike, Reebok and Pro Spirit. In
addition, the Company has numerous professional and college sports licenses to
market and manufacture embroidered and screen-printed products with team logos
and designs under its Discus Athletic, LogoAthletic, Logo 7 and TrackGear
brands. The Company is a licensee of professional sports apparel, holding
licenses from the National Football League ("NFL"), Major League Baseball
("MLB"), the National Basketball Association ("NBA"), the National Hockey League
("NHL") and the National Association for Stock Car Auto Racing ("NASCAR") to
manufacture a full range of apparel for adults and children.
Historically, Tultex has been a producer of quality fleece products for sale to
distributors and resale to consumers under private labels. However, in the
1980s, the activewear industry began to change. Increasing consumer demand
reflecting more active and casual lifestyles and the industry's historically
good long-term growth prospects and low fashion risk as compared to other
apparel products, attracted large, well-financed companies which acquired
competitors of the Company. Simultaneously, larger mass merchandise retailers
began to exert pressure on margins for lower-priced fleece products.
In recent years, Tultex has successfully pursued a strategy to enhance its
competitiveness and to capitalize on growth opportunities by becoming a
consumer-oriented apparel maker able to compete in a changing industry.
This strategy includes the following elements:
. Promoting Higher-Margin Products. The Company continues to strengthen its
competitiveness through (i) the development of branded and private label,
higher-quality and higher-margin products to supplement its traditionally
strong position in the lower-priced segment of the business and (ii) since
1991, the manufacture of jersey products. The Company has developed its own
brands, promoting Discus Athletic and LogoAthletic for its premium products
and using the Tultex and Logo 7 labels for the value-oriented and wholesale
segments of the market. Discus Athletic's highly visible advertising during
televised broadcasts of college football and basketball on the ESPN and ABC
television networks and sports marketing sponsorships, such as ProBeach
Women's Volleyball, have contributed to significant annual increases in
sales of this brand since 1992. In addition, Tultex has partnering
arrangements to supply higher-quality, private label products to companies
such as Reebok and Nike, none of which accounted for more than 10% of the
Company's consolidated sales during 1996. Sales of the higher-margin
branded and premium private label products have grown from 13.8% of
consolidated sales in 1993 to 37.6% in 1996.
. Expanding into Licensed Apparel Business to Complement Activewear Business.
Tultex's 1992 acquisitions of LogoAthletic, a marketer of licensed sports
apparel, and LogoAthletic/Headwear, a marketer of sports licensed headwear,
contributed to the Company's achieving the third largest market share
(11.8%) in the higher-margin licensed apparel business in 1995, and created
opportunities for significant manufacturing and distribution synergies with
the Company's activewear business. The promotion of the LogoAthletic brand
of licensed apparel through television and print advertising, as well as
promotional
21
<PAGE>
arrangements featuring Dallas Cowboys' Troy Aikman, Miami Dolphins' Dan
Marino, Denver Broncos' John Elway, Kansas City Chiefs' Marcus Allen and
the Buffalo Bills' Bruce Smith, among others, has helped to increase the
visibility and sales of LogoAthletic products.
. Strengthening Customer Relationships. Tultex actively pursues strong
relationships with department, sporting goods and other specialty stores,
such as Sears, JC Penney, Modell's, Dillard's, Foot Locker, Champs and
Sports Authority, to distribute its higher margin branded and private label
products. In addition, the Company continues to strengthen its
relationships with high volume retailers such as Wal-Mart, Kmart and Target
by supplying private label, Tultex and Logo 7 products. Tultex provides
customers with exceptional service and support; as an example, its
distribution capabilities are highly responsive to customers' changing
delivery and inventory management requirements.
. Increasing Emphasis on Wholesale Distribution. In recent years, Tultex has
placed increased emphasis on distribution channels, acquiring California
Shirt, a major jerseywear distributor in 11 western states and Hawaii in
April 1997, and T-Shirt City, Cincinnati, Ohio, a major distributor of
fleecewear and jerseywear in the Midwest in May 1997. See " --Recent
Development".
. Vertically Integrating. The Company's activewear business is vertically
integrated, spinning approximately 80-85% of the yarn it requires in three
yarn plants located in North Carolina (the balance is purchased under yarn
supply contracts) and knitting, dyeing and cutting fabric and sewing
finished goods in eight plants in Virginia and North Carolina and one plant
in Jamaica. The Company's licensed apparel operations are conducted from
one plant in Indiana, one plant in Massachusetts, and one plant in North
Carolina.
The Company's strategy has improved its sales mix. While net sales increased
8.7% in fiscal 1996 over 1995, net sales of Discus Athletic activewear,
LogoAthletic licensed apparel and premium private label products increased 23.7%
to $239.3 million. Sales of jersey products were $112.4 million for the fiscal
year ended December 28, 1996, representing 27.5% of the Company's activewear
sales during such period compared to 24.0% for fiscal 1995.
Recent Developments
On April 16, 1997, the Company acquired substantially all of the assets and
assumed the operating liabilities of California Shirt Sales, Inc., a major
jerseywear distributor headquartered in California with distribution operations
in 11 western states and Hawaii. Prior to the transaction, California Shirt had
been the Company's major distributor for sales to small retail outlets and
screenprinters in California Shirt's distribution territory. In addition to
distributing Tultex jerseywear, California Shirt distributes products
manufactured by others under nationally recognized name brands. The acquisition
is not expected to affect the availability of product from these manufacturers.
This acquisition furthers the Company's strategy to become more vertically
integrated from the manufacture of fleece and jerseywear to distributing
consumer products to wholesale and screenprint customers. The acquisition did
not require a significant financial commitment and was funded by internally
generated funds.
On May 6, 1997, the Company acquired certain of the assets and assumed the
operating liabilities of T-Shirt City, Inc., a major fleecewear and jerseywear
distributor headquartered in Ohio with distribution operations in the Midwest.
Prior to the transaction, T-Shirt City had been a distributor for the Company's
products in its distribution territory. In addition to distributing the
Company's products, T-Shirt City distributes products manufactured by others
under nationally recognized name brands. The acquisition is not expected to
affect the availability of products from other manufacturers. As with the
California Shirt Sales acquisition, the T-Shirt City acquisition furthers the
Company's strategy to become more vertically integrated, as described in the
preceding paragraph. The acquisition did not require a significant financial
commitment and was funded by internally generated funds.
22
<PAGE>
Industry
The Company produces activewear and licensed apparel and headwear for sale at a
broad range of price points through all major distribution channels.
Activewear
The Company's activewear business consists of its fleecewear and jersey
products. All activewear industry and market share data included herein has been
estimated by the Company based on data provided by Market Research Corporation
of America, a leading provider of market information on the textile industry.
Fleecewear. The fleecewear industry, with retail sales of approximately $7.8
billion in 1995, has grown 1.7% in unit sales from 1990 to 1995. The predominant
fleecewear products are sweatshirts and bottoms.
The basic fleecewear industry is characterized by:
. low fashion risk--although fashion detailing changes often, basic garment
styles are not driven by trends or fads;
. overall stability--despite cyclical fluctuations, industry sales volume is
estimated to have remained relatively stable, growing from 680.0 million
units in 1990 to 691.6 million units in 1995;
. entry by well-financed acquirors--s20 new entrants have been attracted by
the industry's long-term growth and have been able to make the large
initial capital investments for manufacturing;
. barriers to entry--barriers include large required capital investments, and
growing importance of brand-name recognition and established customer
relationships; and
. low threat of imports--the low labor portion of the cost of manufacturing
fleecewear and the short delivery times required for inventory control by
retail customers reduce the threat of competition from imports.
Sales of fleeced apparel experienced significant growth during the late 1970s
and 1980s due to the increased pursuit of physical fitness and active lifestyles
and the related rise in popularity and acceptance of sweatshirts, jersey apparel
and other types of athletic clothing as "streetwear." Moreover, fleecewear
products have registered significant improvements in fabric weights, blends,
quality of construction, size, style, and color availability over the past few
years, which has contributed to this growth in demand. In particular, garments
are sized larger and typically use heavier, more shrink-resistant fabrics. In
addition, acrylic-dominant blends have been supplanted by polyester-dominant and
cotton-dominant blends. Despite these upgrades in product specifications, retail
prices have remained relatively flat in real terms due to improvements in
manufacturing technology and competitive pressures.
Fleecewear exhibits a marked seasonality. For example, over the past three
fiscal years, an average of 72.9% of the Company's fleecewear unit sales have
occurred in the third and fourth quarters.
Jersey (Outerwear T-shirts). Unit retail sales of jersey products have grown
7.5% from 1990 to 1995 and in 1995 totaled $7.0 billion, or 871.9 million units.
Like fleecewear, the industry characteristics of jersey apparel include low
fashion risk and long-term growth. Imports are a greater threat as the
weight/labor ratio and the freight costs involved are lower for jersey products
than for fleecewear; however, the ability to produce large volumes with short
delivery times gives domestic manufacturers an advantage over import competition
in both fleecewear and jersey apparel.
Industry Makeup and Retail Channels. In 1995, the five largest fleece
manufacturers together accounted for an estimated 29.9% of the branded market in
the fleecewear industry, with Hanes Corporation, Russell Corporation,
Fruit-of-the-Loom, Inc., Tultex and VF Corporation accounting for approximately
10.9%, 6.7%, 4.3%, 4.2% and 3.8% of wholesale industry sales, respectively. The
retail jersey industry also is fragmented. In 1995, the 5 largest jersey
manufacturers together accounted for an estimated 18.1% of the branded market in
the jersey industry, with Sara Lee Corporation, Fruit-of-the-Loom, Russell
Corporation, VF Corporation and Tultex accounting for approximately 6.5%, 5.8%,
2.7%, 2.1% and 1.0% of wholesale industry sales, respectively. The activewear
industry has been characterized since the 1980s by the acquisition of existing
competitors by larger companies with substantial financial resources and
manufacturing and distribution capabilities. These factors and the resulting
price reductions and inventory build-ups have adversely affected participants in
the activewear industry, including Tultex, particularly with respect to the
fleecewear industry.
23
<PAGE>
While fleeced apparel pricing has improved and inventory levels have recovered
to more typical levels in the second half of 1996, there can be no assurance
that these market conditions will continue. Fleecewear is distributed through
department stores, chain stores and sporting goods stores, although mass
merchandisers, wholesale clubs, and other discount retailers represent a
dominant and growing percentage of the total fleecewear market.
Competitive Factors. The Company believes that price and quality are the primary
factors in consumer purchasing decisions. Brand name is often a proxy for
quality; as a result, those companies with brand name recognition enjoy
increased sales from this competitive advantage, as mass merchandisers,
department store chains, and wholesale clubs are requiring more branded than
private label activewear. Management believes that the market share of foreign
competitors in the fleecewear and jersey industries is immaterial.
Licensed Apparel
Estimated wholesale sales of professional sports licensed apparel (including
headwear) for 1995 were approximately $2.2 billion, according to Sports Style
Magazine, an industry publication. In general, the Company believes that the
prospects for its continued growth in this market are good, although growth is
expected to be less rapid than in recent years due to increased competition. The
Company also believes that the industry has recovered from the effect of labor
disputes in basketball and continues to recover from the effect of the labor
disputes in baseball and hockey. The continually changing fortunes of existing
teams, together with the introduction of new franchises, has made the market
extremely dynamic, as interest in each team fluctuates with its performance.
Manufacturers, such as the Company, with the capacity to respond quickly to
these changes with new products and designs, enjoy a competitive advantage over
smaller competitors.
Industry Makeup and Retail Channels. The industry has expanded rapidly over the
past five years, with the professional sports leagues granting large numbers of
licenses. With this proliferation of licenses, individual competitor's sales
growth slowed, though the top companies continued to gain market share. After
giving effect to industry consolidation, management estimates that at the end of
1995, the top four companies would have accounted for approximately 51.5% of the
market, with Starter Corporation, VF Corporation, Tultex and Fruit-of-the-Loom
accounting for approximately 17.3%, 13.1%, 11.8% and 9.3% of wholesale industry
sales in 1995, respectively, according to Sports Style Magazine. Imports of
finished goods purchased by retailers directly or through import companies do
not represent a significant factor in the industry as a whole, since there are
no foreign licensees. However, all of the larger domestic companies competing in
the market do use significant off-shore sourcing of finished outerwear goods.
Licensed apparel products are generally sold through the same retail channels as
activewear.
Competitive Factors. There are significant barriers to entering the licensed
sports apparel industry and expanding such a business to significant size. After
expanding the number of licensees rapidly in recent years, the licensing
associations have begun to consolidate their relationships with existing
manufacturers and appear less likely to enter into licensing agreements with new
entrants. New entrants would be required to devote considerable resources to
developing their product mix and sales and distribution capabilities to compete
effectively.
Company Products
Activewear ($408.2 million or 64.2% of 1996 consolidated sales)
The principal activewear products of the Company are fleeced knitwear items such
as sweatshirts, jogging suits, hooded jackets, headwear and jersey apparel for
work and casual wear. The Company manufactures apparel products principally
under the Discus Athletic and Tultex brands. Products carrying the Discus
Athletic name are marketed for sale to chains such as Foot Locker, department
stores such as Sears and sporting goods stores, while Tultex products are
marketed for sale to mass merchandisers such as Wal-Mart and wholesale clubs
such as Sam's. The Company also manufactures private-label products for sale
under many labels, including Nike, Reebok and Pro Spirit.
Licensed Apparel and Headwear ($228.1 million or 35.8% of 1996 consolidated
sales)
The Company's licensed products include jackets, sweats, T-shirts,
baseball-style caps and other headwear, embroidered or imprinted with
professional and college sports logos. These products are marketed under the
LogoAthletic, Logo 7 and TrackGear brands. Under the LogoAthletic name, the
Company offers premium-quality jackets, caps and other activewear, including NFL
"Pro-Line" authentic sideline gear and NBA "Authentics" apparel. Tultex, through
LogoAthletic, acquired Pro-Line status from the NFL in 1993, a flagship program
24
<PAGE>
entitling the Company to sell products identical to those worn on the sidelines
by NFL players and coaches. Under the terms of the nonexclusive Pro-Line
contract, the Company markets Pro-Line products at retail for all 30 NFL teams.
The Company's NFL Pro-Line and NBA Authentics products prominently feature the
LogoAthletic name and trademark, which the Company believes are key elements in
developing the LogoAthletic brand. See "--Licenses." Under the Logo 7 brand, the
Company offers moderately-priced outerwear, fleecewear, T-shirts and caps with
licensed designs and logos. The Company also sells popularly-priced licensed
fleecewear, jersey apparel and headwear. Under the TrackGear brand, the Company
offers items such as t-shirts, sweatshirts, windbreakers and hats featuring
designs involving NASCAR drivers and cars.
Customers; Marketing and Sales
Customers
The Company offers a diverse product line for sale at a full range of price
points through all major distribution channels. Customers include chain stores,
department stores, sporting goods specialty stores, and mass merchandisers. The
Company's higher-quality fleecewear and jersey products, such as the Discus
Athletic and LogoAthletic brands, are sold primarily through department and
specialty stores and mail-order distribution channels rather than through mass
merchandisers and wholesale clubs, thereby enabling Tultex to enhance the image
of these branded and private label products and achieve higher margins. The
Tultex and Logo 7 brands are marketed through mass merchandisers and wholesale
clubs that compete more on price than brand. The following chart details the
distribution channels for the Company's branded products.
<TABLE>
<CAPTION>
Brands Products Distribution Channels
- ------ -------- ---------------------
<S> <C> <C>
Discus Athletic Fleece and jersey activewear Sporting goods specialty stores and chain
stores (Sports Authority, Modell's), department store
(Belk's) retail chains (Sears), international
distributors and sales agencies (Nissan Trading)
Tultex Fleece and jersey activewear Mass merchants (Kmart, Wal-Mart), retail chains
(Montgomery Ward), regional discounters (Shopko),
distributors and mass merchant screenprinters
(California Shirt Sales, T-Shirt City, Brazos
Sportswear, Jerry Leigh, Giant Merchandise,
Wintergreen), wholesale clubs (Sam's)
LogoAthletic Licensed activewear, outerwear Retail chains (JC Penney,
and headwear Sears), sporting goods specialty stores
(Champs, Foot Locker), department
stores (Dillard's, Mercantile)
Logo 7 Licensed activewear, outerwear Mass merchants (Kmart), distributors (West Coast
and headwear Novelties)
TrackGear Licensed activewear, outerwear Retail chains, corporate accounts, and stockcar
and headwear racetracks
</TABLE>
Marketing and Sales
The Company has shifted its marketing strategy in recent years to focus on the
development of its own brands and sales through distribution channels that
support higher margins. In particular, the Company has devoted significant
resources to the promotion of its Discus Athletic and LogoAthletic brands.
In 1993, the Company began conducting advertising campaigns to promote its
Discus Athletic and LogoAthletic brands. The Discus Athletic advertising
campaign emphasizes quality and the usefulness of the product for many sports.
The Company believes that this positioning effectively differentiates the Discus
Athletic line from competing specialized lines with powerful brand associations.
To reinforce the association of the brand with competitive athletics, Discus
Athletic advertises on ESPN's college football and basketball programs, ABC's
college basketball program and televised Atlantic Coast Conference and Big 10
basketball games. The Company believes these placements are particularly
effective in reaching college sports enthusiasts, an important part of the
Company's target market.
The LogoAthletic campaign focuses on establishing the "authenticity" of
LogoAthletic products. The Company believes that licensed apparel sales benefit
substantially from the perception that products are the same as those
25
<PAGE>
worn by professional sports stars. LogoAthletic acquired NFL Pro-Line status in
1993. To provide visibility and reinforce this authenticity, the Company
provided sideline garments and caps prominently featuring the LogoAthletic
trademark for eight NFL teams in 1996, the Green Bay Packers, Indianapolis
Colts, St. Louis Rams, Phoenix Cardinals, Tampa Bay Buccaneers, Buffalo Bills,
Kansas City Chiefs and Houston Oilers, as well as for several NFL All-Pro
players, such as the Dallas Cowboys' Troy Aikman, Denver Broncos' John Elway,
Miami Dolphins' Dan Marino, Kansas City Chiefs' Marcus Allen and Buffalo Bills'
Bruce Smith. The Company participates in the NBA Authentics program and provides
ball-boy garments featuring the LogoAthletic trademark to the Boston Celtics,
Denver Nuggets, Indiana Pacers, Orlando Magic and Toronto Raptors for use during
games. The Company also has become recognized as a prominent designer and
supplier of distinctive "locker room" caps bearing championship team logos and
carrying the highly visible LogoAthletic trademark.
The Company paid $21.6 million and $17.7 million for advertising services in
1996 and 1995, respectively, and recognized $21.6 million and $22.7 million,
respectively, in expense in those years. The advertising expense budget for 1997
is $28.7 million.
New product introductions are important to the Company's licensed apparel
business and are undertaken to generate consumer excitement and demand.
LogoAthletic's creative design team, in cooperation with key customers and
licensors, continually develops and introduces new products and styles. For
example, the "shark's tooth" design featured on certain LogoAthletic caps and
jackets has been extremely successful and is in high demand. The Company is able
to react quickly to changing team fortunes, designing new products to capitalize
on shifts in popularity and delivering those products to the market rapidly,
sometimes in a matter of hours. During major professional and collegiate
sporting events, such as the Super Bowl, the Company produces on-site decorated
products with championship logos of the winning teams for immediate distribution
and sale at the event.
The Company's marketing methods for other products are typical of producers of
basic clothing products. Its merchandising department keeps abreast of current
fashionable styles and colors. After internal reviews by manufacturing
departments, selected customers preview and comment upon prototype garments
before the merchandising department determines those to be presented in sales
catalogs. Production is planned on orders received and anticipated customer
orders for these garments.
As of December 28, 1996, Tultex operated a sales office in each of New York,
Boston and Chicago and a Discus Athletic showroom in New York City. These
offices are the primary points of contact for customers and coordinate sales,
distribution of sales information, certain advertising, point-of-sale displays
and customer service. The Company also employs seven independent sales
representatives to market its Discus Athletic line in the fragmented sporting
goods market. LogoAthletic's products are marketed through a sales force of
approximately 50 people, including employees and independent sales
representatives. In 1996, the Company renewed its agreement with Nissan Trading
Co., Ltd., a subsidiary of Nissan Motor Co., to market and sell the Company's
products in Japan. This agreement has been extended through 1999. International
sales in 1995 and 1996 were insignificant.
At December 28, 1996, Dominion Stores, Inc., a wholly-owned subsidiary, operated
13 outlet stores in North Carolina, Virginia and West Virginia, which sell
surplus Company apparel and apparel items of other manufacturers, 21 The
Sweatshirt Company retail stores in 14 states, which primarily sell
first-quality Company-made products and accessories and two LogoAthletic stores
in Indiana which primarily sell surplus licensed apparel. Dominion Stores' total
sales in fiscal 1996 were $16.4 million.
Licenses
Most of the Company's licensed products are sold through LogoAthletic . The
Company is a licensee of professional sports apparel, maintaining a full
complement of licenses with all of the major North American professional sports
leagues--the NFL, MLB, the NBA and the NHL--and the Collegiate Licensing
Company. The Company also holds licenses for NASCAR. These licenses require the
payment of royalties ranging from 8% to 15% of sales with guaranteed royalties
of approximately $2.8 million in fiscal 1997. The Company's major licenses with
the NBA, NHL and MLB expire in 1997 and in 1999 for the NFL. The Company
anticipates that the licenses with the NBA, NHL and MLB expiring this year will
be renewed on terms similar to those currently in effect.
The Company's ability to compete is dependent on its ability to obtain and renew
licenses, particularly those from the major professional sports leagues. The
Company enjoys long-standing relationships with its major league licensees,
having been awarded its first licenses with the NFL in 1971, with the NBA in
1977, with MLB in 1980 and with the NHL in 1988. The Company has no reason to
believe that it will not be able to successfully renew these licenses. While the
Company has enjoyed long, successful and uninterrupted licensing relationships
26
<PAGE>
with its professional and collegiate athletic licensors, if a significant
license or licenses were not renewed or replaced, the Company's sales would
likely be materially and adversely affected. In addition, the Company's material
licenses are non-exclusive and new or existing competitors may obtain similar
licenses.
Manufacturing and Distribution
Because consumer value is a key competitive factor in the activewear industry,
Tultex has focused on being a low-cost producer of quality goods. The Company
pursues this goal through cost reduction measures, plant modernization and
improvement of garment characteristics, such as increasing the range of garment
sizes, cloth weight, durability, style and comfort to meet consumer demands.
Implementation of modern information systems and inventory cost control measures
have allowed the closing or sale of several costlier, less efficient plants,
including the Company's December 1994 sale of its yarn production plant in
Rockingham, North Carolina. Savings are achieved through lower average
production costs in the more modern facilities and higher capacity utilization
in the remaining plants.
The Company's manufacturing process consists of: yarn production; fabric
construction including knitting, dyeing and finishing operations; apparel
manufacturing including cutting and sewing operations; and, for garments with
logos, screenprint and embroidery operations. As a result of its modernization
efforts, the Company believes that its manufacturing facilities are outfitted
with some of the most efficient and technologically-advanced equipment in the
industry.
During fiscal 1989 through fiscal 1996, the Company invested approximately $203
million to open new facilities, including sewing facilities in Roanoke, Virginia
and Montego Bay, Jamaica (a leased facility), a dyeing facility in Asheville,
North Carolina, and the highly automated customer service center in
Martinsville, Virginia, and to modernize other facilities. Open-end spinning
frames were acquired to increase yarn production and reduce costs, higher color
quality and lower dyeing costs were achieved from the installation of new jet
dyeing equipment, new dryers were added in the fabric finishing process,
automated cutting machines were introduced, and new information systems were
implemented.
Tultex's highly-automated customer service center, opened in 1991, has greatly
expanded the Company's distribution capabilities. The customer service center
allows the Company to package and ship its products according to the more
detailed color, size and quantity specifications typically required by
high-margin retailers and department stores and has permitted consolidation of
the Company's warehouses. The Company has improved its utilization of the
customer service center and believes that its strategy of increasing sales of
higher-margin retail products, which require more sophisticated packaging, will
continue to improve utilization of the customer service center. Additionally,
management's continued focus on cost reduction, streamlining of operations and
increased throughput has reduced activewear distribution costs as a percentage
of sales from 13.3% in 1993 to 7.5% in 1996.
In spring 1992, LogoAthletic moved its operations to a newly-constructed, leased
facility built to its specifications. This 650,000 square foot building allowed
LogoAthletic to centralize operations, increase inventory control, improve
material flow and will allow for future expansion.
Tultex manufactures yarn at three facilities located in North Carolina, which
have a combined production capacity of 1.5 million pounds per week, utilizing
modern, open-end spinning frames. For its knitting operations, Tultex operates
approximately 500 modern high-speed, latch-needle circular knitting machines,
which produce various types of fabrics. The Company believes its dyeing
operations are among the most modern and technologically efficient in the
industry; dyeing operations are computer-controlled, allowing precise
duplication of dyeing procedures to ensure "shade repeatability" and color-fast
properties. The finishing operations employ mechanical squeezing and steaming
equipment.
The Martinsville cutting facility uses advanced Bierrebi automatic continuous
cutting machines with computer-controlled hydraulic die-cutting heads and
"lay-up" machines and high-speed reciprocating knives. Sewing production at the
Company's eight sewing facilities is organized on an assembly-line basis.
The Company has incorporated sophisticated systems into several key areas of the
manufacturing process. The Company relies on a knitting ticket system to track
and report the manufacturing process from yarn inventory through the knitting of
individual rolls of fabric into greige cloth storage. From this point, the shop
floor control module of the Cullinet manufacturing system monitors and reports
the movement of each production lot through the operations of dyeing, finishing,
cutting and sewing. Each sewing plant then electronically transmits an advance
shipping notice to the automated customer service center so the distribution
planning module at the center can plan the arrival and storage/packing of the
sewn garments. Frontier knitting monitor systems, cutting
27
<PAGE>
production systems, and sewing production systems use computer-based data
collection on each knitting, cutting, and sewing machine to monitor machine and
operator efficiency, data that is useful for quality control, incentive-based
payroll data, and production management information.
The Company decorates its unfinished licensed apparel products using
screenprinting or embroidery at facilities in Indiana, Massachusetts and North
Carolina. Automatic silkscreen machines and dryers are used for longer runs, and
hand-operated presses are used for shorter or more complicated runs. Embroidery
is applied using high-speed, computerized stitching equipment.
Raw Materials
The Company's principal raw materials for the production of activewear are
cotton and polyester. Cotton content in fleecewear typically is 50% and in
jersey apparel typically is 100%. The Company is producing increasing amounts of
fleecewear containing 90-100% cotton. Fleecewear and jersey manufacturers are
extremely sensitive to fluctuations in cotton and polyester prices as these
materials represent approximately 30% of the manufacturing cost of the product.
In addition, the Company is indirectly impacted by increasing costs of raw
materials in its licensed apparel business because the Company purchases
finished goods containing cotton and polyester and these higher raw materials
costs often are effectively passed on to the Company. In 1996, the Company's
average price per pound of fiber (cotton and polyester) purchased was $0.75,
compared with $0.83 in 1995. In 1997, Tultex expects to use approximately 50
million pounds of raw cotton and 25 million pounds of polyester staple in its
manufacture of yarn for fleecewear and jersey apparel. Tultex makes advance
purchases of raw cotton based on projected demand. The Company has contracted to
purchase substantially all of its raw cotton needs for 1997 and has fixed the
price on approximately 60% of its raw cotton needs. To the extent cotton prices
increase before the Company fixes the price for the remainder of its raw cotton
needs, the Company's results of operations could be adversely affected. Also in
1997, the Company expects to use an additional 25 million pounds of yarn which
will be purchased. See "Risk Factors."
Trademarks
The Company promotes and relies upon its trademarks, including Discus Athletic,
LogoAthletic, Tultex, TrackGear and Logo 7, many of which are registered in the
United States and foreign countries.
Seasonality
The Company's business is seasonal. The majority of fleecewear sales occur in
the third and fourth quarters, coinciding with cooler weather and the playing
seasons of popular professional and college sports. Jersey sales peak in the
second and third quarters of the year, somewhat offsetting the seasonality of
fleecewear sales.
Environmental Matters
The Company is subject to various federal, state, local and foreign
environmental laws and regulations governing, among other things, the discharge,
emission, storage, handling and disposal of a variety of substances and wastes
used in or resulting from its operations, including, but not limited to, the
Water Pollution Control Act, as amended; the Clean Air Act, as amended; the
Resource Conservation and Recovery Act, as amended; the Toxic Substances Control
Act, as amended; and the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
The Company returns dyeing wastes for treatment to the City of Martinsville,
Virginia's municipal wastewater treatment systems operated pursuant to a permit
issued by the state. In 1989, the city adopted a plan for removing the
coloration, caused by the dye wastes, from the water by using polymer chemicals
to combine with the extremely small particles of the dye to create a sludge-like
substance that can be retrieved from the water at the city's wastewater
treatment plant and disposed of as a non-hazardous waste in the city's landfill.
To cover the cost to the city, the Company pays 50 to 80 cents per thousand
gallons of water above regular water costs. The expenditures required do not
have a material effect on the Company's earnings or competitive position.
The Company's operations also are governed by laws and regulations relating to
employee safety and health, principally the Occupational Safety and Health Act
and regulations thereunder, which, among other things, establish exposure
limitations for cotton dust, formaldehyde, asbestos and noise, and regulate
chemical and ergonomic hazards in the workplace.
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<PAGE>
The Company believes that it is in material compliance with the aforementioned
laws and regulations and does not expect that future compliance will have a
material adverse effect on its capital expenditures, earnings or competitive
position in the foreseeable future. However, there can be no assurances that
environmental and other legal requirements will not become more stringent in the
future or that the Company will not incur significant costs in the future to
comply with such requirements.
Litigation
The Company is not currently a party to any legal proceedings the result of
which it believes could have a material adverse impact on its business or
financial condition.
Employees
The Company had approximately 6,600 employees at December 28, 1996, of which
approximately 87% were paid hourly.
Hourly employees at the Company's Martinsville and South Boston, Virginia
facilities are represented by the Union of Needletrades, Industrial and Textile
Employees (UNITE). The Company's labor contracts with the union, covering all
hourly employees at the Martinsville and South Boston facilities, expire in
1998. As of December 28, 1996, the Company's hourly employees represented by the
Union accounted for approximately 40.0% of the Company's total employees and
approximately 45.9% of the Company's hourly employees. None of the Company's
other employees are represented by a union. The following table summarizes the
approximate number of employees in the Company's principal divisions at December
28, 1996.
<TABLE>
<CAPTION>
December 28, 1996
-----------------
Division Salary Hourly Total
-------- ------ ------ -----
<S> <C> <C> <C>
Activewear 715 5,041 5,756
Licensed Apparel 99 627 726
Licensed Headwear 30 106 136
--- ----- -----
Total 844 5,774 6,618
=== ===== =====
</TABLE>
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<PAGE>
Properties
Almost all of the Company's principal physical facilities (other than those of
LogoAthletic) are located in Virginia and North Carolina, within a 150-mile
radius of the City of Martinsville. All buildings are well-maintained. The
Company and its subsidiaries also lease sales offices and retail outlets in
major cities from coast to coast. The location, approximate size and use of the
Company's principal owned properties are summarized in the following table:
<TABLE>
<CAPTION>
Square
Location Footage Use
- -------- ------- ---
<S> <C> <C>
Martinsville, VA 1,100,000 Manufacturing (apparel) and administrative offices
Koehler, VA 60,000 Warehousing
Martinsville, VA 70,000 Warehousing
South Boston, VA 130,000 Sewing (apparel)
Bastian, VA 53,500 Sewing (apparel)
Longhurst, NC 287,000 Manufacturing (yarn)
Roxboro, NC 110,000 Manufacturing (yarn)
Dobson, NC 38,000 Sewing (apparel)
Mayodan, NC 612,000 Manufacturing, warehousing and shipping
(yarn and apparel)
Vinton, VA 50,000 Sewing (apparel)
Martinsville, VA 502,200 Warehousing and shipping (apparel)
Mattapoisett, MA 116,250 Distribution (headwear)
Asheville, NC 106,650 Manufacturing (apparel)
</TABLE>
The following table presents certain information relating to the Company's
principal leased facilities:
<TABLE>
<CAPTION>
Lease Current
Square Expiration Annual
Location Footage Date Rental Use
- -------- ------- ---- ------ ---
<S> <C> <C> <C> <C>
Chilhowie, VA 40,015 8/31/97 $ 46,200 Sewing (apparel)
Montego Bay, Jamaica 28,422 Monthly 113,688 Sewing (apparel)
Montego Bay, Jamaica 38,088 12/31/98 152,352 Sewing (apparel)
Martinsville, VA 300,000 6/1/98 684,000 Warehousing (apparel)
Martinsville, VA 300,000 6/1/98 594,000 Warehousing (apparel)
Indianapolis, IN 650,000 5/31/07 1,408,000 Distribution (licensed
apparel)
Charlotte, NC 26,500 10/30/99 94,104 Distribution (licensed
apparel)
Fullerton, CA 205,000 12/31/04 762,600 Distribution (apparel)
San Diego, CA 23,812 03/31/99 142,872 Distribution (apparel)
Salt Lake City, UT 33,000 06/30/97 106,812 Distribution (apparel)
Oakland, CA 22,282 07/31/99 70,404 Distribution (apparel)
Los Angeles, CA 25,017 11/30/97 32,784 Distribution (apparel)
Honolulu, HI 8,257 05/31/97 64,404 Distribution (apparel)
Denver, CO 28,600 12/31/98 85,800 Distribution (apparel)
Seattle, WA 34,020 09/30/97 141,852 Distribution (apparel)
Las Vegas, NV 30,199 07/31/03 259,444 Distribution (apparel)
Phoenix, AZ 20,400 03/31/02 100,368 Distribution (apparel)
Cincinnati, OH 105,000 02/28/99 199,200 Distribution (apparel)
</TABLE>
30
<PAGE>
Manufacturing equipment, substantially all of which is owned by the Company,
includes carding, spinning and knitting machines, jet-dye machinery, dryers,
cloth finishing machines, cutting and sewing equipment and automated
storage/retrieval equipment. This machinery is modern and kept in good repair.
The Company leases a fleet of trucks and tractor-trailers which are used for
transportation of raw materials and for interplant transportation of
semi-finished and finished products.
The Company's facilities and its manufacturing equipment are considered adequate
for its immediate needs.
MANAGEMENT
Executive Officers of the Company
The following information is furnished concerning the executive officers of the
Company.
<TABLE>
<CAPTION>
Name Age Office
- ---- --- ------
<S> <C> <C>
John M. Franck 44 Chairman of the Board of Directors
Charles W. Davies, Jr. 48 President and Chief Executive Officer
O. Randolph Rollins 54 Executive Vice President and General Counsel
Walter J. Caruba 49 Vice President--Marketing and Sales
W. Jack Gardner, Jr. 53 Vice President--Domestic Operations
Anthony J. Pichirallo 38 Vice President--Wholesale Marketing
B. Alvin Ratliff 51 Vice President--Resources
John J. Smith 54 Vice President--Distribution/Logistics and Systems
Suzanne H. Wood 37 Vice President and Chief Financial Officer
Jeffrey F. Kies 40 Corporate Controller
</TABLE>
John M. Franck, Chairman of the Board of Directors, was Chairman of the Board
and Chief Executive Officer of the Company from January 1991 to January 1995,
and served as President and Chief Operating Officer from November 1988 to
January 1991. Mr. Franck is a director of Piedmont Trust Bank, Martinsville,
Virginia.
Charles W. Davies, Jr., President and Chief Executive Officer of the Company
since January 1995, was President and Chief Operating Officer of the Company
from January 1991 to January 1995, and Executive Vice President from December
1989 to January 1991. From February 1988 through November 1989, he was President
and Chief Executive Officer of Signal Apparel Company in Chattanooga, Tennessee.
From March 1986 to February 1988, Mr. Davies was President of Little Cotton
Manufacturing Company in Wadesboro, North Carolina and from December 1984
through February 1986 was Senior Vice President of Fieldcrest-Cannon in
Kannapolis, North Carolina.
O. Randolph Rollins became Executive Vice President and General Counsel in
October 1994. From 1995 to 1996 he was Chief Financial Officer. Prior thereto,
Mr. Rollins was a partner with the law firm of McGuire, Woods, Battle & Boothe,
Richmond, Virginia, from 1973 to 1990 and from January 1994 to October 1994.
From 1990 to January 1994, Mr. Rollins served in the Cabinet of Virginia's
Governor L. Douglas Wilder, first as Deputy Secretary of Public Safety and from
1992 through January 14, 1994 as Secretary of Public Safety of the Commonwealth
of Virginia. Mr. Rollins is the brother-in-law of John M. Franck.
Walter J. Caruba became Vice President--Marketing and Sales in September 1992.
He served as Vice President--Distribution between October 1990 and September
1992. He served as General Manager--Planning from November 1989 to October 1990
and was Director--Production Control from December 1985 to November 1989.
W. Jack Gardner became Vice President--Domestic Operations in September 1994 and
served as General Manager--Fabric Manufacturing from January 1988 until that
time.
Anthony J. Pichirallo became Vice President--Wholesale Marketing in February
1997. He served as General Manager--Wholesale from July 1991 until that time.
B. Alvin Ratliff became Vice President--Resources in March 1995. He previously
served as Vice President and Service Quality Coordinator from February 1994
until March, 1995 after serving as Vice President--Operations since December
1984.
John J. Smith became Vice President--Distribution/Logistics and Systems in
September 1992. Prior thereto, he served as Vice President--Sales and Marketing
since December 1987 after serving as Director--Corporate
31
<PAGE>
Planning since May 1987. He was Manager--Information Systems & Services between
December 1985 and May 1987.
Suzanne H. Wood became Vice President and Chief Financial Officer in February
1996. Prior to that appointment, Ms. Wood was Corporate Controller. In the 10
years prior to joining the Company in 1993, she was employed by Price Waterhouse
LLP, most recently as Audit Senior Manager.
Jeffrey F. Kies became Corporate Controller in August 1996. Prior to joining the
Company, he was employed by R. J. Reynolds Tobacco Co. as Senior Financial
Manager.
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
The Company has outstanding $110 million of 10 5/8% Senior Notes due March 15,
2005 and has a $187.5 million Senior Credit Facility provided by a syndicate of
banks headed by NationsBank, N.A.
The 1995 Notes are redeemable beginning March 15, 2000 at declining redemption
prices, are general unsecured obligations of the Company, rank pari passu in
right of payment with all other unsubordinated indebtedness of the Company, and
are guaranteed jointly and severally by the Company's principal subsidiaries.
The 1995 Notes contain covenants that limit the ability of the Company and its
subsidiaries to incur additional indebtedness, to make certain restricted
payments, to make certain investments, to create liens, to engage in sale and
lease transactions and to merge, consolidate or engage in similar transactions;
that impose dividend and other payment restrictions on subsidiaries; and that
prohibit certain transactions with affiliates or related persons. The Company is
also required to make an offer to repurchase the 1995 Notes upon a change in
control. In certain circumstances, the Company must also purchase the 1995 Notes
at par with the net proceeds of asset sales. These covenants are subject to a
number of significant exceptions and qualifications.
Borrowings under the Senior Credit Facility are general unsecured obligations of
the Company and rank pari passu in right of payment with all other
unsubordinated indebtedness of the Company. Borrowings under the Senior Credit
Facility bear a floating rate of interest equal to the prime rate of
NationsBank, N.A. or a reference rate plus a margin ranging from 0.50% to 1.625%
per annum. The Senior Credit Facility contains customary representations and
events of default, including default upon a change of control of the Company. It
also contains covenants restricting the ability of the Company and its
subsidiaries to incur indebtedness, to create liens on the Company's property,
to issue guarantees, to alter the character of the Company's business, to
consolidate, merge or purchase or sell the Company's assets, to make investments
or advance funds, to prepay indebtedness, and to transact business with
affiliates. As with the 1995 Notes, these covenants are subject to exceptions
and qualifications. The Senior Credit Facility contains certain financial
covenants regarding the maintenance of net worth, indebtedness levels, and
restrictions on the payment of cash dividends. At December 28, 1996, the Company
was in compliance with all of the financial covenants of the Senior Credit
Facility. As part of the Financing, the size of the Senior Credit Facility was
reduced from 225 million to $187.5 million.
32
<PAGE>
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Company, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement which provides that the Company and the Guarantors
will use their best efforts, and at their cost, to file and cause to become
effective the Exchange Offer Registration Statement with respect to a registered
offer to exchange (the "Exchange Offer") the Old Notes for an issue of Exchange
Notes with terms which are substantially identical (including principal amount,
interest rate and maturity) to the terms of the Old Notes for which they will be
exchanged (except that the Exchange Notes will have been registered under the
Securities Act and will not bear legends restricting their transfer other than
as provided in the Indenture) and guaranteed on a joint and several basis by the
Guarantors with terms identical to the Guarantees of the Old Notes. Upon such
registration statement being declared effective, the Company shall offer the
Exchange Notes in return for surrender of the Old Notes as aforesaid. Such offer
shall remain open for 30 days (or longer if required by applicable law) after
the date notice of the Exchange Offer is mailed to holders of the Old Notes. For
each Old Note surrendered to the Company under the Exchange Offer, the holder
will receive a New Note of equal principal amount on or prior to the fifth day
following the Expiration Date.
In the event that (i) the Exchange Offer Registration Statement relating to the
Exchange Offer is not filed with the Commission on or prior to the 60th day
following the Closing Date, (ii) the Exchange Offer Registration Statement is
not declared effective on or prior to the 120th day following the Closing Date
or (iii) the Exchange Offer is not consummated or a registration statement with
respect to resales of the Old Notes is not declared effective on or prior to the
150th day following the Closing Date (each such event referred to in clauses (i)
through (iii), a "Registration Default"), then the Company will pay additional
interest (in addition to the interest otherwise due on the Old Notes) to each
holder of Old Notes during the first 90-day period immediately following the
occurrence of each such Registration Default in an amount equal to 0.25% per
annum. The amount of interest will increase by an additional 0.25% per annum for
each subsequent 90-day period until such Registration Default is cured, up to a
maximum amount of additional interest of 1.00% per annum. Such additional
interest will cease accruing on such Old Notes when the Registration Default has
been cured.
Following consummation of the Exchange Offer, except as set forth below, holders
of Old Notes not tendered will not have any further registration rights and the
Old Notes will continue to be subject to certain restrictions on transfer. See
"--Consequences of Failure to Exchange." Accordingly, the liquidity of the
market for the Old Notes could be adversely affected.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus and in
the Letter of Transmittal, the Company will accept any and all Old Notes validly
tendered and not withdrawn on or prior to 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, but only in integral multiples of $1,000 principal amount.
The form and terms of the Exchange Notes are substantially identical (including
principal amount, interest rate, and maturity) to the form and terms of the Old
Notes, except that (i) the Exchange Notes will have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
pursuant to the Securities Act and (ii) holders of Exchange Notes will not be
entitled to certain rights of holders of Old Notes under the Registration Rights
Agreement which will terminate upon the consummation of the Exchange Offer. 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.
As of the Closing Date, of the $75,000,000 aggregate principal amount of Old
Notes outstanding, registered both in the name of institutions and in the name
of Cede & Co, as nominee for The Depository Trust Company (the "Depository" or
"DTC"). Only a registered holder of Old Notes (or such holder's legal
representative or attorney-in-fact) as reflected on the records of the Trustee
under the Indentures may participate in the Exchange Offer. There will be no
fixed record date for determining registered holders of Old Notes entitled to
participate in the Exchange Offer.
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 of Old
Notes for the purposes 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,
certificates for any such unaccepted Old Notes will be returned (or in
33
<PAGE>
the case of Old Notes tendered by book-entry transfer through DTC, will be
credited to an account maintained with DTC), without expense, to the tendering
holder thereof as promptly as practicable after the Expiration Date.
See "--Procedures for Tendering."
Holders who tender Old Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees with respect to the exchange of Old Notes pursuant
to the Exchange Offer. The Company will pay all charges and expenses, other than
any applicable taxes, in connection with the Exchange Offer. See "--Fees and
Expenses."
If, prior to consummation of the Exchange Offer, any Initial Purchaser holds any
Old Notes acquired by it and having, or which are reasonably likely to be
determined to have, the status of an unsold allotment in the initial
distribution, the Company upon the request of such Initial Purchaser shall,
simultaneously with the delivery of the Exchange Notes in the Exchange Offer,
issue and deliver to such Initial Purchaser, in exchange (the "Private
Exchange") for the Old Notes held by such Initial Purchaser, a like principal
amount of debt securities of the Company that are identical to the Exchange
Notes and guaranteed by the Guarantors with terms identical to the Guarantees
(the "Private Exchange Securities") (and which are issued pursuant to the
Indentures). The Private Exchange Securities shall bear the same CUSIP number as
the Exchange Notes. Interest on the Exchange Notes and Private Exchange
Securities will accrue from the last Interest Payment Date on which interest was
paid on the Old Notes surrendered in exchange therefor or, if no interest has
been paid on the Old Notes, from the Issue Date.
The Indenture provides that the holders of the Notes and any Private Exchange
Securities will vote and consent together on all matters (to which such holders
are entitled to vote or consent) as one class and that none of the holders of
the Notes and any Private Exchange Securities will have the right to vote or
consent as a separate class on any matter (to which such holders are entitled to
vote or consent).
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., Richmond time, on August 21,
1997, unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay accepting
any Old Notes, (ii) to extend the Exchange Offer, (iii) to terminate the
Exchange Offer by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (iv) 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 a public announcement
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendments by means of a prospectus supplement that will be distributed to the
registered holders of Old Notes, and the Company will extend the Exchange Offer
for a period of five to ten business days, depending upon the significance of
the amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall not have an obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
Interest
Interest on the Exchange Notes shall accrue from the last Interest Payment Date
on which interest was paid on the Old Notes so surrendered, or, if no interest
has been paid on such Old Notes, from April 17, 1996. No interest will be paid
on the Old Notes accepted for exchange.
Procedures for Tendering
Only a registered holder of Old Notes may tender such Old Notes in the Exchange
Offer. To tender in the Exchange Offer, a holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange
34
<PAGE>
Agent at the address set forth below under "--Exchange Agent" for receipt prior
to the Expiration Date; provided, however, that in lieu of the foregoing, a
holder may either (i) tender the Old Notes pursuant to the procedure for
book-entry tender set forth below, or (ii) comply with the guaranteed delivery
procedure set forth below.
The tender by a holder will constitute an 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 RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT ON OR 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 TRANSACTION FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. See "Instructions to
Registered Holder 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 an Eligible Institution (as defined) unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered holder who has
not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal, or (ii) for the account of
an Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantee must be by a member of one of the following signature guarantee
programs: the Securities Transfer Agents Medallion Program (STAMP), the New York
Stock Exchange Medallion Signature Program (MSP) and the Stock Exchange
Medallion Program (SEMP) (each, 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.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers 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.
All questions as to the validity, form, eligibility (including time of receipt),
acceptance 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 to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. Although the Company intends to notify
holders of defects or irregularities with respect to tenders of Old Notes,
neither the Company, the Guarantors, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such defects or irregularities
have been cured or waived. Any Old Notes received by the Exchange Agent that are
not validly 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.
By executing the Letter of Transmittal, each registered holder will represent to
the Company, among other things, that (i) the Exchange Notes to be acquired by
the holder and any beneficial owner(s) of Old Notes ("Beneficial Owner(s)") in
connection with the Exchange Offer are being acquired by the holder and any
Beneficial Owner(s) in the ordinary course of business of the holder and any
Beneficial Owner(s), (ii) at the time of the consummation of the Exchange Offer
the holder and each Beneficial Owner are not engaging in, do not intend to
engage in, and have no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes in violation of the
provisions of the Securities Act, (iii) the holder and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer for
the purpose of distributing the Exchange Notes must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes acquired by such person and
cannot rely
35
<PAGE>
on the position of the Staff of the Commission set forth in no-action letters
that are discussed under "Plan of Distribution", (iv) the holder and each
Beneficial Owner understands that a secondary resale transaction described in
clause (iii) above should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 or 508,
as applicable, of Regulation S-K of the Commission, and (v) neither the holder
nor any Beneficial Owner(s) is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company except as otherwise disclosed to the Company in
writing.
Exchanging Book-Entry Old Notes
The Exchange Agent and DTC have confirmed that any financial institution that
has an account with DTC (a "Participant") may utilize DTC's Automated Tender
Offer Program ("ATOP") to tender Old Notes.
The Exchange Agent will request that DTC establish an account with respect to
the Old Notes for purposes of the Exchange Offer within two business days after
the date of the Exchange Offer. Any Participant may make book-entry delivery of
Old Notes by causing DTC to transfer such Old Notes into such Exchange Agent's
account in accordance with DTC's ATOP procedures for transfer. However, the
exchange for the Old Notes so tendered will only be made after timely
confirmation (a "Book-Entry Confirmation") of such book-entry transfer of Old
Notes into the Exchange Agent's account, and timely receipt by the Exchange
Agent of an Agent's Message (as defined) and any other documents required by the
Letter of Transmittal. The term "Agent's Message" means a message, transmitted
by DTC and received by the Exchange Agent and forming part of a Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
a Participant tendering Old Notes which are the subject of such Book-Entry
Confirmation that such Participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such Participant.
The method of delivery of Old Notes is at the option and risk of the tendering
holder and, except as otherwise provided in the Letter of Transmittal, the
delivery will be deemed to be made only when actually received by the Exchange
Agent.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date or (iii) who cannot comply with the procedure for book-entry
tender on a timely basis, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) On or prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution 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 the Old Notes being tendered, stating that the
tender is being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the execution of the Notice of Guaranteed Delivery,
the Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing the Old Notes and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered Old
Notes in proper form for transfer and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within five New York Stock
Exchange trading days after the execution of the Notice of Guaranteed Delivery.
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, Old Notes tendered pursuant to the Exchange
Offer may be withdrawn at any time on or prior to the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein on or prior to 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 or
36
<PAGE>
numbers (except in the case of book-entry tenders) and principal amount at
maturity (regardless of the means of tendering) of such Old Notes), (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 Depositor 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. If the Old Notes have been tendered pursuant to the
procedure for book-entry tender set forth above under "Exchanging Book-Entry Old
Notes," a notice of withdrawal must specify, in lieu of certificate numbers, the
name and account number at DTC to be credited with the withdrawn Old Notes. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, which
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. Properly withdrawn Old Notes
may be retendered by following one of the procedures described above under
"Procedures for Tendering" at any time on or prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for exchange
due to rejection of tender or termination of the Exchange Offer, or which have
been validly withdrawn, will be returned as soon as practicable to the holder
thereof without cost to such holder.
Exchange Agent
First Union National Bank of Virginia has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or the Letter of Transmittal and requests
for Notices of Guaranteed Delivery should be directed to the Exchange Agent at
800/829-8432 or addressed as follows:
First Union Customer Information Center
Attn: Reorganization Department, 3C3-NC1153
1525 West W. T.Harris Boulevard
Charlotte, North Carolina 28262
Fax: 704/590-7628
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company. The principal
solicitations are being made by mail; however, additional solicitations may be
made by telegraph, 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
acceptance 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 incurred and to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $75,000. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees, filing fees under the Securities
Act and state securities laws, and printing costs, among others.
Effect on Holders of Old Notes
Old Notes which are not exchanged for Exchange Notes pursuant to the Exchange
Offer will remain restricted securities under the Securities Act. Accordingly,
such Old Notes may be resold only (i) to a person who the seller reasonably
believes is a "qualified institutional buyer" as defined in Rule 144A under the
Securities Act ("QIB") in a transaction meeting the requirements of Rule 144A,
in a transaction meeting the requirements of Rule 144 under the Securities Act,
outside the U.S. to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act or in accordance with another exemption
from the registration requirements of the Securities Act (and based upon an
opinion of counsel if the Company so requests), (ii) to the Company or (iii)
pursuant to an effective registration statement, and, in each case, in
accordance with any applicable securities laws of any State of the United States
or any other applicable jurisdiction. Certain holders prohibited from
participating in the Exchange Offer may have certain other registration rights
under the Registration Rights Agreements. See "Prospectus Summary--The Exchange
Offer--Registration Rights Agreements."
Accounting Treatment
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<PAGE>
The Exchange Notes will be recorded at the same carrying value of the Old Notes
as reflected in the Company's accounting records on the date of the Exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company. The expenses of the Exchange Offer will be amortized by the Company
over the term of the Exchange Notes.
DESCRIPTION OF EXCHANGE NOTES
As used below in this "Description of Exchange Notes" section, the "Company"
means Tultex Corporation but not any of its subsidiaries. The Exchange Notes are
to be issued under an Indenture dated as of April 15, 1997 (the "Indenture"),
between the Company, the Guarantors and First Union National Bank of Virginia,
as Trustee (the "Trustee"). The terms of the Exchange Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The New Exchange
Notes are subject to all such terms, and holders of the Exchange Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The statements under this caption relating to the Exchange Notes, the Indenture
and the Registration Rights Agreement are summaries and do not purport to be
complete, and where reference is made to particular provisions of the Indenture
or the Registration Rights Agreement, which have been filed as exhibits to the
Registration Statement, such provisions, including the definitions of certain
terms, are qualified in their entirety by such reference.
General
The Exchange Notes will be general unsecured obligations of the Company, will be
limited to $75 million aggregate principal amount and will rank pari passu in
right of payment with all other indebtedness of the Company that is not, by its
terms, expressly subordinated in right of payment to the Exchange Notes. The
Exchange Notes will be guaranteed on a joint and several basis by each of the
Guarantors pursuant to the Guarantees described below. The Guarantees will be
general unsecured obligations of the Guarantors and will rank pari passu in
right of payment with all other indebtedness of the Guarantors that is not, by
its terms, expressly subordinated in right of payment to the Guarantees. At
April 5, 1997, as adjusted to give effect to the transactions described under
"Use of Proceeds," the total indebtedness of the Company would have been
approximately $247.0 million, none of which would have been subordinated to the
Exchange Notes. Secured creditors of the Company or any Guarantor will have a
claim on the assets which secure the obligations of the Company or such
Guarantor, as the case may be, prior to claims of holders of the Exchange Notes
against those assets. At December 28, 1996, as adjusted to give effect to the
transactions described under "Use of Proceeds," the Company and the Guarantors
had no secured indebtedness.
The Exchange Notes will mature on April 15, 2007 and will bear interest at the
rate per annum shown on the front cover of this Offering Memorandum from April
17, 1997 or from the most recent interest payment date to which interest has
been paid or provided for. Interest will be payable semi-annually on April 15
and October 15 of each year, commencing October 15, 1997, to the Person in whose
name a Note is registered at the close of business on the preceding April 1 or
October 1 (each, a "Record Date"), as the case may be. Interest on the Exchange
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
Holders must surrender the Exchange Notes to the paying agent for the Exchange
Notes to collect principal payments. The Company will pay principal and interest
by check and may mail interest checks to a Holder's registered address.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof. No
service charge will be made for any registration of transfer or exchange of
Exchange Notes, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Initially, the Trustee will act as paying agent and registrar for the Exchange
Notes. The Exchange Notes may be presented for Registration of transfer and
exchange at the offices of the registrar for the Exchange Notes.
Redemption
The Exchange Notes will be subject to redemption, at the option of the Company,
in whole or in part, at any time on or after April 15, 2002 and prior to
maturity, upon not less than 30 nor more than 60 days' notice mailed to each
Holder of Exchange Notes to be redeemed at his address appearing in the register
for the Exchange Notes, in amounts of $1,000 or an integral multiple of $1,000,
at the following redemption prices (expressed as percentages of principal
amount) plus accrued interest to but excluding the date fixed for redemption
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on an interest payment date that is on or prior to the date
fixed for redemption), if redeemed during the 12-month period beginning
of the years indicated:
38
<PAGE>
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2002 104.813%
2003 103.208
2004 101.604
2005 and thereafter 100.000
</TABLE>
If less than all the Exchange Notes are to be redeemed, the Trustee shall
select, in such manner as it shall deem fair and appropriate, the particular
Exchange Notes to be redeemed or any portion thereof that is an integral
multiple of $1,000.
The Exchange Notes will not have the benefit of any sinking fund.
The Guarantees
Each of the Guarantors will unconditionally guarantee on a joint and several
basis all of the Company's obligations under the Exchange Notes, including its
obligations to pay principal, premium, if any, and interest with respect to the
Exchange Notes. 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 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 the 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 shall be entitled to a contribution
from each other Guarantor in an amount pro rata, based on the net assets of each
Guarantor determined in accordance with GAAP. Except as provided in "Certain
Covenants" below, the Company is not restricted from selling or otherwise
disposing of any of the Guarantors.
The Indenture provides that each Wholly Owned Subsidiary of the Company in
existence on the Issue Date and each Material Subsidiary whether formed or
acquired after the Issue Date will become a Guarantor, provided that, any
Material Subsidiary acquired after the Issue Date which is prohibited from
entering into a Guarantee pursuant to restrictions contained in any debt
instrument or other agreement in existence at the time such Material Subsidiary
was so acquired and not entered into in anticipation or contemplation of such
acquisition shall not be required to become a Guarantor so long as any such
restriction is in existence and to the extent of any such restriction.
The Indenture provides that if the Exchange Notes are defeased in accordance
with the terms of the Indenture, or if all or substantially all of the assets of
any Guarantor or all of the capital stock of any Guarantor is sold (including by
issuance or otherwise) by the Company or any of its Subsidiaries in a
transaction constituting an Asset Disposition, and if (x) the Net Available
Proceeds from such Asset Disposition are used in accordance with the covenant
"--Limitation on Certain Asset Dispositions" or (y) the Company delivers to the
Trustee an Officers' Certificate to the effect that the Net Available Proceeds
from such Asset Disposition shall be used in accordance with the covenant
"--Limitation on Certain Asset Dispositions" 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 capital stock 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.
Separate financial statements of the Guarantors are not included herein because
such Guarantors are jointly and severally liable with respect to the Company's
obligations pursuant to the Exchange Notes, and the aggregate net assets,
earnings and equity of the Guarantors and the Company are substantially
equivalent to the net assets, earnings and equity of the Company on a
consolidated basis.
39
<PAGE>
Covenants
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness
The Indenture provides that the Company will not, and will not permit any of its
Subsidiaries to, Incur any Indebtedness except, subject to the provisions set
forth below under "--Additional Limitation on Subsidiary Indebtedness": (i)
Indebtedness of the Company or its Subsidiaries, if immediately after giving
effect to the Incurrence of such Indebtedness and the receipt and application of
the net proceeds thereof, the Consolidated Cash Flow Ratio of the Company for
the four full fiscal quarters for which quarterly or annual financial statements
are available next preceding the Incurrence of such Indebtedness, calculated on
a pro forma basis as if such Indebtedness had been Incurred at the beginning of
such four full fiscal quarters, would be greater than 2.00 to 1 if such
Indebtedness is Incurred on or before December 31, 1997 and 2.25 to 1 if such
Indebtedness is Incurred after December 31, 1997; (ii) Indebtedness of the
Company, and guarantees of such Indebtedness by any Guarantor, Incurred under
the Senior Credit Facility in an aggregate principal amount at any one time not
to exceed the greater of (x) $187.5 million or (y) the sum of (A) 80% of
Eligible Accounts Receivable and (B) 65% of Eligible Inventory; (iii)
Indebtedness owed by the Company to any Wholly Owned Subsidiary of the Company
(provided that such Indebtedness is at all times held by a Person which is a
Wholly Owned Subsidiary of the Company) or Indebtedness owed by a Subsidiary of
the Company to the Company or a Wholly Owned Subsidiary of the Company (provided
that such Indebtedness is at all times held by the Company or a Person which is
a Wholly Owned Subsidiary of the Company); provided, however, upon either (x)
the transfer or other disposition by such Wholly Owned Subsidiary or the Company
of any Indebtedness so permitted under this clause (iii) to a Person other than
the Company or another Wholly Owned Subsidiary of the Company or (y) the
issuance (other than directors' qualifying shares), sale, transfer or other
disposition of shares of Capital Stock or other ownership interests (including
by consolidation or merger) of such Wholly Owned Subsidiary to a Person other
than the Company or another such Wholly Owned Subsidiary of the Company, the
provisions of this clause (iii) shall no longer be applicable to such
Indebtedness and such Indebtedness shall be deemed to have been Incurred at the
time of any such issuance, sale, transfer or other disposition, as the case may
be; (iv) Indebtedness incurred by a Person prior to the time (x) such Person
becomes a Subsidiary of the Company, (y) such Person merges into or consolidates
with a Subsidiary of the Company or (z) another Subsidiary of the Company merges
into or consolidates with such Person (in a transaction in which such Person
becomes a Subsidiary of the Company), which Indebtedness was not Incurred in
anticipation or contemplation of such transaction and was outstanding prior to
such transaction; (v) Indebtedness of the Company or its Subsidiaries under any
interest rate or currency swap agreement to the extent entered into to hedge any
other Indebtedness permitted under the Indenture; (vi) Capital Lease Obligations
of the Company or its Subsidiaries Incurred with respect to a Sale and Leaseback
Transaction which was made in accordance with the provisions of the Indenture
described under "--Limitation on Sale and Leaseback Transactions"; (vii)
Indebtedness Incurred to renew, extend, refinance or refund (collectively for
purposes of this clause (vii) to "refund") any Indebtedness outstanding on the
Issue Date and Indebtedness Incurred under the prior clause (i) or the Exchange
Notes; provided, however, that (x) such Indebtedness does not exceed the
principal amount of Indebtedness so refunded plus the amount of any premium
required to be paid in connection with such refunding pursuant to the terms of
the Indebtedness refunded or the amount of any premium reasonably determined by
the Company as necessary to accomplish such refunding by means of a tender
offer, exchange offer or privately negotiated repurchase, plus the expenses of
the Company or such Subsidiary Incurred in connection therewith and (y)(A) in
the case of any refunding of Indebtedness which is pari passu with the Exchange
Notes, such refunding Indebtedness is made pari passu with or subordinate in
right of payment to the Exchange Notes, and, in the case of any refunding of
Indebtedness which is subordinate in right of payment to the Exchange Notes,
such refunding Indebtedness is subordinate in right of payment to the Exchange
Notes on terms no less favorable to the Holders than those contained in the
Indebtedness being refunded and (B) in either case, the refunding Indebtedness
by its terms, or by the terms of any agreement or instrument pursuant to which
such Indebtedness is issued, does not have an Average Life that is less than the
remaining Average Life of the Indebtedness being refunded and does not permit
redemption or other retirement (including pursuant to any required offer to
purchase to be made by the Company or a Subsidiary of the Company) of such
Indebtedness at the option of the holder thereof prior to the final stated
maturity of the Indebtedness being refunded, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including pursuant
to a required offer to purchase made by the Company or a Subsidiary of the
Company) which is conditioned upon a change of control of the Company pursuant
to provisions substantially similar to those contained in the Indenture
described under "--Change of Control" below; (viii) Indebtedness of the Company
or its Subsidiaries 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 that the aggregate principal amount of such Indebtedness does not
exceed 100% of such purchase price or cost and any Lien associated with such
Indebtedness complies with clause (iv) of the "Limitation on Liens" covenant;
(ix) Indebtedness of the Company or its Subsidiaries, not otherwise permitted to
be Incurred pursuant to clauses (i)
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through (viii) above which, together with any other outstanding Indebtedness
Incurred pursuant to this clause (ix), has an aggregate principal amount not in
excess of $10 million at any time outstanding; and (x) Indebtedness of the
Company and its Subsidiaries under the Exchange Notes and the Guarantees.
Additional Limitation on Subsidiary Indebtedness
The Indenture provides that, in addition to the provisions of the Indenture
described under "--Limitation on Indebtedness," the Company will not permit any
of its Subsidiaries to Incur any Indebtedness (other than the guarantee of
Indebtedness under the Senior Credit Facility and the 1995 Notes) in an amount
which, when aggregated with (A) all Indebtedness (other than any Indebtedness
included in the following clause (B) or (C)) secured by Liens permitted by the
provisions of the Indenture described in clause (viii) under "--Limitation on
Liens" and then outstanding, (B) all Capital Lease Obligations of the Company
and its Subsidiaries Incurred in compliance with the provisions of the Indenture
described in "--Limitation on Indebtedness" and then outstanding, and (C) all
other Indebtedness of Subsidiaries of the Company (other than the guarantee of
Indebtedness under the Senior Credit Facility and the 1995 Notes) Incurred in
compliance with "--Limitation on Indebtedness" and then outstanding, would
exceed 10% of Consolidated Net Tangible Assets.
Limitation on Restricted Payments
The Indenture provides that the Company will not, and will not permit any of its
Subsidiaries to, (i) directly or indirectly, declare or pay any dividend, or
make any distribution of any kind or character (whether in cash, property or
securities), in respect of any class of its Capital Stock or to the holders
thereof, excluding any (x) dividends or distributions payable solely in shares
of its Capital Stock (other than Disqualified Stock) or in options, warrants or
other rights to acquire its Capital Stock (other than Disqualified Stock), or
(y) in the case of any Subsidiary of the Company, dividends or distributions
payable to the Company or a Subsidiary of the Company, (ii) directly or
indirectly, purchase, redeem or otherwise acquire or retire for value shares of
Capital Stock of the Company or any of its Subsidiaries, any options, warrants
or rights to purchase or acquire shares of Capital Stock of the Company or any
of its Subsidiaries or any securities convertible or exchangeable into shares of
Capital Stock of the Company or any of its Subsidiaries, excluding any such
shares of Capital Stock, options, warrants, rights or securities which are owned
by the Company or a Subsidiary of the Company, (iii) make any Investment in
(other than a Permitted Investment), or payment on a guarantee of any obligation
of, any Person, other than the Company or a Wholly Owned Subsidiary of the
Company, or (iv) redeem, defease, repurchase, retire or otherwise acquire or
retire for value, prior to any scheduled maturity, repayment or sinking fund
payment, Indebtedness which is subordinate in right of payment to the Exchange
Notes (each of clauses (i) through (iv) being a "Restricted Payment") if at the
time thereof: (1) 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, shall have
occurred and be continuing, or (2) upon giving effect to such Restricted
Payment, the Company could not incur at least $1.00 of additional Indebtedness
pursuant to the terms of the Indenture described in clause (i) of "--Limitation
on Indebtedness" above, or (3) upon giving effect to such Restricted Payment,
the aggregate of all Restricted Payments made on or after March 23, 1995 exceeds
the sum of: (a) 50% of cumulative Consolidated Net Income of the Company (or, in
the case Consolidated Net Income of the Company shall be negative, less 100% of
such deficit) since April 1, 1995 through the last day of the fiscal quarter for
which financial statements are available; plus (b) 100% of the aggregate net
proceeds received after March 23, 1995, including the fair market value of
property other than cash (determined in good faith by the Board of Directors of
the Company as evidenced by a resolution of such Board of Directors filed with
the Trustee), from the issuance of Capital Stock (other than Disqualified Stock)
of the Company and warrants, rights or options on Capital Stock (other than
Disqualified Stock) of the Company and the principal amount of Indebtedness that
has been converted into or exchanged for Capital Stock (other than Disqualified
Stock) of the Company which Indebtedness was incurred after the Issue Date; plus
(c) in the case of the disposition or repayment of any Investment constituting a
Restricted Payment made after March 23, 1995 (other than any Investment made
pursuant to clause (vi) of the following paragraph), an amount equal to the
lesser of the return of capital with respect to such Investment and the cost of
such Investment, in either case, less the cost of the disposition of such
Investment, provided that at the time any such Investment is made the Company
delivers to the Trustee a resolution of its Board of Directors to the effect
that, for purposes of this "Limitation on Restricted Payments" covenant, such
Investment constitutes a Restricted Payment made after the Issue Date (other
than an Investment made pursuant to clause (vi) of the following paragraph);
plus (d) $4 million.
The foregoing provision will not be violated by (i) reason of any dividend on
any class of Capital Stock of the Company or any Subsidiary of the Company, paid
within 60 days after the declaration thereof if, on the date when the dividend
was declared, the Company or such Subsidiary, as the case may be, could have
paid such dividend in accordance with the provisions of the Indenture, (ii) the
renewal, extension, refunding or refinancing of any Indebtedness otherwise
permitted pursuant to the terms of the Indenture described in clause (vii) of
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"--Limitation on Indebtedness," (iii) the exchange or conversion of any
Indebtedness of the Company or any Subsidiary of the Company for or into Capital
Stock of the Company (other than Disqualified Stock of the Company), (iv) any
payments, loans or other advances made pursuant to any employee benefit plans
(including plans for the benefit of directors) or employment agreements or other
compensation arrangements, in each case as approved by the Board of Directors of
the Company in its good faith judgment evidenced by a resolution of such Board
of Directors filed with the Trustee, (v) the redemption of the Company's rights
issued pursuant to the Rights Agreement dated as of March 20, 1990, between the
Company and Sovran Bank, N.A., as Rights Agent, as in existence on the Issue
Date or (vi) so long as no Default or Event of Default has occurred and is
continuing, additional Investments constituting Restricted Payments in an
aggregate outstanding amount (valued at the cost thereof) not to exceed at any
time 5% of Consolidated Net Tangible Assets. Each Restricted Payment described
in clauses (i), (iv) and (v) of the previous sentence shall be taken into
account for purposes of computing the aggregate amount of all Restricted
Payments pursuant to clause (3) above.
Limitations Concerning Distributions and Transfers by Subsidiaries
The Indenture provides that the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist any consensual encumbrance or restriction on the ability of any Subsidiary
of the Company (i) to pay, directly or indirectly, dividends or make any other
distributions in respect of its Capital Stock or pay any Indebtedness or other
obligation owed to the Company or any Subsidiary of the Company, (ii) to make
loans or advances to the Company or any Subsidiary of the Company or (iii) to
transfer any of its property or assets to the Company or any Subsidiary of the
Company except for such encumbrances or restrictions existing under or by reason
of (a) any agreement in effect on the Issue Date, (b) an agreement relating to
any Indebtedness Incurred by such Subsidiary prior to the date on which such
Subsidiary was acquired by the Company and outstanding on such date and not
Incurred in anticipation or contemplation of becoming a Subsidiary and provided
such encumbrance or restriction shall not apply to any assets of the Company or
its Subsidiaries other than such Subsidiary, (c) customary provisions contained
in an agreement which has been entered into for the sale or disposition of all
or substantially all of the Capital Stock or assets of such Subsidiary, or (d)
an agreement effecting a renewal, exchange, refunding or extension of
Indebtedness incurred pursuant to an agreement referred to in clause (a) or (b)
above; provided, however, that the provisions contained in such renewal,
exchange, refunding or extension agreement relating to such encumbrance or
restriction are no more restrictive in any material respect than the provisions
contained in the agreement the subject thereof in the reasonable judgment of the
Board of Directors of the Company as evidenced by a resolution of such Board of
Directors filed with the Trustee.
Limitation on Liens
The Indenture provides that the Company will not, and will not permit any of its
Subsidiaries to, Incur any Lien on or with respect to any property or assets of
the Company or any Subsidiary of the Company owned on the Issue Date or
thereafter acquired to secure Indebtedness without making, or causing such
Subsidiary to make, effective provision for securing the Exchange Notes (and, if
the Company shall so determine, any other Indebtedness of the Company or such
Subsidiary, including Indebtedness which is subordinate in right of payment to
the Exchange Notes, provided, that Liens securing the Exchange Notes and any
Indebtedness pari passu with the Exchange Notes are senior to such Liens
securing such subordinated Indebtedness) equally and ratably with such
Indebtedness or, in the event such Indebtedness is subordinate in right of
payment to the Exchange Notes, prior to such Indebtedness, as to such property
or assets for so long as such Indebtedness shall be so secured. The foregoing
restrictions shall not apply to (i) Liens in respect of Indebtedness existing on
the Issue Date; (ii) Liens securing only the Exchange Notes; (iii) Liens in
favor of the Company; (iv) Liens to secure Indebtedness Incurred for the purpose
of financing all or any part of the purchase price or the cost of construction
or improvement of the property subject to such Liens; provided that (a) the
aggregate principal amount of any Indebtedness secured by such a Lien does not
exceed 100% of such purchase price or cost, (b) such Lien does not extend to or
cover any other property other than such item of property and any improvements
on such item, (c) the Indebtedness secured by such Lien is incurred by the
Company or its Subsidiary within 180 days of the acquisition, construction or
improvement of such property and (d) the incurrence of such Indebtedness is
permitted by the provisions of the Indenture described under "--Limitation on
Indebtedness" and "Additional Limitation on Subsidiary Indebtedness"; (v) Liens
on property existing immediately prior to the time of acquisition thereof (and
not created in anticipation or contemplation of the financing of such
acquisition); (vi) Liens on property of a Person existing at the time such
Person is merged with or into or consolidated with the Company or any Subsidiary
of the Company (and not created in anticipation or contemplation thereof); (vii)
Liens on property of the Company or any Subsidiary of the Company in favor of
the United States of America, any state thereof or any instrumentality of either
to secure payments pursuant to any contract or statute; (viii) Liens securing an
aggregate principal amount of Indebtedness at any one time outstanding which,
when taken together with (A) all Capital Lease Obligations of the Company and
its Subsidiaries Incurred in compliance with
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"Limitation on Indebtedness" and "--Additional Limitation on Subsidiary
Indebtedness" and then outstanding and (B) all other Indebtedness of
Subsidiaries of the Company (other than the guarantee of Indebtedness under the
Senior Credit Facility and the 1995 Notes) Incurred in compliance with the
provisions of the Indenture described under "--Limitation on Indebtedness" and
"--Additional Limitation on Subsidiary Indebtedness" and then outstanding, would
not exceed 10% of Consolidated Net Tangible Assets; and (ix) Liens to secure
Indebtedness Incurred to extend, renew, refinance or refund (or successive
extensions, renewals, refinancings or refundings), in whole or in part, any
Indebtedness secured by Liens referred to in the foregoing clause (i) so long as
such Lien does not extend to any other property and the principal amount of
Indebtedness so secured is not increased except for the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms of
the Indebtedness refinanced or the amount of any premium reasonably determined
by the Company as necessary to accomplish such refinancing by means of a tender
offer, exchange offer or privately negotiated repurchase, plus the expenses of
the Company or such Subsidiary incurred in connection with such refinancing.
Limitation on Certain Asset Dispositions
The Indenture provides that the Company will not, and will not permit any of its
Subsidiaries to, make one or more Asset Dispositions for aggregate consideration
of, or in respect of assets having an aggregate fair market value of, $5 million
or more in any 12-month period, unless: (i) the Company or the Subsidiary, as
the case may be, receives consideration for such Asset Disposition at least
equal to the fair market value of the assets sold or disposed of as determined
by the Board of Directors of the Company in good faith and evidenced by a
resolution of such Board of Directors filed with the Trustee; (ii) not less than
75% of the consideration for the disposition consists of cash or readily
marketable cash equivalents or the assumption of Indebtedness of the Company or
such Subsidiary or other obligations relating to such assets (and release of the
Company or such Subsidiary from all liability on the Indebtedness or other
obligations assumed); and (iii) all Net Available Proceeds, less any amounts
invested within 360 days of such Asset Disposition in assets related to the
business of the Company (including the Capital Stock of another Person (other
than the Company or any Person that is a Subsidiary of the Company immediately
prior to such investment) provided that immediately after giving effect to any
such investment (and not prior thereto) such Person shall be a Subsidiary of the
Company), are applied either (A) to an Offer to Purchase outstanding Exchange
Notes at 100% of their principal amount plus accrued interest to the Purchase
Date or (B) to the permanent reduction and repayment of Indebtedness then
outstanding under the Senior Credit Facility, to the repayment of other
Indebtedness that is not subordinated in right of payment to the Exchange Notes
and to the purchase of Exchange Notes pursuant to an Offer to Purchase
outstanding Exchange Notes at 100% of their principal amount plus accrued
interest to the date of purchase, provided, that (x) any Net Available Proceeds
not applied to the repayment of Indebtedness under the Senior Credit Facility or
other Indebtedness not subordinated in right of payment to the Exchange Notes in
accordance with subclause (B) of this clause (iii) shall be added to the Net
Available Proceeds to be used for an Offer to Purchase outstanding Exchange
Notes and (y) the Company may defer making any Offer to Purchase outstanding
Exchange Notes until there are aggregate unutilized Net Available Proceeds equal
to or in excess of $5 million resulting from one or more Asset Dispositions (at
which time, the entire unutilized Net Available Proceeds, and not just the
amount in excess of $5 million, shall be applied as required pursuant to this
paragraph). Any repayment of Indebtedness in accordance with the previous
sentence shall be made pro rata, based on the principal amount (or, in the case
of Indebtedness having unamortized discount, the accredited value thereof) of
such Indebtedness outstanding. Any remaining Net Available Proceeds following
the completion of the Offer to Purchase may be used by the Company for any other
purpose (subject to the other provisions of the Indenture) and the amount of Net
Available Proceeds then required to be otherwise applied in accordance with this
covenant shall be reset to zero, subject to any subsequent Asset Disposition.
These provisions will not apply to a transaction consummated in compliance with
the provisions of the Indenture described under "--Mergers, Consolidations and
Certain Sales of Assets" and "--Limitation on Sale and Leaseback Transactions"
below.
In the event that the Company makes an Offer to Purchase the Exchange Notes, the
Company intends to comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, 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.
Limitation on Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any of its
Subsidiaries to, enter into any Sale and Leaseback Transaction (except for a
period not exceeding 30 months) unless the Company or such Subsidiary, as the
case may be, applies the net proceeds of the property sold pursuant to the Sale
and Leaseback Transaction as if such net proceeds were Net Available Proceeds
subject to disposition as provided above under "--Limitation on Certain Asset
Dispositions."
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Limitation on Issuance and Sale of Capital Stock of Subsidiaries
The Indenture provides that the Company (a) will not, and will not permit any
Subsidiary of the Company to, transfer, convey, sell or otherwise dispose of any
shares of Capital Stock of such Subsidiary or any other Subsidiary (other than
to the Company or a Wholly Owned Subsidiary of the Company) except that the
Company and any Subsidiary may, in any single transaction, sell all, but not
less than all, of the issued and outstanding Capital Stock of any Subsidiary to
any Person, subject to complying with the provisions of the conditions described
above under "--Limitation on Certain Asset Dispositions" and (b) will not permit
any Subsidiary of the Company to issue shares of its Capital Stock (other than
directors' qualifying shares), or securities convertible into, or warrants,
rights or options to subscribe for or purchase shares of, its Capital Stock to
any Person other than to the Company or a Wholly Owned Subsidiary of the
Company.
Transactions with Affiliates and Related Persons
The Indenture provides that the Company will not, and will not permit any of its
Subsidiaries to, enter into any transaction with an Affiliate or Related Person
of the Company (other than the Company or a Subsidiary of the Company),
including, without limitation, the purchase, sale, lease or exchange of
property, the rendering of any service, or the making of any guarantee, loan,
advance or Investment, either directly or indirectly, involving aggregate
consideration in excess of $500,000, unless (i) a majority of the disinterested
directors of the Board of Directors of the Company determines, in its good faith
judgment evidenced by a resolution of such Board of Directors filed with the
Trustee, that such transaction is in the best interests of the Company or such
Subsidiary, as the case may be; and (ii) such transaction is, in the opinion of
a majority of the disinterested directors of the Board of Directors of the
Company evidenced by a resolution of such Board of Directors filed with the
Trustee, on terms no less favorable to the Company or such Subsidiary, as the
case may be, than those that could be obtained in a comparable arm's length
transaction with an entity that is not an Affiliate or a Related Person.
Change of Control
Within 30 days following the date of the consummation of a transaction resulting
in a Change of Control, the Company will commence an Offer to Purchase all
outstanding Exchange Notes at a purchase price equal to 101% of their principal
amount plus accrued interest to the date of purchase. Such Offer to Purchase
will be consummated not earlier than 30 days and not later than 60 days after
the commencement thereof. A "Change of Control" will be deemed to have occurred
in the event that (whether or not otherwise permitted by the Indenture) after
the Issue Date (a) any Person or any Persons acting together that would
constitute a group (for purposes of Section 13(d) of the Exchange Act, or any
successor provision thereto) (a "Group"), together with any Affiliates or
Related Persons thereof, shall beneficially own (as defined in Rule 13d-3 under
the Exchange Act, or any successor provision thereto) at least 40% of the Voting
Stock of the Company; (b) any sale, lease or other transfer (in one transaction
or a series of related transactions) by the Company or any of its Subsidiaries
of all or substantially all of the consolidated assets of the Company to any
Person (other than a Wholly Owned Subsidiary of the Company); (c) Continuing
Directors cease to constitute at least a majority of the Board of Directors of
the Company; or (d) the stockholders of the Company approve any plan or proposal
for the liquidation or dissolution of the Company.
In the event that the Company makes an Offer to Purchase the Exchange Notes, the
Company intends to comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act 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.
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
Commission the annual reports, quarterly reports and other documents which the
Company would have been required to file with the Commission pursuant to such
Section 13(a) or 15(d) or any successor provision thereto if the Company were so
required, such documents to be filed with the Commission 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 required. The
Company shall also in any event (a) within 15 days of each Required Filing Date
(i) transmit by mail to all Holders, as their names and addresses appear in the
Note Register, without cost to such Holders, and (ii) file with the Trustee,
copies of the annual reports, quarterly reports and other documents which the
Company is required to file with the Commission pursuant to the preceding
sentence, and (b) if, notwithstanding the preceding sentence, filing such
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documents by the Company with the Commission is not permitted under the Exchange
Act, promptly upon written request supply copies of such documents to any
prospective Holder.
Mergers, Consolidations and Certain Sales of Assets
Neither the Company nor any Subsidiary will consolidate or merge with or into
any Person, and the Company will not, and will not permit any of its
Subsidiaries to, sell, lease, convey or otherwise dispose of all or
substantially all of the Company's consolidated assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions, including by way of liquidation or dissolution) to any Person
unless, in each such case: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Company or such Subsidiary, as the
case may be), or to which such sale, lease, conveyance or other disposition
shall have been made (the "Surviving Entity"), is a corporation organized and
existing under the laws of the United States, any state thereof or the District
of Columbia; (ii) the Surviving Entity assumes by supplemental indenture all of
the obligations of the Company or such Subsidiary, as the case may be, on the
Exchange Notes or such Subsidiary's Guarantee, as the case may be, and under the
Indenture; (iii) immediately after giving effect to such transaction and the use
of any net proceeds therefrom on a pro forma basis, the Consolidated Net Worth
of the Company or the Surviving Entity (in the case of a transaction involving
the Company), as the case may be, would be at least equal to the Consolidated
Net Worth of the Company immediately prior to such transaction; (iv) immediately
after giving effect to such transaction and the use of any net proceeds
therefrom on a pro forma basis, the Company or the Surviving Entity (in the case
of a transaction involving the Company), as the case may be, could incur at
least $1.00 of Indebtedness pursuant to clause (i) of the "Limitation on
Indebtedness" covenant; (v) immediately before and after giving effect to such
transaction and treating any Indebtedness which becomes an obligation of the
Company or any of its Subsidiaries as a result of such transaction as having
been incurred by the Company or such Subsidiary, as the case may be, at the time
of the transaction, no Event of Default or event that with the passing of time
or the giving of notice, or both, would constitute an Event of Default shall
have occurred and be continuing; and (vi) if, as a result of any such
transaction, property or assets of the Company or a Subsidiary would become
subject to a Lien not excepted from the provisions of the Indenture described
under "--Limitation on Liens" above, the Company, any such Subsidiary or the
Surviving Entity, as the case may be, shall have secured the Exchange Notes as
required by said covenant. The provisions of this paragraph shall not apply to
any merger of a Subsidiary of the Company with or into the Company or a Wholly
Owned Subsidiary of the Company or any transaction pursuant to which a
Guarantor's Guarantee is to be released in accordance with the terms of the
Guarantee and the Indenture in connection with any transaction complying with
the provisions of the Indenture described under "--Limitation on Certain Asset
Dispositions."
Events of Default
The following are Events of Default under the Indenture: (a) failure to pay
principal of (or premium, if any, on) any Note when due; (b) failure to pay any
interest on any Note when due, and such failure continues for a period of 30
days; (c) default in the payment of principal of and interest on Exchange Notes
required to be purchased pursuant to an Offer to Purchase as described under
"--Change of Control" and "--Limitation on Certain Asset Dispositions" when due
and payable; (d) failure to perform or comply with any of the provisions
described under "--Mergers, Consolidations and Certain Sales of Assets"; (e)
failure to perform any other covenant or agreement of the Company under the
Indenture or the Exchange Notes (other than a covenant or agreement referred to
in the foregoing clauses ((a), (b), (c) or (d)) and such failure continues for
30 days after written notice to the Company by the Trustee or Holders of at
least 25% in aggregate principal amount of outstanding Exchange Notes; (f)
default under the terms of one or more instruments evidencing or securing
Indebtedness for money borrowed by the Company or any Subsidiary of the Company
having an outstanding principal amount of $5 million or more individually or in
the aggregate which results in the acceleration of the payment of such
Indebtedness or which shall constitute the failure to pay principal when due at
the stated maturity of such Indebtedness; (g) the rendering of a final judgment
or judgments (not subject to appeal) against the Company or any Subsidiary of
the Company in an amount of $5 million or more 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 Material Subsidiary; and (i) the Guarantee of any
Guarantor which is a Material Subsidiary ceases to be in full force and effect
(other than in accordance with the terms of such Guarantee and the Indenture) or
is declared null and void and unenforceable or found to be invalid or any
Guarantor which is a Material 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 the Guarantee).
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default (as defined) shall occur and be continuing,
the Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Holders, 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 Exchange Notes will
have the right to
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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 the
Trustee.
If an Event of Default (other than an Event of Default with respect to the
Company described in clause (h)) shall occur and be continuing, either the
Trustee or the Holders of at least 25% in aggregate principal amount of the
outstanding Exchange Notes may accelerate the maturity of all Exchange Notes;
provided, however, that after such acceleration, but before a judgment or decree
based on acceleration, the Holders of a majority in aggregate principal amount
of outstanding Exchange Notes may, under certain circumstances, rescind and
annul such acceleration if all Events of Default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the Indenture.
If an Event of Default specified in clause (h) above with respect to the Company
occurs, the outstanding Exchange Notes will ipso facto become immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder. For information as to waiver of defaults, see "--Modification and
Waiver."
No Holder of any Note will have any right to institute any proceeding judicial
or otherwise 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 and unless the Holders of at least 25% in aggregate
principal amount of the outstanding Exchange Notes shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as Trustee, and the Trustee shall not have received from the Holders
of a majority in aggregate principal amount of the outstanding Exchange Notes a
direction inconsistent with such request within 60 days after receipt of such
notice and shall have failed to institute such proceeding within such 60 days.
However, such limitations do not apply to a suit instituted by a Holder of 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 will be 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.
Defeasance or Covenant Defeasance
The Company may, at its option and at any time, elect to have the respective
obligations of the Company and the Guarantors discharged in accordance with the
provisions set forth below with respect to the Exchange Notes then outstanding.
Such defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by such outstanding Exchange
Notes and the Company and the Guarantors shall be deemed to have satisfied all
their respective other obligations under the Exchange Notes, the Guarantees and
the Indenture, except for (i) the rights of holders of such outstanding Exchange
Notes to receive payments in respect of the principal of, premium, if any, and
interest on such Exchange Notes when such payments are due, (ii) the Company's
and the Guarantors' respective obligations with respect to the Exchange Notes
concerning issuing temporary Exchange Notes, registration of transfer or
exchange of Exchange Notes, mutilated, destroyed, lost or stolen Exchange Notes
and the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and immunities
of the Trustee, and (iv) the defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
respective obligations of the Company and the Guarantors released with respect
to certain covenants in the Indenture, some of which are described above
("covenant defeasance"), and any omission to comply with such obligations shall
not constitute a Default or an Event of Default with respect to the Exchange
Notes. In the event covenant defeasance occurs, the events described in clause
(e) under "Events of Default" will no longer constitute an Event of Default with
respect to the Exchange Notes.
In order to exercise either defeasance or covenant defeasance, (i) the Company
must irrevocably deposit with the Trustee, in trust, for the benefit of the
holders of the Exchange Notes, cash in U.S. dollars, U.S. Government
Obligations, or a combination thereof, in such amounts as will be sufficient
without reinvestment of any interest received on such funds, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such outstanding Exchange Notes
on the stated maturity of such principal and each installment of interest; (ii)
in the case of defeasance, the Company shall have delivered to the Trustee an
opinion of counsel stating that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the Issue
Date, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of the outstanding Exchange Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
had not occurred; (iii) in the case of covenant defeasance, the Company shall
have delivered to the Trustee an opinion of counsel to the effect that the
holders of the outstanding Exchange Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant defeasance and
will be subject to federal income tax on the same amounts,
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in the same manner and at the same times as would have been the case if such
covenant defeasance had not occurred; (iv) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit; (v) such defeasance
or covenant defeasance shall not result in a breach or violation of, or
constitute a default under, the Indenture or any other material agreement or
instrument to which the Company is a party or by which it is bound; (vi) in the
case of defeasance or covenant defeasance, the Company shall have delivered to
the Trustee an opinion of counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar law affecting
creditors' rights generally and that such defeasance or covenant defeasance will
not result in the Trustee or the trust arising from such deposit constituting an
Investment Company as defined in the Investment Company Act of 1940, as amended;
and (vii) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel each stating that all conditions precedent
provided for relating to either the defeasance or the covenant defeasance, as
the case may be, have been complied with.
Governing Law
The Indenture, the Exchange 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 and the
Trustee with the consent of the Holders of a majority in aggregate principal
amount of the outstanding Exchange Notes; provided, however, that no such
modification or amendment may, without the consent of the Holder of each Note
affected thereby, (a) change the Stated Maturity of the principal of or any
installment of interest on any Note, (b) reduce the principal amount of (or the
premium) or interest on any Note, (c) change the place or currency of payment of
principal of (or premium) or interest on any Note, (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any Note
or any Guarantee, (e) reduce the above-stated percentage of outstanding Exchange
Notes necessary to modify or amend the Indenture, (f) reduce the percentage of
aggregate principal amount of outstanding Exchange Notes necessary for waiver of
compliance with any provision of the Indenture or for waiver of any default, (g)
modify any provisions of the Indenture relating to the modification and
amendment of the Indenture or the waiver of past defaults or covenants, except
as otherwise specified, (h) modify the ranking or priority of the Exchange Notes
or the Guarantee of any Guarantor which is a Material Subsidiary, (i) release
any Guarantor which is a Material Subsidiary from any of its obligations under
its Guarantee or the Indenture otherwise than in accordance with the terms of
the Indenture, or (j) modify the provisions relating to any Offer to Purchase
required under the "Limitation on Certain Asset Dispositions" or "Change of
Control" covenants contained in the Indenture in a manner materially adverse to
the Holders thereof.
The Holders of a majority in aggregate principal amount of the outstanding
Exchange Notes, on behalf of all Holders of Exchange Notes, may waive compliance
by the Company 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 outstanding Exchange Notes, on
behalf of all Holders of Exchange Notes, may waive any past default under the
Indenture, except a default in the payment of principal, premium or interest or
a default arising from failure to purchase any Note tendered pursuant to an
Offer to Purchase.
The Trustee
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of 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 their 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
Exchange 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.
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Book-Entry; Delivery and Form
The certificates representing the Exchange Notes will be issued in fully
registered form without interest coupons.
Exchange Notes will be represented by a single, permanent global Note in
definitive, fully registered form without interest coupons (the "Global Note")
and will be deposited with the Trustee as custodian for and registered in the
name of a nominee of the Depositary.
Institutional accredited investors who are not qualified institutional buyers
("Non-Global Purchasers") will be issued Exchange Notes in registered form
without coupons ("Certificated Exchange Notes") who originally purchased Old
Notes. Upon the transfer of Certificated Exchange Notes initially issued to a
Non-Global Purchaser either to a qualified institutional buyer or in accordance
with Regulation S, such Certificated Exchange Notes will, unless the relevant
Global Note has previously been exchanged in whole for Certificated Exchange
Notes, be exchanged for an interest in a Global Note.
The Global Notes
Upon the issuance of the Global Note, the Depositary or its custodian will
credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global Note to the accounts
of persons who have accounts with such depositary. Ownership of beneficial
interests in a Global Note will be limited to persons who have accounts with the
Depositary ("participants") or persons who hold interests through participants.
Ownership of beneficial interests in a Global Note will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary or its nominee (with respect to interests of participants) and
the records of participants (with respect to interests of persons other than
participants). Qualified institutional buyers may hold their interests in a
Global Note directly through the Depositary if they are participants in such
system, or indirectly through organizations which are participants in such
system.
So long as the Depositary, or its nominee, is the registered holder of a Global
Note, the Depositary or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the Indenture and the Exchange Notes. No beneficial owner of
an interest in a Global Note will be able to transfer that interest except in
accordance with the procedures provided for under "Notice to Investors," as well
as the Depositary's applicable procedures and, if applicable, those of Euroclear
and Cedel.
Payments of the principal of, and interest on, the Global Note will be made to
the Depositary or its nominee, as the case may be, as the registered owner
thereof. None of the Company, the Trustee or any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Note will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of the Depositary or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in such Global
Note held through such participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers registered in the name of nominees for such customers.
Such payments will be the responsibility of such participants. Transfers between
participants in the Depositary will be effected in the ordinary way in
accordance with the Depositary rules and will be settled in same-day funds.
The Depositary has advised the Company that it will take any action permitted to
be taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose accounts an interest in the Global Notes is credited and
only in respect of such portion of the aggregate principal amount of Exchange
Notes as to which such participant or participants has or have given such
direction.
The Depositary has advised the Company as follows: the Depositary is a limited
purpose trust Company organized under the laws of the State of New York, a
"banking organization" within the meaning of New York Banking Law, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The Depositary was created to
hold securities for its participants and facilitate the clearance and
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settlement of securities transactions between participants through electronic
book-entry changes in accounts of its participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the Depositary system is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although the Depositary, has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of the
Depositary, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Company, the Guarantors or the Trustee will have any responsibility for the
performance by the Depositary or its participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
Certificated Notes
If the Depositary is at any time unwilling or unable to continue as a depositary
for the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue certificated notes in exchange for the
Global Notes which will bear the legend referred to under the heading "Notice to
Investors."
Registration Rights
The Company and the Guarantors have agreed with the Initial Purchasers, for the
benefit of the holders of the Old Notes, that the Company and the Guarantors
will use their best respective efforts to, and at their cost, file and cause to
become effective a registration statement with respect to a registered offer to
exchange the Old Notes for an issue of notes of the Company with terms identical
to the Old Notes and guaranteed by the Guarantors with terms identical to the
Guarantee (the "Exchange Notes"). Upon such registration statement being
declared effective, the Company shall offer the Exchange Notes in return for
surrender of the Exchange Notes. Such offer shall remain open for not less than
30 days after the date notice of the exchange offer is mailed to holders of the
Exchange Notes. For each Note surrendered to the Company under the exchange
offer, the holder will receive an Exchange Note of equal principal amount. In
the event that applicable interpretations of the staff of the Commission do not
permit the Company to effect such an exchange offer, the Company and the
Guarantors shall, at their cost, use their respective best efforts to cause to
become effective a shelf registration statement with respect to resales of the
Exchange Notes and to keep such registration statement effective until [two]
years after the Issue Date. The Company shall, in the event of such a shelf
registration, provide to each holder copies of the prospectus, notify each
holder when a registration statement for the Exchange Notes has become effective
and take certain other actions as are required to permit resales of the Exchange
Notes. In the event that (i) the registration statement relating to the exchange
offer is not filed with the Commission on or prior to the 60th day following the
Issue Date, (ii) such registration statement is not declared effective by the
Commission on or prior to the 120th day following the Issue Date of the Exchange
Notes, or (iii) the exchange offer is not consummated or a registration
statement with respect to resale of the Exchange Notes is not declared effective
on or prior to the 150th day following the date of original issuance of the
Exchange Notes (each such event referred to in clauses (i) through (iii), a
"Registration Default"), then the Company will pay additional interest (in
addition to the interest otherwise due on the Exchange Notes) to each holder of
Exchange Notes during the first 90-day period immediately following the
occurrence of each such Registration Default in an amount equal to 0.25% per
annum. The amount of interest will increase by an additional 0.25% per annum for
each subsequent 90-day period until such Registration Default is cured, up to a
maximum amount of additional interest of 1.00% per annum. Such additional
interest will cease accruing on such Exchange Notes when the Registration
Default has been cured.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with any specified Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
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"Asset Disposition" means any sale, transfer or other disposition of (i) shares
of Capital Stock of a Subsidiary of the Company (other than directors'
qualifying shares) or (ii) property or assets of the Company or any Subsidiary
of the Company; provided, however, that an Asset Disposition shall not include
(a) any sale, transfer or other disposition of shares of Capital Stock, property
or assets by a Subsidiary of the Company to the Company or to another Subsidiary
of the Company, (b) any sale, transfer or other disposition of defaulted
receivables for collection or any sale, transfer or other disposition of
property or assets in the ordinary course of business or (c) any isolated sale,
transfer or other disposition that does not involve aggregate consideration in
excess of $250,000 individually.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness for borrowed money or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal or liquidation
value payments of such Indebtedness or Preferred Stock, respectively, and the
amount of such principal or liquidation value payments, by (ii) the sum of all
such principal or liquidation value payments.
"Capital Lease Obligations" of any Person means the obligations to pay rent or
other amounts under a lease of (or other Indebtedness arrangements conveying the
right to use) real or personal property of such Person which are required to be
classified and accounted for as a capital lease or liability on the face of a
balance sheet of such Person in accordance with GAAP. The amount of such
obligations shall be the capitalized amount thereof in accordance with GAAP and
the stated maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person (including any Preferred Stock outstanding on the Issue Date).
"Common Stock" of any Person means Capital Stock of such Person that does not
rank prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Cash Flow Available for Fixed Charges" of any Person means for any
period the Consolidated Net Income of such Person for such period increased by
the sum of (i) Consolidated Interest Expense of such Person for such period,
plus (ii) Consolidated Income Tax Expense of such Person for such period, plus
(iii) the consolidated depreciation and amortization expense included in the
income statement of such Person for such period, plus (iv) other non-cash
charges of such Person for such period deducted from consolidated revenues in
determining Consolidated Net Income for such period, minus (v) non-cash items
(including the partial or entire reversal of reserves taken in prior periods) of
such Person for such period increasing consolidated revenues in determining
Consolidated Net Income for such period.
"Consolidated Cash Flow Ratio" of any Person means for any period the ratio of
(i) Consolidated Cash Flow Available for Fixed Charges of such Person for such
period to (ii) the sum of (A) Consolidated Interest Expense of such Person for
such period, plus (B) the annual interest expense with respect to any
Indebtedness proposed to be Incurred by such Person or its Subsidiaries, minus
(C) Consolidated Interest Expense of such Person to the extent included in
clause (ii)(A) with respect to any Indebtedness that will no longer be
outstanding as a result of the Incurrence of the Indebtedness proposed to be
Incurred, plus (D) the annual interest expense with respect to any other
Indebtedness Incurred by such Person or its Subsidiaries since the end of such
period to the extent not included in clause (ii)(A), minus (E) Consolidated
Interest Expense of such Person to the extent included in clause (ii)(A) with
respect to any Indebtedness that no longer is outstanding as a result of the
Incurrence of the Indebtedness referred to in clause (ii)(D); provided, however,
that in making such computation, the Consolidated Interest Expense of such
Person attributable to interest on any Indebtedness bearing a floating interest
rate shall be computed on a pro forma basis as if the rate in effect on the date
of computation (after giving effect to any hedge in respect of such Indebtedness
that will, by its terms, remain in effect until the earlier of the maturity of
such Indebtedness or the date one year after the date of such determination) had
been the applicable rate for the entire period; provided further that, in the
event such Person or any of its Subsidiaries has made any Asset Dispositions or
acquisitions of assets not in the ordinary course of business (including
acquisitions of other Persons by merger, consolidation or purchase of Capital
Stock) during or after such period, such computation shall be made on a pro
forma basis as if the Asset Dispositions or acquisitions had taken place on the
first day of such period. Calculations of pro forma amounts in accordance with
this definition shall be done in accordance with Rule 11-02 of Regulation S-X
under the Securities Act of 1933 or any successor provision.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person for such period
calculated on a consolidated basis in accordance with GAAP.
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"Consolidated Interest Expense" for any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of such Person for such period calculated
on a consolidated basis in accordance with GAAP, plus cash dividends declared on
any Preferred Stock (other than any Preferred Stock of the Company outstanding
on the Issue Date). For purposes of this definition, the amount of any cash
dividends declared will be deemed to be equal to the amount of such dividends
multiplied by a fraction, the numerator of which is one and the denominator of
which is one minus the maximum statutory combined Federal, state, local and
foreign income tax rate then applicable to such Person and its Subsidiaries
(expressed as a decimal between one and zero), on a consolidated basis.
"Consolidated Net Income" of any Person means for any period the consolidated
net income (or loss) of such Person for such period determined on a consolidated
basis in accordance with GAAP; provided that there shall be excluded therefrom
(a) the net income (or loss) of any Person acquired by such Person or a
Subsidiary of such Person in a pooling-of-interests transaction for any period
prior to the date of such transaction, (b) the net income (but not net loss) of
any Subsidiary of such Person which is subject to restrictions which prevent or
limit the payment of dividends or the making of distributions to such Person to
the extent of such restrictions, (c) the net income of any Person that is not a
Subsidiary of such Person except to the extent of the amount of dividends or
other distributions actually paid in cash to such Person by such other Person
during such period, (d) gains or losses on Asset Dispositions by such Person or
its Subsidiaries and (e) all extraordinary gains and extraordinary losses
determined in accordance with GAAP.
"Consolidated Net Tangible Assets" means, at any date, the consolidated book
value as shown by the accounting books and records of the Company and its
Subsidiaries of all their property, both real and personal, less (i) the book
value of all their licenses, patents, patent applications, copyrights,
trademarks, trade names, goodwill, non-compete agreements or organizational
expenses and other intangibles, (ii) unamortized Indebtedness, discount and
expenses, (iii) all reserves for depreciation, obsolescence, depletion and
amortization of their properties and (iv) all other proper reserves which in
accordance with GAAP should be provided in connection with the business
conducted by the Company and its Subsidiaries.
"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 Stock of
such Person.
"Continuing Director" means a director who either was a member of the Board of
Directors of the Company on the Issue Date or who became a director of the
Company subsequent to the Issue Date and whose election, or nomination for
election by the Company's stockholders, was duly approved by a majority of the
Continuing Directors than on the Board of Directors of the Company, either by a
specific vote or by approval of the proxy statement issued by the Company on
behalf of the entire Board of Directors of the Company in which such individual
is named as nominee for director.
"Default" means any event that is, or after notice or lapse of time or both
would become, an Event of Default.
"Disqualified Stock" of any Person means any Capital Stock of such Person which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the final maturity of the Exchange Notes; provided that any Preferred
Stock of the Company outstanding on the Issue Date shall not be deemed
Disqualified Stock.
"Eligible Accounts Receivable" means the face value of all "eligible
receivables" of the Company and its Subsidiaries party to any credit agreement
constituting the Senior Credit Facility (as such term is defined for purposes of
such credit agreement).
"Eligible Inventory" means the face value of all "eligible inventory" of the
Company and its Subsidiaries party to any credit agreement constituting the
Senior Credit Facility (as such term is defined for purposes of such credit
agreement).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles, consistently applied, as
in effect on the Issue Date in the United States of America, as set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as is approved by a significant segment of the accounting
profession.
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"guarantee" by any Person means any obligation, contingent or otherwise, of such
Person guaranteeing any Indebtedness of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such Person (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such Indebtedness, (ii) to purchase property, securities or services for the
purpose of assuring the holder of such Indebtedness of the payment of such
Indebtedness, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness (and "guaranteed,"
"guaranteeing" and "guarantor" shall have meanings correlative to the
foregoing); provided, however, that the guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Guarantee" means the guarantee of the Exchange Notes by each Guarantor under
the Indenture.
"Guarantors" means (i) each of Dominion Stores, Inc., Tultex International,
Inc., LogoAthletic, Inc., LogoAthletic/Headwear, Inc., AKOM, Ltd., Tultex
Canada, Inc. and SweatJet Incorporated and (ii) each Material Subsidiary,
whether formed or acquired after the Issue Date provided that, any Material
Subsidiary acquired after the Issue Date which is prohibited from entering into
a Guarantee pursuant to restrictions contained in any debt instrument or other
agreements in existence at the time such Material Subsidiary was so acquired and
not entered into in anticipation or contemplation of such acquisition shall not
be required to become a Guarantor so long as any such restriction is in
existence and to the extent of any such restriction.
"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," "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing). Indebtedness of any Person or any
of its Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company (or is merged into or consolidates with the Company or any of its
Subsidiaries), whether or not such Indebtedness was incurred in connection with,
or in contemplation of, such Person becoming a Subsidiary of the Company (or
being merged into or consolidated with the Company or any of its Subsidiaries),
shall be deemed Incurred at the time any such Person becomes a Subsidiary of the
Company or merges into or consolidates with the Company or any of its
Subsidiaries.
"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, (i) every obligation of such Person for money borrowed, (ii) 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, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business which are not overdue or which are being contested
in good faith), (v) every Capital Lease Obligation of such Person, (vi) every
net obligation under interest rate swap or similar agreements or foreign
currency hedge, exchange or similar agreements of such Person, and (vii) every
obligation of the type referred to in clauses (i) through (vi) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or for which such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise. Indebtedness shall
include the liquidation preference and any mandatory redemption payment
obligations in respect of any Disqualified Stock of the Company, and any
Preferred Stock of a Subsidiary of the Company. Indebtedness shall never be
calculated taking into account any cash and cash equivalents held by such
Person.
"Investment" by any Person means any direct or indirect loan, advance or other
extension of credit or capital contribution to (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), or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Indebtedness issued
by any other Person.
"Issue Date" means the original issue date of the Exchange Notes.
"Lien" means, with respect to any property or assets, any mortgage or deed of
trust, pledge, hypothecation, assignment, security interest, lien, charge,
easement (other than any easement not materially impairing usefulness or
marketability), encumbrance, preference, priority or other security agreement
with respect to such property or assets (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
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"Material Subsidiary" means any Subsidiary of the Company which would constitute
a "significant subsidiary" of the Company as defined in Rule 1-02 of Regulation
S-X promulgated by the Commission except that for purposes of this definition
all reference therein to ten (10) percent shall be deemed to be references to
five (5) percent.
"Net Available Proceeds" from any Asset Disposition by any Person means cash or
readily marketable cash equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but excluding
any other consideration received in the form of assumption by the acquiree of
Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
Incurred and all federal, state, foreign and local taxes required to be accrued
as a liability as a consequence of such Asset Disposition, (ii) all payments
made by such Person or its Subsidiaries on any Indebtedness which is secured by
such assets in accordance with the terms of any Lien upon or with respect to
such assets or which must by the terms of such Lien, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid out
of the proceeds from such Asset Disposition, (iii) all payments made with
respect to liabilities associated with the assets which are the subject of the
Asset Disposition, including, without limitation, trade payables and other
accrued liabilities, (iv) appropriate amounts to be provided by such Person or
any Subsidiary thereof, as the case may be, as a reserve in accordance with GAAP
against any liabilities associated with such assets and retained by such Person
or any Subsidiary thereof, as the case may be, after such Asset Disposition,
including, without limitation, liabilities under any indemnification obligations
and severance and other employee termination costs associated with such Asset
Disposition, until such time as such amounts are no longer reserved or such
reserve is no longer necessary (at which time any remaining amounts will become
Net Available Proceeds to be allocated in accordance with the provisions of
clause (iii) of "Limitation on Certain Asset Dispositions"), and (v) all
distributions and other payments made to minority interest holders in
Subsidiaries of such Person or joint ventures as a result of such Asset
Disposition.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company by
first class mail, postage prepaid, to each Holder at his address appearing in
the register for the Exchange Notes on the date of the Offer offering to
purchase up to the principal amount of Exchange Notes specified in such Offer at
the purchase price specified in such Offer (as determined pursuant to the
Indenture). 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 30 days or more than 60 days after the date of such Offer and a
settlement date (the "Purchase Date") for purchase of Exchange Notes within 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 Exchange 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 Exchange 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 Exchange 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 Exchange 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 Exchange 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;
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(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 Holders will be entitled to withdraw all or any portion of
Exchange Notes tendered if the Company (or its Paying Agent) receives, not
later than the close of business on the fifth Business Day next preceding
the Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Note the
Holder tendered, the certificate number of the Note the Holder tendered and
a statement that such Holder is withdrawing all or a portion of his tender;
(11) that (a) if Exchange 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
Exchange Notes and (b) if Exchange Notes in an aggregate principal amount
in excess of the Purchase Amount are tendered and not withdrawn pursuant to
the Offer to Purchase, the Company shall purchase Exchange 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 Exchange
Notes in denominations of $1,000 or integral multiples thereof shall be
purchased); and
(12) that in the case of any Holder whose Note is purchased only in part,
the Company shall execute, the Guarantors shall execute the Guarantee
endorsed thereon and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Exchange 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.
"Permitted Investments" means (i) Investments in marketable direct obligations
issued or guaranteed by the United States of America, or any governmental entity
or agency or political subdivision thereof (provided that the good faith and
credit of the United States of America is pledged in support thereof), maturing
within one year of the date of purchase; (ii) Investments in commercial paper
issued by corporations, each of which shall have a consolidated net worth of at
least $500,000,000, maturing within 180 days from the date of the original issue
thereof, and rated "P-1" or better by Moody's Investors Service or "A-1" or
better by Standard & Poor's Corporation or an equivalent rating or better by any
other nationally recognized securities rating agency; (iii) Investments in
certificates of deposit issued or acceptances accepted by or guaranteed by any
bank or trust company organized under the laws of the United States of America
or any state thereof or the District of Columbia, in each case having capital,
surplus and undivided profits totalling more than $500,000,000, maturing within
one year of the date of purchase; (iv) Investments representing Capital Stock or
obligations issued to the Company or any of its Subsidiaries in the course of
the good faith settlement of claims against any other Person or by reason of a
composition or readjustment of debt or a reorganization of any debtor of the
Company or any of its Subsidiaries; (v) deposits, including interest-bearing
deposits, maintained in the ordinary course of business in banks; and (vi) any
acquisition of the Capital Stock of any Person provided that after giving effect
to any such acquisition such Person shall become a Subsidiary of the Company.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision
thereof.
"Preferred Stock", as applied to the Capital Stock of any Person, means Capital
Stock of such Person of any class or classes (however designated) that ranks
prior, as to the payment of dividends or as to the distribution of assets upon
any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Related Person" of any Person means any other Person directly or indirectly
owning (a) 5% or more of the outstanding Common Stock of such Person (or, in the
case of a Person that is not a corporation, 5% or more of the equity interest in
such Person) or (b) 5% or more of the combined voting power of the Voting Stock
of such Person.
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"Sale and Leaseback Transaction" of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Senior Credit Facility" means the Credit Agreement, dated as of March 8, 1995,
among the Company as borrower thereunder, any Subsidiaries of the Company as
guarantors thereunder and NationsBank, N.A., as agent on behalf of itself and
the other lenders named therein, including any deferrals, renewals, extensions,
replacements, refinancings or refundings thereof, or amendments, modifications
or supplements thereto and any agreement providing therefor whether by or with
the same or any other lender, creditors, group of lenders or group of creditors.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person and
one or more other Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and voting power relating to the
policies, management and affairs thereof.
"Voting Stock" of any Person means the Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of
the outstanding Capital Stock or other ownership interests of which (other than
directors' qualifying shares) shall at the time be owned by such Person or by
one or more Wholly Owned Subsidiaries of such Person or by such Person and one
or more Wholly Owned Subsidiaries of such Person.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material United States federal income
tax consequences of the Exchange Offer and the acquisition, ownership and
disposition of the Exchange Notes. Unless otherwise stated, this discussion
addresses the United States federal income tax consequences to persons that hold
Exchange Notes as capital assets, and that are (i) citizens or residents of the
United States, (ii) corporations, partnerships or other entities created or
organized in or under the laws of the United States or any political subdivision
thereof or therein, (iii) estates the income of which is subject to United
States federal income tax regardless of its source, or (iv) trusts the
administration of which is subject to the primary supervision of a court within
the United States and for which one or more United States fiduciaries have the
authority to control all substantial decisions ("U.S. Holders"). This discussion
does not purport to address specific tax consequences that may be relevant to
particular persons (including, for example, financial institutions,
broker-dealers, insurance companies, tax-exempt organizations, and person in
special situations, such as those who hold Exchange Notes as part of a straddle,
hedge, conversion transaction, or other integrated investment). Except for the
discussion under the heading "Foreign Holders," this discussion does not address
tax consequences to persons that have a "functional currency" other than the
U.S. dollar. In addition, this discussion does not address United States federal
alternative minimum tax consequences or any aspect of state, local or foreign
taxation. This discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury Department regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change, possibly on a retroactive basis.
PROSPECTIVE HOLDERS OF THE EXCHANGE NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO
THEM OF THE EXCHANGE OFFER AND OF ACQUIRING, OWNING AND DISPOSING OF THE
EXCHANGE NOTES, AS WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
Exchange of Notes Pursuant to Exchange Offer
The exchange of Old Notes for Exchange Notes should not be a taxable event for
United States federal income tax purposes. Accordingly, the Exchange Notes
should have the same issue price as the Old Notes, and a holder should have the
same adjusted tax basis and holding period for Exchange Notes as the holder had
for the Old Notes immediately before the exchange.
Interest Income
A U.S. Holder will recognize ordinary income when it receives or accrues
interest on Exchange Notes in accordance with such U.S. Holder's method of tax
accounting. The Old Notes were not issued with, and consequently the Exchange
Notes are not to be considered as issued with, "original issue discount" within
the meaning of Section 1273 of the Code. A U.S. Holder that purchases an
Exchange Note at a discount that exceeds a statutorily defined de minimis amount
will be subject to the "market discount" rules of the Code, and a U.S. Holder
that purchases an Exchange Note at a premium will be subject to the bond premium
amortization rules of the Code.
Disposition of Exchange Notes
If a U.S. Holder sells or otherwise disposes of an Exchange Note in a taxable
transaction (including redemption or retirement of the Exchange Note), the U.S.
Holder will recognize gain or loss equal to the difference between the amount
realized on the sale (excluding any such amount attributable to accrued but
previously unrecognized interest, which will be taxable as ordinary interest
income) and the U.S. Holder's adjusted tax basis in the Exchange Note. A U.S.
Holder's adjusted tax basis in an Exchange Note generally will be equal to the
amount the U.S. Holder paid to purchase the Exchange Note, (i) increased by any
unpaid interest that has accrued on the Exchange Note and any accrued market
discount that, in each case, has previously been included by such U.S. Holder in
taxable income, and (ii) decreased by any bond premium previously amortized and
any principal payments previously received by such U.S. Holder with respect to
the Exchange Note. Subject to the market discount rules, any such gain or loss
will be capital gain or loss, long-term or short-term depending upon whether the
U.S. Holder has held the Exchange Note for more than one year. Subject to
certain limited exceptions, capital losses cannot be used to offset ordinary
income.
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Foreign Holders
For purposes of this discussion, a "Foreign Holder" is any holder of an Exchange
Note other than a U.S. Holder.
A Foreign Holder generally will not be subject to United States federal
withholding tax on interest paid on an Exchange Note so long as the Foreign
Holder (i) is not actually or constructively a "10 percent shareholder" of the
Company or a "controlled foreign corporation" with respect to which the Company
is a "related person" within the meaning of the Code, and (ii) provides an
appropriate statement, signed under penalties of perjury, certifying that the
beneficial owner of the Exchange Note is a Foreign Holder and providing the
Foreign Holder's name and address. If the information provided in this statement
changes, the Foreign Holder must so inform the payor within 30 days of such
change. The statement generally must be provided in the year a payment occurs or
in either of the two preceding years. If the foregoing conditions are not
satisfied, then interest paid on the Exchange Notes will be subject to United
States withholding tax at a rate of 30%, unless such rate is reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain a Foreign Holder realizes on the sale, redemption, retirement
or other taxable disposition of an Exchange Note will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the Foreign Holder's conduct of a trade or business
in the United States, (ii) in the case of a Foreign Holder that is an
individual, the Foreign Holder is not present in the United States for 183 days
or more in the taxable year of the disposition and (iii) the Foreign Holder is
not subject to tax pursuant to the provisions of U.S. tax law applicable to
certain U.S. expatriates.
If the interest, gain or other income a Foreign Holder recognizes on an Exchange
Note is effectively connected with the Foreign Holder's conduct of a trade or
business in the United States, the Foreign Holder (although exempt from the
withholding tax previously discussed if an appropriate statement is furnished)
generally will be subject to United States federal income tax on the interest,
gain or other income at regular federal income tax rates. In addition, if the
Foreign Holder is a foreign corporation, it may be subject to a branch profits
tax equal to 30% of its "effectively connected earnings and profits," as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable tax treaty.
Information Reporting and Backup Withholding
The Company or other payor will be required to report annually to the IRS, and
to each U.S. Holder of record, the amount of interest paid on the Exchange Notes
(and the amount of tax, if any, withheld) for each calendar year, except
interest paid to exempt holders (generally, corporations and tax-exempt
entities). Each U.S. Holder subject to the reporting requirements will be
required to provide, under penalties of perjury, a certificate containing the
U.S. Holder's name, address, correct federal taxpayer identification number and
a statement that the U.S. Holder is not subject to backup withholding. Should a
nonexempt U.S. Holder fail to provide the required certificate, the Company or
other payor will be required to withhold 31% of the interest and other payments
on the Exchange Notes otherwise payable to the U.S. Holder and to remit the
withheld amount to the IRS as a payment against the U.S. Holder's federal income
tax liability.
A Foreign Holder will generally be exempt from backup withholding and
information reporting requirements, but may be required to comply with
certification and identification procedures in order to obtain an exemption from
backup withholding and information reporting. Any amount paid as backup
withholding will be creditable against the Foreign Holder's U.S. Federal income
tax liability.
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PLAN OF DISTRIBUTION
Prior to the Exchange Offer, there has been no market for the Old Notes. The Old
Notes are eligible for trading in the Private Offerings, Resales and Trading
through Automatic Linkages ("PORTAL") market. There can be no assurance that an
active trading market will develop for, or as to the liquidity of, any of the
Notes.
With respect to resales of Exchange Notes, based on an interpretation by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that any holder or beneficial owner (other than a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act or a "broker" or "dealer" registered under the Exchange Act) who
exchanges Old Notes for Exchange 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 thereof. However, if any holder or beneficial owner
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder or beneficial
owner cannot rely on the position of the staff of the Commission enunciated in
Exxon Capital Holdings Corporation (available May 13, 1988) or similar 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 a secondary resale transaction, unless an exemption from
registration is otherwise available.
As contemplated by the above 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 to be
acquired by the holder and any beneficial owners of Old Notes in connection with
the Exchange Offer are being acquired in the ordinary course of business of the
holder and any beneficial owners, (ii) that at the time of the consummation of
the Exchange Offer the holder and each beneficial owner are not engaging, do not
intend to engage and have no arrangements or understanding with any person to
participate in the distribution of the Exchange Notes in violation of the
provisions of the Securities Act, (iii) the holder and each beneficial owner
acknowledge and agree that any person participating in the Exchange Offer for
the purpose of distributing the Exchange Notes must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes acquired by such person and
cannot rely on the position of the Staff of the Commission set forth in
no-action letters that are discussed herein above, (iv) the holder and each
beneficial owner understands that a secondary resale transaction described in
clause (iii) above should be covered by an effective registration statement
containing the selling securityholder information required by Item 507 or 508,
as applicable, of Regulation S-K of the Commission, and (v) neither the holder
nor any beneficial owner(s) is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company except as otherwise disclosed to the Company in
writing.
Any broker or dealer registered under the Exchange Act (each a "Broker-Dealer")
who holds Old Notes that were acquired for its own account as a result of
market-making activities or other trading activities (other than Old Notes
acquired directly from the Company or any affiliate of the Company) may exchange
such Old Notes for Exchange Notes pursuant to the Exchange Offer; however, such
Broker-Dealer may be deemed an underwriter within the meaning of the Securities
Act and, therefore, must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of the Exchange Notes received by
it in the Exchange Offer, which prospectus delivery requirement may be satisfied
by the delivery by such Broker-Dealer of this Prospectus. Any Broker-Dealer
participating in the Exchange Offer will be required to acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of Exchange Notes received by it in the Exchange
Offer. However only Broker-Dealers who exchange Old Notes that were acquired for
their own account as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company or any
affiliate of the Company), may use this Prospectus to satisfy the prospectus
delivery requirements of the Securities Act. The delivery by a Broker-Dealer of
a prospectus in connection with resales of Exchange Notes shall not be deemed to
be an admission by such Broker-Dealer that it is an underwriter within the
meaning of the Securities Act.
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LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by Hunton
& Williams, Richmond, Virginia. Lathan M. Ewers, Jr., a partner of Hunton &
Williams, is a director of the Company.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K for the year ended December 28, 1996, have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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