<PAGE>
PROSPECTUS
(Unifi logo appears here with the words "quality through pride" underneath)
OFFER TO EXCHANGE 6 1/2% NOTES DUE 2008, SERIES B
FOR ANY AND ALL EXISTING NOTES (AS DEFINED BELOW)
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 4,
1998, UNLESS EXTENDED. AS DESCRIBED HEREIN, WITHDRAWAL RIGHTS WITH RESPECT TO
THE EXCHANGE OFFER ARE EXPECTED TO EXPIRE AT THE EXPIRATION OF THE EXCHANGE
OFFER.
Unifi, Inc., a New York corporation ("Unifi" or the "Company"), 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 up to $250,000,000
aggregate principal amount of its 6 1/2% Notes due 2008, Series B (the "New
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which this
Prospectus is a part, for a like principal amount of its issued and outstanding
6 1/2% Notes due 2008 (the "Existing Notes"). The New Notes and the Existing
Notes, as the case may be, are referred to herein as the "Notes." The Existing
Notes were originally issued and sold in a transaction that was exempt from
registration under the Securities Act and resold to certain qualified
institutional buyers in reliance on, and subject to the restrictions imposed
pursuant to, Rule 144A under the Securities Act ("Rule 144A"). The terms of the
New Notes are identical in all material respects to the terms of the Existing
Notes except that the New Notes do not contain terms with respect to interest
rate step-ups and the New Notes have been registered under the Securities Act
and will not bear legends restricting the transferability thereof. See
"Description of Notes."
The Notes are redeemable in whole or in part at any time at the option of
the Company at a redemption price, plus accrued interest to the date of
redemption, equal to the greater of (i) 100% of the principal amount of such
Notes or (ii) the sum of the present values of the remaining scheduled payments
of principal and interest thereon discounted to the date of redemption on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at
the applicable Treasury Yield (as defined herein) plus 20 basis points. See
"Description of Notes."
The Exchange Offer is not conditioned upon any minimum number of Existing
Notes being tendered. The Exchange Offer will expire at 5:00 p.m., New York City
time, on June 4, 1998, unless extended (the "Expiration Date"). Subject to the
terms and conditions of the Exchange Offer, including the reservation of certain
rights by Unifi and the right of holders of Existing Notes to withdraw tenders
at any time prior to the acceptance thereof, any and all Existing Notes validly
tendered prior to the Expiration Date will be accepted on or promptly after the
Expiration Date. In the event Unifi terminates the Exchange Offer and does not
accept for exchange any Existing Notes, Unifi will promptly return the Existing
Notes to the holders thereof. See "The Exchange Offer."
New Notes to be issued in exchange for properly tendered Existing Notes
will be delivered through the facilities of The Depository Trust Company
("DTC"), which will act as depositary, by the Exchange Agent (as defined herein)
promptly after the acceptance thereof. The New Notes will be represented by
Global Securities (as defined herein) registered in the name of a nominee of
DTC. Interests in Global Securities will be shown on, and transfers thereof will
be effected only through, records maintained by DTC and its participants. Except
as provided herein, New Notes in definitive form will not be issued. Settlement
for the New Notes will be made in immediately available funds. The New Notes
will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity in the New Notes will therefore settle in immediately available
funds. See "Description of Notes."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is May 5, 1998.
<PAGE>
(COVER PAGE CONTINUED)
Based on interpretations by the Staff of the Securities and Exchange
Commission (the "Commission") as set forth in no-action letters issued to third
parties, Unifi believes the New Notes issued pursuant to the Exchange Offer may
be offered for resale, resold and otherwise transferred by any holder thereof
(other than any such holder that is a broker-dealer or an "affiliate" of Unifi
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that (i) such New Notes are acquired in the ordinary course of
business, (ii) at the time of the commencement of the Exchange Offer such holder
has no arrangement or understanding with any person to participate in a
distribution of the New Notes and (iii) such holder is not engaged in, and does
not intend to engage in, a distribution of the New Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter, and therefore, there can be no assurance that the Staff of the
Commission would make a similar determination with respect to the Exchange Offer
as in such other circumstances. Each holder of Existing Notes that desires to
participate in the Exchange Offer will be required to make certain
representations described in "The Exchange Offer -- Terms of the Exchange
Offer." If a holder of the New Notes is an affiliate of Unifi, is participating
in a distribution of the New Notes, is a broker-dealer, or is not acquiring the
New Notes in the ordinary course of its business, such holder may not rely on
the staff's interpretations as set forth in the aforementioned no-action letters
and is subject to the registration and prospectus delivery requirements of the
Securities Act.
Each broker-dealer that receives New 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 New Notes. The Letter of Transmittal states
that by so 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. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
where such Existing Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. As described more fully
herein, for a period of 90 days after the Expiration Date (as defined herein),
Unifi will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "The Exchange Offer" and "Plan of
Distribution."
There has not previously been any public market for the New Notes. Unifi
does not intend to list the New Notes on any securities exchange or to seek
approval for quotation through any automated quotation system. There can be no
assurance that an active market for the New Notes will develop. Moreover, to the
extent that Existing Notes are tendered and accepted in the Exchange Offer, the
trading market, if any, for untendered and tendered but unaccepted Existing
Notes could be adversely affected.
Unifi will not receive any proceeds from the Exchange Offer. The Company
has agreed to pay the expenses of the Exchange Offer. No dealer manager is being
utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF EXISTING NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
------------------------
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith is required to file periodic reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Northeast Regional Office of the Commission located at 7 World Trade Center,
Suite 1300, New York, New York 10048 and at its Midwest Regional Office located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The Commission maintains an Internet Web site that contains reports,
proxy and information statements and other information regarding the Company and
the registrants that file electronically with the Commission. The address of
such site is http://www.sec.gov. Copies of all or any part of such materials may
be obtained from any such office upon payment of the fees prescribed by the
Commission. Such information may also be inspected and copied at the offices of
the New York Stock Exchange at 20 Broad Street, New York, New York 10005. The
Company's common stock, $.10 par value per share, is traded on the New York
Stock Exchange under the symbol "UFI."
Unifi has filed with the Commission a Registration Statement under the
Securities Act with respect to the New Notes offered hereby (the "Registration
Statement"). As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information included or incorporated by
reference in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus or in any document incorporated herein
or therein as to the contents of any contract or other document referred to
herein or therein and filed as an exhibit to, or incorporated by reference in,
the Registration Statement are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to, or incorporated by reference in, the Registration Statement, each
such statement being qualified in all respects by such reference. For further
information with respect to Unifi and the Notes, reference is hereby made to the
Registration Statement and the exhibits and schedules thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to Section 13 of the Exchange Act are hereby incorporated by reference
in this Prospectus:
(a) The Company's Annual Report on Form 10-K for the year ended June
29, 1997;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters
ended September 28, 1997 and December 28, 1997; and
(c) The Company's Current Reports on Form 8-K filed on July 15, 1997
and January 9, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Notes shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing such documents. 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.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (NOT INCLUDING EXHIBITS TO SUCH
DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN
SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST
DIRECTED TO WILLIS C. MOORE, III, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER, UNIFI, INC., 7201 WEST FRIENDLY AVENUE, GREENSBORO, NORTH CAROLINA
27410, TELEPHONE (336) 316-5664, FACSIMILE (336) 294-4751. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AT LEAST FIVE
BUSINESS DAYS PRIOR TO THE EXPIRATION DATE.
------------------------
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE
DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO)
APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
THE COMPANY
The Company is one of the largest and most diversified processors of
polyester and nylon yarns in the world, marketing products to over 1,000
customers worldwide. The Company, together with its subsidiaries, is engaged in
the business of texturing polyester and nylon filament fiber to produce
polyester and nylon yarns, dyed yarns and spandex yarns covered with nylon and
polyester. The Company sells its products to knitters and weavers that produce
fabrics for the apparel, automotive upholstery, hosiery, home furnishings,
industrial and other end use markets. The Company operates 16 manufacturing and
warehousing facilities, primarily in North Carolina and Ireland, two
distribution centers and six sales offices around the world.
Texturing polyester and nylon filament fiber involves the processing of
partially oriented yarn ("POY"), which is either raw polyester or nylon filament
fiber purchased from chemical manufacturers, to give it greater bulk, strength,
stretch, consistent dyeability and a softer feel, thereby making it suitable for
use in knitting and weaving of fabrics. The texturing process involves the use
of high speed machines to draw, heat and twist the POY to produce yarn having
various physical characteristics, depending on its ultimate end use. The primary
suppliers of POY to the Company are E.I. DuPont de Nemours and Co. ("DuPont"),
Nan Ya Plastics Corporation of America, Hoechst Celanese Corporation and Wellman
Industries, Inc., with the majority being supplied by DuPont. In addition to its
POY manufacturing facilities in Ireland, the Company recently began operation of
the pilot lines in its newly constructed, state-of-the-art manufacturing
facility in Yadkinville, North Carolina, designed to further vertically
integrate the Company's domestic polyester operations. In January 1998, the
Company began adding approximately one operating line per week (26 operating
lines in total) to this facility and expects to be fully operational by the end
of fiscal 1998. By the end of the same fiscal year, management expects this
facility to provide approximately 25% of its total domestic POY supply needs and
to lower the Company's cost of sales. Management expects that all polyester
fiber manufactured by this facility will be used by the Company.
The Company's growth strategy is to continue to increase its domestic and
international market share in both polyester and nylon through internal capacity
expansion and strategic acquisitions. The Company also will continue its efforts
to reduce production costs by utilizing automated machinery and facilities.
On June 30, 1997, the Company and Parkdale Mills, Inc. ("Parkdale")
contributed cash, assets and certain liabilities associated with their
respective open-end and air jet spun cotton yarn operations to a newly formed
joint venture, Parkdale America, LLC ("Parkdale America"). As a result, the
Company and Parkdale own a 34.0% and 66.0% equity interest in Parkdale America,
respectively. Parkdale America is one of the largest and most diversified
processors of spun cotton yarns in the world. The Company believes that Parkdale
America provides it with an opportunity to partner with the leading manufacturer
in the cotton yarn industry and to increase the profitability of these
operations through economies of scale and elimination of redundant overhead
costs. On November 14, 1997, the Company completed its $55.8 million acquisition
of SI Holding Company ("SI Holding"), a manufacturer of covered nylon yarns
operating under the "Spanco" name, generating approximately $85.0 million in
annual sales. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General."
In fiscal 1997, the Company had record sales of $1.7 billion, net income of
$115.7 million (6.8% of sales) and earnings before interest, taxes, depreciation
and amortization ("EBITDA") of $274.0 million. The Company made capital
expenditures of $143.2 million in fiscal 1997 and anticipates making $220 to
$230 million of capital expenditures in fiscal 1998, primarily for the Company's
vertical integration efforts and for modernization and capacity expansion of its
polyester and nylon texturing and covering operations.
The Company's headquarters are located at 7201 West Friendly Avenue,
Greensboro, North Carolina, 27410 and its telephone number is (336) 294-4410.
THE FOREGOING PARAGRAPHS CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND CERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS. WORDS SUCH AS
"EXPECTS," "ANTICIPATES," "BELIEVES," "ESTIMATES," VARIATIONS OF SUCH WORDS AND
OTHER SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. INFORMATION CONCERNING CERTAIN FACTORS THAT COULD IMPACT EXPECTED
RESULTS IS INCLUDED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- FORWARD-LOOKING STATEMENTS."
4
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Registration Agreement................................ The Existing Notes were issued on February 5, 1998 to the initial
purchasers (the "Initial Purchasers") of the Existing Notes. The
Initial Purchasers resold the Existing Notes to certain qualified
institutional buyers in reliance on, and subject to the restrictions
imposed pursuant to, Rule 144A. In connection therewith, the Company
and the Initial Purchasers entered into the Registration Rights
Agreement, dated as of February 5, 1998 (the "Registration Rights
Agreement"), providing, among other things, for the Exchange Offer.
See "The Exchange Offer."
The Exchange Offer.................................... New Notes are being offered in exchange for an equal principal amount
of Existing Notes. As of the date hereof, $250,000,000 aggregate
principal amount of Existing Notes is outstanding. Existing Notes may
be tendered only in integral multiples of $1,000.
Resale of New Notes................................... Based on interpretations by the staff of the Commission as set forth
in no-action letters issued to third parties, the Company believes
that the New Notes issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by any holder
thereof (other than any such holder that is a broker-dealer or an
"affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that
(i) such New Notes are acquired in the ordinary course of business,
(ii) at the time of the commencement of the Exchange Offer such
holder has no arrangement with any person to participate in a
distribution of the New Notes and (iii) such holder is not engaged
in, and does not intend to engage in, a distribution of the New
Notes. By tendering Existing Notes in exchange for New Notes, each
holder will represent to the Company that: (i) it is not such an
affiliate of the Company, (ii) any New Notes to be received by it
will be acquired in the ordinary course of business and (iii) at the
time of the commencement of the Exchange Offer it had no arrangement
with any person to participate in a distribution of the New Notes
and, if such holder is not a broker-dealer, it is not engaged in, and
does not intend to engage in, a distribution of New Notes. If a
holder of Existing Notes is unable to make the foregoing
representations, such holder may not rely on the applicable interpre-
tations of the Staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities
Act in connection with any secondary resale.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Each broker-dealer that receives New 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 New Notes. The
Letter of Transmittal states that by so 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.
This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of
New Notes where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, starting on the
Expiration Date and ending on the close of business 90 days after the
Expiration Date, it will make this Prospectus available to any
participating broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
To comply with the securities laws of certain jurisdictions, it may
be necessary to qualify for sale or register the New Notes prior to
offering or selling such New Notes. The Company has agreed, pursuant
to the Registration Rights Agreement and subject to certain specified
limitations therein, to register or qualify the New Notes for offer
or sale under the securities or "blue sky" laws of such jurisdictions
as may be necessary to permit the holders of New Notes to trade the
New Notes without any restrictions or limitations under the
securities laws of the several states of the United States.
Consequences of Failure to Exchange Existing Notes.... Upon consummation of the Exchange Offer, subject to certain limited
exceptions, holders of Existing Notes who do not exchange their
Existing Notes for New Notes in the Exchange Offer will no longer be
entitled to registration rights and will not be able to offer or sell
their Existing Notes, unless such Existing Notes are subsequently
registered under the Securities Act (which, subject to certain
limited exceptions, the Company will have no obligation to do),
except pursuant to an exemption from, or in a transaction not subject
to, the Securities Act and applicable state securities laws. See "The
Exchange Offer -- Terms of the Exchange Offer" and " -- Consequences
of Failure to Exchange."
Expiration Date....................................... 5:00 p.m., New York City time, on June 4, 1998 (30 calendar days
following the commencement of the Exchange Offer), unless the
Exchange Offer is extended, in which case the term "Expiration Date"
means the latest date and time to which the Exchange Offer is
extended.
Interest on the New Notes............................. The New Notes will accrue interest at rate of 6 1/2% per annum from
February 5, 1998, the issue date of the Existing Notes. Interest on
the New Notes is payable on February 1 and August 1 of each year.
Conditions to the Exchange Offer...................... The Exchange Offer is not conditioned upon any minimum principal
amount of Existing Notes being tendered for exchange. However, the
Exchange Offer is subject to certain customary conditions, which may
be waived by the Company. See "The Exchange Offer -- Conditions."
Except for the requirements of applicable federal and state
securities laws, there are no federal or state regulatory
requirements to be complied with or approvals to be obtained by the
Company in connection with the Exchange Offer.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Procedures for Tendering Existing Notes............... Each holder of Existing 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 any other required
documentation to the Exchange Agent (as defined herein) at the
address set forth herein and effect a tender of Existing Notes
pursuant to the procedures for book-entry transfer as provided for
herein. See "The Exchange Offer -- Procedures for Tendering" and
" -- Book Entry Transfer."
Guaranteed Delivery Procedures........................ Holders of Existing Notes who wish to tender their Existing Notes and
who cannot deliver their Existing Notes and a properly completed
Letter of Transmittal or any other documents required by the Letter
of Transmittal to the Exchange Agent prior to the Expiration Date may
tender their Existing Notes according to the guaranteed delivery. See
"Exchange Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights..................................... Tenders of Existing Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. To withdraw a
tender of Existing Notes, a written or facsimile transmission notice
of withdrawal must be received by the Exchange Agent at its address
set forth herein under "The Exchange Offer -- Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration Date.
Acceptance of Existing Notes and Delivery of New Subject to certain conditions, any and all Existing Notes that are
Notes............................................... properly tendered in the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date will be accepted for exchange. The
New Notes issued pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
Certain United States Tax Consequences................ The exchange of Existing Notes for New Notes will not constitute a
taxable exchange for United States federal income tax purposes. See
"Certain United States Federal Tax Considerations for Non-United
States Holders."
Exchange Agent........................................ First Union National Bank is serving as exchange agent (the "Exchange
Agent") in connection with the Exchange Offer.
Fees and Expenses..................................... All expenses incident to the Company's consummation of the Exchange
Offer and compliance with the Registration Rights Agreement will be
borne by the Company. See "The Exchange Offer -- Fees and Expenses."
Use of Proceeds....................................... There will be no cash proceeds payable to Unifi from the issuance of
the New Notes pursuant to the Exchange Offer. The proceeds from the
sale of the Existing Notes were used to repay a portion of the
Company's bank credit facility. See "Use of Proceeds."
</TABLE>
7
<PAGE>
SUMMARY OF TERMS OF NEW NOTES
The Exchange Offer relates to the exchange of up to $250,000,000 aggregate
principal amount of Existing Notes for up to an equal aggregate principal amount
of New Notes. New Notes will be entitled to the benefits of the same Indenture
(as defined herein) that governs the Existing Notes and will govern the New
Notes. The form and terms of the New Notes are identical in all material
respects as the form and terms of the Existing Notes, except that the New Notes
do not contain terms with respect to interest rate step-up provisions and the
New Notes have been registered under the Securities Act and will not bear
legends restricting the transferability thereof. See "Description of Notes."
<TABLE>
<S> <C>
Maturity Date......................................... February 1, 2008.
Interest Payment Dates................................ February 1 and August 1, commencing on August 1, 1998
Optional Redemption................................... The New Notes will be redeemable as a whole or in part, at any time
at the option of the Company at a redemption price, plus accrued
interest to the date of redemption, equal to the greater of (i) 100%
of the principal amount of such Notes and (ii) the sum of the present
values of the remaining scheduled payments of principal and interest
thereon discounted to the date of redemption on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the
applicable Treasury Yield (as defined herein), plus 20 basis points.
See "Description of Notes -- Optional Redemption."
Ranking............................................... The New Notes will rank equally with all other unsecured and
unsubordinated indebtedness of the Company. See "Description of
Notes."
</TABLE>
8
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds payable to Unifi from the issuance of the
New Notes pursuant to the Exchange Offer. The proceeds from the sale of the
Existing Notes were used to repay a portion of the Company's $400 million bank
credit facility with NationsBank, N.A., Wachovia Bank of North Carolina, N.A.
and Credit Suisse, dated as of April 15, 1996 (the "Credit Facility"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical and pro forma ratios of
earnings to combined fixed charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR END ENDED
--------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO
FORMA
JUNE 27, JUNE 26, JUNE 25, JUNE 30, JUNE 29, JUNE 29, DECEMBER 28,
1993 1994 1995 1996 1997 1997(1) 1997
-------- -------- -------- -------- -------- -------- ------------
Ratio of earnings to fixed charges......... 9.4x 8.2x 12.4x 8.8x 13.8x 12.2x 8.8x
<CAPTION>
SIX MONTHS
ENDED
------------
<S> <C>
PRO FORMA
DECEMBER 28,
1997(1)
------------
Ratio of earnings to fixed charges......... 8.2x
</TABLE>
- ---------------
(1) To reflect the change in interest costs resulting from the refinancing of
amounts outstanding under the Credit Facility during the period presented
with a portion of the Notes, using an effective interest rate for the Notes
of 6.704%.
For purposes of computing the ratios of earnings to fixed charges, earnings
represent earnings from continuing operations before income taxes and fixed
charges and fixed charges consist of interest expense and the portion of rents
calculated to be representative of the interest factor. The ratios of earnings
to fixed charges should be read in conjunction with the financial statements and
other financial data included or incorporated by reference herein. See
"Incorporation of Certain Documents by Reference."
CAPITALIZATION
The following table sets forth the consolidated cash and cash equivalents,
short-term debt and capitalization of the Company as of December 28, 1997, and
as adjusted to give effect to the sale on February 5, 1998 of the Existing Notes
and the application of the anticipated net proceeds therefrom to repay long-term
debt. See "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 28, 1997
---------------------
ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents.............................................................................. $ 5 $ 5
------ -----------
Short-term debt:
Note Payable -- Parkdale America, LLC................................................................ $ 10 $ 10
Current maturities of sale-leaseback obligations..................................................... -- --
------ -----------
Total short-term debt............................................................................. 10 10
------ -----------
Long-term debt:
Note payable -- Parkdale America, LLC................................................................ 10 10
Sale-leaseback obligation............................................................................ 3 3
Indebtedness to banks under revolving credit facility (1)............................................ 400 154
6 1/2% Notes due 2008................................................................................ -- 250
------ -----------
Total long-term debt.............................................................................. 413 417
------ -----------
Total debt........................................................................................ 423 427
------ -----------
Shareholders' equity:
Common stock (2)..................................................................................... 6 6
Capital in excess of par value....................................................................... 21 21
Retained earnings.................................................................................... 565 565
Cumulative translation adjustment.................................................................... (6) (6)
------ -----------
Total shareholders' equity........................................................................ 586 586
------ -----------
Total short-term debt and capitalization............................................................... $1,009 $ 1,013
------ -----------
------ -----------
</TABLE>
9
<PAGE>
- ---------------
(1) At December 28, 1997, the Company did not have any unsecured borrowings
available under the Credit Facility with interest rates payable as described
therein. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
(2) There are 500,000,000 shares authorized, $.10 par value, of which 61,390,252
were issued and outstanding at December 28, 1997.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the five years ended June 29,
1997 in the following table are derived from the Company's audited consolidated
financial statements and reflect the operations and financial position of the
Company at the dates and for the periods indicated. The financial data for the
six-month periods ended December 29, 1996 and December 28, 1997 are derived from
unaudited consolidated financial statements. The unaudited consolidated
financial statements include all adjustments, consisting of normal recurring
items, which the Company's management considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the six months ended December 28, 1997 may not be
indicative of the results that may be expected for the entire year ending June
28, 1998. The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the financial statements and other financial data included or incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED (1) ENDED
---------------------------------------------------- ------------
JUNE 27, JUNE 26, JUNE 25, JUNE 30, JUNE 29, DECEMBER 29,
1993 1994 1995 1996 1997 1996
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT RATIOS AND PER SHARE DATA)
CONSOLIDATED STATEMENTS OF INCOME:
Net sales............................................. $1,406 $1,385 $1,555 $1,603 $1,705(2) $834(2)
Cost of sales...................................... 1,141 1,186 1,331 1,407 1,474 725
Gross profit.......................................... 265 199 224 196 231 109
Selling, general and administrative expense........ 38 40 43 45 46 22
Non-recurring charge............................... -- 13(3) -- 24(4) -- --
Operating income...................................... 227 146 181 127 185(2) 87(2)
Equity in earnings of unconsolidated affiliates (5)... -- -- -- -- -- --
Income before extraordinary item and accounting
change............................................. 137 76 116 78 116 53
Extraordinary item.................................... -- -- -- 6(6) -- --
Cumulative effect of accounting change................ -- -- -- -- -- --
Net income............................................ 137 76 116 72 116 53
PER SHARE OF COMMON STOCK:
Basic earnings:
Income before extraordinary item and accounting
change........................................... $ 1.96 $ 1.09 $ 1.68 $ 1.19 $ 1.83 $.82
Net income......................................... 1.96 1.09 1.68 1.10(6) 1.83 .82
Diluted earnings:
Income before extraordinary item and accounting
change........................................... 1.85 1.07 1.62 1.18 1.81 .81
Net income......................................... 1.85 1.07 1.62 1.09(6) 1.81 .81
Cash dividends........................................ .42 .56 .40 .52 .44 .22
OTHER DATA:
EBITDA (8)............................................ $ 304 $ 239 $ 277 $ 244 $ 274 $130
Ratio of EBITDA to interest expense................... 11.8x 13.1x 17.9x 16.7x 23.3x 22.0x
CONSOLIDATED BALANCE SHEET DATA (AT END OF PERIOD):
Working capital....................................... $ 320 $ 304 $ 333 $ 196 $ 216 $210
Net property, plant and equipment..................... 468 512 516 549 598 576
Total assets.......................................... 1,017 1,003 1,041 951 1,019 971
Long-term debt........................................ 250 230 230 170 256 225
Shareholders' equity (9).............................. 546 589 604 583 549 563
<CAPTION>
SIX MONTHS
ENDED
------------
DECEMBER 28,
1997
------------
<S> <C>
CONSOLIDATED STATEMENTS OF INCOME:
Net sales............................................. $ 673
Cost of sales...................................... 564
Gross profit.......................................... 109
Selling, general and administrative expense........ 20
Non-recurring charge............................... --
Operating income...................................... 89
Equity in earnings of unconsolidated affiliates (5)... 9
Income before extraordinary item and accounting
change............................................. 61
Extraordinary item.................................... --
Cumulative effect of accounting change................ 5(7)
Net income............................................ 56
PER SHARE OF COMMON STOCK:
Basic earnings:
Income before extraordinary item and accounting
change........................................... $ .99
Net income......................................... .92
Diluted earnings:
Income before extraordinary item and accounting
change........................................... .99
Net income......................................... .91
Cash dividends........................................ .28
OTHER DATA:
EBITDA (8)............................................ $ 132
Ratio of EBITDA to interest expense................... 20.1x
CONSOLIDATED BALANCE SHEET DATA (AT END OF PERIOD):
Working capital....................................... $ 219
Net property, plant and equipment..................... 566
Total assets.......................................... 1,183
Long-term debt........................................ 413
Shareholders' equity (9).............................. 586
</TABLE>
10
<PAGE>
- ---------------
(1) All years were 52-week fiscal years, except the fiscal year ended June 30,
1996, which was 53 weeks.
(2) On a pro forma basis, net sales and operating income of the ongoing
polyester and nylon business would have been $1.401 billion and $180.4
million in fiscal 1997, respectively, and $685.9 million and $86.5 million
in the first six months of fiscal 1997, respectively, if the business
contributed to Parkdale America was not included.
(3) The Company recognized a non-recurring charge of $13.4 million related to
the sale of the Company's investment in its wholly owned French subsidiary,
Unifi Texturing S.A., and the Company's decision to exit the European nylon
market.
(4) The Company recognized a non-recurring charge of $23.8 million related to
restructuring plans to consolidate certain manufacturing operations and
dispose of under-utilized assets.
(5) Consists of a 34% interest in Parkdale America and a 50% interest in MiCELL
Technologies, Inc. ("MiCELL"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General."
(6) The Company recognized an extraordinary after-tax charge of $5.9 million, or
$.09 per share, as a result of the early redemption of $230 million of its
6% convertible subordinated notes due 2002.
(7) The Company recognized an after-tax charge of $4.6 million, or $.08 per
share, as a result of the cumulative effect of the change in accounting to
comply with the provisions of Emerging Issues Task Force No. 97-13 issued in
November 1997.
(8) Represents earnings before extraordinary items, non-recurring charges,
interest, taxes, depreciation and amortization. The measure does not
represent cash generated from operating activities determined in accordance
with generally accepted accounting principles, is not necessarily indicative
of cash available to fund cash needs and should not be considered as an
alternative to operating income or net income as an indicator of the
Company's operating performance or as an alternative to cash flow as a
measure of liquidity.
(9) On October 21, 1993, the Board of Directors authorized the repurchase of up
to 15 million shares of the Company's common stock. Through December 28,
1997, 10.2 million shares had been repurchased at a total cost of $282.5
million.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS PROVIDES INFORMATION REGARDING THE
COMPANY'S CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS DURING THE
PAST THREE FISCAL YEARS AND SUBSEQUENT INTERIM PERIOD. THIS DISCUSSION SHOULD BE
READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY,
WHICH ARE INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
RESULTS OF OPERATIONS
The data below reflect the percentage relationship between net sales and
major categories in the Company's consolidated statements of income for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED (1) ENDED
-------------------------------- ------------
JUNE 25, JUNE 30, JUNE 29, DECEMBER 29,
1995 1996 1997 (2) 1996 (2)
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net sales......................................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales................................................... 85.6 87.8 86.4 87.0
Gross profit...................................................... 14.4 12.2 13.6 13.0
Selling, general and administrative expense..................... 2.8 2.8 2.7 2.6
Non-recurring charge............................................ -- 1.5 -- --
Operating income.................................................. 11.6 7.9 10.9 10.4
Interest expense................................................ 1.0 .9 .7 .7
Other expense (income).......................................... (1.4) (.7) -- --
Equity in earnings of unconsolidated affiliates................. -- -- -- --
Income before income taxes........................................ 12.0 7.7 10.2 9.7
Provision for income taxes...................................... 4.5 2.8 3.4 3.4
Income before extraordinary item and accounting change............ 7.5 4.9 6.8 6.3
Net income........................................................ 7.5 4.5 6.8 6.3
<CAPTION> SIX MONTHS
ENDED
------------
DECEMBER 28,
1997
------------
<S> <C>
Net sales......................................................... 100.0%
Cost of sales................................................... 83.9
Gross profit...................................................... 16.1
Selling, general and administrative expense..................... 3.0
Non-recurring charge............................................ --
Operating income.................................................. 13.1
Interest expense................................................ 1.0
Other expense (income).......................................... (.1)
Equity in earnings of unconsolidated affiliates................. (1.4)
Income before income taxes........................................ 13.6
Provision for income taxes...................................... 4.6
Income before extraordinary item and accounting change............ 9.0
Net income........................................................ 8.3
</TABLE>
- ---------------
(1) The fiscal year ended June 30, 1996 consisted of 53 weeks, whereas the
fiscal years ended June 29, 1997 and June 25, 1995 consisted of 52 weeks.
(2) On a pro forma basis, gross profit and operating income as percentages of
sales of the ongoing polyester and nylon business would have been 15.5% and
12.9%, respectively, in fiscal 1997 and 15.2% and 12.6%, respectively, in
the first six months of fiscal 1997 if the business contributed to Parkdale
America was not included.
GENERAL
On June 30, 1997, the Company entered into a Contribution Agreement (the
"Contribution Agreement") with Parkdale that set forth the terms and conditions
by which Parkdale and the Company contributed all of the assets and certain
liabilities associated with their respective spun cotton yarn operations
utilizing open-end and air jet spinning technologies to Parkdale America, a
newly created limited liability company. Pursuant to the Contribution Agreement,
each entity's inventory, owned real and tangible personal property and
improvements thereon and the Company's leased real property associated with
these operations were contributed to Parkdale America. Additionally, the Company
contributed cash to Parkdale America of $32.9 million on June 30, 1997, and is
committed to contribute cash of $10.0 million on June 30, 1998, and $10.0
million on June 30, 1999, whereas Parkdale contributed cash of $51.6 million on
June 30, 1997 and has no future cash contribution commitments. Parkdale America
assumed certain long-term debt obligations of the Company and Parkdale in the
amounts of $23.5 million and $46.0 million, respectively. In exchange for the
assets contributed to Parkdale America and the liabilities assumed by Parkdale
America, the Company received a 34% ownership interest in Parkdale America and
Parkdale received a 66% ownership interest in Parkdale America. Spun cotton yarn
operations contributed by the Company to Parkdale America had net sales of
$304.4 million during fiscal 1997. Management expects that the consolidation of
spun cotton yarn operations in Parkdale America will provide operating
efficiencies and economies of scale.
The Company also has a 50% investment in MiCELL, a leading developer of
carbon dioxide ("CO2") surfactant (soaps that work as surface active agents)
systems. MiCELL is involved in the development of surfactants to be used in
conjunction with CO2 for garment care, parts cleaning and textile processing.
The amount of the investment is not material to the Company, and the Company has
no obligations to make future contributions to MiCELL.
12
<PAGE>
On November 14, 1997, the Company completed the acquisition of SI Holding
to acquire its covered yarn business for $55.8 million, including certain
covenants-not-to-compete entered into with principal officers of SI Holding.
SIX MONTHS ENDED DECEMBER 28, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 29,
1996
Consolidated net sales decreased 1.0% from $346.6 million in the second
quarter of fiscal 1997 to $343.1 million in the second quarter of fiscal 1998
and declined 1.9% for the first six months of fiscal 1998 from $685.9 million
for the first six months of fiscal 1997 to $672.9 million in the first six
months of fiscal 1998, after eliminating the net sales of the Company's spun
cotton yarn operations that were contributed to Parkdale America at the
beginning of the 1998 fiscal year. Net sales of the spun cotton yarn operations
were $72.8 million and $148.2 million for the second quarter of fiscal 1997 and
the first six months of fiscal 1997, respectively. Unit volume for the quarter
and year to date periods, after eliminating spun yarn cotton operations from the
fiscal 1997 periods, increased 1.3% and 0.3%, respectively. Average unit sales
prices, based on product mix, declined 2.5% for the second quarter of fiscal
1998 quarter and 2.0% for the year to date after giving effect to the
elimination of spun cotton yarn sales for the prior year periods.
Domestically, polyester and nylon yarn sales declined slightly for the
first six months of fiscal 1998 due primarily to a decline in average sales
price, based on product mix. For the first six months of fiscal 1998, sales of
the Company's polyester and nylon yarns decreased approximately 1.6% due to
slight declines in both unit sales and average sales prices. Internationally,
sales declined 1.4% for the second quarter of fiscal 1998 and 4.1% for the first
six months of fiscal 1998 as decreases in unit prices for both periods offset
increases in unit sales over prior year corresponding periods. Also impacting
sales for the second quarter of fiscal 1998 relative to the prior year was the
strengthening of the U.S. dollar compared to the Irish punt during this period,
which had the currency translation effect of reducing net sales by $4.1 million.
Gross profit increased 6.4% to $59.0 million for the second quarter of
fiscal 1998 and 4.4% to $108.5 million for the first six months of fiscal 1998,
after eliminating spun cotton yarn operating results from the prior year
periods. Gross margin (gross profit as a percentage of net sales) improved 1.2%
for the second quarter of fiscal 1998 and 0.9% for the first six months of
fiscal 1998 compared to the prior year periods, after removing the spun cotton
yarn operating results for these periods. Decreases in fiber and manufacturing
components of cost of sales more than offset increases in depreciation and other
fixed charges as a percentage of net sales for both current year periods
compared to the corresponding prior year periods resulting in the improved gross
margin percentages.
Selling, general and administrative expenses as a percentage of net sales
increased from 2.7% in the second quarter of fiscal 1997 to 3.1% for the second
quarter of fiscal 1998. Selling, general and administration expense as a
percentage of net sales increased from 2.6% in the first six months of fiscal
1997 to 3.0% in the first six months of fiscal 1998. On a dollar basis, selling,
general and administrative expense declined $0.7 million to $10.6 million for
the second quarter of fiscal 1998 and decreased $1.6 million to $20.5 million
for the first six months of fiscal 1998. Lower selling, general and
administrative expenses for both current year periods reflect cost reductions
associated with the contribution of the Company's spun cotton yarn operations at
the beginning of the fiscal year. The increase in selling, general and
administrative expense as a percentage of net sales for both current year
periods is attributable to the lower sales base discussed above.
Interest expense increased $0.3 million to $3.3 million in the second
quarter of fiscal 1998 and $0.7 million to $6.6 million for the first six months
of fiscal 1998. The increase in interest expense for both fiscal 1998 periods
reflects higher levels of outstanding debt at higher average interest rates.
Interest income has decreased from $0.6 million in the second quarter of fiscal
1997 to $0.4 million in the second quarter of fiscal 1998. For the six-month
period, interest income has decreased from $1.1 million in fiscal 1997 to $0.9
million in fiscal 1998. Other expense declined $0.5 million in the second
quarter of fiscal 1998 and $0.6 million for the first six months of fiscal 1998
compared to the corresponding periods in the prior year.
Income from the Company's equity affiliates, Parkdale America and MiCELL,
contributed $4.5 million to pre-tax income for the quarter and $9.1 million for
the year to date. During the second quarter of fiscal 1997, and for the first
six months of fiscal 1997, net sales and operating income from the Company's
spun cotton yarn assets contributed to Parkdale America amounted to $72.8
million and $1.0 million, and $148.2 million and $0.2 million, respectively.
The effective tax rate has decreased from 34.7% to 33.3% in the second
quarter of fiscal 1998 and from 34.9% to 33.6% for the first six months of
fiscal 1998. The difference between the statutory federal income tax rate and
the effective tax rate is primarily due to the realization of state and federal
tax credits and the results of foreign subsidiaries, which are taxed at rates
below those of U.S. operations.
13
<PAGE>
Pursuant to Emerging Issues Tasks Force No. 97-13 issued in November 1997,
the Company changed its accounting policy in the second quarter of fiscal 1998
regarding a project to install an entirely new computer software system that it
began in fiscal 1995. Previously, substantially all direct costs relating to the
project were capitalized, including the portion related to business process
reengineering. In accordance with this accounting pronouncement, the unamortized
balance of these reengineering costs as of September 28, 1997 of $7.5 million
($4.6 million after tax), or $.08 per share, was written off as a one-time,
non-cash, cumulative catch-up adjustment in the second quarter of fiscal 1998.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," (SFAS 128) which was required to be
adopted in the December 1997 fiscal quarter. The Company adopted SFAS 128 in the
second quarter of fiscal 1998 and restated all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options is excluded. Diluted earnings per share continues to reflect the
assumed conversion of all potentially diluted securities, without significant
changes in the method of computation.
As a result of the above, the Company realized during the second quarter of
fiscal 1998 income before the cumulative effect of the accounting change of
$33.0 million, or diluted earnings per share of $.54, compared to $28.8 million,
or $.44 per share, for the second quarter of fiscal 1997. Net income for the
second quarter of fiscal 1998 amounted to $28.4 million, or $.46 per diluted
share, after the charge for the cumulative effect of the change in accounting of
$4.6 million, or $.08 per diluted share. Net income for the first six months of
fiscal 1998 amounted to $55.9 million, or $.91 per share, compared to
corresponding amounts for the first six months of fiscal 1997 of $52.7 million,
or $.81 per share. For the first six months of fiscal 1998, income before the
cumulative effect of the accounting change was $60.5 million, or $.98 per share.
FISCAL 1997 COMPARED TO FISCAL 1996
Consolidated net sales increased 6.3% from $1.603 billion in fiscal 1996 to
$1.705 billion in 1997. The 1997 fiscal year included fifty-two weeks compared
to fifty-three weeks in the 1996 fiscal year. Growth in net sales was achieved
by a 7.2% increase in unit volume, which was offset slightly by a modest decline
in per unit average sales prices.
Domestically, unit volumes increased 6.3%, while average per unit sales
prices remained stable. Increased unit volumes were experienced across all of
the Company's sales-yarn operations. Fiscal 1997 unit sales growth benefited
from phased-in production of the Company's new polyester texturing facility in
Yadkinville, North Carolina, which was substantially completed at fiscal year
end, and from realizing a full year's sales activity after purchasing the
texturing operations of Glen Raven Mills, Inc.'s Norlina Division in November
1995. In addition, growth in export sales contributed to the increase in unit
volume.
Internationally, increased unit growth was offset by lower per unit average
sales prices, resulting in a net 8.3% increase in sales. Sales from foreign
operations are denominated in local currencies and are hedged in part by the
purchases of raw materials and services in those same currencies. Currency
exchange rate risk is mitigated by the utilization of foreign currency forward
contracts. Additionally, the net asset exposure is hedged by borrowings in local
currencies, which minimize the risk of currency fluctuations. The Company does
not enter into derivative financial instruments for trading purposes.
Gross margin increased from 12.2% in fiscal 1996 to 13.6% in fiscal 1997.
The increased gross margin reflected lower operating costs as a percentage of
net sales, due to improved efficiency and volume increases and raw material cost
reductions based on product mix.
Selling, general and administrative expense, as a percentage of net sales,
decreased from 2.8% in fiscal 1996 to 2.7% in fiscal 1997. On a dollar-basis,
selling, general and administrative expense increased $1.1 million to $46.2
million, or 2.5%. Increased selling, general and administrative expenses were
primarily attributable to higher information systems' costs and professional
fees associated with various technology and corporate reengineering improvement
efforts.
Interest expense declined $2.8 million, or 19.5%, from $14.6 million in
fiscal 1996 to $11.7 million in fiscal 1997. In the fourth quarter of fiscal
1996, $230 million of the Company's 6% convertible subordinated notes were
redeemed utilizing borrowings under the Credit Facility. The effective interest
rate under the Credit Facility remained below the convertible debt interest
rate, and the average debt level outstanding throughout fiscal 1997 was also
lower than the prior year, resulting in reduced interest expense. Interest
income declined from $6.8 million in fiscal 1996 to $2.2 million in fiscal 1997.
This change reflected lower levels of invested funds, which were primarily used
for capital expenditures, and the purchase and retirement of shares of the
Company's common stock.
Net other income and expense changed unfavorably by $5.6 million, from $4.4
million of income in fiscal 1996 to $1.2 million of expense in fiscal 1997. In
fiscal 1996, gains were recorded from the sale of capital assets and
investments.
14
<PAGE>
In the first quarter of fiscal 1996, the Company announced restructuring
plans to further reduce the Company's cost structure and improve productivity
through the consolidation of certain manufacturing operations and the
disposition of under-utilized assets. The estimated cost of restructuring
resulted in a non-recurring charge to earnings of $23.8 million, or an after-tax
charge to earnings of $14.9 million ($.23 per share). The Company has completed
substantially all of these restructuring efforts and anticipates no material
differences in actual charges compared to its original estimates.
The effective tax rate decreased from 36.4% in fiscal 1996 to 33.6% in
fiscal 1997. The improvement in the effective tax rate was primarily due to the
realization of state tax credits during fiscal 1997 and the improved operating
results of foreign subsidiaries, which are taxed at rates below those of United
States operations.
As a result of the above, the Company realized during fiscal 1997 net
income of $115.7 million (6.8% of sales), or $1.83 per share, compared to $72.5
million (4.5% of sales), or $1.10 per share, for fiscal 1996. Before the effects
of the non-recurring and the extraordinary charges recognized in the prior year,
net earnings would have been $93.3 million (5.8% of sales), or $1.42 per share.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which is required to be
adopted for fiscal years beginning after December 15, 1997, if not previously
adopted. SFAS 130 requires the reporting of comprehensive income and its
components in complete general purpose financial statements, as well as requires
certain interim comprehensive income information be disclosed. Comprehensive
income represents the change in net assets of a business during the period from
non-owner sources. Such non-owner changes in net assets that are not included in
net income include, among others, foreign currency translation adjustments,
unrealized gains and losses on available-for-sale securities and certain minimum
pension liabilities. The Company has not as yet determined the impact that the
adoption of this standard will have on its consolidated financial statements.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), which is required to be adopted for fiscal years
beginning after December 15, 1997, if not previously adopted. SFAS 131
establishes standards for public companies for the reporting of financial
information from operating segments in annual and interim financial statements
as well as establishes standards for related disclosures about products and
services, geographic areas and major customers. Operating segments are defined
in SFAS 131 as components of an enterprise about which separate financial
information is available to the chief operating decision maker for purposes of
assessing performance and allocating resources. The Company has not completed
its analysis of the effect that the adoption of this standard will have on its
financial statement disclosure. However, the adoption of SFAS 131 will not
affect the Company's results of operations or financial position.
FISCAL 1996 COMPARED TO FISCAL 1995
Consolidated net sales increased 3.1% from $1.555 billion in fiscal 1995 to
$1.603 billion in fiscal 1996. The growth in net sales was accomplished by a
6.4% increase in per unit average sales price, which was offset in part by a
decline in unit volume of 3.1%. The decline in unit volume corresponded with the
general softness experienced by the retail sector during fiscal 1996.
The Company's domestic operations experienced an overall decline in unit
volume of 6.2% in fiscal 1996. Average per unit sales price for these operations
increased approximately 7.5% during this period, reflecting a change in product
mix to lower-volume, higher-priced products and a response to increased raw
material costs. Sales growth of 45.4% in the Company's international operations
reflected increased capacity due to expansion and higher average unit sales
prices.
Gross margin decreased from 14.4% in fiscal 1995 to 12.2% in fiscal 1996.
On a per unit basis, increases in raw material, packaging and manufacturing
costs and depreciation expense, together with reduced unit volume, offset the
effect of higher average sales prices.
Selling, general and administrative expenses, as a percentage of net sales,
in fiscal 1996 remained consistent with the prior year at 2.8%. On a dollar
basis, selling, general and administrative expenses increased 4.6% from $43.1
million in fiscal 1995 to $45.1 million in fiscal 1996. This increase primarily
reflected ongoing efforts to enhance the Company's information systems to
improve operating performance throughout the Company and the level of service to
customers.
Interest expense declined $0.9 million, or 5.6%, from $15.5 million in
fiscal 1995 to $14.6 million in fiscal 1996. In the fourth quarter of fiscal
1996, the $230 million of 6% convertible subordinated notes were redeemed by the
Company. The redemption was funded by the proceeds from a $400 million five-year
revolving credit facility, which resulted in a lower effective interest rate
than the convertible notes. The decrease in the interest rate, in combination
with the reduction in the
15
<PAGE>
debt level to $170 million at June 30, 1996, contributed to the decline in
interest expense. Interest income declined from $10.4 million in fiscal 1995 to
$6.8 million in fiscal 1996. This change reflected lower levels of invested
funds, which were used for capital expenditures, acquisitions, long-term debt
extinguishment and the purchase and retirement of Company common stock. Other
income declined $5.3 million from $9.7 million in fiscal 1995 to $4.4 million in
fiscal 1996. In fiscal 1995, gains were recognized from the sale of equity
affiliates and capital assets in excess of fiscal 1996 gains from the sale of
short-term investments and capital assets.
In the first quarter of fiscal 1996, the Company recorded a non-recurring
charge of $23.8 million, or an after-tax charge to earnings of $14.9 million, or
$0.23 per share. The significant components of the non-recurring charge included
$2.4 million of severance and other employee-related costs ($1.7 million
incurred through June 30, 1996, associated with the termination of 275
employees) and a $21.4 million write-down to estimated fair value less the cost
of disposal of under-utilized or consolidated assets ($7.4 million realized as
of June 30, 1996). The charge resulted from the plan to restructure and further
reduce the Company's cost structure and improve productivity through the
consolidation of certain manufacturing facilities and the disposition of
under-utilized assets. As part of the restructuring plan, the Company closed,
effective November 17, 1995, its spun yarn manufacturing facilities in Edenton
and Mount Pleasant, North Carolina.
The Company's effective tax rate decreased from 37.4% in fiscal 1995 to
36.4% in fiscal 1996. The decline in the effective tax rate was attributable to
the increase in earnings of foreign subsidiaries taxed at rates below the
domestic rate and increased federal tax benefits of the Company's foreign sales
corporation and research and experimentation tax credits.
During the fourth quarter of fiscal 1996, the Company recognized an
extraordinary after-tax charge of $5.9 million, or $0.09 per share, as a result
of the premium paid for the early retirement of the $230 million of the
Company's 6% convertible subordinated notes due 2002.
As a result of the above, the Company realized during fiscal 1996 net
income of $72.5 million, or $1.10 per share, compared to a corresponding total
in fiscal 1995 of $116.2 million, or $1.68 per share. Before the effects of the
non-recurring and the extraordinary charges recognized in fiscal 1996, net
earnings would have been $93.3 million, or $1.42 per share.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations continues to be a primary source of funds to
finance operating needs and capital expenditures. Cash generated from operations
was $60.7 million for the six-month period ended December 28, 1997, compared to
$83.0 million for the fiscal 1997 corresponding period. The primary sources of
cash from operations, other than net income, were decreases in accounts
receivable of $51.2 million and non-cash adjustments aggregating $35.9 million.
Depreciation and amortization of $34.1 million, the after-tax cumulative
accounting change of $4.6 million and the deferred income tax provision of $6.3
million, offset by earnings of unconsolidated affiliates of $9.1 million, were
the primary components of the non-cash adjustments to cash provided by
operations. Offsetting these sources were an increase in inventory of $13.9
million and a decrease in accounts payable and accruals of $68.4 million. All
working capital changes have been adjusted to exclude the effect of the current
quarter acquisition. The decreases in accounts receivable and accounts payable
and accruals were impacted by the contribution of the spun cotton yarn
operations at the beginning of fiscal 1998 as well as the timing of the holiday
shut down at the end of the second quarter of fiscal 1998 relative to the
shutdown that normally occurs near the beginning of the Company's fiscal year.
In addition, the timing of the Company's disbursements at the end of the second
quarter of fiscal 1998 compared to those at June 29, 1997 contributed to the
significant decline in accounts payable for the current period.
The Company utilized $199.0 million for net investing activities and
obtained $134.2 million from net financing activities, during the six-month
period ended December 28, 1997. Significant expenditures during this period
included $136.4 million for capacity expansions and upgrading of facilities,
$25.6 million for acquisitions, $35.2 million for investments in equity
affiliates, $17.1 million for the payment of the Company's cash dividends, $20.2
million for the purchase and retirement of Company common stock and $0.2
million, net for other activity. The Company obtained proceeds from net
borrowings under its Credit Facility of $169.9 million to substantially offset
these cash expenditures.
The Company ended the second quarter of fiscal 1998 with working capital of
$219.2 million, which included cash and cash equivalents of $5.1 million.
As described above, on June 30, 1997, the Company entered into the
Contribution Agreement with Parkdale creating Parkdale America. It is
anticipated that Parkdale America will distribute dividends to the Company and
Parkdale sufficient to satisfy any income tax liability attributable to the
taxable earnings of Parkdale America. The Company has no financial obligation to
Parkdale America other than a commitment to contribute cash of $10 million on
June 30, 1998 and $10 million on June 30, 1999.
16
<PAGE>
At December 28, 1997, the Company had committed approximately $192.4
million for the purchase and upgrade of equipment and facilities, which is
scheduled to be expended during fiscal years 1998 and 1999. The Company expects
to make capital expenditures of $220 to $230 million in fiscal 1998. A
significant component of these committed funds, as well as a major component of
the year-to-date capital expenditures, is the continuing construction of a POY
production facility in Yadkinville, North Carolina. The Company also has in
process several other capital projects, including the construction of a new
nylon texturing and covering facility in Madison, North Carolina. This plant
will consolidate the existing capacity at several locations, replacing older
equipment with state-of-the-art technology, and will provide for additional
capacity and expansion capabilities. Certain construction and machinery
components of this project are still under negotiation.
On October 21, 1993, the Board of Directors authorized management to
repurchase up to 15 million shares of the Company's common stock from time to
time at such prices as management feels advisable and in the best interest of
the Company. Through December 28, 1997, 10.2 million shares had been repurchased
at a total cost of $282.5 million pursuant to this Board authorization. The
Company will continue to operate its stock buy back program from time to time as
it deems appropriate, based on prevailing financial and market conditions.
Management believes the current financial position of the Company in
connection with its operations and its access to debt and equity markets are
sufficient to meet anticipated capital expenditure, strategic acquisition,
working capital, Company common stock repurchases and other financial needs.
YEAR 2000 COMPUTER CONVERSION STATUS
The Company is in the process of identifying the business issues associated
with the year 2000 that impact information systems both internally and in
relation to its external customers, suppliers and other business associates.
Factors considered in the assessment of the business issues involved with the
year 2000 include the evaluation of compliance capabilities and the current
status of the Company's enterprise-wide system conversion project, significant
customers' and vendors' compliance plans and status thereof (including the
impact on electronic commerce systems with these companies) and the compliance
plans and status for businesses in which the Company has investments.
The Company has identified a team of professionals with the responsibility
of addressing business issues associated with the year 2000 and has completed a
preliminary assessment of the issues and actions needed to be performed. The
Company does not believe any material exposures or contingencies exist with
respect to its internal information systems. The Company has not completed its
evaluation of year 2000 compliance for its external business affiliates, but is
not aware of any material exposure or contingency to date.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations, other sections of this Prospectus and the documents
incorporated by reference contain forward-looking statements about the Company's
financial condition and results of operations that are based on management's
current expectations, estimates and projections about the markets in which the
Company operates, management's beliefs and assumptions made by management. Words
such as "expects," "anticipates," "believes," "estimates," variations of such
words and other similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in, or implied by, such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's judgment only as of
the date hereof. The Company undertakes no obligation to update publicly any of
these forward-looking statements to reflect new information or future events or
otherwise.
Factors that may cause actual outcomes and results to differ materially
from those expressed in, or implied by, these forward-looking statements
include, but are not necessarily limited to, availability, sourcing and pricing
of raw materials, pressures on sales prices due to competition and economic
conditions, reliance on and financial viability of significant customers,
technological advancements, employee relations, changes in construction spending
and capital equipment expenditures (including those related to unforeseen
acquisition opportunities), continued availability of financial resources
through financing arrangements and operations, negotiation of new or
modifications of existing contracts for asset management and for property and
equipment construction and acquisition, regulations governing tax laws, other
governmental and authoritative bodies' policies and legislation, the
continuation and magnitude of the Company's common stock repurchase program and
proceeds received from the sale of assets held for disposal. In addition to
these representative factors, forward-looking statements could be impacted by
general domestic and international economic and industry conditions in the
markets where the Company competes, such as changes in currency exchange rates,
interest and inflation rates, recession and other economic and political factors
over which the Company has no control.
17
<PAGE>
THE EXCHANGE OFFER
THE SUMMARY HEREIN OF CERTAIN PROVISIONS OF THE REGISTRATION RIGHTS
AGREEMENT DOES NOT PURPORT TO BE COMPLETE AND REFERENCE IS MADE TO THE
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, WHICH HAS BEEN FILED AS AN
EXHIBIT TO THE REGISTRATION STATEMENT AND A COPY OF WHICH IS AVAILABLE AS SET
FORTH UNDER THE HEADING "AVAILABLE INFORMATION."
TERMS OF THE EXCHANGE OFFER
GENERAL
In connection with the issuance of the Existing Notes pursuant to a
Purchase Agreement, dated February 2, 1998, between the Company and the Initial
Purchasers named therein, the Initial Purchasers and their respective assignees
became entitled to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Company has agreed (i) to file
with the Commission within 90 days after February 5, 1998, the date the Existing
Notes were issued (the "Issue Date"), the Registration Statement of which this
Prospectus is a part with respect to a registered offer to exchange the Existing
Notes for the New Notes, and (ii) to use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act within
180 days after the Issue Date. The Company will keep the Exchange Offer open for
not less than 30 days after the date notice of the Exchange Offer is mailed to
holders of the Existing Notes. The Exchange Offer being made hereby, if
commenced and consummated within the time periods described in this paragraph,
will satisfy those requirements under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, all Existing Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will be
accepted for exchange. New Notes will be issued in exchange for an equal
principal amount of outstanding Existing Notes accepted in the Exchange Offer.
Existing Notes may be tendered only in integral multiples of $1,000. This
Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders as of April 30, 1998. The Exchange Offer is not conditioned
upon any minimum principal amount of Existing Notes being tendered for exchange.
However, the obligation to accept Existing Notes for exchange pursuant to the
Exchange Offer is subject to certain conditions as set forth herein under
" -- Conditions."
Existing Notes shall be deemed to have been accepted as validly tendered
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 Existing Notes for the purposes of receiving the New Notes and delivering New
Notes to such holders.
Based on interpretations by the Staff of the Commission as set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder that
is a broker-dealer or an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that (i) such New
Notes are acquired in the ordinary course of business, (ii) at the time of the
commencement of the Exchange Offer such holder has no arrangement with any
person to participate in a distribution of such New Notes and (iii) such holder
is not engaged in, and does not intend to engage in, a distribution of such New
Notes. The Company has not sought, and does not intend to seek, a no-action
letter from the Commission with respect to the effects of the Exchange Offer,
and there can be no assurance that the Staff would make a similar determination
with respect to the New Notes as it has in such no-action letters.
By tendering Existing Notes in exchange for New Notes and executing the
Letter of Transmittal, each holder will represent to the Company that: (i) it is
not an affiliate of the Company (an "Affiliate"), (ii) any New Notes to be
received by it will be acquired in the ordinary course of business and (iii) at
the time of the commencement of the Exchange Offer it had no arrangement with
any person to participate in a distribution of the New Notes and, if such holder
is not a broker-dealer, it is not engaged in, and does not intend to engage in,
a distribution of New Notes. If a holder of Existing Notes is unable to make the
foregoing representations, such holder may not rely on the applicable
interpretations of the Staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction unless such sale is made
pursuant to an exemption from such requirements.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes where such Existing Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
See "Plan of Distribution."
18
<PAGE>
Upon consummation of the Exchange Offer, subject to certain limited
exceptions, holders of Existing Notes who do not exchange their Existing Notes
for New Notes in the Exchange Offer will no longer be entitled to registration
rights and will not be able to offer or sell their Existing Notes, unless such
Existing Notes are subsequently registered under the Securities Act (which,
subject to certain limited exceptions, the Company will have no obligation to
do), except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" shall mean June 4, 1998 (30 calendar days
following the commencement of the Exchange Offer), unless the Company, in its
sole discretion, extends the Exchange Offer, in which case the term "Expiration
Date" shall mean the latest date to which the Exchange Offer is extended.
Notwithstanding any extension of the Exchange Offer, if the Exchange Offer is
not consummated by August 4, 1998, the interest rate borne by the Existing Notes
will increase as provided in the Registration Rights Agreement.
To extend the Expiration Date, the Company will notify the Exchange Agent
of any extension by oral or written notice and will notify the holders of the
Existing Notes by means of a press release or other public announcement prior to
9:00 A.M., New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Existing
Notes, to extend the Exchange Offer or to terminate the Exchange Offer and not
permit acceptance of Existing Notes not previously accepted if any of the
conditions set forth herein under " -- Conditions" shall have occurred and shall
not have been waived by the Company, by giving oral or written notice of such
delay, extension or termination to the Exchange Agent, or (ii) to amend the
terms of the Exchange Offer in any manner deemed by it to be advantageous to the
holders of the Existing Notes. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the Exchange Agent. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendment in a manner reasonably calculated
to inform the holders of the Existing Notes of such amendment.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligations to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
INTEREST ON THE NEW NOTES
The New Notes will accrue interest at the rate of 6 1/2% per annum from the
Issue Date of the Existing Notes. Interest on the New Notes is payable on
February 1 and August 1 of each year, commencing August 1, 1998.
PROCEDURES FOR TENDERING
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 any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Existing Notes into
the Exchange Agent's account at DTC (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date or (ii) the holder
must comply with the guaranteed delivery procedures described below. THE METHOD
OF DELIVERY OF LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR OTHER REQUIRED DOCUMENTS SHOULD BE SENT TO THE
COMPANY. Delivery of all documents must be made to the Exchange Agent at its
address set forth below. Holders may also request their respective brokers,
dealers, commercial banks, trust companies or nominees to effect such tender for
such holders.
The tender by a holder of Existing Notes 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. Any beneficial
owner whose Existing Notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
19
<PAGE>
who wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on his behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the
Existing Notes tendered pursuant thereto are tendered for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such person should so indicate
when signing, and unless waived by the Company, 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) and withdrawal of the tendered Existing 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 Existing Notes not
properly tendered or any Existing Notes which, if accepted, would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
absolute right to waive any irregularities or conditions of tender as to
particular Existing 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 Existing Notes must be
cured within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Existing Notes, nor
shall any of them incur any liability for failure to give such notification.
Tenders of Existing Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any Existing Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost to
such holder by the Exchange Agent, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the Indenture, to (i) purchase or make offers for any
Existing Notes that remain outstanding subsequent to the Expiration Date or, as
set forth under " -- Conditions," to terminate the Exchange Offer in accordance
with the terms of the Registration Agreement, (ii) to redeem Existing Notes as a
whole or in part at any time and from time to time, as set forth under
"Description of Notes -- Optional Redemption" and (iii) to the extent permitted
by applicable law, purchase Existing Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Existing Notes properly tendered will be accepted promptly after the
Expiration Date, and the New Notes will be issued promptly after acceptance of
the Existing Notes. See " -- Conditions." For purposes of the Exchange Offer,
Existing Notes shall be deemed to have been accepted as validly tendered for
exchange when, as and if the Company has given oral or written notice thereof to
the Exchange Agent.
In all cases, issuance of New Notes for Existing Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of a Book-Entry Confirmation of such Existing
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a
properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered Existing Notes are not accepted for any
reason set forth in the terms and conditions of the Exchange Offer, such
unaccepted or such nonexchanged Existing Notes will be credited to an account
maintained with such Book-Entry Transfer Facility as promptly as practicable
after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Existing Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Existing Notes by causing the
Book-Entry Transfer Facility to transfer such Existing Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, the Letter
20
<PAGE>
of Transmittal or facsimile thereof with any required signature guarantees and
any other required documents must, in any case, be transmitted to and received
by the Exchange Agent at one of the addresses set forth below under
" -- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if (i) the tender is made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of
Existing Notes and the amount of Existing Notes tendered, stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, a Book-Entry Confirmation and any other documents required
by the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent and (iii) a Book-Entry Confirmation and all other documents
required by the Letter of Transmittal are received by the Exchange Agent within
three NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL OF TENDERS
Tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time on the
Expiration Date at one of the addresses set forth below under " -- Exchange
Agent." Any such notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility from which the Existing Notes were
tendered, identify the principal amount of the Existing Notes to be withdrawn,
and specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Existing Notes and otherwise comply
with the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notice will be determined by the
Company, whose determination shall be final and binding on all parties. Any
Existing Notes so withdrawn will be deemed not be have been validly tendered for
exchange for purposes of the Exchange Offer. Any Existing Notes which have been
tendered for exchange but which are not exchanged for any reason will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Existing Notes as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Existing Notes may be
retendered by following one of the procedures described under " -- Procedures
for Tendering" and " -- Book-Entry Transfer" above at any time on or prior to
the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Existing Notes will
not be required to be accepted for exchange, nor will New Notes be issued in
exchange for any Existing Notes, and the Company may terminate or amend the
Exchange Offer as provided herein before the acceptance of such Existing Notes,
if because of any change in law, or applicable interpretations thereof by the
Commission, the Company determines that it is not permitted to effect the
Exchange Offer. The Company has no obligation to, and will not knowingly, permit
acceptance of tenders of Existing Notes from Affiliates of the Company or from
any other holder or holders who are not eligible to participate in the Exchange
Offer under applicable law or interpretations thereof by the Staff of the
Commission, or if the New Notes to be received by such holder or holders of
Existing Notes in the Exchange Offer, upon receipt, will not be tradable by such
holder without restriction under the Securities Act and the Exchange Act and
without material restrictions under the "blue sky" or securities laws of
substantially all of the states of the United States.
EXCHANGE AGENT
First Union National Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Mail: By Hand/Federal Express/UPS:
First Union National Bank First Union National Bank
Corporate Trust Reorganization Dept. Corporate Trust Reorganization Dept.
1525 West W.T. Harris Blvd., 3C3 1525 West W.T. Harris Blvd., 3C3
Charlotte, North Carolina 28288 Charlotte, North Carolina 28262
Attention: Mr. Mike Klotz Attention: Mr. Mike Klotz
</TABLE>
Telephone: 704-590-7408
Facsimile: 704-590-7628
21
<PAGE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of the Prospectus and related documents to the beneficial
owners of the Existing Notes, and in handling or forwarding tenders for
exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company, including fees and expenses of the Exchange Agent and
Trustee and accounting, legal, printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Existing Notes pursuant to the Exchange Offer. If, however, New Notes or
Existing Notes for principal amounts not tendered or accepted for exchange are
to be registered or issued in the name of any person other than the registered
holder of the Existing Notes tendered, or if tendered Existing Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Existing Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Existing Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Existing Notes
under the Securities Act. To the extent that Existing Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Existing Notes could be adversely affected.
DESCRIPTION OF NOTES
The Notes are issued as a single series of debt securities under an
Indenture, dated as of February 5, 1998 (the "Indenture"), between the Company
and First Union National Bank as trustee (the "Trustee"), resolutions of the
Company's Board of Directors dated December 31, 1997, and resolutions of the
Executive Committee of the Board of Directors dated February 2, 1998, and March
30, 1998. The following summaries of certain provisions of the Indenture do not
purport to be complete, and where particular provisions of the Indenture are
referred to, such provisions, including definitions of certain terms, are
incorporated by reference as a part of such summaries. The summaries are
qualified in their entirety by reference to the provisions of the Indenture. The
section references below are to sections in the Indenture. The Indenture is by
its terms subject to and governed by the Trust Indenture Act of 1939, as
amended. Copies of the Indenture are available at the corporate trust office of
the Trustee.
GENERAL
The Notes are unsecured senior obligations of the Company, will mature on
February 1, 2008, and are limited to $250 million aggregate principal amount.
The Notes bear interest at 6 1/2% per annum from February 5, 1998, or from the
most recent interest payment date to which interest has been paid or provided
for, payable semi-annually on February 1 and August 1 in each year, commencing
August 1, 1998, to the person in whose name such Note (or any predecessor Note)
is registered at the close of business on the January 15 or July 15,
respectively, preceding such interest payment date. Interest shall be calculated
based on a 360-day year consisting of twelve 30-day months. (Sections 2.03, 2.04
and 2.05)
Principal of and premium, if any, and interest on the Notes are payable,
and the Notes are exchangeable and transfers thereof are registrable, at an
office or agency of the Company, one of which is maintained for such purpose in
New York,
22
<PAGE>
New York (which initially will be the corporate trust office of the Trustee) or
such other office or agency permitted under the Indenture. Payment of any
interest due on any Note is made to the person in whose name such Note is
registered at the close of business on the regular record date for such
interest. (Sections 2.05, 2.07, 3.01, 3.02 and 13.04)
The Company does not intend to list the Notes on a national securities
exchange.
The Indenture does not limit the aggregate principal amount of debt
securities that may be issued thereunder, and the Indenture provides that debt
securities, including the Notes, may be issued thereunder from time to time in
one or more series. The Indenture does not contain any provisions that would
limit the ability of the Company to incur indebtedness or require the
maintenance of financial ratios or specified levels of net worth or liquidity,
nor does it contain covenants or other provisions designed to afford holders of
the Notes protection in the event of a highly leveraged transaction, change in
credit rating or other similar occurrence. However, the provisions of the
Indenture do (i) provide that, subject to certain exceptions, neither the
Company nor any Restricted Subsidiary (as defined therein) will subject its
property or assets to any mortgage or other encumbrance unless the debt
securities, including the Notes, issued under the Indenture are secured equally
and ratably with such other indebtedness thereby secured, (ii) contain certain
limitations on the entry into certain sale and leaseback arrangements by the
Company and its Restricted Subsidiaries and (iii) contain certain limitations on
the issuance of certain indebtedness by Restricted Subsidiaries. In addition,
the Indenture does not contain any provisions which would require the Company to
repurchase or redeem or otherwise modify the terms of any of the Notes upon a
change in control or other events involving the Company which may adversely
affect the creditworthiness of the Notes. See " -- Certain Covenants."
FORM OF NOTES; BOOK ENTRY SYSTEM
The Notes are issued in fully registered form without interest coupons. The
Notes are represented by one or more permanent global Notes in definitive, fully
registered form without interest coupons (the "Global Securities") and are
deposited with the Trustee as custodian for DTC and registered in the name of a
nominee of DTC.
Upon the issuance of a Global Security, DTC credited, on its internal
system, the respective principal amounts of the individual beneficial interests
represented by such Global Security to the accounts of persons that have
accounts with DTC or its nominee ("Participants"). Ownership of beneficial
interests in a Global Security is limited to Participants or persons that may
hold interests through Participants ("Indirect Participants"). Ownership of
beneficial interests in such Global Security is shown on, and the transfer of
those ownership interests is effected only through, records maintained by DTC
(with respect to Participants' interests) and by such Participants (with respect
to the owners of beneficial interests in such Global Security). Qualified
institutional buyers (as defined in Section 144A of the Securities Act)
("Qualified Institutional Buyers" or "QIBs") may hold their interests in such
Global Security directly through DTC if they are Participants or indirectly
through Indirect Participants.
So long as DTC, or its nominee, is the registered holder and owner of such
Global Security, DTC or such nominee, as the case may be, will be considered the
sole owner and holder of the related Notes for all purposes of such Notes and
for all purposes under the Indenture. No beneficial owner of an interest in a
Global Security will be able to transfer such interest except in accordance with
DTC's applicable procedures, in addition to those provided for under the
Indenture and, if applicable, those of Morgan Guaranty Trust Company of New
York, Brussels office, as operator of the Euroclear System ("Euroclear").
Payment of principal of, and interest on, and any redemption price, of
Notes represented by a Global Security are made to DTC or its nominee, as the
case may be, as the registered owner and holder of such Global Security.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest or redemption price in respect of a Global Security, will
immediately credit the accounts of the Participants with such payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in the Global Security as shown in the records of DTC or its nominee.
The Company also expects that payments by Participants to owners of beneficial
interests in a Global Security 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 "street name,"and
will be the responsibility of such Participants. Neither the Company nor the
Trustee will have any responsibility or liability for any aspect of the records
relating to, or payments made on account of, beneficial ownership interests in a
Global Security for any Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or for receipt of
notices, voting and requesting or directing the Trustee to take, or not to take,
or consenting to, certain actions thereunder or for any other aspect of the
relationship between DTC and its Participants or the relationship between such
Participants and the owners of beneficial interests in such Global Security
owned through such Participants.
23
<PAGE>
Transfers between Participants in DTC are effected in the ordinary way in
accordance with DTC rules and are settled in same-day funds. Transfers between
Participants in Euroclear are effected in the ordinary way in accordance with
its rules and operating procedures.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more Participants to whose
account the DTC interests in a Global Security is credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default (as defined herein) under the Notes, DTC will exchange
the Global Securities for certificated notes in definitive form ("Certificated
Notes") which it will distribute to its Participants.
DTC has advised the Company and the Trustee as follows: DTC is a
limited-purpose trust company organized under New York law, a "banking
organization" within the meaning of New York law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code as in effect in the State of New York and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC was created to hold securities deposited by
Participants and to facilitate the clearance and settlement of securities
transactions among Participants through electronic computerized book-entry
changes in accounts of the Participants, thereby eliminating the need for
physical movement of securities certificates. Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Indirect access to DTC's book-entry system is also
available to Indirect Participants, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
Although DTC and Euroclear have agreed to the foregoing procedures in order
to facilitate transfers of interests in the Global Securities among participants
of DTC and Euroclear, they are under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
Neither the Company nor the Trustee will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their respective
operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Securities and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Securities.
OPTIONAL REDEMPTION
The Company, at its option, may at any time redeem all or any portion of
the Notes, at a redemption price, plus accrued interest to the date of
redemption, equal to the greater of (i) 100% of their principal amount or (ii)
the sum of the present values of the remaining scheduled payments of principal
and interest thereon discounted to the date of redemption on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the applicable
Treasury Yield plus 20 basis points.
"Treasury Yield" means, with respect to any redemption date applicable to
the Notes, the rate per annum equal to the semiannual equivalent yield to
maturity of the Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
applicable Comparable Treasury Price for such redemption date.
"Comparable Treasury Issue" means, with respect to the Notes, the United
States Treasury security selected by an Independent Investment Banker as having
a maturity comparable to the remaining term of the Notes that would be utilized,
at the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the Notes.
"Independent Investment Banker" means, with respect to the Notes offered
hereby, Credit Suisse First Boston Corporation or, if such firm is unwilling or
unable to select the applicable Comparable Treasury Issue, an independent
investment banking institution of national standing appointed by the Trustee.
"Comparable Treasury Price" means, with respect to any redemption date
applicable to the Notes, (i) the average of the applicable Reference Treasury
Dealer Quotations for such redemption date, after excluding the highest and
lowest such
24
<PAGE>
applicable Reference Treasury Dealer Quotations, or (ii) if the Trustee obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date for the Notes, the average, as
determined by the Trustee, of the bid and asked prices for the Comparable
Treasury Issue for the Notes (expressed in each case as a percentage of its
principal amount) quoted in writing to the Trustee by such Reference Treasury
Dealer at 5:00 p.m., New York City time, on the third business day preceding
such redemption date.
"Reference Treasury Dealer" means, with respect to the Notes offered
hereby, Credit Suisse First Boston Corporation; PROVIDED HOWEVER, that if the
foregoing shall cease to be a primary United States Government securities dealer
in New York City (a "Primary Treasury Dealer"), the Company shall substitute
therefor another Primary Treasury Dealer.
Holders of the Notes to be redeemed will receive notice thereof by
first-class mail at least 30 and not more than 60 days prior to the date fixed
for redemption.
CERTAIN COVENANTS
RESTRICTIONS ON SECURED FUNDED DEBT. The Indenture provides that the
Company will not, nor will it permit any Restricted Subsidiary to, incur, issue,
assume, guarantee or create any Secured Funded Debt, without effectively
providing concurrently with the incurrence, issuance, assumption, guaranty or
creation of any such Secured Funded Debt that the Notes (together with, if the
Company shall so determine, any other Indebtedness of the Company or such
Restricted Subsidiary then existing or thereafter created which is not
subordinated to the Notes) will be secured equally and ratably with (or prior
to) such Secured Funded Debt, unless, after giving effect thereto, the sum of
the aggregate amount of all outstanding Secured Funded Debt of the Company and
its Restricted Subsidiaries together with all Attributable Debt in respect of
sale and leaseback transactions relating to a Principal Property (with the
exception of Attributable Debt which is excluded pursuant to clauses (1) to (6)
described under "Limitations on Sale/Leaseback Transactions" below), would not
exceed 15% of Consolidated Net Tangible Assets; PROVIDED, HOWEVER, that this
restriction will not apply to, and there will be excluded from Secured Funded
Debt in any computation under this restriction, Funded Debt secured by: (1)
Liens on property, shares of capital stock or indebtedness of any corporation
existing at the time such corporation becomes a Subsidiary; (2) Liens on
property, shares of capital stock or indebtedness existing at the time of
acquisition thereof or incurred within 180 days of the time of acquisition
thereof (including, without limitation, acquisition through merger or
consolidation) by the Company or any Restricted Subsidiary; (3) Liens on
property, shares of capital stock or indebtedness thereafter acquired (or
constructed) by the Company or any Restricted Subsidiary and created prior to,
at the time of, or within 270 days after such acquisition (including, without
limitation, acquisition through merger or consolidation) (or the completion of
such construction or commencement of commercial operation of such property,
whichever is later) to secure or provide for the payment of all or any part of
the purchase price (or the construction price) thereof; (4) Liens in favor of
the Company or any Restricted Subsidiary; (5) Liens in favor of the United
States of America, any State thereof or the District of Columbia, or any agency,
department or other instrumentality thereof, to secure partial, progress,
advance or other payments pursuant to any contract or provisions of any statute;
(6) Liens incurred or assumed in connection with the issuance of revenue bonds
the interest on which is exempt from Federal income taxation pursuant to Section
103(b) of the Internal Revenue Code; (7) Liens securing the performance of any
contract or undertaking not directly or indirectly in connection with the
borrowing of money, the obtaining of advances or credit or the securing of
Funded Debt, if made and continuing in the ordinary course of business; (8)
Liens incurred (no matter when created) in connection with the Company's or a
Restricted Subsidiary's engaging in leveraged or single-investor lease
transactions; PROVIDED, HOWEVER, that the instrument creating or evidencing any
borrowings secured by such Lien will provide that such borrowings are payable
solely out of the income and proceeds of the property subject to such Lien and
are not a general obligation of the Company or such Restricted Subsidiary; (9)
Liens under workers' compensation laws, unemployment insurance laws or similar
legislation, or good faith deposits in connection with bids, tenders, contracts
or deposits to secure public or statutory obligations of the Company or any
Restricted Subsidiary, or deposits of cash or obligations of the United States
of America to secure surety and appeal bonds to which the Company or any
Restricted Subsidiary is a party or in lieu of such bonds, or pledges or
deposits for similar purposes in the ordinary course of business, or Liens
imposed by law, such as laborers' or other employees', carriers',
warehousemen's, mechanics', materialmen's and vendors' Liens, and Liens arising
out of judgments or awards against the Company or any Restricted Subsidiary with
respect to which the Company or such Restricted Subsidiary at the time shall be
prosecuting an appeal or proceedings for review and with respect to which it
shall have secured a stay of execution pending such appeal or proceedings for
review, or Liens for taxes not yet subject to penalties for nonpayment or the
amount or validity of which is being in good faith contested by appropriate
proceedings by the Company or any Restricted Subsidiary, as the case may be, or
minor survey exceptions, minor encumbrances, easements or reservations of, or
rights of others for, rights of way, sewers, electric lines, telegraph and
telephone
25
<PAGE>
lines and other similar purposes, or zoning or other restrictions or Liens as to
the use of real properties, which Liens, exceptions, encumbrances, easements,
reservations, rights and restrictions do not, in the opinion of the Company, in
the aggregate materially detract from the value of said properties or materially
impair their use in the operation of the business of the Company and its
Restricted Subsidiaries; (10) Liens incurred to finance all or any portion of
the cost of construction, alteration or repair of any Principal Property and
improvements thereto created prior to or within 270 days after completion of
such construction, alteration or repair; (11) Liens outstanding on the date of
the Indenture; or (12) any extension, renewal, refunding or replacement of the
foregoing, PROVIDED THAT (i) such extension, renewal, refunding or replacement
Lien shall be limited to all or a part of the same property that secured the
Lien extended, renewed, refunded or replaced (plus improvements on such
property) and (ii) the Funded Debt secured by such Lien at such time is not
increased.
"Attributable Debt" means, as to any particular lease under which either
the Company or any Restricted Subsidiary is at the time liable as lessee for a
term of more than 12 months and at any date as of which the amount thereof is to
be determined, the total net obligations of the lessee for rental payments
during the remaining term of the lease (including any period for which such
lease has been extended or may, at the option of the lessor, be extended)
discounted from the respective due dates thereof to such determination date at a
rate per annum equivalent to the greater of (i) the weighted-average Yield to
Maturity (as defined in the Indenture) of the Notes, such average being weighted
by the principal amount of the Notes or, in the case of Original Issue Discount
Securities (as defined in the Indenture), such amount to be the principal amount
of such outstanding Original Issue Discount Securities that would be due and
payable as of the date of such determination upon a declaration of acceleration
of the maturity thereof pursuant to the Indenture and (ii) the interest rate
inherent in such lease (as determined in good faith by the Company), both to be
compounded semi-annually.
"Consolidated Net Tangible Assets" means, at any date, the total assets
appearing on the most recent consolidated balance sheet of the Company and its
Restricted Subsidiaries as at the end of the fiscal quarter of the Company
ending not more than 135 days prior to such date, prepared in accordance with
U.S. generally accepted accounting principles, less (i) all current liabilities
(due within one year) as shown on such balance sheet, (ii) investments in and
advances to Unrestricted Subsidiaries and (iii) Intangible Assets and
liabilities relating thereto.
"Funded Debt" means (i) any indebtedness of the Company or a Restricted
Subsidiary maturing more than 12 months after the time of computation thereof,
(ii) guarantees of Funded Debt or of dividends of others (except guarantees in
connection with the sale or discount of accounts receivable, trade acceptances
and other paper arising in the ordinary course of business), (iii) in the case
of any Restricted Subsidiary, all preferred stock having mandatory redemption
provisions of such Restricted Subsidiary as reflected on such Restricted
Subsidiary's balance sheet prepared in accordance with U.S. generally accepted
accounting principles, and (iv) all Capital Lease Obligations (as defined in the
Indenture).
"Indebtedness" means, at any date, without duplication, (i) all obligations
for borrowed money of the Company or a Restricted Subsidiary or any other
indebtedness of the Company or a Restricted Subsidiary, evidenced by bonds,
debentures, notes or other similar instruments, and (ii) Funded Debt.
"Intangible Assets" means, at any date, the value, as shown on or reflected
in the most recent consolidated balance sheet of the Company and its Restricted
Subsidiaries as at the end of the fiscal quarter of the Company ending not more
than 135 days prior to such date, prepared in accordance with generally accepted
accounting principles, of: (i) all trade names, trademarks, licenses, patents,
copyrights, service marks, goodwill and other like intangibles; (ii)
organizational and development costs; (iii) deferred charges (other than prepaid
items, such as insurance, taxes, interest, commissions, rents, pensions,
compensation and similar items and tangible assets being amortized); and (iv)
unamortized debt discount and expense, less unamortized premium.
"Liens" means such pledges, mortgages, security interests and other liens
on any Principal Property of the Company or a Restricted Subsidiary which secure
Secured Funded Debt.
"Principal Property" means any manufacturing facility owned and operated by
the Company or any Restricted Subsidiary on or after the date hereof, and any
manufacturing equipment (as defined in the Indenture) owned by the Company or
any Restricted Subsidiary on or after the date hereof in such manufacturing
facility.
"Restricted Subsidiary" means each Subsidiary other than Unrestricted
Subsidiaries.
"Secured Funded Debt" means Funded Debt which is secured by any pledge of,
or mortgage, security interest or other lien on any (i) Principal Property
(whether owned on the date of the Indenture or thereafter acquired or created),
(ii) shares of stock owned by the Company or a Subsidiary in a Restricted
Subsidiary or (iii) indebtedness of a Restricted Subsidiary.
26
<PAGE>
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock, which under ordinary circumstances (not dependent upon the
happening of a contingency) has voting power to elect a majority of the board of
directors of such corporation (or similar management body), is owned directly or
indirectly by the Company or by one or more Subsidiaries of the Company, or by
the Company and one or more Subsidiaries.
"Unrestricted Subsidiary" means Subsidiaries designated as Unrestricted
Subsidiaries from time to time by the Board of Directors of the Company;
PROVIDED, HOWEVER, that the Board of Directors of the Company (i) will not
designate as an Unrestricted Subsidiary any Subsidiary of the Company that owns
any Principal Property or any stock of a Restricted Subsidiary, (ii) will not
continue the designation of any Subsidiary of the Company as an Unrestricted
Subsidiary at any time that such Subsidiary owns any Principal Property, and
(iii) will not, nor will it cause or permit any Restricted Subsidiary to,
transfer or otherwise dispose of any Principal Property to any Unrestricted
Subsidiary (unless such Unrestricted Subsidiary will in connection therewith be
redesignated as a Restricted Subsidiary and any pledge, mortgage, security
interest or other lien arising in connection with any Indebtedness of such
Unrestricted Subsidiary so redesignated does not extend to such Principal
Property (unless the existence of such pledge, mortgage, security interest or
other lien would otherwise be permitted under the Indenture)). (Section 3.09)
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Indenture provides that the
Company will not, nor will it permit any Restricted Subsidiary to, enter into
any arrangement with any person providing for the leasing by the Company or any
Restricted Subsidiary of any Principal Property of the Company or any Restricted
Subsidiary, which Principal Property has been or is to be sold or transferred by
the Company or such Restricted Subsidiary to such person (a "sale and leaseback
transaction") unless, after giving effect thereto, the aggregate amount of all
Attributable Debt with respect to all such sale and leaseback transactions plus
all Secured Funded Debt (with the exception of Funded Debt secured by Liens
which is excluded pursuant to clauses (1) to (12) described under "Restrictions
on Secured Funded Debt" above) would not exceed 15% of Consolidated Net Tangible
Assets. This covenant will not apply to, and there will be excluded from
Attributable Debt in any computation under this restriction or under
"Restrictions on Secured Funded Debt" above, Attributable Debt with respect to
any sale and leaseback transaction if (1) the Company or a Restricted Subsidiary
is permitted to create Funded Debt secured by a Lien pursuant to clauses (1) to
(12) inclusive described under "Restrictions on Secured Funded Debt" above on
the Principal Property to be leased, in an amount equal to the Attributable Debt
with respect to such sale and leaseback transaction, without equally and ratably
securing the Notes; (2) the Company or a Restricted Subsidiary, within 270 days
after the sale or transfer shall have been made by the Company or a Restricted
Subsidiary, shall apply an amount in cash equal to the greater of (i) the net
proceeds of the sale or transfer of the Principal Property leased pursuant to
such arrangement or (ii) the fair market value of the Principal Property so
leased at the time of entering into such arrangement (as determined by the Chief
Executive Officer, the President, the Chief Financial Officer, the Treasurer or
the Controller of the Company) to the retirement of Secured Funded Debt of the
Company or any Restricted Subsidiary (other than Secured Funded Debt owned by
the Company or any Restricted Subsidiary); PROVIDED, HOWEVER, that no retirement
referred to in this clause (2) may be effected by payment at maturity or
pursuant to any mandatory sinking fund payment or any mandatory prepayment
provision of Secured Funded Debt; (3) the Company or a Restricted Subsidiary
applies the net proceeds of the sale or transfer of the Principal Property
leased pursuant to such transaction to investment in another Principal Property
within 270 days prior or subsequent to such sale or transfer; PROVIDED, HOWEVER,
that this exception shall apply only if such proceeds invested in such other
Principal Property shall not exceed the total acquisition, repair, alteration
and construction cost of the Company or any Restricted Subsidiary in such other
Principal Property less amounts secured by any purchase money or construction
mortgages on such Principal Property; (4) the effective date of any such
arrangement is within 270 days of the acquisition of the Principal Property
(including, without limitation, acquisition by merger or consolidation) or the
completion of construction and commencement of operation thereof, whichever is
later; (5) the lease in such sale and leaseback transaction is for a term,
including renewals, of not more than three years; or (6) the sale and leaseback
transaction is entered into between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries. (Section 3.10)
RESTRICTIONS ON FUNDED DEBT OF RESTRICTED SUBSIDIARIES. The Indenture
provides that the Company will not permit any Restricted Subsidiary to incur,
issue, assume, guarantee or create any Funded Debt, unless after giving effect
thereto, the sum of the aggregate amount of all outstanding Funded Debt of the
Restricted Subsidiaries would not exceed 15% of Consolidated Net Tangible
Assets; PROVIDED, HOWEVER, that this restriction will not apply to, and there
will be excluded from, Funded Debt in any computation under this restriction,
(i) Funded Debt secured by Liens which is excluded pursuant to clauses (1) to
(12) described under "Restrictions on Secured Funded Debt," above, (ii) Funded
Debt of any corporation existing at the time such
27
<PAGE>
corporation becomes a Restricted Subsidiary and (iii) Indebtedness among the
Company and its Subsidiaries and Indebtedness between Subsidiaries; PROVIDED,
FURTHER, that this restriction will not prohibit the incurrence of Indebtedness
in connection with any extension, renewal, refinancing, replacement or refunding
(including successive extensions, renewals, refinancings, replacements and
refundings), in whole or in part, of any Indebtedness of the Restricted
Subsidiaries (provided that the principal amount of such Indebtedness being
extended, renewed, refinanced, replaced or refunded is not increased), but any
such Indebtedness shall be included in the computation of Funded Debt under this
restriction. (Section 3.11)
MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS
The Company will not consolidate with or merge into any other entity or
convey, transfer or lease its properties and assets substantially as an entirety
to any person, and the Company will not permit any person to consolidate with or
merge into the Company or convey, transfer or lease its properties and assets
substantially as an entirety to the Company, unless (i) the successor person or
purchaser shall be a corporation, partnership, trust or other entity organized
and validly existing under the law of the United States of America, any State or
the District of Columbia and shall expressly assume the Company's obligations
under the Indenture and the Notes, (ii) immediately after giving effect to such
transaction, no Event of Default under the Indenture or event which, after
notice or lapse of time or both, would become an Event of Default thereunder
would exist and be continuing, and (iii) the Company has delivered to the
Trustee an Officers' Certificate and, if requested by the Trustee, an opinion of
counsel, each stating that such transaction complies with the Indenture. Upon
any consolidation or merger by the Company into any other person or any
conveyance, transfer or lease of the Company's properties substantially as an
entirety to any person in compliance with these provisions, the successor person
will succeed to, and be substituted for, the Company under the Indenture, and
the Company, except in the case of a lease, will be relieved of its obligations
under the Indenture and the Notes. (Sections 3.06, 10.01, 10.02 and 10.03)
The Indenture does not restrict, or require the Company to redeem or permit
holders of the Notes to cause a redemption of Notes in the event of, (i) a
consolidation, merger, sale of assets or other similar transaction that may
adversely affect the creditworthiness of the Company or its successor or
combined entity, (ii) a change in control of the Company or (iii) a highly
leveraged transaction involving the Company, whether or not involving a change
in control. Accordingly, the Holders of the Notes would not have protection in
the event of a highly leveraged transaction, reorganization, restructuring,
merger or similar transaction involving the Company that may adversely affect
the Holders of Notes. The existing protective covenants applicable to the Notes
would continue to apply to the Company, or its successor, in the event of such a
transaction initiated or supported by the Company, the management of the
Company, or any affiliate of the Company or its management, but may not prevent
such a transaction from taking place.
EVENTS OF DEFAULT, WAIVER AND NOTICE
"Event of Default" is defined in the Indenture with respect to the Notes as
being (i) default for 30 days in the payment of any interest installment on any
Notes, (ii) default in the payment when due of principal of any Note, (iii)
default for 90 days, after notice to the Company by the Trustee or to the
Company and the Trustee by the holders of not less than 25% in principal amount
of the Notes at that time outstanding, in the performance, or breach, of any
covenant or warranty of the Indenture (other than covenants and warranties
specifically dealt with elsewhere), (iv) the acceleration or failure to pay at
maturity (including any applicable grace period) of any indebtedness in excess
of $15,000,000 for money borrowed by the Company, which acceleration is not
rescinded or annulled, or which indebtedness is not paid in full, within 30 days
after notice specified in the next preceding clause and (v) certain events of
bankruptcy, insolvency and reorganization. (Section 5.01)
If an Event of Default with respect to the Notes at that time outstanding
shall occur and be continuing, either the Trustee or the holders of not less
than 25% in principal amount of the outstanding Notes may, by notice in writing
to the Company (and to the Trustee if given by holders), declare the principal
amount of all Notes to be due and payable. (Section 5.01) In certain cases, the
holders of a majority in principal amount of the outstanding Notes may, on
behalf of the holders of all the Notes, rescind and annul such acceleration or
waive any past default or Event of Default, except a default not theretofore
cured in payment of the principal of or interest on any of the Notes or a
default relating to a covenant or provision of the Indenture that could not be
modified or amended without the consent of all holders of Notes. (Sections 5.01
and 5.07) See " -- Modification and Waiver."
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default with respect to the Notes, give to the holders of the
Notes notice of such default known to it, unless such default shall have been
cured or waived. (Section 5.08) The Indenture contains a provision entitling the
Trustee, subject to the duty of the Trustee during a default to act with the
required standard of care, to be indemnified by holders of the Notes before
proceeding to exercise any right or
28
<PAGE>
power under the Indenture at the request of such holders. (Sections 6.01) The
Indenture provides that the holders of a majority in principal amount of the
outstanding Notes may direct the time, method and place of conducting
proceedings for remedies available to the Trustee or of exercising any trust or
power conferred on the Trustee with respect to the Notes. (Section 5.07)
No holder of any Notes will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless (i) such holder
shall have previously given to the Trustee written notice of a continuing Event
of Default with respect to the Notes, (ii) the holders of at least 25% in
aggregate principal amount of the outstanding Notes shall have made written
request to the Trustee to institute proceedings as Trustee, (iii) such holder or
holders shall have offered to the Trustee reasonable indemnity, (iv) the Trustee
shall have failed to institute such proceeding within 60 days thereafter and (v)
the Trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request. (Section 5.04) However, the holder of any Notes will have an absolute
right to receive payment of the principal of and any interest on such Notes on
or after the due dates expressed in such Notes and to institute suit for the
enforcement of any such payment. (Section 5.04)
The Company will be required to file with the Trustee annually, within 120
days of the end of each fiscal year of the Company, a certificate as to the
compliance with all conditions and covenants of the Indenture. (Section 3.05)
DISCHARGE AND DEFEASANCE OF NOTES AND COVENANTS
The Indenture provides that the Company, at its option, (i) will be
discharged from any and all obligations with respect to the Notes (except for
certain obligations that include registering the transfer or exchange of the
Notes, replacing stolen, lost or mutilated Notes, maintaining paying agencies
and holding monies for payment in trust), or (ii) need not comply with certain
restrictive covenants of the Indenture, upon the irrevocable deposit with the
Trustee (and in the case of a discharge, 91 days after such deposit), in trust,
cash in U.S. dollars or U.S. Government Obligations (as defined in the
Indenture), or a combination thereof, which through the payment of interest
thereon and principal thereof in accordance with their terms will provide money
in an amount sufficient to pay each installment of principal of, premium, if any
and any interest on the Notes on the dates such payments are due in accordance
with the terms of the Indenture. Such a trust may be established only if, among
other things, (i) no Event of Default or event which with the giving of notice
or lapse of time, or both, would become an Event of Default under the Indenture
shall have occurred and be continuing on the date of such deposit or on such
later date specified in the Indenture in the case of certain events in
bankruptcy, insolvency or reorganization of the Company, (ii) such deposit will
not cause the Trustee to have any conflicting interest with respect to other
securities of the Company, (iii) such defeasance will not result in a breach or
violation of, or constitute a default under, the Indenture or any other
agreement or instrument to which the Company is a party or by which it is bound
and (iv) the Company shall have delivered an Opinion of Counsel to the effect
that the Holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit or defeasance and will
be subject to federal income tax in the same manner as if such defeasance had
not occurred, which Opinion of Counsel, in the case of clause (i) above, must
refer to and be based upon a published ruling of the Internal Revenue Service, a
private ruling of the Internal Revenue Service addressed to the Company, or
otherwise a change in applicable federal income tax law occurring after the date
of the Indenture. In the event the Company omits to comply with its remaining
obligations under the Indenture after a defeasance of the Indenture with respect
to the Notes and the Notes are declared due and payable because of the
occurrence of any Event of Default, the amount of money and U.S. Government
Obligations on deposit with the Trustee may be insufficient to pay amounts due
on the Notes at the time of the acceleration resulting from such Event of
Default. However, the Company will remain liable in respect of such payments.
(Sections 5.02, 11.01 and 11.05)
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 not less than a majority in
principal amount of the Notes at the time outstanding; PROVIDED, HOWEVER, that
no such modification or amendment may, without the consent of the Holder of each
outstanding Note affected thereby, (i) extend the stated maturity of the
principal of, or any installment of interest on the time of payment of interest
on any Note, (ii) reduce the principal amount of, or the premium, if any, or
interest on, or any amount payable on redemption of, any Note, (iii) change the
place or currency of payment of principal of, or premium, if any, or interest
on, any Note, (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to any Note, (v) reduce the above-stated percentage
of outstanding Notes necessary to modify or amend the Indenture or (vi) reduce
the percentage of aggregate principal amount of outstanding Notes necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults. (Section 9.02)
29
<PAGE>
The Company and the Trustee may from time to time enter into an indenture
or a supplemental indenture without the consent of the Holders for one or more
of the following purposes: (i) to evidence the succession of another corporation
to the Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company pursuant
to the terms of the Indenture; (ii) to add to the covenants of the Company such
further covenants, restrictions or conditions for the protection of the Holders
as the Company and Trustee shall consider to be for the protection of the
Holders; (iii) to provide for the issuance under the Indenture of Securities (as
defined in the Indenture) in coupon form and to provide for exchangeability of
such Securities with the Securities issued hereunder in fully registered form
and to make all appropriate changes for such purposes; (iv) to cure any
ambiguity or to correct or supplement any provision in the Indenture or
supplemental indenture or to make such other provisions provided that any such
action shall not adversely affect the interests of the Holders; (v) to add to,
delete from, or revise the terms of Securities of any series as permitted by
Sections 2.01 and 2.03 of the Indenture; (vi) to evidence and provide for the
acceptance of appointment by a successor trustee and to add or change any of the
provisions of the Indenture as shall be necessary to provide for or facilitate
the administration by more than one trustee; (vii) to provide for uncertificated
Securities in addition to or in place of certificated Securities; (viii) to make
any change that does not adversely affect the rights of any Holder in any
material respect; or (ix) to provide for the issuance of and establish the form
and terms and conditions of the Securities of any series, to establish the form
of any certifications required to be furnished pursuant to the terms of the
Indenture or any series of Securities, or to add to the rights of the Holders of
any series of Securities.
The Holders of not less than a majority in principal amount of the Notes at
the time outstanding may on behalf of the holders of all Notes waive compliance
by the Company with certain restrictive provisions of the Indenture. (Section
5.07) The holders of a majority in principal amount of the Notes at the time
outstanding may on behalf of the Holders of all Notes waive any past default
under the Indenture except a default not theretofore cured in the payment of the
principal of or any interest on any Note or in respect of a provision under
which the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Note. (Sections 5.01 and 5.07)
NOTICE TO CANADIAN RESIDENTS
Canadian holders of Notes should consult their own legal and tax advisors
with respect to the consequences of an exchange of the Notes in their particular
circumstances.
THE TRUSTEE
The Trustee is First Union National Bank, which also serves as transfer
agent and registrar for the Company's common stock and as the Exchange Agent.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Notes by a purchaser of Notes that, for United States federal income tax
purposes, is not a "U.S. person" (a "Non-U.S. Holder"). For purposes of this
discussion, a "U.S. person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized in
the United States or under the laws of the United States or of any political
subdivision thereof, (iii) an estate whose income is includable in gross income
for United States federal income tax purposes regardless of its source, (iv) a
trust subject to the primary supervision of a court within the United States and
the control of one or more United States fiduciaries, or (v) any other person
whose income or gain with respect to a Note is effectively connected with the
conduct of a United States trade or business. For purposes of the following
discussion, interest and gain on the sale, exchange or other disposition of a
Note will be considered to be "U.S. trade or business income" if such income or
gain is (i) effectively connected with the conduct of a U.S. trade or business,
or (ii) in the case of most treaty residents attributable to a permanent
establishment (or, in the case of an individual, a fixed base) in the United
States.
30
<PAGE>
This discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings and
judicial decisions now in effect, all of which are subject to change (possibly
with retroactive effect) or different interpretations. There can be no assurance
that the IRS will not challenge one or more of the tax consequences described
herein, and the Company has not obtained, nor does it intend to obtain, a ruling
from the IRS with respect to any of the U.S. federal income tax consequences of
acquiring or holding the Notes. In addition, this discussion is limited to
original purchasers of Notes who acquire the Notes at their original issue price
within the meaning of Section 1273 of the Code and who will hold the Notes as
"capital assets" within the meaning of Section 1221 of the Code. The tax
treatment of the holders of each series of Notes may vary depending upon their
particular situations. Certain holders (including insurance companies, tax
exempt organizations, financial institutions and broker-dealers) may be subject
to special rules not discussed below. Prospective investors are strongly urged
to consult their tax advisors regarding the United States federal tax
consequences of acquiring, holding and disposing of Notes, as well as any tax
consequences that may arise under the laws of any foreign, state, local or other
taxing jurisdiction.
INTEREST
Interest paid by the Company to a Non-U.S. Holder will not be subject to
United States federal income or withholding tax if such interest is not
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Holder and (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total voting power of all voting stock of
the Company, (ii) the Non-U.S. Holder is not a controlled foreign corporation
with respect to which the Company is a "related person" within the meaning of
the Code, (iii) the U.S. withholding agent receives from the beneficial owner of
the Notes a statement, signed under penalties of perjury, that the beneficial
owner is not a U.S. person and providing the beneficial owner's name and
address, and (iv) the Notes are in registered form. The gross amount of interest
payments to a Non-U.S. Holder that does not qualify for this exemption and that
are not U.S. trade or business income will be subject to U.S. federal income tax
at the rate of 30%, unless a U.S. income tax treaty applies to reduce or
eliminate withholding.
GAIN ON DISPOSITION
A Non-U.S. Holder will generally not be subject to United States federal
income tax on gain recognized on a sale, exchange, redemption or other
disposition of a Note unless (i) the gain is effectively connected with the
conduct of a trade or business within the United States by the Non-U.S. Holder,
(ii) subject to certain exceptions, the Non-U.S. Holder is a U.S. nonresident
alien individual and holds the Notes as a capital asset and is present in the
United States for 183 or more days in the taxable year and certain other
requirements are met, and (iii) the Non-U.S. Holder is subject to tax pursuant
to the provisions of U.S. tax law applicable to certain U.S. expatriates
(including certain former citizens or residents of the United States).
FEDERAL ESTATE TAXES
If interest on the Notes is exempt from withholding of United States
federal income tax under the rules described above, the Notes will not be
included in the estate of a deceased Non-U.S. Holder for United States federal
estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will, where required, report to the holder of Notes and the
Internal Revenue Service the amount of any interest paid on the Notes in each
calendar year and the amounts of tax withheld, if any, with respect to such
payments.
In the case of payments to Non-U.S. Holders, Treasury Regulations provide
that the 31% backup witholding tax and certain information reporting will not
apply to such payments. Treasury Regulations provide that backup withholding and
additional information reporting will not apply to payments of principal on the
Notes by the Company to a Non-U.S. Holder if the holder certifies as to its
Non-U.S. status under penalty of perjury or otherwise establishes an exemption
(provided that neither the Company or its paying agent has actual knowledge that
the holder is a U.S. Person or that the conditions of any other exemption are
not, in fact, satisfied).
The payment of the proceeds from the disposition of the Notes to or through
the U.S. office of any broker, U.S. or foreign, will be subject to information
reporting and possible backup withholding unless the owner certifies as to its
Non-U.S. Holder status under penalty of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a Note
to or through a non-U.S. office of a non-U.S. broker that is not a U.S. related
person will not be subject to information reporting or backup withholding. For
this purpose, a "U.S. related person" is
31
<PAGE>
(i) a "controlled foreign corporation" for U.S. federal income tax purposes,
(ii) a foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
U.S. trade or business, or (iii) with respect to payments made after December
31, 1998, a foreign partnership that, at any time during its taxable year, is
50% or more (by income or capital interest) owned by U.S. persons or is engaged
in the conduct of a U.S. trade or business.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-U.S.
Holder's United States federal income tax liability, provided that the required
information is furnished to the IRS.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME AND ESTATE
TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR
TAX CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New 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 New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Existing Notes
where such Existing Notes were acquired as a result of market-making activities
or other trading activities. The Company has agreed that, starting on the
Expiration Date and ending on the close of business 90 days after the Expiration
Date, it will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the New Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
32
<PAGE>
LEGAL MATTERS
The validity of the New Notes will be passed upon by Smith Helms Mulliss &
Moore, L.L.P., Charlotte, North Carolina, who may rely upon the opinion of New
York counsel as to New York law matters. As of December 31, 1997, certain
members of Smith Helms Mulliss & Moore, L.L.P. beneficially own approximately
20,000 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of Unifi, Inc. incorporated by
reference in the Company's Annual Report (Form 10-K) for the year ended June 29,
1997, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon incorporated by reference therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
33
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THIS PROSPECTUS NOR THE
ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS, NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR
BOTH TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................................ 3
Incorporation of Certain Documents by
Reference.......................................... 3
Prospectus Summary................................... 4
Use of Proceeds...................................... 9
Ratio of Earnings to Fixed Charges................... 9
Capitalization....................................... 9
Selected Consolidated Financial Data................. 10
Management's Discussion and Analysis
of Financial Condition and
Results of Operations.............................. 12
The Exchange Offer................................... 18
Description of Notes................................. 22
Certain United States Federal Tax Considerations for
Non-United States Holders.......................... 30
Plan of Distribution................................. 32
Legal Matters........................................ 33
Experts.............................................. 33
</TABLE>
(Unifi logo appears here with the words "quality through pride" underneath it)
OFFER TO EXCHANGE
6 1/2% NOTES DUE 2008, SERIES B
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED,
FOR ANY AND ALL OUTSTANDING
6 1/2% NOTES DUE 2008
----------------
PROSPECTUS
----------------
MAY 5, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
