<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1997
REGISTRATION NO. 333-24507
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WILLCOX & GIBBS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5085 22-3308457
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
WG APPAREL, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5085 22-3308458
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
LEADTEC SYSTEMS, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7373 13-3289318
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
J&E SEWING SUPPLIES, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK 5085 13-3634953
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
W&G DAON, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5085 13-3629566
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
W&G TENNESSEE IMPORTS, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5085 13-3552610
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
CLINTON MANAGEMENT CORP.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 5085 59-2647119
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
CLINTON MACHINERY CORPORATION
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5085 65-0065988
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
CLINTON LEASING CORP.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 5085 59-261991
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CLINTON EQUIPMENT CORP.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 5085 65-0457040
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
MACPHERSON MEISTERGRAM, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 5085 56-1148914
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
PARADISE COLOR INCORPORATED
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 5085 65-0066199
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
------------------------
900 MILIK STREET
CARTERET, NEW JERSEY 07008
(908) 541-6255
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
JOHN K. ZIEGLER, SR.
WILLCOX & GIBBS, INC.
900 MILIK STREET
CARTERET, NEW JERSEY 07008
(908) 541-6255
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------
WITH COPIES TO:
JOHN K. HOYNS, ESQ.
HUGHES HUBBARD & REED LLP
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004
(212) 837-6762
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
12 1/4% Series B Senior Notes Due 2003 $85,000,000(1) (2) $85,000,000(1) $25,758(3)
Guarantees of the 12 1/4% Series B Senior Notes
Due 2003 -- -- -- None(4)
</TABLE>
(1) Equals the aggregate principal amount of the securities registered.
(2) Pursuant to Rule 457(f)(2), the registration fee has been calculated using
the book value of the securities being registered.
(3) The registration fee was paid by the Company with the original filing of
this Registration Statement on April 3, 1997.
(4) Pursuant to Rule 457(n).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED JUNE 12, 1997
WILLCOX & GIBBS, INC.
OFFER TO EXCHANGE ITS 12 1/4% SERIES B SENIOR NOTES DUE 2003
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING
12 1/4% SERIES A SENIOR NOTES DUE 2003
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED.
------------------------
Willcox & Gibbs, Inc. ("Willcox & Gibbs" or the "Company") hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus (this
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal" and, together with this Prospectus, the "Exchange Offer"), to
exchange $1,000 principal amount of its 12 1/4% Series B Senior Notes due 2003
(the "New Notes") which have been registered under the Securities Act of 1933,
as amended (the "Securities Act") pursuant to a registration statement (the
"Registration Statement") of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 12 1/4% Series A Senior Notes due 2003 (the
"Old Notes"), of which $85,000,000 principal amount is outstanding as of the
date hereof. The Old Notes and the New Notes are sometimes collectively referred
to herein as the "Senior Notes." The Senior Notes are senior unsecured
obligations of the Company (except for the security interest in 65% of the
shares of a non-U.S. subsidiary) and are fully and unconditionally guaranteed on
a senior unsecured basis (the "Subsidiary Guarantees") by the Subsidiary
Guarantors (as defined herein). See "The Exchange Offer."
The Company will accept for exchange any and all validly tendered Old Notes
prior to 5:00 P.M., New York City time, on , 1997, unless extended (such
date, as it may be extended, the "Expiration Date"). Old Notes may be tendered
only in integral multiples of $1,000. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 P.M., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the Exchange Offer is subject to certain
customary conditions. In the event the Company terminates the Exchange Offer and
does not accept for exchange any Old Notes, the Company will promptly return the
Old Notes to the holders thereof. The Company will not receive any proceeds from
the Exchange Offer. See "The Exchange Offer."
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS OF OLD NOTES ON , 1997.
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
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 , 1997.
<PAGE>
The New Notes will be obligations of the Company evidencing the same debt as
the Old Notes, and will be entitled to the benefits of the same indenture (the
"Indenture"). See "Description of Senior Notes." The form and terms of the New
Notes are generally the same as the form and terms of the Old Notes in all
material respects except that the New Notes have been registered under the
Securities Act and hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to
certain special payments applicable to the Old Notes. See "The Exchange Offer."
The New Notes are being offered hereunder in order to satisfy certain
obligations under the Registration Rights Agreement, dated as of December 20,
1996 (the "Registration Rights Agreement"), among the Company, the Subsidiary
Guarantors and Dillon, Read & Co. Inc. (the "Initial Purchaser"), a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Exchange Offer is intended to satisfy the Company's
obligations under the Registration Rights Agreement to register the New Notes
and exchange them for the Old Notes under the Securities Act. Once the Exchange
Offer is consummated, the Company will have no further obligations to register
any of the Old Notes tendered for exchange, except pursuant to a shelf
registration statement to be filed under certain limited circumstances specified
in "The Exchange Offer--Purpose of the Exchange Offer." See "Risk
Factors--Consequences to Non-Tendering Holders of Old Notes." The Company has
agreed to pay the expenses of the Exchange Offer.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in several no-action letters issued to
third parties including Exxon Capital Holdings Corporation, SEC No-Action Letter
(available April 13, 1989)(the "Exxon Capital Letter"), Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available June 5, 1991)(the "Morgan Stanley
Letter") and Shearman & Sterling, SEC No-Action Letter (available July 2,
1993)(the "Shearman & Sterling Letter") (collectively, the "Exchange Offer
No-Action Letters"), the Company believes that the New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by holders thereof who are not affiliates of Willcox &
Gibbs (other than a broker-dealer who acquired such Old Notes directly from the
Company for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act; PROVIDED
that the holder is acquiring New Notes in its ordinary course of business and
has no arrangement or understanding with any person to participate in any
distribution (within the meaning of the Securities Act) of the New Notes.
Persons wishing to exchange Old Notes in the Exchange Offer must represent to
the Company that such conditions have been met. However, any holder who is an
affiliate of the Company or who tenders in the Exchange Offer with the intention
to participate, or for the purpose of participating, in a distribution of the
New Notes cannot rely on the interpretation by the staff of the Commission set
forth in such no-action letters, including the Exchange Offer No-Action Letters,
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. See "The Exchange
Offer-- Purpose of the Exchange Offer." In addition, 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 received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities (other than acquisitions
directly from the Company). The Company has agreed that, for a period of up to
180 days after the Expiration Date, it will use its reasonable efforts to make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH,
THIS PROSPECTUS MAY NOT BE USED FOR ANY OFFER TO RESELL, RESALE OR OTHER
TRANSFER OF NEW NOTES.
2
<PAGE>
Old Notes initially purchased by "qualified institutional buyers" (as such
term is defined in Rule 144A under the Securities Act) were initially
represented by a single Global Old Note (as defined herein) in fully registered
form, registered in the name of a nominee of The Depository Trust Company
("DTC"), as depositary. Old Notes originally purchased by or transferred to
institutional "accredited investors," within the meaning of Rule 501 (a)(1),
(2), (3) or (7) under the Securities Act, who were not "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act) were issued in
registered certificated form ("Certificated Securities").
Beneficial interests in the Global Old Note and one such Certificated
Security representing the Old Notes have been shown on, and transfers thereof to
institutional "accredited investors" and "qualified institutional buyers" have
been effected through, records maintained by DTC and its participants.
The New Notes exchanged for Old Notes represented by the Global Old Note and
such Certificated Security will be represented by one or more Global New Notes
(as defined herein) in fully registered form, registered in the name of the
nominee of DTC. The Global New Notes will be exchangeable for New Notes in
registered form, in denominations of $1,000 and integral multiples thereof as
described herein. The New Notes in global form will trade in DTC's Same-Day
Funds Settlement System, and secondary market trading activity of such New Notes
will therefore settle in immediately available funds. See "Description of Senior
Notes--Book-Entry, Delivery and Form."
The New Notes will bear interest at a rate equal to 12 1/4% per annum from
the last date on which interest was paid on the Old Notes surrendered in
exchange therefor, or if no interest has been paid, from the date of original
issue of such Old Notes. Interest on the Senior Notes is payable semi-annually
on June 15 and December 15 of each year, commencing June 15, 1997.
The Senior Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after December 15, 2001, at the redemption price
of 106.125% of principal (declining to 103.063% on or after December 15 of
2002), together with accrued and unpaid interest and Liquidated Damages, if any,
payable pursuant to Section 6 of the Registration Rights Agreement (the "Old
Note Liquidated Damages") thereon to the date of redemption. On or prior to
December 15, 1999, up to 30% of the originally issued principal amount of the
Senior Notes then outstanding will be redeemable at the option of the Company
from the Net Cash Proceeds of a Public Equity Offering (each as defined herein),
at 112 1/4% of the principal amount thereof, together with accrued and unpaid
interest and Old Note Liquidated Damages, if any, to the date of redemption;
PROVIDED that at least $59.5 million of the originally issued principal amount
of Senior Notes remains outstanding immediately after such redemption and that
such redemption occurs within 60 days following the closing of such Public
Equity Offering. Finally, subject to the limitations and qualifications set
forth in the Indenture, in the event of a Change of Control (as defined in
"Description of Senior Notes"), holders of the Senior Notes will have the right
to require the Company to purchase their Senior Notes, in whole or in part, at a
price equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest and Old Note Liquidated Damages, if any, to the date of
purchase. There can be no assurance that the Company will have the financial
resources necessary to purchase the Senior Notes upon the occurrence of a Change
of Control. See "Description of Senior Notes."
The Senior Notes are senior unsecured obligations of Willcox & Gibbs (except
for the security interest in 65% of the shares of non-U.S. subsidiary) and are
fully and unconditionally guaranteed on a senior unsecured basis by the
Subsidiary Guarantors. The Senior Notes and each Subsidiary Guarantee ranks PARI
PASSU with all other unsecured and unsubordinated indebtedness of the Company
and the applicable Subsidiary Guarantor, respectively. The Senior Notes and the
Subsidiary Guarantees are, however, effectively subordinated to secured
indebtedness of the Company and the Subsidiary Guarantors, with respect to the
assets securing such indebtedness. Because the Company is a holding company, the
Senior Notes are effectively subordinated to all existing and future liabilities
of its subsidiaries that are not Subsidiary Guarantors. At March 31, 1997, the
Company and the Subsidiary Guarantors had $4.3 million
3
<PAGE>
of secured indebtedness outstanding. Subject to certain limitations, the Company
and its subsidiaries (including the Subsidiary Guarantors) may incur additional
secured and unsecured indebtedness.
Prior to this offering, there has been no public market for the Senior
Notes. The Company does not intend to list the Senior Notes on a national
securities exchange or to seek approval for quotation through the NASDAQ
National Market. As the Old Notes were issued and the New Notes are being issued
primarily to a limited number of institutions who typically hold similar
securities for investment, the Company does not expect that an active public
market for the Senior Notes will develop. In addition, resales by certain
holders of the Senior Notes of a substantial percentage of the aggregate
principal amount of such notes could constrain the ability of any market maker
to develop or maintain a market for the Senior Notes. To the extent that a
market for the Senior Notes should develop, the market value of the Senior Notes
will depend on prevailing interest rates, the market for similar securities and
other factors, including the financial condition, performance and prospects of
the Company. Such factors might cause the Senior Notes to trade at a discount
from face value. See "Risk Factors--Lack of a Public Market for the Senior
Notes."
THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE EXCHANGE OFFER. THE
COMPANY HAS AGREED TO PAY THE EXPENSES OF THE EXCHANGE OFFER. NO UNDERWRITER IS
BEING USED IN CONNECTION WITH THE EXCHANGE OFFER.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS, INCLUDING THE
NOTES THERETO, APPEARING IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
REQUIRES, REFERENCES TO THE "COMPANY" INCLUDE WILLCOX & GIBBS AND ITS DIRECT AND
INDIRECT SUBSIDIARIES. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
MATTERS SET FORTH UNDER THE HEADING "RISK FACTORS."
THE COMPANY
The Company believes that it is the largest independent distributor in North
America of replacement parts, supplies and specialized equipment to
manufacturers of apparel and other sewn products, offering a broad product line
of over 200,000 items. These products include industrial sewing equipment parts,
such as needles, hooks, motors, tools and other accessories, and specialized
equipment, such as screen printing equipment and supplies and production
planning and control systems. In addition, as a result of the consummation of
the Macpherson Acquisition (as defined herein), the Company became a major
distributor of embroidery equipment and supplies, marketing its products through
22 sales and distribution centers strategically located in the United States,
Canada, Mexico, the Dominican Republic and England. During 1996, the Company's
customer base consisted of over 15,000 manufacturers and dealers.
Since the Company was acquired by management and certain investors in July
1994 (the "Management Buyout"), the Company has expanded through internal growth
of operations and acquisitions. The Company intends to pursue strategic
acquisitions to expand its product lines and to enter into new geographic
markets. The Company believes that the size of its operations and the stable
operating history of its replacement parts and supplies distribution business
have enabled it to carry substantially higher levels of inventory than its
competitors. These investments in inventory provide customers with wide
selection, a high degree of product availability and assurance of prompt
delivery. In addition, the Company believes that it is well positioned to pursue
selected growth opportunities internationally, particularly in Mexico and South
America, based upon the size of its operations, its established inventory
management systems and its growing sales in these markets.
INDUSTRY OVERVIEW
Manufacturers of apparel and other sewn products generally utilize a variety
of modern equipment and supplies in their production processes. Although there
have been advances in the speed of equipment and automation of manufacturing
methods, the basic sewing process has changed very little since the first sewing
machines were introduced over 125 years ago. Accordingly, the basic design of
sewing equipment and replacement parts and supplies used with respect to such
equipment has remained stable for many years, and new generations of sewing
equipment have frequently utilized many parts designed for prior generations. In
addition, since numerous manufacturers of sewn products do not regularly replace
major equipment upon the introduction of new models, substantial numbers of
older machines typically continue to be used for many years after the production
of more advanced units.
The improvements in speed of equipment and the trend toward automation in
apparel and sewn products manufacturing have increased the demand for
replacement parts and supplies by manufacturers, since high speed production
increases the wear and tear on equipment. In addition, automation results in the
utilization of other equipment, such as cutting and finishing devices, that must
be maintained. As a result of the large number of differing replacement parts
and supplies utilized by apparel and sewn products manufacturers and the
relatively small quantity of many items required at varying times, such
manufacturers generally prefer to obtain replacement parts and supplies from
dealers that stock a wide range of products and offer prompt delivery. In
addition, manufacturers of such replacement parts, supplies and specialized
equipment often prefer to sell such products through distributors who can
provide wide market coverage, assume credit risk and stock inventory, thereby
limiting the manufacturers' costs of marketing and distribution.
5
<PAGE>
The market for screen printing equipment and embroidery equipment used to
add decoration to apparel products has grown rapidly over the past several
years. This growth has been propelled by expansion of the market for casual
wear, such as T-shirts, sweatshirts and caps, which frequently feature printed
or embroidered trademarks, slogans or other designs. In addition, improvements
in technology have made screen printing and embroidery equipment less expensive
and more sophisticated. The Company acquired Clinton Management Corp. and
Clinton Machinery Corp. (together, "Clinton"), which distribute screen printing
equipment and supplies, in February 1996, and Macpherson Meistergram, Inc. and
its subsidiary, Geoffrey E. Macpherson Canada, Inc. (together, "Macpherson"),
which principally distribute embroidery equipment and supplies, in January 1997,
in order to take advantage of the growing demand for such equipment and of the
ability to market these complementary product lines to the same end-user group.
The market of apparel manufacturers in the Western Hemisphere has expanded
during the 1990s due to the shifting production of apparel products sold in the
United States from the Far East to Mexico and the rest of Latin America.
According to the U. S. Department of Commerce, in 1990 Asia accounted for 75.4%
of U.S. imports of apparel, while Mexico and the Caribbean Basin Initiative
("CBI") countries accounted for 11.2%. By 1995, Asia's share had dropped to
62.7% of U.S. imports, while Mexico and the CBI countries increased to 23.1%.
The trend towards increasing apparel imports to the United States from Mexico is
expected to accelerate with the implementation of the North American Free Trade
Agreement ("NAFTA"). In addition, the Company anticipates that apparel
manufacturers from around the world who sell their products to the United States
will increase apparel production in Mexico, the CBI countries and the rest of
Latin America due to the improved political and economic climate of many of such
countries and the quick and relatively inexpensive access to the U.S. market
from such region. The Company believes it is well positioned to capitalize on
the shift in apparel production to the southern portion of the Western
Hemisphere due to its broad product line, its existing distribution centers
located nearby and its prior relationships with many of the manufacturers that
are establishing production facilities south of the United States. For example,
the Company is a supplier to one of its major customers, Fruit of the Loom, at
its new Mexican manufacturing facility that began operations in 1996.
COMPETITIVE STRENGTHS
The Company believes that it has a strong competitive position attributable
to a number of factors, including the following:
- MARKET LEADERSHIP. The Company believes that it is the largest independent
distributor of replacement parts, supplies and specialized equipment for
the apparel and other sewn products industry in North America. As a
result, the Company has significant purchasing power and can realize
economies of scale in marketing, distribution and administration. The
Company believes that each of its principal operating units is among the
leaders in its respective market.
- STRONG BRAND NAME RECOGNITION. The Willcox & Gibbs brand name has been
well known in the apparel industry since the Company's predecessor began
operations in the mid-1800s as an apparel equipment manufacturer. Since
that time, the Company's Sunbrand and Unity divisions have developed and
maintained well-recognized brand names in replacement parts distribution
through a long history of comprehensive and high quality product lines and
an emphasis on customer service.
- BROAD LINES OF QUALITY PRODUCTS. The Company believes that it markets the
broadest line of quality replacement parts, supplies and specialized
equipment to manufacturers of apparel and other sewn products in North
America. For example, the Company's Sunbrand division markets over 180,000
items, while the Company believes that its closest competitor offers
approximately 40,000 items. As a result of its broad product offering, the
Company believes that it provides its customers with "one-stop shopping"
for their replacement parts, supplies and specialized equipment
requirements.
6
<PAGE>
- HIGH LEVEL OF CUSTOMER SERVICE. The Company provides its customers with a
comprehensive selection of products, a high degree of product
availability, convenient ordering systems and fast order response time.
The Company's strategically placed distribution facilities and efficient
inventory management systems enable it to achieve high order fill rates
for replacement parts and supplies (in excess of 95% of orders are shipped
within 24 hours), timeliness of delivery and wide geographic coverage. The
Company utilizes a real-time computer inventory management system in its
sewn products replacement parts and supplies businesses that enables it to
search all inventory locations in North America for product availability.
In addition, the Company maintains electronic data interchange ("EDI")
systems that link the Company to selected customers, such as Levi Strauss
and Fieldcrest Cannon. The Company fills substantially all of its orders
of parts and supplies by customers in the United States through next-day
delivery, which is important to assist customers in minimizing operator
downtime.
- STRONG RELATIONSHIPS WITH SUPPLIERS. The Company has developed strong
relationships with many of its suppliers, with some dating back over 30
years. The Company maintains exclusive U.S. distribution rights for
genuine replacement parts for Pfaff AG ("Pfaff") (since 1958), and Pegasus
Sewing Machine Mfg. Co., Ltd. ("Pegasus") (since 1966), two major sewing
equipment suppliers to the U.S. apparel and other sewn products industry,
as well as exclusive distribution rights in certain territories for M&R
Printing Equipment, Inc. ("M&R"), a major manufacturer of screen printing
equipment for the apparel industry in the United States and Barudan
Company, Ltd. ("Barudan"), a major manufacturer of embroidery equipment.
- DIVERSIFIED BASE OF CUSTOMERS. During 1996, the Company sold products to
over 15,000 apparel and sewn products manufacturers and dealers of
replacement parts and supplies, with no single customer representing more
than 5.2% of net sales. The Company has enjoyed long-term relationships
with a number of its major customers, including Levi Strauss, Fruit of the
Loom, Fieldcrest Cannon, Russell Athletic and VF Corporation.
- EXPERIENCED MANAGEMENT TEAM. The Company's officers have an average of 16
years of experience with the Company and the Company's predecessor and an
average of 19 years of industry experience. The Company retained
substantially all of the senior management of the businesses acquired in
the Management Buyout in July 1994, of Clinton in connection with its
acquisition by the Company in February 1996 and of Macpherson following
consummation of the Macpherson Acquisition in January 1997. The Company's
principal managers and employees collectively owned, as of March 31, 1997,
on a fully diluted basis 63.1% of the Company's outstanding common stock.
BUSINESS STRATEGY
The Company's strategy is to enhance its position as a leading distributor
of replacement parts, supplies and specialized equipment to the apparel and
other sewn products industry. In order to achieve this objective, the Company
has developed a business plan that consists of the following key elements:
- MAINTAIN LEADING MARKET POSITION. The Company believes that it is the
leading independent distributor in North America of replacement parts,
supplies and specialized equipment to the apparel and other sewn products
industry. The Company believes that such leadership is based primarily on
the Company's long history of operations, broad line of products and
excellent customer service. The Company intends to enhance its market
leadership by maintaining and expanding its relationships with suppliers
and customers.
- EXPAND PRODUCT LINES. The Company intends to add lines of replacement
parts, supplies and specialized equipment that can be efficiently marketed
through its existing distribution system. Such additions are intended to
strengthen the Company's position as a "one-stop shop" without significant
incremental expenses related to selling, marketing, distribution and
administration.
7
<PAGE>
- INCREASE PENETRATION OF EMERGING MARKETS. The Company believes that it is
well positioned to increase sales by targeting growth opportunities in
emerging markets such as Mexico, the CBI countries and the rest of Latin
America. The Company expects that its comprehensive line of replacement
parts, supplies and specialized equipment and long experience in serving
the apparel and other sewn products industry will provide a competitive
advantage over smaller, local competitors in these regions. The Company
intends to expand its presence in these areas in 1997 by opening a new
sales office in Colombia.
- PURSUE SELECTED ACQUISITIONS. Since the Management Buyout in July 1994,
the Company has pursued a plan of expanding its product offerings through
strategic acquisitions. In February 1996, it acquired Clinton, a leading
distributor of screen printing equipment and supplies (the "Clinton
Acquisition"), in November 1996 it acquired E.C. Mitchell Co., Inc.
("Mitchell"), a manufacturer of abrasive cords and tapes used principally
by apparel manufacturers (the "Mitchell Acquisition"), and in January 1997
it acquired Macpherson, a leading distributor of embroidery equipment and
supplies (the "Macpherson Acquisition"). The Company intends to pursue
other strategic acquisitions to expand its product lines and to enter into
new geographic markets.
HISTORY OF THE COMPANY
The predecessor to the Company, formerly named Willcox & Gibbs, Inc. (the
"Company's Predecessor"), was incorporated in 1866 and began operations as a
sewing equipment manufacturer. In the late 1960s, as sewing equipment
manufacturing migrated overseas, the Company's Predecessor shifted its business
into the distribution of replacement parts and supplies for the apparel and
other sewn products industry. Parts and supply distribution remained the primary
focus of the Company's Predecessor until 1984, when it expanded into the
distribution of electrical parts. Due to the large and fragmented nature of U.S.
electrical parts distribution, this segment grew rapidly and, by 1993,
represented approximately 85% of the net sales of the Company's Predecessor. In
1994, the Board of Directors of the Company's Predecessor decided to focus its
business on electrical parts distribution and divest its other businesses. In
July 1994, management and outside investors acquired the sewn products
replacement parts, supply and specialized equipment distribution businesses of
the Company's Predecessor (the "Distribution Business") for total consideration
of $44.0 million.
The Company currently operates through six principal business units: (i) its
Sunbrand division ("Sunbrand"), which is a distributor of replacement parts,
supplies and specialized equipment to manufacturers of apparel and other sewn
products; (ii) its Unity Sewing Supply Co. division ("Unity"), which is a
wholesale distributor to dealers of replacement parts and supplies for use by
the apparel and other sewn products industry; (iii) its Willcox & Gibbs, Ltd.
("W&G, Ltd.") subsidiary, which is a distributor to manufacturers and dealers in
the United Kingdom and Europe of replacement parts and supplies for use by the
apparel and other sewn products industry; (iv) its Clinton subsidiaries, which
distribute screen printing equipment and supplies for the apparel industry; (v)
its Leadtec Systems, Inc. ("Leadtec") subsidiary, which develops and supplies
computer-based production planning and control systems for the apparel and other
sewn products industry; and (vi) Macpherson, acquired in January 1997 using a
portion of the net proceeds from the sale of the Old Notes, which distributes
embroidery equipment and supplies used in the apparel industry. See "The
Macpherson Acquisition."
8
<PAGE>
THE MACPHERSON ACQUISITION
A portion of the proceeds from the sale on January 3, 1997 by the Company of
the Old Notes was used to finance the acquisition by the Company of Macpherson.
On November 27, 1996, the Company entered into a stock purchase agreement (the
"Stock Purchase Agreement") with Macpherson and its shareholders pursuant to
which the Company agreed to acquire all of the outstanding capital stock of
Macpherson for a cash purchase price of $24.0 million. In connection with the
Macpherson Acquisition, the Company assumed (and repaid immediately using a
portion of the net proceeds from the sale of the Old Notes) approximately $6.1
million of indebtedness of Macpherson and approximately $6.4 million of trade
payables of Macpherson. Macpherson is primarily engaged in the distribution of
embroidery equipment and supplies to the apparel industry.
In connection with the Macpherson Acquisition, the Company acquired
Embroidery Leasing Corporation, a leasing company affiliate of Macpherson (the
"Leasing Company"), for approximately $0.5 million, payable over three years,
plus interest at 6.0% per annum. The Company intends to utilize the Leasing
Company to offer flexible lease financing to its customers to support the
Company's sales of equipment.
The Macpherson Acquisition expanded the Company's product lines to include
the distribution of embroidery equipment and supplies to the apparel industry.
The market for embroidery equipment has grown rapidly over the past ten years.
The Company acquired Macpherson to take advantage of the expanding demand for
such equipment and of the ability to market such equipment and the Company's
complementary line of screen printing equipment to the same end-user group. In
addition, the Company believes that Macpherson's embroidery equipment can be
efficiently marketed through the Company's existing distribution network without
substantial additional expense. The acquisition of the Leasing Company furthered
the Company's objective of being a "one-stop shop" for its customers by enabling
the Company to offer attractive financing options to support the sale of its
equipment.
THE EXCHANGE OFFER
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The Exchange Offer........................... $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of
Old Notes. As of the date hereof, $85.0
million in aggregate principal amount of Old
Notes were outstanding. The Company will
issue the New Notes to Holders (as defined in
"Description of Senior Notes") on or promptly
after the Expiration Date.
Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, including the
Exchange Offer No-Action Letters, the Company
believes that the New Notes issued pursuant
to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and
otherwise transferred by Holders thereof who
are not affiliates of the Company (other than
a broker-dealer who acquired such Old Notes
directly from the Company for resale pursuant
to Rule 144A under the Securities Act or any
other available exemption under the
Securities Act) without compliance with the
registration and prospectus delivery
provisions of the Securities Act; PROVIDED
that
</TABLE>
9
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<TABLE>
<S> <C>
the Holder is acquiring New Notes in its
ordinary course of business and has no
arrangement or understanding with any person
to participate in any distribution (within
the meaning of the Securities Act) of the New
Notes. Persons wishing to exchange Old Notes
in the Exchange Offer must represent to the
Company that such conditions have been met.
However, any Holder who may be deemed an
"affiliate" (as defined under Rule 405 of the
Securities Act) of the Company or who tenders
in the Exchange Offer with the intention to
participate, or for the purpose of
participating, in a distribution of the New
Notes cannot rely on the interpretation by
the staff of the Commission set forth in such
no-action letters, including the Exchange
Offer No-Action Letters, and must comply with
the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. See
"The Exchange Offer--Purpose of the Exchange
Offer."
Each broker-dealer that receives New Notes
for its own account pursuant to the Exchange
Offer in exchange for Old Notes where such
Old Notes were acquired by such broker-dealer
for its own account as a result of
market-making activities or other trading
activities (other than acquisitions directly
from the Company) 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 received as aforesaid. The
Company has agreed that, for a period of up
to 180 days after the Expiration Date, it
will use its reasonable efforts to make this
Prospectus available to any such
broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
Expiration Date.............................. 5:00 p.m., New York City time, on
, 1997, unless the Exchange Offer
is extended by the Company, in which case the
term "Expiration Date" means the latest date
and time to which the Exchange Offer is
extended.
Accrued Amounts on the Senior Notes.......... The New Notes will bear interest from the
last date on which interest was paid on the
Old Notes surrendered in exchange therefor
or, if no interest has
</TABLE>
10
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<TABLE>
<S> <C>
been paid, from the date of original issuance
of such Old Notes.
Conditions to the Exchange Offer............. The Exchange Offer is subject to certain
customary conditions. The conditions are
limited and relate in general to laws or
Commission policies that might impair the
ability of the Company to proceed with the
Exchange Offer. As of the date of this
Prospectus, none of these events had
occurred, and the Company believes their
occurrence to be unlikely. If any such
conditions do exist prior to the Expiration
Date, the Company may (i) refuse to accept
any Old Notes and return all previously
tendered Old Notes, (ii) extend the Exchange
Offer, or (iii) waive such conditions. See
"The Exchange
Offer--Conditions."
Procedures for Tendering..................... Each Holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
such Old Notes to be exchanged and any other
required documentation to IBJ Schroder Bank &
Trust Company, as Exchange Agent (the
"Exchange Agent"), at the address set forth
herein and therein or effect a tender of such
Old Notes pursuant to the procedures for
book-entry transfer as provided for herein
and therein. By executing the Letter of
Transmittal, each Holder will represent to
the Company that, among other things, the New
Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of
business of the person receiving such New
Notes, whether or not such person is the
Holder, that neither the Holder nor any such
other person has an arrangement or
understanding with any person to participate
in the distribution of such New Notes and
that neither the Holder nor any such other
person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the
Company or any of its subsidiaries. Each bro-
ker-dealer that receives New Notes for its
own account in exchange for Old Notes, where
such Old Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus
in connection with any resale of such New
Notes. See "The Exchange Offer--Procedures
for Tendering" and "Plan of Distribution."
</TABLE>
11
<PAGE>
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<S> <C>
Special Procedures for Beneficial Owners..... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender such Old
Notes in the Exchange Offer should contact
such registered Holder promptly and instruct
such registered Holder to tender on such
beneficial owner's behalf. If such beneficial
owner wishes to tender on such owner's own
behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Old Notes, either make
appropriate arrangements to register
ownership of the Old Notes in such owner's
name or obtain a properly completed bond
power from the registered Holder. The trans-
fer of registered ownership may take
considerable time and it may not be possible
to complete a transfer initiated shortly
before the Expiration Date. See "The Exchange
Offer--Procedures for Tendering."
Guaranteed Delivery Procedures............... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent, or cannot
complete the procedure for book-entry
transfer, prior to 5:00 p.m. on the
Expiration Date, may tender their Old Notes
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights............................ Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes and Delivery of New
Notes...................................... The Company will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
New Notes issued pursuant to the Exchange
Offer will be delivered promptly following
the Expiration Date. Any Old Notes not
accepted for exchange will be returned
without expense to the tendering Holder
thereof as promptly as practicable after the
expiration or termination of the Exchange
Offer. See "The Exchange Offer--Terms of the
Exchange Offer."
Material Federal Income Tax Considerations... The exchange pursuant to the Exchange Offer
should not be a taxable event for federal
income tax purposes. See "Material Federal
Income Tax Considerations."
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
Exchange Agent............................... IBJ Schroder Bank & Trust Company is serving
as Exchange Agent in connection with the
Exchange Offer.
</TABLE>
TERMS OF NEW NOTES
The Exchange Offer applies to the entire $85,000,000 aggregate principal
amount outstanding of the Old Notes. The New Notes will be obligations of the
Company evidencing the same debt as the Old Notes and will be entitled to the
benefits of the same Indenture. See "Description of Senior Notes." The form and
terms of the New Notes are generally the same as the form and terms of the Old
Notes in all material respects except that the New Notes have been registered
under the Securities Act and hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to
certain special payments applicable to the Old Notes. See "Description of Senior
Notes."
<TABLE>
<S> <C>
The New Notes................................ $85,000,000 principal amount of 12 1/4%
Series B Senior Notes due 2003.
Maturity Date................................ December 15, 2003.
Interest Rate and Payment Dates.............. The New Notes will bear interest at a rate of
12 1/4% per annum. Interest on the New Notes
will accrue from the last date on which
interest was paid on the Old Notes
surrendered in exchange therefor, or if no
interest has been paid, from the date of
original issuance of such Old Notes. Interest
on the New Notes is payable semi-annually in
cash in arrears on June 15 and December 15 of
each year, commencing June 15, 1997. For a
discussion summarizing material U.S. federal
income tax consequences to Holders of the
Senior Notes, see "Material Federal Income
Tax Consequences--U.S. Holders--Original
Issue Discount."
Optional Redemption.......................... The Senior Notes will be redeemable at the
option of the Company, in whole or in part,
at any time on or after December 15, 2001, at
the redemption prices set forth herein,
together with accrued and unpaid interest and
Old Note Liquidated Damages, if any, to the
date of redemption. In the event the Company
consummates a Public Equity Offering (as
defined herein) on or prior to December 15,
1999, the Company may at its option use all
or a portion of the proceeds from such
offering to redeem up to 30% of the
originally issued principal amount of the
Senior Notes at a redemption price equal to
112 1/4% of the principal amount thereof,
together with accrued and unpaid interest and
Old Note Liquidated Damages, if any, to the
date of redemption, PROVIDED that at least
$59.5 million of the originally issued
principal amount of Senior Notes remains
outstanding immediately after such redemption
and that such redemption occurs within
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
60 days following the closing of such Public
Equity Offering. See "Description of Senior
Notes--Redemption."
Ranking...................................... The Senior Notes are senior unsecured
obligations of the Company (except for the
security interest in 65% of the shares of a
non-U.S. subsidiary) and rank PARI PASSU in
right of payment with existing and future
unsecured and unsubordinated Indebtedness (as
defined herein) of the Company and senior to
all Subordinated Indebtedness (as defined
herein) of the Company. At March 31, 1997,
the Company and the Subsidiary Guarantors had
$0.5 million of unsecured indebtedness
outstanding other than the Senior Notes. The
Senior Notes, however, are effectively
subordinated to secured Indebtedness of the
Company and the Subsidiary Guarantors (as
defined below) with respect to the assets
securing such Indebtedness. Because the
Company is a holding company, the Senior
Notes are effectively subordinated to all
existing and future liabilities of its
subsidiaries that are not Subsidiary
Guarantors. At March 31, 1997, the Company
and the Subsidiary Guarantors had $4.3
million of secured Indebtedness outstanding.
Subject to certain limitations, the Indenture
permits the Company and its Restricted
Subsidiaries (as defined herein) to incur
additional secured and unsecured
Indebtedness. See "Management's Discussion
and Analysis of Financial Condition and
Results of Operations--The Company" and
"Description of Senior Notes--Ranking" and
"--Certain Covenants--Limitation on Indebt-
edness and Disqualified Capital Stock."
Subsidiary Guarantees........................ The Senior Notes are fully and
unconditionally guaranteed on a senior
unsecured basis by all of the Company's U.S.
subsidiaries existing as of the date of the
Indenture (and any other Subsidiary of the
Company that executes a Subsidiary Guarantee
in accordance with the provisions of the
Indenture) (the "Subsidiary Guarantors"). The
Subsidiary Guarantees are unconditional joint
and several obligations of each Subsidiary
Guarantor, ranking PARI PASSU in right of
payment with all other unsecured and
unsubordinated Indebtedness of such
Subsidiary Guarantor. See "Description of
Senior Notes--Subsidiary Guarantees and Other
Security."
Other Security............................... The Senior Notes are secured by a pledge of
65% of the capital stock of W&G, Ltd., a
wholly owned Restricted Subsidiary of the
Company organized
</TABLE>
14
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<S> <C>
under the laws of the United Kingdom. See
"Description of Senior Notes--Subsidiary
Guarantees and Other Security."
Change of Control............................ Upon the occurrence of a Change of Control,
each holder of Senior Notes will have the
right to require the Company to purchase all
or a portion of such holder's Senior Notes at
a price equal to 101% of the aggregate
principal amount thereof, together with
accrued and unpaid interest and Old Note
Liquidated Damages, if any, to the date of
purchase. See "Description of Senior
Notes--Certain Covenants--Change of Control."
Original Issue Discount...................... The Old Notes were issued with original issue
discount for federal income tax purposes.
Consequently, original issue discount will be
includible by a Holder of New Notes as
interest income annually in such Holder's
gross income for federal income tax purposes
in advance of receipt of the cash payments to
which the income is attributable. See
"Material Federal Income Tax Consequences"
and "Risk Factors--Original Issue Discount."
Certain Covenants............................ The Indenture relating to the Senior Notes
contains certain covenants, including
covenants which limit: (i) indebtedness; (ii)
issuance of preferred stock of subsidiaries;
(iii) restricted payments; (iv) issuances and
sales of capital stock of restricted
subsidiaries; (v) sale/leaseback
transactions; (vi) transactions with
affiliates; (vii) liens; (viii) asset sales;
(ix) dividend and other payment restrictions
affecting restricted subsidiaries; (x)
conduct of business; and (xi) mergers,
consolidations and sales of assets. See
"Description of Senior Notes--Certain
Covenants" and "--Merger, Consolidation and
Sale of Assets."
Exchange Rights.............................. Holders of New Notes are not entitled to any
exchange rights with respect to the New
Notes. Holders of Old Notes are entitled to
certain exchange rights pursuant to the
Registration Rights Agreement. Under the
Registration Rights Agreement, the Company is
required to offer to exchange the Old Notes
for new notes having substantially identical
terms which have been registered under the
Securities Act. The Exchange Offer is
intended to satisfy such obligation. Once the
Exchange Offer is consummated, the Company
will have no further obligations to register
any of the Old Notes not tendered by the
Holders for exchange, except pursuant to a
shelf registration statement to be filed
under certain limited circumstances specified
in "The Exchange Offer--Purpose of the
Exchange
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Offer." See "Risk Factors--Consequences to
Non-Tendering Holders of Old Notes."
Use of Proceeds.............................. The Company will not receive any proceeds
from the Exchange Offer.
</TABLE>
RISK FACTORS
Prospective investors should consider carefully all of the information set
forth in this Prospectus and, in particular, the information set forth under
"Risk Factors" before making an investment in the Senior Notes or making a
decision to participate in the Exchange Offer.
16
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma statement of operations data, other
operating data and selected ratios for the year ended December 31, 1996 give
effect to the Clinton Acquisition, the Mitchell Acquisition, the Macpherson
Acquisition, the acquisition of the Leasing Company, the sale of the Old Notes
and the application of the net proceeds therefrom (collectively, the
"Transactions") as if each had occurred at the beginning of the period
presented, except that Clinton's results of operations for the period after
February 1, 1996 (the effective date of the Clinton Acquisition) are included in
Willcox & Gibbs' results of operations for such period and except that
Mitchell's results of operations for the period after November 27, 1996 (the
effective date of the Mitchell Acquisition) are included in Willcox & Gibbs'
results of operations for such period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MACPHERSON/
WILLCOX & CLINTON/ LEASING
GIBBS MITCHELL(C) COMPANY(D) ADJUSTMENTS PRO FORMA
---------- ----------- ------------ ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 113,851 $ 2,975 $ 67,767 $ -- $ 184,593
Cost of goods sold...................................... 77,623 1,888 50,221 (1,599) 128,133
---------- ----------- ------------ ----------- -----------
Gross profit.......................................... 36,228 1,087 17,546 1,599 56,460
Selling, general and administrative expenses............ 28,969 758 13,542 (629) 42,640
---------- ----------- ------------ ----------- -----------
Operating income...................................... 7,259 329 4,004 2,228 13,820
Interest expense........................................ 4,824 21 781 5,864 11,490
Other income (expense).................................. 15 (14) (1,161) 839 (321)
---------- ----------- ------------ ----------- -----------
Income before income taxes.............................. 2,450 294 2,062 (2,797) 2,009
Income taxes............................................ 1,137 -- 54 (222) 969
---------- ----------- ------------ ----------- -----------
Net income from continuing operations................. $ 1,313 $ 294 $ 2,008 $ (2,575) $ 1,040
---------- ----------- ------------ ----------- -----------
---------- ----------- ------------ ----------- -----------
OTHER OPERATING DATA:
EBITDA(a)............................................... $ 8,635 $ 340 $ 3,161 $ 3,574 $ 15,710
Depreciation and amortization........................... 1,361 25 318 507 2,211
Capital expenditures.................................... 1,247 10 282 -- 1,539
SELECTED RATIOS:
EBITDA/cash interest expense............................ -- -- -- -- 1.47x
EBITDA less capital expenditures/cash interest
expense............................................... -- -- -- -- 1.33x
Total debt/ EBITDA...................................... -- -- -- -- 5.50x
Ratio of earnings to fixed charges(b)................... -- -- -- -- 1.17x
</TABLE>
See Notes to Summary Pro Forma Financial Information.
17
<PAGE>
NOTES TO SUMMARY PRO FORMA FINANCIAL INFORMATION
(a) EBITDA represents income before income taxes plus interest expense,
depreciation and amortization for the applicable company and, in the case of
Willcox & Gibbs, certain other noncash charges included in cost of goods
sold relating to the amortization of the step-up in basis of the inventory
purchased in the Management Buyout. EBITDA should not be considered as an
alternative measure of net income or cash provided by operating activities
(both as determined in accordance with generally accepted accounting
principles), but is presented to provide additional information relating to
the Company's debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of financial performance or
liquidity.
(b) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and a portion
of rental expense which is representative of the interest factor in these
rentals.
(c) Clinton's results of operations for the period after February 1, 1996 (the
effective date of the Clinton Acquisition) are included in Willcox & Gibbs'
results of operations for the period presented. Mitchell's results of
operations for the period after November 27, 1996 (the effective date of the
Mitchell Acquisition) are included in Willcox & Gibbs' results of operations
for the period presented.
(d) Excludes net sales of $2.9 million, operating loss of $0.5 million and net
loss of $0.5 million attributable to Macpherson's engraving equipment
distribution business, which the Company discontinued upon consummation of
the Macpherson Acquisition.
SUMMARY HISTORICAL FINANCIAL INFORMATION
WILLCOX & GIBBS
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" as of December 31, 1994, 1995 and 1996
and for the years ended December 31, 1995 and 1996 and the period from July 13,
1994 to December 31, 1994, are derived from the consolidated financial
statements of the Company, which financial statements have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The selected data
presented below under the caption "Statement of Operations Data" for the period
from January 1, 1994 to July 12, 1994, are derived from the consolidated
statement of operations of the Company's Predecessor, which financial statement
has been audited by KPMG Peat Marwick LLP. The "Statement of Operations Data"
for the years ended December 31, 1992 and 1993 are unaudited. The financial
statements of the Company's Predecessor for the years ended December 31, 1992
and 1993 and for the period from January 1, 1994 to July 12, 1994 have been
prepared as if the apparel operations had been operated as a separate entity
during those periods. However, such financial statements do not reflect a
complete allocation of all expenses applicable to the operation of an
independent company. Certain expenses were allocated to the apparel operations
by the Company's Predecessor based on actual usage or other allocation methods
that approximate actual usage. The following table also sets forth selected
consolidated financial information of the Company as of March 31, 1997 and for
the three months ended March 31, 1996 and 1997. Such information was derived
from the unaudited Consolidated Financial Statements of the Company. Such
unaudited Consolidated Financial Statements, in the opinion of the Company's
management, include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the financial position and results of
operations for such periods. The results of operations for the three months
ended March 31, 1997 are not necessarily indicative of results that may be
expected for the full year. The consolidated financial statements of the Company
as of December 31, 1995 and 1996, and for the years ended December 31, 1995 and
1996 and the period from July 13, 1994 to December 31, 1994 and of the Company's
Predecessor for the period from January 1, 1994 to July 12, 1994, and the report
thereon, and the unaudited consolidated financial statements of the Company as
of March 31, 1997 and for the three months ended March 31, 1996 and
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<PAGE>
1997, are included elsewhere in this prospectus. The selected consolidated
financial information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--The Company" and the Consolidated Financial Statements and Notes
thereto of the Company and the Company's Predecessor included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
COMPANY'S PREDECESSOR COMPANY
--------------------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED JANUARY 1, JULY 13, 1994 THREE MONTHS ENDED
DECEMBER 31, 1994 TO YEAR ENDED YEAR ENDED MARCH 31,
-------------------- TO JULY 12, DECEMBER 31, DECEMBER 31, DECEMBER 31, ----------------------------
1992 1993 1994 1994 1995 1996 1996 1997
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............ $ 76,048 $ 77,574 $ 41,309 $ 41,644 $ 90,431 $ 113,851 $ 26,320 $ 42,043
Cost of goods sold... 47,821 49,228 26,909 29,162 60,642 77,623 17,976 29,084
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
Gross profit......... 28,227 28,346 14,400 12,482 29,789 36,228 8,344 12,959
Selling, general and
administrative
expenses........... 20,814 21,315 11,997 11,264 23,606 28,969 6,763 10,974
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
Income from
operations....... 7,413 7,031 2,403 1,218 6,183 7,259 1,581 1,985
Interest expense..... 1,993 2,307 1,390 1,946 4,249 4,824 1,100 2,882
Other (income)
expense............ (55) 145 224 (86) (18) (15) 14 39
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
Income (loss)
before income
taxes and
extraordinary
item............. 5,475 4,579 789 (642) 1,952 2,450 495 (858)
Income tax expense
(benefit).......... 272 146 426 (288) 558 1,137 179 (355)
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
Income (loss)
before
extraordinary
item............. 5,203 4,433 363 (354) 1,394 1,313 316 (503)
Extraordinary item,
net................ -- -- -- -- (152) -- -- (1,557)
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
Net income (loss).... $ 5,203 $ 4,433 $ 363 $ (354) $ 1,242 $ 1,313 $ 316 $ (2,060)
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
--------- --------- ----------- ------------- ------------- ------------- ------------- -------------
OTHER OPERATING DATA:
EBITDA (a)........... $ 8,123 $ 7,744 $ 2,580 $ 4,370 $ 8,062 $ 8,635 $ 1,941 $ 2,547
Depreciation and
amortization....... 655 858 401 3,066 1,861 1,361 345 524
Capital
expenditures....... 381 712 346 272 771 1,247 190 477
Ratio of earnings to
fixed charges
(b)................ 3.47x 2.80x 1.52x 0.70x 1.42x 1.46x 1.26x 0.84x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital...... $ 24,563 $ 21,924 $ 18,653 $ $ 55,954
Total assets......... 51,717 52,528 79,728 132,641
Total debt........... 32,224 31,109 41,435 90,025
Common stock subject
to put option...... -- -- 3,000 3,000
Total stockholders'
equity............. 5,967 7,892 12,677 7,445
</TABLE>
(FOOTNOTES TO THE SUMMARY HISTORICAL FINANCIAL INFORMATION ON FOLLOWING PAGE.)
19
<PAGE>
MACPHERSON
The following table sets forth selected consolidated financial information
of Macpherson as of December 31, 1994, 1995 and 1996 and for the years then
ended. Such information was derived from the Consolidated Financial Statements
of Macpherson, which have been audited by Arthur Andersen LLP and are included
elsewhere in this Prospectus. The selected consolidated financial information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Macpherson" and the
Consolidated Financial Statements and Notes thereto of Macpherson included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................................................ $ 68,861 $ 71,667 $ 70,058
Cost of goods sold............................................................... 52,216 53,769 52,610
--------- --------- ---------
Gross profit................................................................... 16,645 17,898 17,448
Operating expenses............................................................... 13,566 13,587 14,211
--------- --------- ---------
Operating income............................................................... 3,079 4,311 3,237
Interest expense................................................................. 390 218 781
Other expense.................................................................... 643 768 1,162
--------- --------- ---------
Income before taxes............................................................ 2,046 3,325 1,294
Income taxes..................................................................... 54 76 54
--------- --------- ---------
Net income..................................................................... $ 1,992 $ 3,249 $ 1,240
--------- --------- ---------
--------- --------- ---------
OTHER OPERATING DATA:
EBITDA (a)....................................................................... $ 2,650 $ 3,715 $ 2,393
Depreciation and amortization.................................................... 214 172 318
Capital expenditures............................................................. 171 178 282
Ratio of earnings to fixed charges (b)........................................... 4.46x 9.37x 2.36x
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................................................. $ 9,721 $ 10,925 $ 9,965
Total assets..................................................................... 31,458 44,403 38,864
Total debt....................................................................... 2,820 4,947 6,710
Equity........................................................................... 9,794 11,375 10,963
</TABLE>
- ------------------------
(a) EBITDA represents income before income taxes plus interest expense,
depreciation and amortization for the applicable company and, in the case of
Willcox & Gibbs, certain other noncash charges included in cost of goods
sold relating to the amortization of the step-up in basis of the inventory
purchased in the Management Buyout. EBITDA should not be considered as an
alternative measure of net income or cash provided by operating activities
(both as determined in accordance with generally accepted accounting
principles), but is presented to provide additional information relating to
the Company's debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of financial performance or
liquidity.
(b) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and a portion
of rental expense which is representative of the interest factor in these
rentals.
20
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE SPECIFIC RISK FACTORS
SET FORTH BELOW AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS
BEFORE DECIDING TO INVEST IN THE SENIOR NOTES OR PARTICIPATE IN THE EXCHANGE
OFFER.
RANKING OF THE SENIOR NOTES AND SUBSIDIARY GUARANTEES; OTHER SECURITY
The Senior Notes and each Subsidiary Guarantee are senior unsecured
obligations of the Company and the applicable Subsidiary Guarantor,
respectively, and rank PARI PASSU in right of payment with all other existing
and future unsecured and unsubordinated Indebtedness of the Company and the
applicable Subsidiary Guarantor, respectively. At March 31, 1997, the Company
and the Subsidiary Guarantors had $0.5 million of unsecured indebtedness
outstanding other than the Senior Notes. The Senior Notes and the Subsidiary
Guarantees are effectively subordinated to secured Indebtedness of the Company
and the Subsidiary Guarantors, respectively, with respect to the assets securing
such Indebtedness. The Indebtedness of the Company under its $18.5 million
working capital facility with NationsBank, N.A. (the "New Credit Facility") is
secured by accounts receivable of the Company, and W&G, Ltd.'s L1.0 million term
loan facility (the "W&G, Ltd. Credit Facility") is secured by substantially all
of the assets of such United Kingdom subsidiary. At March 31, 1997, the Company
and the Subsidiary Guarantors had $4.3 million of secured Indebtedness
outstanding. Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company and its Restricted Subsidiaries
(including certain of the Subsidiary Guarantors) can incur, under certain
circumstances the amount of such Indebtedness could be substantial and may be
secured. See "Description of Senior Notes--Certain Covenants--Limitation on
Indebtedness and Disqualified Capital Stock" and "--Limitation on Liens."
The Senior Notes are secured by a pledge of 65% of the capital stock of W&G,
Ltd., the Company's wholly owned United Kingdom subsidiary. The Senior Notes
effectively rank junior to any indebtedness, secured or unsecured, of W&G, Ltd.
At December 31, 1996, W&G, Ltd. had L1.0 million outstanding Indebtedness.
SUBSTANTIAL LEVERAGE
As a result of the sale of the Old Notes, the Company is highly leveraged
and has significant debt service requirements. At December 31, 1996, on a pro
forma basis assuming that the sale of the Old Notes, the application of the net
proceeds therefrom and the Macpherson Acquisition occurred on such date, the
total Indebtedness of the Company would have been $86.5 million. The degree to
which the Company is leveraged has important consequences to holders of the
Senior Notes, including the following: (i) the ability of the Company to obtain
additional financing in the future, whether for working capital, capital
expenditures, acquisitions or other purposes, may be impaired; (ii) a
substantial portion of the Company's cash flow from operations will be required
to be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing funds available to the Company for other purposes; (iii) the
Company's flexibility in planning for or reacting to changes in market
conditions may be limited; (iv) the Company may be more vulnerable in the event
of a downturn in its business; and (v) to the extent that the Company incurs any
indebtedness under the New Credit Facility, the W&G, Ltd. Credit Facility or any
other Working Capital Agreements (as defined herein), which indebtedness will be
at variable rates, the Company will be vulnerable to increases in interest
rates.
The Company estimates that its debt service requirements in 1997 will
aggregate approximately $11.0 million (which is subject to change if borrowing
levels and floating interest rates under the Working Capital Agreements vary
from current estimates). Based on current operations, the Company expects that
it will be able to service the principal and interest obligations on its
indebtedness as well as its working capital needs and to fund its capital
expenditures and other operating expenses out of cash flow from operations and
available borrowings under any Working Capital Agreements. However, there can be
no assurance that the Company's business will continue to generate cash flow at
levels sufficient to meet these requirements. If the Company is unable to
generate sufficient cash flow from operations in the future to service its debt
and
21
<PAGE>
capital expenditures, it may be required to sell assets, reduce capital
expenditures, refinance all or a portion of its existing debt (including the
Senior Notes) or obtain additional financings. There can be no assurance that
any such asset sales or refinancing would be possible or that any additional
financing would be on terms acceptable to the Company. The Company's ability to
meet its debt service obligations will be dependent upon its future performance
which, in turn, will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control.
The terms of the New Credit Facility, the Indenture and the other agreements
governing the Company's indebtedness impose operating and financing restrictions
on the Company and the Restricted Subsidiaries. Such restrictions affect, and in
many respects limit or prohibit, among other things, the ability of the Company
and its Restricted Subsidiaries to incur additional indebtedness, create liens,
sell assets or engage in mergers or acquisitions. These restrictions could limit
the ability of the Company to respond to market conditions or meet extraordinary
capital needs or otherwise could restrict corporate activities. There can be no
assurance that such restrictions will not adversely affect the Company's ability
to finance its future operations or capital needs or to engage in other business
activities which will be in the interest of the Company. See "Description of
Senior Notes--Certain Covenants" and "--Description of Certain Indebtedness."
HOLDING COMPANY STRUCTURE
Willcox & Gibbs is a holding company, the only assets of which are the stock
of its subsidiaries. All of the operations of Willcox & Gibbs are conducted
through its direct and indirect wholly owned subsidiaries. Accordingly, Willcox
& Gibbs' ability to service its indebtedness, including the Senior Notes, is
dependent upon earnings and cash flow of its subsidiaries and the payment of
funds by those subsidiaries to Willcox & Gibbs in the form of loans, dividends
or otherwise. In addition, the ability of Willcox & Gibbs' subsidiaries to pay
dividends, repay intercompany liabilities or makes other advances to Willcox &
Gibbs is subject to restrictions imposed by corporate law and certain United
States, state and foreign tax considerations. One of the Company's subsidiaries
is incorporated outside the United States.
MACPHERSON ACQUISITION
The Macpherson Acquisition was significantly larger than the Company's
previous acquisitions and represented a substantial increase in the scope of the
Company's business. Macpherson's net sales for 1996 were approximately $70.0
million, and the Company's net sales for 1996 were approximately $113.9 million.
In addition, the Macpherson Acquisition represents the addition of a significant
new product line. The success of the Macpherson Acquisition will depend upon,
among other things, the Company's ability to integrate Macpherson's operations
and to successfully expand into such new product line. There can be no assurance
that the Company can successfully integrate Macpherson, and any inability to do
so may have a material adverse effect on the Company's results of operations and
financial condition. In addition, the Company expects to realize certain
benefits as a result of the Macpherson Acquisition. Realization of such benefits
could be affected by a number of factors beyond the Company's control, such as
general economic conditions, increased operating costs, the response of
competitors or customers and regulatory developments. There can be no assurance
that the Company will achieve the expected benefits.
ACQUISITION RISKS
The Company intends to seek additional acquisition opportunities that will
allow it to increase its market penetration, product offerings and distribution
capabilities. There can be no assurance that the Company will be able to
successfully identify suitable acquisition candidates, complete acquisitions,
integrate acquired operations into its existing operations or expand into new
markets. There can also be no assurance that future acquisitions will not have
an adverse effect upon the Company's operating results, particularly in the
fiscal quarters immediately following the completion of such acquisitions while
the operations of the acquired business are being integrated into the Company's
operations. Once integrated, acquired operations may not achieve levels of
revenues, profitability or productivity comparable with those achieved by the
Company's existing operations, or otherwise perform as expected. In addition,
the
22
<PAGE>
Company competes for acquisition and expansion opportunities with companies that
have substantially greater resources.
DEPENDENCE ON SUPPLIERS
The Company derives significant revenues and operating income from certain
lines of replacement parts and equipment distributed under its distribution
agreements with certain suppliers. For example, the Company (including the
Company's Predecessor) has been the exclusive distributor of genuine replacement
parts in the United States for Pfaff, a German sewing equipment manufacturer,
since 1958 and for Pegasus, a Japanese sewing equipment manufacturer, since
1966. In 1996, approximately 5.7% of the Company's total purchases were from
Pfaff and approximately 7.1% from Pegasus (3.5% and 4.4% respectively, on a pro
forma basis assuming the Clinton Acquisition, the Mitchell Acquisition and the
Macpherson Acquisition were consummated on January 1, 1996). In order to
maintain the exclusivity of the Pfaff and Pegasus distribution agreements, the
Company must meet certain performance targets. Historically, the Company has
generally satisfied these requirements, although in certain prior years they
were not satisfied and Pfaff and Pegasus waived such shortfalls.
The Company is the exclusive distributor in certain territories
(non-exclusive in certain other areas) of apparel screen printing equipment
manufactured by M&R, which is a major manufacturer of such equipment in the
United States. The Company's distribution agreements with M&R may be terminated
at the end of any year on not less than 120 days notice. Purchases from M&R
represented 15.7% of the Company's total purchases in 1996 (10.4% of the
Company's total purchases in 1996 on a pro forma basis assuming the Clinton
Acquisition, the Mitchell Acquisition and the Macpherson Acquisition were
consummated on January 1, 1996).
As a result of the Macpherson Acquisition, the Company is the exclusive
distributor in the United States and Canada of embroidery equipment manufactured
by Barudan, which is one of the leading manufacturers of such equipment in the
United States and Canada. The Company's distribution agreement with Barudan
expires in 2003, subject to automatic renewal for a five year period, unless
either party terminates such agreement on not less than 30 days notice.
Macpherson's purchases from Barudan represented 78.0% of its total purchases in
1996 (29.1% of the Company's total purchases in 1996 on a pro forma basis
assuming the Clinton Acquisition, the Mitchell Acquisition and the Macpherson
Acquisition were consummated on January 1, 1996).
The Company's distribution agreements, both exclusive and non-exclusive, and
other supply arrangements with manufacturers are important to enable the Company
to obtain products sought by the Company's customers and to maintain the
Company's broad product selection. Substantially all of such distribution
agreements and other arrangements may be terminated by the supplier for any
reason, although most exclusive distribution agreements require advance written
notice. No assurance can be given that any of the Company's distribution
agreements will be extended beyond their current term or that the Company will
continue to be the distributor for any particular product.
INTERNATIONAL OPERATIONS; IMPACT OF NAFTA
In 1995 and 1996, approximately 25.9% and 34.2%, respectively, of the
Company's revenues were derived from international operations and export sales,
which are subject in varying degrees to risks inherent in doing business abroad.
Such risks include the possibility of unfavorable circumstances arising from
host country laws or regulations. In addition, foreign operations include risks
of partial or total expropriation; currency exchange rate fluctuations and
restrictions on currency repatriation; the disruption of operations from labor
and political disturbances, insurrection or war; and the requirements of partial
local ownership of operations in certain countries.
Any change in the value of the currencies of the foreign countries in which
the Company does business against the U.S. dollar will result in corresponding
changes in the price and affordability of the Company's products, which could
have a material adverse impact on the Company's business, financial condition
and results of operations. The Company purchases a substantial amount of its
inventories with
23
<PAGE>
foreign currencies, and Macpherson purchases a substantial majority of its
products with Japanese yen. Most of the Company's and Macpherson's net sales are
in U.S. dollars. Although the Company enters into forward exchange contracts to
hedge against foreign currency exchange risks, there can be no assurance that
the Company will not experience foreign currency losses. See Note 1(h) of the
Notes to Consolidated Financial Statements of the Company. In addition, the
economies of certain of the Company's target Latin American markets have
experienced significant and in some periods extremely high rates of inflation
over the past few years. Inflation and rapid fluctuation in inflation rates have
had and may continue to have negative effects on these economies and could have
a material adverse impact on the Company's business, financial condition and
results of operations.
NAFTA, implemented on January 1, 1994, removes barriers to free trade among
Canada, the United States and Mexico. The removal of barriers will take place
over a 10 year period between Mexico and the United States and over five years
between Canada and the United States. There can be no assurance that NAFTA will
not result in an increase in apparel imports from Mexico that compete against
products manufactured by the Company's customers in the United States, thereby
adversely affecting the Company's sales in the United States. Historically, a
majority of the Company's net sales has been to customers in the United States.
No assurance can be given that the Company will be able to increase sales
outside of the United States in the event of a decline in sales to customers in
the United States.
COMPETITION
The markets in which the Company competes are subject to intense
competition. In addition, certain of the Company's competitors have greater
financial resources than the Company and are less leveraged than the Company.
DEPENDENCE ON EXISTING MANAGEMENT
The depth of experience in the business represented by the Company's
executive management team, including John K. Ziegler, Chairman and Chief
Executive Officer, Maxwell L. Tripp, President and Chief Operating Officer, and
the managers of the Company's operating divisions and subsidiaries, is a key
component of the Company's competitiveness. Although the Company has entered
into employment contracts with Mr. Ziegler, Mr. Tripp, Alan B. Lee, President of
Unity, Jack Klasky, President of Leadtec, Frank Scannavino, Chuck Nall and Marc
Glazer, managers of Clinton, and Jerry Lee, President of Macpherson, the
continued presence of such persons within the Company's management structure
cannot be assured. The loss of the services of any of the foregoing persons
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company does not maintain any key
person insurance.
CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to
repurchase all of the outstanding Senior Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of repurchase. There can
be no assurance that the Company will have the financial resources necessary or
be permitted by its other debt agreements to repurchase the Senior Notes upon
the occurrence of a Change of Control. The inability to repurchase all of the
tendered Senior Notes would constitute an Event of Default (as defined herein)
under the Indenture. See "Description of Senior Notes--Certain Covenants--Change
of Control."
LACK OF PUBLIC MARKET FOR THE SENIOR NOTES
There is no existing trading market for the Senior Notes, and there can be
no assurance regarding the future development of a market for the Senior Notes,
or the ability of holders of the Senior Notes to sell their Senior Notes, or the
price at which such holders may be able to sell their Senior Notes. If such a
market were to develop, the Senior Notes could trade at prices that may be
higher or lower than the initial offering price depending on many factors,
including prevailing interest rates, the Company's operating results and the
market for similar securities. The Initial Purchaser has advised the Company
that it
24
<PAGE>
currently intends to make a market in the New Notes. The Initial Purchaser is
not obligated to do so, however, and any market making with respect to the New
Notes may be discontinued at any time without notice. There can be no assurance
as to the liquidity of any trading market for the Senior Notes or that an active
trading market for the Senior Notes will develop. The Company does not intend to
apply for listing or quotation of the Senior Notes on any securities exchange or
stock market.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Senior Notes will
not be subject to similar disruptions. Any such disruptions may have an adverse
effect on holders of the Senior Notes.
FRAUDULENT TRANSFER CONSIDERATIONS; UNENFORCEABILITY OF SUBSIDIARY GUARANTEES
The obligations of any Subsidiary Guarantor as a guarantor under the
Indenture may be subject to review under applicable fraudulent transfer or
similar laws, in the event of the bankruptcy or other financial difficulty of
any such Subsidiary Guarantor. In the United States, under such laws, if a court
in a lawsuit by an unpaid creditor or representative of creditors of any such
Subsidiary Guarantor, such as a trustee in bankruptcy or any such person as
debtor in possession, were to find that at the time such Subsidiary Guarantor
incurred its obligations under its guarantee, it (i) received less than fair
consideration or reasonably equivalent value therefor, and (ii) either (a) was
insolvent, (b) was rendered insolvent, (c) was engaged in a business or
transaction for which its remaining unencumbered assets constituted unreasonably
small capital, or (d) intended to incur or believed that it would incur debts
beyond its ability to pay as such debts matured, such court could void all or a
portion of such obligations under its guarantee and direct the return of any
amounts paid with respect thereof. Moreover, regardless of the factors
identified in the foregoing clauses (i) and (ii), a court could take such action
if it found that the guarantee was entered into with actual intent to hinder,
delay or defraud creditors. The measure of insolvency for purposes of the
foregoing will vary depending on the law of the jurisdiction being applied.
Generally, however, an entity would be considered insolvent if the sum of its
debts (including contingent or unliquidated debts) is greater than all of its
property at a fair valuation or if the present fair salable value of its assets
is less than the amount that would be required to pay its probable liability on
its existing debts as they become absolute and matured.
CONSEQUENCES TO NON-TENDERING HOLDERS OF OLD NOTES
Upon consummation of the Exchange Offer, the Company will have no further
obligation to register the Senior Notes except pursuant to a shelf registration
statement to be filed under certain limited circumstance specified in "The
Exchange Offer--Purpose of the Exchange Offer." Thereafter, subject to such
exception, any Holder of Old Notes who does not tender its Old Notes in the
Exchange Offer will continue to hold restricted securities which may not be
offered, sold or otherwise transferred, pledged or hypothecated except pursuant
to Rule 144 and Rule 144A under the Securities Act or pursuant to any other
exemption from registration under the Securities Act relating to the disposition
of securities, in which case, an opinion of counsel must be furnished to the
Company that such an exemption is available.
ORIGINAL ISSUE DISCOUNT
The Old Notes were issued with original issue discount. Consequently,
Holders of the New Notes generally will be required to include amounts in gross
income for federal income tax purposes in advance of receipt of the cash
payments to which the income is attributable. If a bankruptcy petition is filed
by or against the Company under the United States Bankruptcy Code, the claim of
a Holder of Senior Notes with respect to the principal amount thereof may be
limited to an amount equal to the sum of: (i) the initial offering price for the
Senior Notes; and (ii) that portion of the original issue discount that is not
deemed to constitute "unmatured interest" within the meaning of the United
States Bankruptcy Code. Any original issue discount that was not amortized as of
any such bankruptcy filing would constitute "unmatured interest."
25
<PAGE>
USE OF PROCEEDS
THE EXCHANGE OFFER
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes offered in the
Exchange Offer. In consideration for issuing the New Notes as contemplated in
this Prospectus, the Company will receive in exchange Old Notes in like
principal amount, the form and terms of which are the same in all material
respects as the form and terms of the New Notes except that the New Notes have
been registered under the Securities Act and hence do not include certain rights
to registration thereunder or contain transfer restrictions or terms with
respect to Old Note Liquidated Damages. The Old Notes surrendered in exchange
for the New Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the New Notes will not result in any proceeds to the
Company or increase in the indebtedness of the Company.
THE SALE OF THE OLD NOTES
The net proceeds from the sale of the Old Notes, after deducting the
discount to the Initial Purchaser, the discount to investors and estimated
expenses, were approximately $79.2 million. The Company used the net proceeds as
follows: (i) $24.0 million were used to fund the cash portion of the purchase
price of the Macpherson Acquisition; (ii) approximately $41.0 million were used
by the Company to repay indebtedness existing as of the date of the Macpherson
Acquisition (which included $8.5 million incurred in February 1996 to finance
the purchase price for the Clinton Acquisition and the repayment of indebtedness
of Clinton and $3.0 million incurred in November 1996 to finance the purchase
price for the Mitchell Acquisition); (iii) approximately $3.0 million were used
to redeem a portion of the warrants issued in connection with certain of such
indebtedness; (iv) approximately $6.1 million were used to repay debt assumed in
the Macpherson Acquisition; and (v) approximately $6.4 million were used to
repay trade payables of Macpherson. In addition, as a result of the consummation
of the Macpherson Acquisition, Macpherson was obligated to make payments
aggregating approximately $1.0 million pursuant to its phantom stock plan, and a
company owned by the principal shareholder of Macpherson agreed to pay
Macpherson a receivable aggregating approximately $0.1 million. Accordingly, an
additional $0.9 million was utilized to satisfy the phantom stock plan
obligation.
At December 31, 1996, the indebtedness of the Company that was repaid
referred to above had a weighted average interest rate of 10.17% per annum. The
foregoing indebtedness of the Company that was repaid included borrowings under
the Financing and Security Agreement, dated as of February 1, 1996 (the "Old
Credit Facility"), between the Company and NationsBank, N.A. ("NationsBank"),
which permitted revolving borrowings by the Company through July 2001.
Borrowings under the Old Credit Facility bore interest at a rate per annum equal
to the one month commercial paper rate for dealer-placed commercial paper of
issuers whose corporate bonds are rated "AA" or its equivalent plus 4%, which
rate was 9.57% per annum as of December 31, 1996. For a description of the
interest rates and maturities of such other indebtedness that was repaid, see
Note 5 of the Notes to the Consolidated Financial Statements of the Company and
Note 6 of the Notes to the Consolidated Financial Statements of Macpherson.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on January 3, 1997 through the
Initial Purchaser to "qualified institutional buyers" (as defined in Rule 144A
under the Securities Act) and institutional "accredited investors" within the
meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act. In
connection with the sale of the Old Notes, the Company, the Subsidiary
Guarantors and the Initial Purchaser entered into the Registration Rights
Agreement pursuant to which the Company and the Subsidiary Guarantors agreed to
cause to be filed with the Commission within 180 days of January 3, 1997 (the
date of original issue of the Old Notes), and use their best efforts to cause to
become effective on or prior to 150 days after the date of such filing, a
registration statement with respect to the Exchange Offer.
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However, if (i) because of any change in applicable law or policy thereof by the
Commission, the Company is not permitted to effect the Exchange Offer, (ii) the
Exchange Offer is not consummated within 180 days after the date of original
issue of the Old Notes, (iii) the Initial Purchaser so requests within six
months after consummation of the Exchange Offer with respect to the Old Notes
not eligible to be exchanged for New Notes in the Exchange Offer and held by it
following consummation of the Exchange Offer or (iv) any Holder of Old Notes
notified the Company within 20 days of the consummation of the Exchange Offer
that, for certain specified reasons, such Holder is precluded from participating
in the Exchange Offer or, in the case of any Holder that participates in the
Exchange Offer, such Holder does not receive freely tradeable New Notes on the
date of the exchange and such Holder notifies the Company within six months of
such date, the Company and the Subsidiary Guarantors shall (A) cause to become
effective a shelf registration statement (the "Shelf Registration Statement")
with respect to resales of the Old Notes, (B) keep the Shelf Registration
Statement effective until the earlier of (x) the time when the Senior Notes can
be sold pursuant to Rule 144(k) of the Securities Act, and (y) the date on which
all of the Senior Notes covered by the Shelf Registration Statement have been
sold pursuant thereto, and (C) during such period, upon request of any such
Holder of Old Notes, amend the Shelf Registration Statement to bring current the
information contained therein.
The Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Registration Rights Agreement. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. Once the Exchange Offer is consummated, the Company
will have no further obligations to register any of the Old Notes not tendered
by the Holders for exchange, except pursuant to a Shelf Registration Statement
filed under the limited circumstances described in the immediately preceding
paragraph. Thereafter, any Holder of Old Notes who does not tender its Old Notes
in the Exchange Offer and which is not eligible to use such a Shelf Registration
Statement will continue to hold restricted securities which may not be offered,
sold or otherwise transferred, pledged or hypothecated except pursuant to Rule
144 and Rule 144A under the Securities Act or pursuant to any other exemption
from registration under the Securities Act relating to the disposition of
securities (in such case an opinion of counsel must be furnished to the Company
that such an exemption is available).
Based on interpretations by the staff of the Commission set forth in several
no-action letters issued to third parties, including the Exchange Offer
No-Action Letters, the Company believes that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by Holders thereof who are not affiliates of the Company
(other than a broker-dealer who acquired such Old Notes directly from the
Company for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act; PROVIDED
that the Holder is acquiring New Notes in its ordinary course of business and
has no arrangement or understanding with any person to participate in any
distribution (within the meaning of the Securities Act) of the New Notes.
Persons wishing to exchange Old Notes in the Exchange Offer must represent to
the Company that such conditions have been met. However, any Holder who may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of the
Company or who tenders in the Exchange Offer with the intention to participate,
or for the purpose of participating, in a distribution of the New Notes cannot
rely on the interpretation by the staff of the Commission set forth in such
no-action letters, including the Exchange Offer No-Action Letters, and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, any such
resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K of the Securities Act.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer in exchange for Old Notes where such Old Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities (other than acquisitions directly from the Company) must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter
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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 received as aforesaid. The Company has agreed that for
a period of up to 180 days after the Expiration Date, it will use its reasonable
efforts to make this Prospectus available to such broker-dealers for use in
connection with any such resale. See "Plan of Distribution."
Except as set forth above, this Prospectus may not be used for an offer to
resell, or for a resale or other transfer of New Notes.
The Registration Rights Agreement provides that if, (a) by the 180th day (or
if such 180th day is not a business day, the first business day thereafter)
after the date of issue of the Old Notes, neither the Exchange Offer is
consummated nor the Shelf Registration Statement is declared effective or (b)
after either the Exchange Offer Registration Statement or the Shelf Registration
Statement is declared effective, such Registration Statement thereafter ceases
to be effective or usable (subject to certain exceptions) in connection with
resales of Old Notes or New Notes in accordance with and during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) or (b) a "Registration Default"), then the Company will pay Old Note
Liquidated Damages to each Holder of Transfer Restricted Securities, during the
first 90-day period immediately following the occurrence of such Registration
Default, in an amount equal to $.05 per week per $1,000 principal amount of
Senior Notes constituting Transfer Restricted Securities held by such Holder.
The amount of the Old Note Liquidated Damages will increase an additional $.05
per week per $1,000 principal amount of Senior Notes constituting Transfer
Restricted Securities for each subsequent 90-day period until the applicable
Registration Default has been cured, up to a maximum amount of Liquidated
Damages of $.30 per week per $1,000 principal amount of Senior Notes
constituting Transfer Restricted Securities. All accrued Old Note Liquidated
Damages will be paid by the Company on each interest payment date to the Global
Note Holders by wire transfer of immediately available funds or by federal funds
check and to the Holders of certificated securities by mailing a check to such
Holders' registered addresses. Following the cure of all Registration Defaults,
the accrual of Old Note Liquidated Damages will cease. For purposes of the
foregoing, "Transfer Restricted Securities" means each Old Note until (i) the
date on which such Old Note has been exchanged by the person other than a
broker-dealer for a freely transferable New Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of an Old Note
for a New Note, the date on which such New Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
this Prospectus, (iii) the date on which such Old Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date of which such Old Note is distributed to
the public pursuant to Rule 144 under the Securities Act or is saleable pursuant
to Rule 144(k) under the Securities Act.
TERMS OF THE EXCHANGE OFFER
GENERAL
Upon the terms and subject to the conditions of the Exchange Offer set forth
in this Prospectus and in the Letter of Transmittal, the Company will accept any
and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company will issue $1,000 principal
amount of New Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
As of , 1997, there was $85.0 million aggregate principal amount of
the Old Notes outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders as of , 1997.
In connection with the issuance of the Old Notes, the Company arranged for
certain of the Old Notes to be issued and transferable in book-entry form
through the facilities of DTC, acting as depositary, and certain of the Old
Notes to be represented by a Certificated Security. The New Notes exchanged for
the
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Old Notes, including Certified Securities, will initially be issued and
transferable in book-entry form through DTC. See "Description of Senior Notes
- --Book-Entry Delivery and Form."
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Old Notes for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned (except as described
below with respect to tenders through DTC), without expense, to the tendering
Holder thereof as promptly as practicable after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay the expenses, other than
certain applicable taxes, of the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Company has the right to extend the Exchange Offer. In order to extend
the Expiration Date, the Company will notify the Exchange Agent of any extension
by oral or written notice, each prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date.
The Company reserves the right to delay accepting any Old Notes, to extend
the Exchange Offer, to amend the Exchange Offer or to terminate the Exchange
Offer and not accept Old Notes not previously accepted if the applicable
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, amendment or termination to the Exchange Agent. Any such delay
in acceptance, extension, amendment or termination will be followed as promptly
as practicable by oral or written notice thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the Holders of such amendment and the Company will extend
the Exchange Offer as necessary to provide to such Holders a period of five to
ten business days after such amendment, depending upon the significance of the
amendment and the manner of disclosure to Holders of the Old Notes, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
ACCRUED AMOUNTS ON THE SENIOR NOTES
The New Notes will bear interest at a rate equal to 12 1/4% per annum from
the last date on which interest was paid on the Old Notes surrendered in
exchange therefor or, if no interest has been paid, from the date of original
issuance of such Old Notes. Interest on the Senior Notes is payable
semi-annually on June 15 and December 15 of each year, commencing on June 15,
1997.
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PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a Holder of Old Notes must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the instructions to the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with the Old Notes and any other required documents, so that it is
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
Any financial institution that is a participant in DTC (the "Book-Entry
Transfer Facility") may make book-entry delivery of the Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account in accordance with the Book-Entry Transfer Facility procedure
for such transfer. Although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility, the Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth in "--Exchange Agent" below prior to 5:00 p.m., New York City time, on
the Expiration Date. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY
IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by a Holder will constitute an agreement between such Holder and
the Company in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal.
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 the above transactions
for such Holders.
The method of delivery of the tendered Old Notes, the Letter of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the Holder. Instead of delivery by mail, it is recommended that the
Holder use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery. No Letter of Transmittal or Old
Notes should be sent to the Company.
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "Holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered Holder.
ANY BENEFICIAL HOLDER WHOSE OLD NOTES ARE REGISTERED IN THE NAME OF ITS
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE AND WHO WISHES
TO TENDER SHOULD CONTACT SUCH REGISTERED HOLDER PROMPTLY AND INSTRUCT SUCH
REGISTERED HOLDER TO TENDER ON ITS BEHALF. IF SUCH BENEFICIAL HOLDER WISHES TO
TENDER ON ITS OWN BEHALF, SUCH BENEFICIAL HOLDER MUST, PRIOR TO COMPLETING AND
EXECUTING THE LETTER OF TRANSMITTAL AND DELIVERING ITS OLD NOTES, EITHER MAKE
APPROPRIATE ARRANGEMENTS TO REGISTER OWNERSHIP OF THE OLD NOTES IN SUCH HOLDER'S
NAME OR OBTAIN A PROPERLY COMPLETED BOND POWER FROM THE REGISTERED HOLDER. THE
TRANSFER OF RECORD OWNERSHIP MAY TAKE CONSIDERABLE TIME.
Signatures on a Letter of Transmittal (or facsimile thereof) or a notice of
withdrawal, as the case may be, must be guaranteed by an Eligible Institution
(as defined below) unless the Old Notes tendered pursuant thereto are tendered
(i) by a registered Holder who has not completed the box entitled "Special
Payment Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal (or facsimile thereof) a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by or through a member firm of a registered national securities exchange
or of the National Association of
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Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an institution which falls within the
definition of "Eligible Guarantor Institution" contained in Rule 17Ad-15
promulgated by the Commission under the Exchange Act (each, an "Eligible
Institution").
If the Letter of Transmittal (or facsimile thereof) is signed by a person
other than the registered Holder of the Old Notes tendered thereby, such Old
Notes must be endorsed or accompanied by appropriate bond powers signed as the
name of the registered Holder(s) appear(s) on the Old Notes, with the signatures
on the endorsement or bond power guaranteed by an Eligible Institution.
If the Letter of Transmittal (or facsimile thereof) or any Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
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 acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
absolute right to reject any and all Old Notes not properly tendered or any Old
Notes the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to the Exchange Offer and/or
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. None of 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 Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which any defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering
Holder(s) of Old Notes, unless otherwise provided in the Letter of Transmittal,
as soon as practicable following the Expiration Date.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being acquired
in the ordinary course of such Holder's business, that such Holder has no
arrangement or understanding with any person to participate in the distribution
of such New Notes, and that such Holder is not an "affiliate" (as defined under
Rule 405 of the Securities Act) of the Company or any of its subsidiaries. If
the Holder is a broker-dealer that will receive New Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, such Holder by tendering will
acknowledge that it will deliver a Prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent, or cannot
complete the procedure for book-entry transfer, prior to 5:00 p.m. on the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder of the Old Notes and the principal amount
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of Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after the
date of execution of the Notice of Guaranteed Delivery, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s) representing
the Old Notes to be tendered in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes delivered electronically) and any other documents required
by the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Old Notes in
proper form for transfer (or a confirmation of a book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility of Old Notes
delivered electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three New York Stock
Exchange trading days after the date of execution of the Notice of Guaranteed
Delivery. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to Holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the principal amount of such
Old Notes), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the trustee with respect to the Old Notes register
the transfer of such Old Notes into the name of the person withdrawing the
tender, and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, which determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly retendered. Any
Old Notes which have been tendered but which are not accepted for payment will
be returned to the Holder thereof without cost to such Holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by 5:00 p.m. on following
one of the procedures described above under "--Procedures for Tendering" at any
time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company may
terminate or amend the Exchange Offer as provided herein and will not be
required to accept for exchange, or exchange New Notes for, any Old Notes not
theretofore accepted for exchange, if any of the following conditions exist:
(a) the Exchange Offer, or the making of any exchange by a Holder,
violates applicable law or any applicable policy of the Commission; or
(b) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might impair the ability
of the Company to proceed with the Exchange Offer; or
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(c) there shall have been adopted or enacted any law, statute, rule or
regulation which, in the reasonable judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer.
If any such conditions exist, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to exchanging Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders to withdraw such Old
Notes (see "--Withdrawal of Tenders") or (iii) waive certain of such conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn. If such waiver constitutes a material change to
the Exchange Offer, the Company will promptly disclose such waiver in a manner
reasonably calculated to inform Holders of Old Notes of such waiver.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, (i) if, because of any change in applicable law or applicable
policy thereof by the Commission the Company is not permitted to effect the
Exchange Offer, (ii) the Exchange Offer is not consummated within 180 days after
the date of original issue of the Old Notes, (iii) the Initial Purchaser so
requests within six months after consummation of the Exchange Offer with respect
to the Old Notes not eligible to be exchanged for New Notes in the Exchange
Offer and held by it following consummation of the Exchange Offer or (iv) any
Holder of Old Notes notified the Company within 20 days of the consummation of
the Exchange Offer that, for certain specified reasons, such Holder is precluded
from participating in the Exchange Offer or, in the case of any Holder that
participates in the Exchange Offer, such Holder does not receive freely
tradeable New Notes on the date of the exchange and such Holder notifies the
Company within six months of such date, then the Company shall file a Shelf
Registration Statement. Thereafter, the Company's obligation to consummate the
Exchange Offer shall be terminated.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
BY REGISTERED OR CERTIFIED MAIL:
IBJ Schroder Bank & Trust Company
Bowling Green Station
P.O. Box 84
New York, New York 10274-0084
Attention: Reorganization Operations Department
BY HAND OR OVERNIGHT COURIER:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window
Subcellar one, (SC-1)
By facsimile: (212) 858-2611
Attention: Customer Service
Confirm by telephone: (212) 858-2103
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
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
Old Notes, and in handling or forwarding tenders for exchange.
The cash expenses incurred in connection with the sale of the Old Notes and
to be incurred in connection with the Exchange Offer will be paid by the
Company, are estimated in the aggregate not to exceed $1.3 million, and include
fees and expenses of the Exchange Agent and Trustee under the Indenture and
accounting and legal fees.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the Holder of the Old Notes tendered, or
if tendered Old 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 Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the Holder or any
other person(s)) 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.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
that is, face value less unamortized original issue discount as reflected in the
Company's accounting records on the date of the exchange. Accordingly, no gain
or loss for accounting purposes will be recognized upon the consummation of the
Exchange Offer. The issuance costs incurred in connection with the Exchange
Offer will be capitalized and amortized over the term of the New Notes.
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THE COMPANY
The Company is a leading distributor of replacement parts, supplies and
specialized equipment to the apparel and other sewn products industry. It is a
Delaware corporation with its principal executive offices located at 900 Milik
Street, Carteret, New Jersey 07008 (telephone: (908) 541-6255).
COMPANY HISTORY
Willcox & Gibbs is a holding company which was organized on May 13, 1994
under the name "WG, Inc." by an investor group, which included members of the
Company's current management, to acquire the Distribution Business from the
Company's Predecessor. The Company's Predecessor was incorporated in 1866 as a
manufacturer of sewing equipment. In the late 1960s, as sewing equipment
manufacturing migrated overseas, the Company's Predecessor shifted its business
into the distribution of replacement parts and supplies for the apparel and
other sewn products industry. Parts and supply distribution remained the primary
focus of the Company's Predecessor until 1984, when it expanded into the
distribution of electrical parts. Due to the large and fragmented nature of U.S.
electrical parts distribution, this segment grew rapidly and, by 1993,
represented approximately 85.0% of the net sales of the Company's Predecessor.
In 1994, the Board of Directors of the Company's Predecessor decided to focus on
electrical parts distribution and divest its other businesses.
On July 13, 1994, the Company, through its wholly owned subsidiary, WG
Apparel, Inc. ("WG Apparel"), acquired the assets of Sunbrand and Unity, as well
as the stock of Leadtec and W&G, Ltd., and certain other assets in exchange for
$41.0 million in cash, $3.0 million principal amount of subordinated debt and a
warrant to purchase 122,970 shares of common stock of the Company. The cash
portion of such purchase price was funded through approximately $36.2 million of
borrowings and $4.8 million from the sale of common stock of the Company. On
July 26, 1995, the Company repurchased from the Company's Predecessor such
subordinated debt and warrants, together with certain other assets (including
the name "Willcox & Gibbs, Inc."), for approximately $4.1 million in cash.
Effective January 1, 1996, the Company changed its name to Willcox & Gibbs, Inc.
THE CLINTON ACQUISITION
Effective as of February 1, 1996, the Company acquired all of the
outstanding capital stock of Clinton, a leading distributor of screen printing
equipment and supplies for the apparel industry. See "Business-- Clinton." The
purchase price for Clinton consisted of $4.0 million in cash, 100,000 shares of
the Company's common stock, the assumption of $4.5 million of indebtedness and
payables, which was subsequently repaid, and contingent payments of up to 38.9%
of the operating income of Clinton during each of the five years ending December
31, 2000. Such contingent payments may not exceed $10.5 million in the aggregate
over such five year period. In addition, the former shareholders of Clinton have
the right to require WG Apparel to purchase their shares of Company common stock
at a purchase price of $30 per share on the earliest of (i) the day after the
Senior Notes have become due by occurrence of the scheduled maturity date or
sooner acceleration, (ii) the fourth anniversary of the closing date of the
Clinton Acquisition, (iii) the occurrence of an initial public offering of
equity securities by the Company and (iv) a change of control of the Company,
PROVIDED that in the case of clauses (ii) and (iii) such purchase is then
permitted under the Indenture and the New Credit Facility. The Company's
obligation to make contingent payments and to perform the put right is an
unsecured obligation of the Company.
THE MITCHELL ACQUISITION
Effective November 27, 1996, the Company acquired certain assets of Mitchell
for $3.0 million in cash. The acquired assets relate to the manufacture and sale
of abrasive cords and tapes used principally in the apparel industry.
35
<PAGE>
THE MACPHERSON ACQUISITION
On January 3, 1997, the Company acquired all of the outstanding capital
stock of Macpherson for a cash purchase price of $24.0 million. In connection
with the Macpherson Acquisition, the Company assumed (and repaid immediately
using a portion of the net proceeds from the sale of the Old Notes)
approximately $6.1 million of indebtedness of Macpherson and approximately $6.4
million of trade payables of Macpherson. Macpherson is principally engaged in
the distribution of embroidery equipment and supplies to the apparel industry.
Macpherson also distributes engraving equipment, but the Company intends to
discontinue this business in 1997. Accordingly, this line of business will be
classified as discontinued operations for purposes of the Company's financial
statements. On a pro forma basis assuming the Clinton Acquisition, the Mitchell
Acquisition and the Macpherson Acquisition were consummated on January 1, 1996,
the Company's net sales and income from continuing operations before
extraordinary item for 1996 would have been $184.6 million and $13.8 million,
respectively.
As a result of the Macpherson Acquisition, the Company is the exclusive
distributor in the United States and Canada through 2003 of embroidery equipment
manufactured by Barudan, and Barudan products accounted for approximately 78% of
Macpherson's total purchases in 1996. In connection with the Macpherson
Acquisition, the Company, Macpherson, and Barudan entered into an agreement
providing for a reduction in the prices charged to Macpherson for Barudan
equipment during the year after the consummation of the Macpherson Acquisition
and for Barudan to use its best efforts to maintain pricing after such initial
year that results in gross profit margins for Macpherson comparable to such
first year's pricing. In exchange, Macpherson agreed to pay for the Barudan
equipment it purchases within a shorter time period after invoiced. As a result,
approximately $6.4 million of Macpherson's outstanding payables were paid from
the net proceeds of the sale of the Old Notes in order to comply with the
revised timetable for payments. On a pro forma basis, these agreements would
have increased the Company's gross profit by $1.6 million for 1996, assuming the
effectiveness of the Macpherson Acquisition as of January 1, 1996. See "Pro
Forma Combined Financial Information."
In connection with the Macpherson Acquisition, the Company acquired the
Leasing Company, a leasing company affiliate of Macpherson, for approximately
$0.5 million, payable over three years, plus interest at 6.0% per annum. The
Leasing Company commenced operations in March 1996. The Company intends to
utilize the Leasing Company to offer flexible lease financing to its customers
to support the Company's sales of equipment. The Leasing Company will be an
Unrestricted Subsidiary for purposes of the Indenture.
The Macpherson Acquisition expanded the Company's product line to include
the distribution of embroidery equipment and supplies to the apparel industry.
The market for embroidery equipment has grown rapidly over the past ten years.
The Company acquired Macpherson to take advantage of the expanding demand for
such equipment and of the ability to market such equipment and the Company's
complementary line of screen printing equipment to the same end-user group. In
addition, the Company believes that Macpherson's embroidery equipment can be
efficiently marketed through the Company's existing distribution network without
substantial additional expense. The acquisition of the Leasing Company will
further the Company's objective of being a "one-stop shop" for its customers by
enabling the Company to offer attractive financing options to support the sale
of its equipment.
36
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1996 and March 31, 1997,
the consolidated capitalization of the Company (i) on an historical basis and
(ii) on a pro forma basis assuming that the sale of the Old Notes, the
application of the net proceeds therefrom and the Macpherson Acquisition each
had occurred as of such date. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, MARCH 31,
1996(10) 1997
---------------------- ----------
<S> <C> <C> <C>
ACTUAL PRO FORMA ACTUAL
--------- ----------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, including current maturities(1):
Old Credit Facility, due 2001(2)........................................... $ 19,347 $ -- $ --
New Credit Facility(3)..................................................... -- 1,255 4,314
Senior note payable, due 2000(4)........................................... 12,802 -- --
Senior note payable, due 2001(5)........................................... 6,471 -- --
Senior note payable, due 2001(6)........................................... 902 -- --
Senior note payable, due 2001(7)........................................... 200 -- --
Variable W&G, Ltd. Credit Facility(8)...................................... 1,713 1,713 1,640
Note payable, due 1999(9).................................................. -- -- 507
Senior Notes, net of debt discount of $1,487 and $1,436 at December 31,
1996 and March 31, 1997.................................................. -- 83,513 83,564
--------- ----------- ----------
Total long-term debt including current maturities........................ 41,435 86,481 90,025
Common stock subject to put option........................................... 3,000 3,000 3,000
Total stockholders' equity................................................... 12,677 8,210 7,445
--------- ----------- ----------
Total capitalization......................................................... $ 57,112 $ 97,691 $ 100,470
--------- ----------- ----------
--------- ----------- ----------
</TABLE>
- ------------------------
(1) For further description of the Company's long-term debt, see Notes 5 and 6
of Notes to the Consolidated Financial Statements of the Company.
(2) For further description of the Old Credit Facility, see "Use of Proceeds."
(3) For further description of the New Credit Facility, see "Description of
Certain Indebtedness."
(4) Variable interest rate senior note payable, with final installment due July
13, 2000.
(5) 12.95% senior note payable, due July 13, 2001, net of unamortized discount
of $529.
(6) 10.98% senior note payable, due July 13, 2001, net of unamortized discount
of $298.
(7) 11.66% senior note payable, due July 13, 2001.
(8) Variable interest rate note payable, denominated in pound sterling with
final payment due in September 2000.
(9) 6% note payable, due in installments through June 30, 1999.
(NOTES CONTINUED ON THE NEXT PAGE.)
37
<PAGE>
(10) The following table sets forth the estimated sources and uses of funds in
connection with the sale of the Old Notes, the Mitchell Acquisition and the
Macpherson Acquisition, assuming that each had occurred as of December 31,
1996.
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C>
SOURCES OF FUNDS:
Old Notes............................................................. $ 79,238
New Credit Facility................................................... 1,255
Cash on hand.......................................................... 1,200
-------
Total sources..................................................... $ 81,693
-------
-------
USES OF FUNDS:
Repayment of debt..................................................... $ 39,723
Unamortized discount relating to debt repayment....................... 827
Repurchase of warrants................................................ 3,026
Macpherson Acquisition:
Cash purchase price................................................. 24,000
Repayment of debt................................................... 6,710
Repayment of trade payables......................................... 6,442
Payment of phantom stock plan liability............................. 1,043
Payment of receivable due from affiliate of Macpherson.............. (78)
-------
Total uses........................................................ $ 81,693
-------
-------
</TABLE>
38
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Statement of Operations for the
year ended December 31, 1996 gives effect to the Transactions as if each had
occurred at the beginning of the period presented, except that Clinton's results
of operations for the period after February 1, 1996 (the effective date of the
Clinton Acquisition) and Mitchell's results of operations for the period after
November 27, 1996 (the effective date of the Mitchell Acquisition) are included
in Willcox & Gibbs' results of operations for such period.
The Unaudited Pro Forma Combined Financial Statements have been prepared
using the purchase method of accounting for the Mitchell Acquisition and the
Macpherson Acquisition, whereby the total cost of each acquisition is allocated
to the tangible and intangible assets acquired and liabilities assumed based
upon their respective fair values at the effective date of such acquisition. For
purposes of the Unaudited Pro Forma Combined Financial Statements, such
allocations have been made based upon currently available information and
management's estimates.
The Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1996 is based on the respective audited financial statements for
the year ended December 31, 1996 of the Company and Macpherson and the unaudited
financial statements for the year ended December 31, 1996 of Clinton and
Mitchell. The unaudited financial statements reflect all adjustments, consisting
of normal recurring accruals, which in the opinion of management of the
applicable company are necessary for a fair presentation of results for the
respective periods.
The Unaudited Pro Forma Combined Financial Statements do not purport to
represent what the results of operations of the Company would actually have been
if any of the Transactions had occurred on such date or to project the results
of operations of the Company for any future date or period. The Unaudited Pro
Forma Combined Financial Statements set forth below should be read in
conjunction with the respective Consolidated Financial Statements and Notes
thereto of the Company, Macpherson and Clinton included elsewhere in this
Prospectus, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--The Company" and "--Macpherson."
39
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLINTON/ MACPHERSON/
WILLCOX & MITCHELL LEASING
GIBBS (A) COMPANY (B) ADJUSTMENTS PRO FORMA
---------- ----------- ------------ ----------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales....................................... $ 113,851 $ 2,975 $ 67,767 $ -- $ 184,593
Cost of goods sold.............................. 77,623 1,888 50,221 (1,599)(c) 128,133
---------- ----------- ------------ ----------- -----------
Gross profit.............................. 36,228 1,087 17,546 1,599 56,460
Selling, general and administrative
expenses...................................... 28,969 758 13,542 (629)(d) 42,640
---------- ----------- ------------ ----------- -----------
Operating income.......................... 7,259 329 4,004 2,228 13,820
Interest expense................................ 4,824 21 781 5,864(e) 11,490
Other income (expense).......................... 15 (14) (1,161) 839(f) (321)
---------- ----------- ------------ ----------- -----------
Income before income taxes................ 2,450 294 2,062 (2,797) 2,009
Income taxes.................................... 1,137 -- 54 (222)(g) 969
---------- ----------- ------------ ----------- -----------
Income from continuing operations......... $ 1,313 $ 294 $ 2,008 $ (2,575) $ 1,040
---------- ----------- ------------ ----------- -----------
---------- ----------- ------------ ----------- -----------
OTHER OPERATING DATA:
EBITDA(h)....................................... $ 8,635 $ 340 $ 3,161 $ 3,574 $ 15,710
Depreciation and amortization................... 1,361 25 318 507 2,211
Capital expenditures............................ 1,247 10 282 -- 1,539
SELECTED RATIOS:
EBITDA/cash interest expense.................... -- -- -- -- 1.47x
EBITDA less capital expenditures/cash interest
expense....................................... -- -- -- -- 1.33x
Total debt/EBITDA(i)............................ -- -- -- -- 5.50x
Ratio of earnings to fixed charges(j)........... -- -- -- -- 1.17x
</TABLE>
See Notes to Unaudited Pro Forma Combined Statements of Operations.
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(a) Reflects for the year ended December 31, 1996, the historical operating
results of Clinton for one month and Mitchell for eleven months, since
Clinton was acquired by the Company on February 1, 1996 and Mitchell was
acquired on November 27, 1996. Clinton's results of operations for the
period after February 1, 1996 and Mitchell's results of operations for the
period after November 27, 1996 are included in Willcox & Gibbs' results of
operations for the year ended December 31, 1996.
(b) Reflects for the year ended December 31, 1996, the historical operating
results from continuing operations of Macpherson and the Leasing Company for
the period ended December 31, 1996. The Leasing Company commenced operations
in March 1996. Does not reflect net sales of $2.9 million, operating loss of
$0.5 million, and net loss of $0.5 million for the year ended December 31,
1996 attributable to Macpherson's engraving equipment distribution business,
which the Company discontinued upon consummation of the Macpherson
Acquisition.
(c) Reflects the impact of reduction in prices charged to Macpherson for Barudan
equipment. See "The Macpherson Acquisition."
(d) Reflects the net reduction in officers' compensation and other benefits
implemented as a result of the Clinton Acquisition and the Macpherson
Acquisition. The adjustment also reflects changes in goodwill amortization
as a result of the Transactions.
(e) Reflects (i) pro forma interest expense calculated using an interest rate of
12 1/4% per annum on the Senior Notes, 9.0% per annum on the New Credit
Facility and 8.25% on the W&G Ltd. Credit Facility, (ii) the repayment of
all existing indebtedness, (iii) estimated amortization of deferred
financing costs at a rate of $0.6 million per annum, and (iv) amortization
of debt discount at a rate of approximately $0.2 million per annum. See
"Capitalization."
(f) Reflects (i) the reduction in financing costs as a result of the agreement
to shorten the time to pay for purchases of Barudan equipment and (ii) costs
incurred by Macpherson in connection with the Macpherson Acquisition. See
"The Macpherson Acquisition" and Note 12 to the Consolidated Financial
Statements of Macpherson.
(g) Reflects an assumed 38.0% corporate income tax rate for the operations of
Clinton, Mitchell and Macpherson, which have operated as Subchapter S
corporations under the Internal Revenue Code and, accordingly, the income of
such companies was taxed directly to their respective shareholders.
(h) EBITDA represents income before income taxes plus interest expense,
depreciation and amortization for the applicable company and, in the case of
Willcox & Gibbs, certain other noncash charges included in cost of goods
sold relating to the amortization of the step-up in basis of the inventory
purchased in the Management Buyout. EBITDA should not be considered as an
alternative measure of net income or cash provided by operating activities
(both as determined in accordance with generally accepted accounting
principles), but is presented to provide additional information relating to
the Company's debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of financial performance or
liquidity.
(i) Total debt includes $85.0 million in Senior Notes, net of discount, plus
$1.3 million of indebtedness incurred under the New Credit Facility and $1.7
million under the W&G Ltd. Credit Facility at the end of the periods
presented.
(j) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and a portion
of rental expense which is representative of the interest factor in these
rentals.
41
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
WILLCOX & GIBBS
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" as of the end of December 31, 1994,
1995 and 1996 and for the years ended December 31, 1995 and 1996 and the period
from July 13, 1994 to December 31, 1994, are derived from the consolidated
financial statements of the Company, which financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants. The
selected data presented below under the captions "Statement of Operations Data"
for the period from January 1, 1994 to July 12, 1994, are derived from the
consolidated statement of operations of the Company's Predecessor, which
financial statement has been audited by KPMG Peat Marwick LLP. The "Statement of
Operations Data" for the years ended December 31, 1992 and 1993 are unaudited.
The financial statements of the Company's Predecessor for the years ended
December 31, 1992 and 1993 and for the period from January 1, 1994 to July 12,
1994 have been prepared as if the apparel operations had been operated as a
separate entity during those periods. However, such financial statements do not
reflect a complete allocation of all expenses applicable to the operation of an
independent company. Certain expenses were allocated to the apparel operations
by the Company's Predecessor based on actual usage or other allocation methods
that approximate actual usage. The following table also sets forth selected
consolidated financial information of the Company as of March 31, 1997 and for
the three months ended March 31, 1996 and 1997. Such information was derived
from the unaudited consolidated financial statements of the Company. Such
unaudited consolidated financial statements, in the opinion of the Company's
management, include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the financial position and results of
operations for such periods. The results of operations for the three months
ended March 31, 1997 are not necessarily indicative of results that may be
expected for the full year. The consolidated financial statements of the Company
as of December 31, 1995 and 1996, and for the years ended December 31, 1995 and
1996 and the period from July 13, 1994 to December 31, 1994 and of the Company's
Predecessor for the period from January 1, 1994 to July 12, 1994, and the report
thereon and the unaudited consolidated financial statements of the Company as of
March 31, 1997 and for the three months ended March 31, 1996 and 1997, are
included elsewhere in this prospectus. The selected consolidated financial
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations--The
Company" and the Consolidated Financial Statements and Notes thereto of the
Company and the Company's Predecessor included elsewhere in this Prospectus.
42
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S PREDECESSOR
-------------------------------------
YEAR ENDED COMPANY
DECEMBER 31, JANUARY 1, 1994 -----------------------------------------------------------
-------------------- TO JULY 12, JULY 13, 1994 TO YEAR ENDED YEAR ENDED
1992 1993 1994 DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
--------- --------- --------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $ 76,048 $ 77,574 $ 41,309 $ 41,644 $ 90,431 $ 113,851
Cost of goods sold............. 47,821 49,228 26,909 29,162 60,642 77,623
--------- --------- ------- ------- ------- --------
Gross profit................. 28,227 28,346 14,400 12,482 29,789 36,228
Selling, general and
administrative expenses...... 20,814 21,315 11,997 11,264 23,606 28,969
--------- --------- ------- ------- ------- --------
Operating income............. 7,413 7,031 2,403 1,218 6,183 7,259
Interest expense............... 1,993 2,307 1,390 1,946 4,249 4,824
Other (income) expense......... (55) 145 224 (86) (18) (15)
--------- --------- ------- ------- ------- --------
Income (loss) before income
taxes and extraordinary
item....................... 5,475 4,579 789 (642) 1,952 2,450
Income tax expense (benefit)... 272 146 426 (288) 558 1,137
--------- --------- ------- ------- ------- --------
Income (loss) before
extraordinary item......... 5,203 4,433 363 (354) 1,394 1,313
Extraordinary item, net........ -- -- -- -- (152) --
--------- --------- ------- ------- ------- --------
Net income (loss)............ $ 5,203 $ 4,433 $ 363 $ (354) $ 1,242 $ 1,313
--------- --------- ------- ------- ------- --------
--------- --------- ------- ------- ------- --------
OTHER OPERATING DATA:
EBITDA (a)..................... $ 8,123 $ 7,744 $ 2,580 $ 4,370 $ 8,062 $ 8,635
Depreciation and
amortization................. 655 858 401 3,066 1,861 1,361
Capital expenditures........... 381 712 346 272 771 1,247
Ratio of earnings to fixed
charges (b).................. 3.47x 2.80x 1.52x 0.70x 1.42x 1.46x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital................ $ 24,563 $ 21,924 $ 18,653
Total assets................... 51,717 52,528 79,728
Total debt..................... 32,224 31,109 41,435
Common stock subject to put
option....................... 3,000
Total stockholders' equity..... 5,967 7,892 12,677
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1996 1997
--------- ---------
<S> <C> <C>
(UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $ 26,320 $ 42,043
Cost of goods sold............. 17,976 29,084
--------- ---------
Gross profit................. 8,344 12,959
Selling, general and
administrative expenses...... 6,763 10,974
--------- ---------
Operating income............. 1,581 1,985
Interest expense............... 1,100 2,882
Other (income) expense......... 14 39
--------- ---------
Income (loss) before income
taxes and extraordinary
item....................... 495 (858)
Income tax expense (benefit)... 179 (355)
--------- ---------
Income (loss) before
extraordinary item......... 316 (503)
Extraordinary item, net........ - (1,557)
--------- ---------
Net income (loss)............ $ 316 $ (2,060)
--------- ---------
--------- ---------
OTHER OPERATING DATA:
EBITDA (a)..................... $ 1,941 $ 2,547
Depreciation and
amortization................. 345 524
Capital expenditures........... 190 477
Ratio of earnings to fixed
charges (b).................. 1.26x 0.84x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital................ $ 55,954
Total assets................... 132,641
Total debt..................... 90,025
Common stock subject to put
option....................... 3,000
Total stockholders' equity..... 7,445
</TABLE>
(FOOTNOTES TO THE SELECTED HISTORICAL FINANCIAL INFORMATION ON FOLLOWING PAGE.)
43
<PAGE>
MACPHERSON
The following table sets forth selected consolidated financial information
of Macpherson as of December 31, 1994, 1995 and 1996 and for the years then
ended. Such information was derived from the Consolidated Financial Statements
of Macpherson, which have been audited by Arthur Andersen LLP and are included
elsewhere in this Prospectus. The selected consolidated financial information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Macpherson" and the
Consolidated Financial Statements and Notes thereto of Macpherson included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................................................ $ 68,861 $ 71,667 $ 70,058
Cost of goods sold............................................................... 52,216 53,769 52,610
--------- --------- ---------
Gross profit................................................................... 16,645 17,898 17,448
Operating expenses............................................................... 13,566 13,587 14,211
--------- --------- ---------
Operating income............................................................... 3,079 4,311 3,237
Interest expense................................................................. 390 218 781
Other expense.................................................................... 643 768 1,162
--------- --------- ---------
Income before taxes.............................................................. 2,046 3,325 1,294
Income taxes..................................................................... 54 76 54
--------- --------- ---------
Net income..................................................................... $ 1,992 $ 3,249 $ 1,240
--------- --------- ---------
--------- --------- ---------
OTHER OPERATING DATA:
EBITDA(a)........................................................................ $ 2,650 $ 3,715 $ 2,393
Depreciation and amortization.................................................... 214 172 318
Capital expenditures............................................................. 171 178 282
Ratio of earnings to fixed charges(b)............................................ 4.46x 9.37x 2.36x
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................................................................. $ 9,721 $ 10,925 $ 9,965
Total assets..................................................................... 31,458 44,403 38,864
Total debt....................................................................... 2,820 4,947 6,710
Stockholders' equity............................................................. 9,794 11,375 10,963
</TABLE>
- ------------------------
(a) EBITDA represents income before income taxes plus interest expense,
depreciation and amortization for the applicable company and, in the case of
Willcox & Gibbs, certain other noncash charges included in cost of goods
sold relating to the amortization of the step-up in basis of the inventory
purchased in the Management Buyout. EBITDA should not be considered as an
alternative measure of net income or cash provided by operating activities
(both as determined in accordance with generally accepted accounting
principles), but is presented to provide additional information relating to
the Company's debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of financial performance or
liquidity.
(b) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and a portion
of rental expense which is representative of the interest factor in these
rentals.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--THE COMPANY
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND SELECTED HISTORICAL
FINANCIAL INFORMATION INCLUDED ELSEWHERE HEREIN.
GENERAL
Willcox & Gibbs was organized in 1994 by members of the Company's current
management and certain other investors to acquire the Distribution Business,
which occurred on July 13, 1994. As a result, the Company's financial statements
for the period ended December 31, 1994 reflect the Company's results of
operations for the period beginning July 13, 1994 and ending on December 31,
1994. The financial statements of the Distribution Business for the period
January 1, 1994 to July 12, 1994 have been prepared as if the Distribution
Business had been operated as a separate entity during that period. However,
such financial statements do not reflect a complete allocation of all expenses
applicable to the operation of an independent company. Certain expenses were
allocated to the Distribution Business by the Company's Predecessor based on
actual usage or other allocation methods that approximate actual usage. For
purposes of the discussion of the Company's 1994 results of operations below,
the Company has combined the results for such two periods of 1994 (the "Combined
1994"). However, results for 1995 and 1994 are not directly comparable because
of differences arising from the Company's operations as a separate entity
beginning July 13, 1994. In addition, Combined 1994 does not purport to reflect
the results of the Company had the Management Buyout occurred on January 1,
1994.
Effective February 1, 1996, the Company acquired Clinton, a distributor of
screen printing equipment for the apparel industry. Approximately 25.2% of the
Company's net sales for the year ended December 31, 1996, are attributable to
the operations of Clinton. Accordingly, the results of the Company for the year
ended December 31, 1996 are not directly comparable to the results for the year
ended December 31, 1995 due to the inclusion of the operations of Clinton in the
1996 period. Approximately 18.7% of the Company's net sales for the three months
ended March 31, 1997, are attributable to the operations of Clinton.
Accordingly, the results of the Company for the three months ended March 31,
1997 are not directly comparable to the results for the three months ended March
31, 1996 due to the inclusion of the operations of Clinton in the full 1997
period.
In addition, on January 3, 1997, the Company acquired Macpherson.
Approximately 27.4% of the Company's net sales for the three months ended March
31, 1997 are attributable to the operations of Macpherson. Accordingly, the
results of the Company for the first three months of 1997 are not directly
comparable to the results for the same period in 1996 due to the inclusion of
the operations of Macpherson in the 1997 period. See "The Macpherson
Acquisition."
The Company currently operates through six principal business units: (i) its
Sunbrand division, which is a distributor of replacement parts, supplies and
specialized equipment to manufacturers of apparel and other sewn products; (ii)
its Unity division, which is a wholesale distributor to dealers of replacement
parts and supplies for use by the apparel and other sewn products industry;
(iii) its W&G, Ltd. subsidiary, which is a distributor to manufacturers and
dealers in the United Kingdom and Europe of replacement parts and supplies for
use by the apparel and other sewn products industry; (iv) its Clinton
subsidiary, which is a distributor of screen printing equipment and supplies for
the apparel industry; (v) its Leadtec subsidiary, which develops and supplies
computer-based production planning and control systems for the apparel industry
and (vi) Macpherson, which distributes embroidery equipment and supplies used in
the apparel industry. See "The Macpherson Acquisition."
CERTAIN FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS
Inventory management is an important factor that may affect the Company's
results of operations. The carrying value of the Company's inventory increased
significantly in the first quarter of 1997 as a result
45
<PAGE>
of the acquisition of Macpherson. Macpherson distributes embroidery equipment
that is substantially more expensive on a per item basis than the Company's
historic inventory, which was composed principally of replacement parts and
supplies for use in the apparel and sewn products industry. The Company
maintains an inventory of a large number of items, many of which need not be
replaced frequently. In general, the Company's experience over many years of
supplying the apparel and sewn products industries combined with the Company's
technologically advanced inventory control system provide guidance on prudent
inventory levels. However, because demand for the Company's products is
dependent on the needs of the apparel and sewn products industries, a decline in
the operations of the Company's customers will reduce demand for the Company's
products. Any such reduction in demand over an extended period could result in
price reductions and inventory writedowns, which in turn could adversely affect
the Company's gross margins.
In the years ended December 31, 1995 and 1996, approximately 25.9%, and
34.2%, respectively, of the Company's revenues were derived from international
operations and export sales, which are subject in varying degrees to risks
inherent in doing business abroad. Such risks include the possibility of
unfavorable circumstances arising from host country laws or regulations. In
addition, foreign operations include risks of partial or total expropriation;
currency exchange rate fluctuations and restrictions on currency repatriation;
the disruption of operations from labor and political disturbances, insurrection
or war; and the requirements of partial local ownership of operations in certain
countries.
The Company purchases products from domestic and foreign suppliers.
Purchases from foreign suppliers may be denominated in a foreign currency. The
Company may enter into forward foreign exchange contracts in order to establish
the dollar cost of purchases from its suppliers payable in a foreign currency.
The terms of these contracts will be less than one year. The Company does not
engage in foreign currency speculation.
Inflation has not affected the Company's results over the last several
years, given its relatively low level in the United States during such period.
RESULTS OF OPERATIONS
The following table sets forth the percentages that certain income and
expense items bear to net sales for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994
(COMBINED) 1995 1996 1996 1997
------------- --------- --------- --------- ---------
Net sales.......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit....................................................... 32.4 32.9 31.8 31.7 30.8
Selling, general and administrative expenses....................... 28.0 26.1 25.4 25.7 26.1
Operating income................................................... 4.4 6.8 6.4 6.0 4.7
Interest expense................................................... 4.0 4.7 4.2 4.2 6.9
Income taxes....................................................... 0.2 0.6 1.0 0.7 (0.7)
Net income......................................................... 0.0 1.4 1.2 1.2 (4.9)
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
Net sales were $42.0 million in the first three months of 1997, an increase
of $15.7 million, or 59.7%, as compared to the first three months of 1996. Net
sales increased primarily as a result of the inclusion in the 1997 period of the
results of Macpherson, acquired in January 1997, Clinton, acquired in February
1996, and E.C. Mitchell Co., Inc. ("Mitchell"), a manufacturer of abrasive cords
and tapes used principally
46
<PAGE>
by apparel manufacturers, acquired in November 1996. These acquisitions
contributed an aggregate additional $14.0 million to net sales in the first
three months of 1997, as compared with the first three months of 1996.
Gross profit in the first three months of 1997 was $13.0 million, an
increase of $4.6 million, or 55.3%, as compared with the same period in 1996.
Gross profit increased primarily due to the inclusion of Macpherson, Clinton and
Mitchell in the 1997 period. As a percentage of net sales, gross profit in the
first three months of 1997 was 30.8%, as compared with 31.7% in the same period
of 1996. The decrease in gross profit percentage was attributable to Macpherson
and Clinton. Macpherson's and Clinton's gross profit margins have traditionally
been lower than the gross profit margin associated with the Company's parts and
supplies businesses because a larger percentage of their sales are for
equipment.
Selling, general and administrative expenses in the first three months of
1997 were $11.0 million, an increase of $4.2 million, or 62.3%, as compared to
the first three months of 1996. The increase consisted of the addition of $3.5
million of operating expenses for Macpherson, Clinton and Mitchell. As a
percentage of sales, such expenses increased to 26.1% for the first three months
of 1997, from 25.7% for the same period in 1996, primarily related to the
Macpherson Acquisition.
Operating income in the first three months of 1997 was $2.0 million, an
increase of $0.4 million, or 25.6%, as compared to the first three months of
1996. The increase in operating income resulted from an increase in sales and
the factors discussed above. As a percentage of net sales, operating income was
4.7% in the first three months of 1997, as compared to 6.0% in the first three
months of 1996. The decrease was principally attributable to the lower gross
margins from Macpherson's and Clinton's sales.
Interest expense was $2.9 million in the first three months of 1997, an
increase of $1.8 million, or 162.0%, as compared with the first three months of
1996. The increase in interest expense was a result of the refinancing as of
January 3, 1997, a portion of which was used to finance the acquisition of
Macpherson.
Provision for income taxes for the first three months of 1997 was $0.3
million, a decrease of $0.5 million, as compared to the first three months of
1996. The Company's effective tax rate was 36.5% in the first three months of
1997, as compared to 36.3% in the first three months of 1996.
The Company's results for the first three months of 1997 reflect an
extraordinary loss from the extinguishment of debt (net of income tax benefit)
of $1.6 million owing to the refinancing of the Company's indebtedness in
connection with the Macpherson Acquisition and the issuance by the Company of
$85.0 million aggregate principal amount of the Old Notes.
Net loss in the first three months of 1997 was $2.1 million, compared to net
income of $0.3 million in the first three months of 1996. The decrease was
attributable to the additional cost factors discussed above.
1996 COMPARED TO 1995
Net sales were $113.9 million in 1996, an increase of $23.4 million, or
25.9%, as compared to 1995. Net sales increased primarily as a result of the
Clinton Acquisition, which contributed $28.7 million to net sales in 1996. The
increase was partially offset by a decline in sales by the Company of capital
equipment resulting from general market conditions for apparel manufacturers.
Gross profit in 1996 was $36.2 million, an increase of $6.4 million, or
21.6%, as compared with 1995. As a percentage of net sales, gross profit in 1996
was 31.8% as compared with 32.9% period in 1995. The decrease in gross profit
was primarily attributable to Clinton's contribution to gross profit. Clinton's
gross profit margin has traditionally been lower than the Company's parts and
supplies businesses because a larger percentage of Clinton's sales are
attributable to capital equipment. The decrease in gross profit margin in 1996
was partially offset by a decrease in the percentage of net sales comprised of
capital
47
<PAGE>
equipment and the corresponding increase in the percentage comprised of parts
and supplies, since parts and supplies generally have higher margins than
capital equipment.
Selling, general and administrative expenses in 1996 were $29.0 million, an
increase of $5.4 million, or 22.7%, as compared to 1995. The increase consisted
primarily of the addition of expenses for Clinton, which were $5.5 million. The
increase was partially offset by a reduction of expenses as a result of
management's continued efforts to lower costs of operations, coupled with lower
sales expenses as a result of the decline in capital equipment sales.
Operating income in 1996 was $7.3 million, an increase of $1.1 million, or
17.4%, as compared to 1995. As a percentage of net sales, operating income was
6.4% in 1996 as compared to 6.8% in 1995. The increase in operating income
resulted primarily from an increase in sales and the efforts to reduce costs.
Interest expense was $4.8 million in 1996, an increase of $0.6 million, or
13.6%, as compared with 1995. The increase in interest expense was primarily a
result of the additional borrowings incurred as of February 1, 1996 used to
finance the acquisition of Clinton.
Provision for income taxes for 1996 was $1.1 million, an increase of $0.6
million, as compared to 1995. The Company's effective tax rate was 46.4% in
1996, as compared to 28.6% in 1995.
Net income in 1996 was $1.3 million, an increase of $0.1 million or 5.7%
compared to 1995. The increase was attributable to the factors discussed above.
1995 COMPARED TO COMBINED 1994
Net sales were $90.4 million in 1995, an increase of $7.5 million, or 9.0%,
compared to Combined 1994. Net sales increased primarily as a result of the
introduction by the Company of new product lines, an increase in the purchase of
capital equipment by apparel manufacturers and the completion of significant
sales by the Company's Leadtec subsidiary of its "Satelite Plus" real-time
computerized production control system.
Gross profit in 1995 was $29.8 million, an increase of $2.9 million, or
10.8%, as compared to Combined 1994. As a percentage of net sales, gross profit
in 1995 was 32.9% as compared to 32.4% in Combined 1994. The increase in gross
profit margin was primarily attributable to the increase in sales by Leadtec of
its software products, which command higher margins than the Company's
traditional businesses. The increases in margins in 1995 were partially offset
by an increase in the cost of certain genuine parts distributed by the Company,
which increases became effective October 1, 1994 and January 1, 1995.
Selling, general and administrative expenses in 1995 were $23.6 million, an
increase of $0.3 million, or 1.5%, as compared to Combined 1994. As a percentage
of net sales, selling, general and administrative expenses were 26.1% in 1995
compared to 28.0% in Combined 1994. The increase in such expenses was
principally attributable to increased selling costs arising from higher sales.
However, sales increased at a higher rate than such expenses, resulting in a
decrease in the percentage that such expenses comprised of net sales in 1995. In
addition, 1994 included certain expenses allocated by the Company's Predecessor
to the Distribution Business prior to the Management Buyout, which were
eliminated for periods after July 12, 1994.
Operating income was $6.2 million in 1995, as compared to $3.6 million in
1994, an increase of 70.7%. The increase was principally due to higher net sales
without corresponding increases in operating expenses. In particular, the
increased sales by Leadtec of higher margin software products had a favorable
impact on 1995 operating income.
Interest expense was $4.2 million in 1995, an increase of $0.9 million, or
27.3% as compared to 1994. The increase was principally attributable to the debt
incurred on July 13, 1994 in connection with the Management Buyout.
48
<PAGE>
Provision for income taxes for 1995 was $0.6 million, an increase of $0.4
million. The Company's effective tax rate was 28.6% in 1995. The effective tax
rate for Combined 1994 is not meaningful, since the allocation of income taxes
to the Distribution Business by the Company's Predecessor was not on the same
basis as taxation applicable to an independent company.
The Company's results for 1995 reflect an extraordinary loss from the
extinguishment of debt (net of income tax benefit) of $0.2 million relating to
the repurchase by the Company from the Company's Predecessor of subordinated
debt issued as part of the consideration in the Management Buyout.
Net income for 1995 was $1.2 million, as compared to net income of $9,000 in
Combined 1994. The increase was principally attributable to the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation in 1994, the Company has funded its working capital
requirements, capital expenditures and acquisitions from net cash provided by
operations, borrowings under its credit facilities and proceeds from the
issuance of equity securities.
The Company used a portion of the net proceeds of the sale of the Old Notes
to repay substantially all of its existing debt, which was incurred to fund the
Management Buyout in July 1994, the Clinton Acquisition in February 1996, the
Mitchell Acquisition in November 1996 and working capital requirements. The
balance of such net proceeds were used to fund the $24.0 million purchase price
for the Macpherson Acquisition, to repay approximately $6.1 million of
indebtedness of Macpherson and to pay approximately $6.4 million of trade
payables of Macpherson.
In connection with the sale of the Old Notes, the Old Credit Facility was
terminated. The Company entered into the New Credit Facility with NationsBank,
as lender, which became effective upon consummation of the sale of the Old
Notes. The New Credit Facility, as amended as of April 23, 1997, provides for
borrowings of up to $18.5 million in the aggregate outstanding at any time,
subject to a borrowing base limitation equal to 85% of the Company's eligible
accounts receivable. Borrowings under the New Credit Facility will bear interest
at a rate per annum, at the Company's option, equal to (i) NationsBank's prime
rate plus 0.25% or (ii) LIBOR plus 2.50%. The New Credit Facility is secured by
all accounts receivable of the Company and include certain covenants applicable
to the Company, including requirements that the Company comply with certain
financial ratios. The New Credit Facility expires on July 13, 2001. As of April
30, 1997, $6.0 million was available to be borrowed by the Company under the New
Credit Facility.
In October 1996, W&G, Ltd. borrowed L1.0 million under the W&G, Ltd. Credit
Facility with Coutts & Co. The loan under the W&G, Ltd. Credit Facility bears
interest at a rate per annum equal to the bank's prevailing Base Rate, which is
currently 6.0% per annum, plus a margin of 2.25% per annum. The loan is payable
in eight semiannual installments of L125,000, commencing April 1997. The W&G,
Ltd. Credit Facility is secured by substantially all of the assets of W&G, Ltd.
The proceeds of this loan were used to repay indebtedness of W&G, Ltd. to the
Company, and the Company used such funds to repay higher cost indebtedness.
Effective February 1, 1996, the Company acquired all of the outstanding
capital stock of Clinton. The purchase price for Clinton consisted of $4.0
million in cash, 100,000 shares of the Company's common stock, the assumption of
$4.5 million of indebtedness and payables, which was subsequently paid, and
contingent payments of up to 38.9% of the operating income of Clinton during
each of the five years ending December 31, 2000. Such contingent payments may
not exceed $10.5 million in the aggregate over such five year period. In
addition the former shareholders of Clinton have the right to require WG Apparel
to purchase their shares of Company common stock at a purchase price of $30 per
share on the earliest of (i) the day after the Senior Notes have become due by
occurrence of the scheduled maturity date or sooner acceleration, (ii) the
fourth anniversary of the closing date of the Clinton Acquisition, (iii) the
occurrence of an initial public offering of equity securities by the Company and
(iv) a change of
49
<PAGE>
control of the Company, PROVIDED that in the case of clauses (ii) and (iii) such
purchase is then permitted under the Indenture and the New Credit Facility. The
Company's obligation to make contingent payments and to perform the put right is
an unsecured obligation of the Company. The Company obtained the cash required
in connection with the Clinton Acquisition through additional borrowings from
its existing lenders and approximately $2.4 million in proceeds from the sale of
Company common stock to existing shareholders.
Effective November 27, 1996, the Company acquired certain assets of Mitchell
for $3.0 million in cash. The Company financed this purchase price through
borrowings under the Old Credit Facility.
In connection with the Macpherson Acquisition, the Company acquired the
Leasing Company, a leasing company affiliate of Macpherson, for approximately
$0.5 million payable over three years, plus interest at 6.0% per annum. The
Company intends to utilize the Leasing Company to offer flexible lease financing
to its customers to support the Company's sales of equipment. The Company
intends to fund its investment in the Leasing Company through borrowings under
the New Credit Facility, which borrowings are expected to aggregate
approximately $3.5 million in 1997. The Company plans for the Leasing Company to
arrange additional borrowings to finance its operations and to sell a portion of
its leases on a nonrecourse basis. The Leasing Company is an Unrestricted
Subsidiary for purposes of the Indenture and, therefore, is not subject to any
of the covenants contained in the Indenture. See "Description of Senior Notes."
The Company's capital expenditures during the first three months of 1997
aggregated approximately $0.5 million. Such expenditures were primarily for
computer, office and warehouse equipment and improvements.
The Company intends to pursue selected acquisitions of other businesses that
will expand the Company's product lines or geographic coverage. The Company is
currently negotiating the terms of investments in certain businesses in
Colombia, which are not expected to involve material investments. Any
acquisition would be funded through cash generated by the Company's operations,
the issuance of additional securities by the Company, the sale of other assets
by the Company or the incurrence of additional indebtedness. The Company's
ability to sell assets and incur indebtedness are restricted under the Indenture
and the New Credit Facility.
Net cash used in the Company's operating activities was $2.5 million during
the first three months of 1997 principally due to working capital changes. The
Company's investing activities during the first three months of 1997 related
principally to $36.7 million utilized in the Macpherson Acquisition. Net cash
provided by financing activities aggregated $40.5 million, reflecting $84.0
million of borrowings from the refinancing used to extinguish debt of $41.1
million, $3.6 million in financing costs and $3.0 million to repurchase and
retire warrants.
Net cash used in the Company's operating activities was $0.3 million during
1996. Principal working capital changes included a $4.7 million increase in
accounts receivable and a $1.4 million increase in inventories. The Company's
investing activities during 1996 related principally to $12.0 million utilized
in the Clinton and Mitchell Acquisitions. Net cash provided by financing
activities aggregated $13.5 million, principally reflecting $10.5 million of
borrowings and $2.3 million from the sale of Company common stock in connection
with the Clinton Acquisition.
Net cash generated by the Company's operations in 1995 was $1.8 million.
Principal working capital changes included a $0.8 million decrease in accounts
receivable and a $0.8 million increase in inventories. Cash used in investing
activities of $0.8 million was principally related to capital expenditures
during the year. Cash used in financing activities in 1995 aggregated $0.8
million, reflecting a net increase in borrowings of $1.0 million, $1.8 million
from the sale of Company common stock to the Company's Savings and Employee
Stock Ownership Plan and the payment to the Company's Predecessor of $3.5
million to retire indebtedness and redeem warrants issued in connection with the
Management Buyout.
The Company believes that the cash generated from operations and borrowings
available under the New Credit Facility will be sufficient to meet the Company's
working capital and liquidity needs for the foreseeable future.
50
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--MACPHERSON
GENERAL
Macpherson is principally engaged in the distribution throughout the United
States and Canada of embroidery equipment used in the apparel industry.
Macpherson also distributes engraving equipment, but this business will be
discontinued in 1997.
On December 31, 1994, Macpherson consummated a business combination in which
it acquired all of the outstanding common stock of Meistergram, Inc. and
Macpherson Monogram, Inc. in exchange for Macpherson common stock, which was
accounted for in a manner similar to pooling-of-interests due to the common
ownership of the three companies. The purpose of the transaction was to combine
the three lines of business of such companies, the distribution of embroidery,
monogram and engraving equipment, to lower overhead costs and combine marketing
efforts.
The former shareholders of Macpherson elected under Subchapter S of the
Internal Revenue Code to have Macpherson's income taxed directly to the
shareholders. Accordingly, prior to the Macpherson Acquisition, Macpherson was
not obligated to pay Federal income taxes or, in some cases, state income taxes.
Rather, Macpherson distributed dividends to its former shareholders each year in
amounts estimated as sufficient to pay the Federal and state income taxes
attributable to the income of Macpherson for such year.
RESULTS OF OPERATIONS
The following table sets forth the percentages that certain income and
expense items bear to net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Net sales....................................................... 100.0% 100.0% 100.0%
Gross profit.................................................... 24.2 25.0 24.9
Operating expenses.............................................. 19.7 19.0 20.3
Operating income................................................ 4.5 6.0 4.6
Interest expense................................................ 0.6 0.3 1.1
Net income...................................................... 2.9 4.5 1.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
1996 COMPARED TO 1995
Net sales were $70.1 million in 1996, a decrease of $1.6 million, or 2.2%,
as compared to 1995. The decrease was primarily due to a decline in net sales of
embroidery and monogramming equipment due to delays in the introduction of a new
line of Barudan embroidery equipment and the sale of older lines of equipment at
discounts in order to accommodate the new line of inventory.
Gross profit in 1996 was $17.4 million, a decrease of $0.5 million, or 1.0%,
as compared with 1995. As a percentage of net sales, gross profit in 1996 was
24.9% as compared with 25.0% in 1995. The decrease in gross profit was primarily
attributable to the discounting of older lines of equipment in 1996 in
contemplation of the introduction of Barudan's new line and to higher costs of
such older equipment due to the unfavorable exchange rate between Japanese yen
and U.S. dollars at the time of purchase. A majority of Macpherson's purchases
of equipment is payable in Japanese yen, although substantially all of
Macpherson's net sales are in U.S. dollars.
51
<PAGE>
Operating expenses in 1996 were $14.2 million, an increase of $0.6 million,
or 4.6%, as compared to 1995. The increase is principally attributable to
increased marketing expenses, including the establishment of a new computer
software sales and support group and additions to the technical support group.
Operating income in 1996 was $3.2 million, a decrease of $1.1 million, or
24.9%, as compared to 1995. The decrease in operating income was principally
attributable to the increased volume of discounted sales and higher operating
expenses in 1996, as discussed above.
Interest expense was $0.8 million in 1996, an increase of 259.1%, as
compared with 1995. The increase was attributable to additional levels of
borrowings in 1996 required to maintain higher than customary levels of
inventory resulting from the introduction of the new line of Barudan equipment.
The Company expects Macpherson to return to its customary inventory levels
during 1997.
Net income for 1996 was $1.2 million, a decline of $2.0 million or 61.8%, as
compared to 1995. The decrease was principally attributable to the reasons
discussed above.
1995 COMPARED TO 1994
Net sales were $71.7 million in 1995, an increase of $2.8 million, or 4.1%,
as compared to 1994. The increase was principally due to the growth in demand in
1995 for embroidery equipment distributed by Macpherson. The increase was
partially offset by a decline in 1995 of $1.2 million in net sales of
Macpherson's engraving equipment, principally due to the delay in the
introduction of Macpherson's laser equipment and falling demand for Macpherson's
rotary engraving equipment.
Gross profit in 1995 was $17.9 million, an increase of $1.3 million, or
7.5%, as compared to 1994. As a percentage of net sales, gross profit increased
from 24.2% in 1994 to 25.0% in 1995. The improvement in gross profit margin was
primarily due to improved pricing in response to higher customer demand. The
improvement was partially offset by fluctuation in the exchange rate of Japanese
yen and U.S. dollars.
Operating expenses in 1995 were $13.6 million, which was essentially
unchanged from 1994. Macpherson's consolidation of operations into one company
at the end of 1994 enabled it to operate its marketing functions more
efficiently and thereby avoid increased costs.
Operating income in 1995 was $4.3 million, an increase of $1.2 million, or
40.0%, as compared to 1994. The increase was principally due to higher sales
without a related increase in operating expense levels.
Interest expense in 1995 was $0.2 million, a decrease of $0.2 million, or
44.2%, as compared to 1994. The decrease was principally due to lower levels of
borrowings.
Net income in 1995 was $3.3 million, an increase of $1.3 million, or 63.1%,
as compared to 1994. The increase was principally due to the factors discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
Macpherson's principal sources of liquidity have been net cash from
operations and borrowings under Macpherson's credit facility.
Net cash generated by Macpherson's operating activities totaled $0.3 million
in 1996. Principal working capital changes included a $5.4 million decrease in
accounts receivable, a $0.4 million decrease in inventories and a $7.0 million
decrease in accounts payable. Macpherson's investing activities during 1996
consisted of $0.3 million of capital expenditures. Net cash provided in
financing activities aggregated $0.1 million, principally reflecting dividend
payments of $1.7 million, reduced by a net increase in borrowings of $1.8
million.
Net cash used in operating activities in 1995 was $0.1 million. Principal
working capital changes included a $5.0 million increase in accounts receivable,
a $7.8 million increase in inventories and a $9.2
52
<PAGE>
million increase in accounts payable. Net cash used in investing activities in
1995 aggregated $0.1 million, principally reflecting capital expenditures. Net
cash provided by financing activities in 1995 aggregated $0.5 million,
principally attributable to a net increase in borrowings of $2.1 million, and
partially offset by the payment of $1.9 million of dividends.
Macpherson had a revolving credit line that permitted borrowings of up to
$7.0 million. The revolving credit line was due and payable upon expiration on
July 31, 1998, and bore interest, payable monthly on the first day of each
month, at the lower of LIBOR plus the LIBOR margin (2 1/2% prior to December 15,
1996), or the bank's prime rate. Borrowings under the revolving credit line were
limited to specified percentages of eligible inventory and receivables of the
Company. The Company had outstanding borrowings of $4.8 million, with additional
credit of $2.2 million available at December 31, 1996. This revolving credit
line was collateralized by all trade accounts receivable and all inventories of
Macpherson, except for approximately $12.6 million of stitching machine
inventory. The revolving credit line was repaid and terminated in connection
with the consummation of the Macpherson Acquisition.
53
<PAGE>
BUSINESS
GENERAL
The Company believes that it is the largest independent distributor in North
America of replacement parts, supplies and specialized equipment to
manufacturers of apparel and other sewn products, offering a broad product line
of over 200,000 items. These products include industrial sewing equipment parts,
such as needles, hooks, motors, tools and other accessories, and specialized
equipment, such as screen printing equipment and supplies and production
planning and control systems. In addition, following consummation of the
Macpherson Acquisition, the Company became a major distributor of embroidery
equipment and supplies, marketing its products through 22 sales and distribution
centers strategically located in the United States, Canada, Mexico, the
Dominican Republic and England. During 1996, the Company's customer base
consisted of over 15,000 manufacturers and dealers.
Since the Management Buyout, the Company has expanded through internal
growth of operations and acquisitions. The Company intends to pursue strategic
acquisitions to expand its product lines and enter into new geographic markets.
The Company believes that the size of its operations and the stable operating
history of its replacement parts and supplies distribution business have enabled
it to carry substantially higher levels of inventory than its competitors. These
investments in inventory provide customers with wide selection, a high degree of
product availability and assurance of prompt delivery. In addition, the Company
believes that it is well positioned to pursue selected growth opportunities
internationally, particularly in Mexico and South America, based upon the size
of its operations, its established inventory management systems and its growing
sales in these markets.
The Company currently operates through six principal business units: (i) its
Sunbrand division, which is a distributor of replacement parts, supplies and
specialized equipment to manufacturers of apparel and other sewn products; (ii)
its Unity division, which is a wholesale distributor to dealers of replacement
parts and supplies for use by the apparel and other sewn products industry;
(iii) its W&G, Ltd. subsidiary, which is a distributor to manufacturers and
dealers in the United Kingdom and Europe of replacement parts and supplies for
use by the apparel and other sewn products industry; (iv) its Clinton
subsidiary, which is a distributor of screen printing equipment and supplies for
the apparel industry; (v) its Leadtec subsidiary, which develops and supplies
computer-based production planning and control systems for the apparel industry
and (vi) Macpherson, which distributes embroidery equipment and supplies used in
the apparel industry. See "The Macpherson Acquisition."
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The following table sets forth for each of the Company's business units (i)
net sales for the years ended December 31, 1994, 1995 and 1996, and (ii) net
sales for the year ended December 31, 1996 on a pro forma basis assuming that
the Clinton Acquisition, the Mitchell Acquisition and the Macpherson Acquisition
were consummated on January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
<S> <C> <C> <C> <C>
1994 1995 1996
----------- ----------- -------------------------
<CAPTION>
COMBINED HISTORICAL HISTORICAL PRO FORMA(1)
----------- ----------- ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Sunbrand.................................... $ 59,794 $ 65,872 $ 60,435 $ 60,435
Unity....................................... 12,566 12,118 10,936 10,936
W & G, Ltd.................................. 6,246 6,535 7,372 7,372
Clinton(2).................................. -- -- 28,682 31,657
Leadtec..................................... 4,347 5,906 6,426 6,426
Macpherson.................................. -- -- -- 67,767
----------- ----------- ---------- -------------
Net sales................................... $ 82,953 $ 90,431 $ 113,851 $ 184,593
----------- ----------- ---------- -------------
----------- ----------- ---------- -------------
</TABLE>
- ------------------------
(1) Gives effect to the Clinton Acquisition, the Mitchell Acquisition and the
Macpherson Acquisition as if each occurred on January 1, 1996. See "Pro
Forma Combined Financial Information."
(2) Clinton was acquired effective February 1, 1996. Sales of Mitchell (0.8
million for 1996) are included with the Clinton pro forma amount for
purposes of this presentation.
INDUSTRY OVERVIEW
Manufacturers of apparel and other sewn products generally utilize a variety
of modern equipment and supplies in their production processes. Although there
have been advances in the speed of equipment and automation of manufacturing
methods, the basic sewing process has changed very little since the first sewing
machines were introduced over 125 years ago. Accordingly, the basic design of
sewing equipment and replacement parts and supplies used with respect to such
equipment has remained stable for many years, and new generations of sewing
equipment have frequently utilized many parts designed for prior generations. In
addition, since numerous manufacturers of sewn products do not regularly replace
major equipment upon the introduction of new models, substantial numbers of
older machines typically continue to be used for many years after the production
of more advanced units.
The improvements in speed of equipment and the trend toward automation in
apparel and sewn products manufacturing have increased the demand for
replacement parts and supplies by manufacturers, since high speed production
increases the wear and tear on equipment. In addition, automation results in the
utilization of other equipment, such as cutting and finishing devices, that must
be maintained. As a result of the large number of differing replacement parts
and supplies utilized by apparel and sewn products manufacturers and the
relatively small quantity of many items required at varying times, such
manufacturers generally prefer to obtain replacement parts and supplies from
dealers that stock a wide range of products and offer prompt delivery. In
addition, manufacturers of such replacement parts, supplies and specialized
equipment often prefer to sell such products through distributors who can
provide wide market coverage, assume credit risk and stock inventory, thereby
limiting the manufacturers' costs of marketing and distribution.
The replacement parts distribution business for sewing equipment involves
both "genuine" and "generic" parts. "Genuine" parts are replacement parts
manufactured by the original equipment manufacturer. "Generic" parts are
non-branded replacement parts manufactured by someone other than the original
equipment manufacturer.
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The market for screen printing equipment and embroidery equipment used to
add decoration to apparel products has grown rapidly over the past several
years. This growth has been propelled by expansion of the market for casual
wear, such as T-shirts, sweatshirts and caps, which frequently feature printed
or embroidered trademarks, slogans or other designs. In addition, improvements
in technology have made screen printing and embroidery equipment less expensive
and more sophisticated. The Company acquired Clinton, which distributes screen
printing equipment and supplies, in February 1996, and Macpherson, which
principally distributes embroidery equipment and supplies, in January 1997, in
order to take advantage of the growing demand for such equipment and of the
ability to market these complimentary product lines to the same end-user group.
The market of apparel manufacturers in the Western Hemisphere has expanded
during the 1990s due to the shifting production of apparel products sold in the
United States from the Far East to Mexico and the rest of Latin America.
According to the U. S. Department of Commerce, in 1990 Asia accounted for 75.4%
of U.S. imports of apparel, while Mexico and the CBI countries accounted for
11.2%. By 1995, Asia's share had dropped to 62.7% of U.S. imports, while Mexico
and the CBI countries increased to 23.1%. The trend towards increasing apparel
imports to the United States from Mexico is expected to accelerate with the
implementation of NAFTA. In addition, the Company anticipates that apparel
manufacturers from around the world who sell their products to the United States
will increase apparel production in Mexico, the CBI countries and the rest of
Latin America due to the improved political and economic climate of many of such
countries and the quick and relatively inexpensive access to the U.S. market
from such region. The Company believes it is well positioned to capitalize on
the shift in apparel production to the southern portion of the Western
Hemisphere due to its broad product line, its existing distribution centers
located nearby and its prior relationships with many of the manufacturers that
are establishing production facilities south of the United States. For example,
the Company is a supplier to one of its major customers, Fruit of the Loom, at
its new Mexican manufacturing facility that began operations in 1996.
The following data compiled by the U.S. Department of Commerce demonstrates
the growth in apparel production by manufacturers located in the United States
and the growth in imports of apparel in the recent past:
<TABLE>
<CAPTION>
VALUE OF VALUE OF U.S.
SHIPMENTS OF IMPORTS OF
U.S. APPAREL
APPAREL PRODUCTS PRODUCTS(1)
---------------- ------------------
<S> <C> <C>
(DOLLARS IN MILLIONS)
1980................................................... $ 45,782
1981................................................... 49,823
1982................................................... 53,388
1983................................................... 55,375
1984................................................... 57,578
1985................................................... 56,993
1986................................................... 57,919
1987................................................... 64,243
1988................................................... 65,032
1989................................................... 63,399 $ 25,372
1990................................................... 64,414 26,602
1991................................................... 65,345 27,230
1992................................................... 71,546 32,462
1993................................................... 74,010 35,278
1994................................................... 76,898 38,343
1995................................................... 77,800 40,998
</TABLE>
- ------------------------
(1) Imports are restricted to goods imported for consumption and are on a
customs value basis. Information for periods prior to 1989 was not
available.
56
<PAGE>
COMPETITIVE STRENGTHS
The Company believes that it has a strong competitive position attributable
to a number of factors, including the following:
- MARKET LEADERSHIP. The Company believes that it is the largest
independent distributor of replacement parts, supplies and specialized
equipment for the apparel and other sewn products industry in North
America. As a result, the Company has significant purchasing power and can
realize economies of scale in marketing, distribution and administration.
The Company estimates that each of its principal operating units is among
the leaders in its respective market.
- STRONG BRAND NAME RECOGNITION. The Willcox & Gibbs brand name has been
well known in the apparel industry since the Company's predecessor began
operations in the mid-1800s as an apparel equipment manufacturer. Since
that time, the Company's Sunbrand and Unity divisions have developed and
maintained well-recognized brand names in replacement parts distribution
through a long history of comprehensive and high quality product lines and
an emphasis on customer service.
- BROAD LINES OF QUALITY PRODUCTS. The Company believes that it markets the
broadest line of quality replacement parts, supplies and specialized
equipment to manufacturers of apparel and other sewn products in North
America. For example, the Company's Sunbrand division markets over 180,000
items, while the Company believes that its closest competitor offers
approximately 40,000 items. As a result of its broad product offering, the
Company believes that it provides its customers with "one-stop shopping"
for their replacement parts, supplies and specialized equipment
requirements.
- HIGH LEVEL OF CUSTOMER SERVICE. The Company provides its customers with a
comprehensive selection of products, a high degree of product
availability, convenient ordering systems and fast order response time.
The Company's strategically placed distribution facilities and efficient
inventory management systems enable it to achieve high order fill rates
for replacement parts and supplies (in excess of 95% of orders are shipped
within 24 hours), timeliness of delivery and wide geographic coverage. The
Company utilizes a real-time computer inventory management system in its
sewn products replacement parts and supplies businesses that enables it to
search all inventory locations in North America for product availability.
In addition, the Company maintains EDI systems that link the Company to
selected customers, such as Levi Strauss and Fieldcrest Cannon. The
Company fills substantially all of its orders of parts and supplies by
customers in the United States through next-day delivery, which is
important to assist customers in minimizing operator downtime.
- STRONG RELATIONSHIPS WITH SUPPLIERS. The Company has developed strong
relationships with many of its suppliers, with some dating back over 30
years. The Company maintains exclusive U.S. distribution rights for
genuine replacement parts for Pfaff (since 1958) and Pegasus (since 1966),
two major sewing equipment suppliers to the U.S. apparel and other sewn
products industry, as well as exclusive distribution rights in certain
territories for M&R, a major manufacturer of screen printing equipment for
the apparel industry in the United States, and Barudan, a major
manufacturer of embroidery equipment for the worldwide apparel industry.
- DIVERSIFIED BASE OF CUSTOMERS. During 1996, the Company sold products to
over 15,000 apparel and sewn products manufacturers and dealers of
replacement parts and supplies, with no single customer representing more
than 5.2% of net sales. The Company has enjoyed long-term relationships
with a number of its major customers, including Levi Strauss, Fruit of the
Loom, Fieldcrest Cannon, Russell Athletic and VF Corporation.
- EXPERIENCED MANAGEMENT TEAM. The Company's officers have an average of 16
years of experience with the Company and the Company's Predecessor and an
average of 19 years of industry experience. The Company retained
substantially all of the senior management of the businesses acquired in
the Management Buyout in July 1994, of Clinton in connection with its
acquisition by
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<PAGE>
the Company in February 1996 and of Macpherson following consummation of
the Macpherson Acquisition in January 1997. The Company's senior
management and employees collectively owned, as of March 31, 1997, on a
fully diluted basis 63.1% of the Company's outstanding common stock.
BUSINESS STRATEGY
The Company's strategy is to enhance its position as a leading distributor
of replacement parts, supplies and specialized equipment to the apparel and
other sewn products industry. In order to achieve this objective, the Company
has developed a business plan that consists of the following key elements:
- MAINTAIN LEADING MARKET POSITION. The Company believes that it is the
leading independent distributor in North America of replacement parts,
supplies and specialized equipment to the apparel and other sewn products
industry. The Company believes that such leadership is based primarily on
the Company's long history of operations, broad line of products and
excellent customer service. The Company intends to enhance its market
leadership by maintaining and expanding its relationships with suppliers
and customers.
- EXPAND PRODUCT LINES. The Company intends to add lines of replacement
parts, supplies and specialized equipment that can be efficiently marketed
through its existing distribution system. Such additions are intended to
strengthen the Company's position as a "one-stop shop" without significant
incremental expenses related to selling, marketing, distribution and
administration.
- INCREASE PENETRATION OF EMERGING MARKETS. The Company believes that it is
well positioned to increase sales by targeting growth opportunities in
emerging markets such as Mexico, the CBI countries and the rest of Latin
America. The Company expects that its comprehensive line of replacement
parts, supplies and specialized equipment and substantial experience in
serving the apparel and other sewn products industry will provide a
competitive advantage over smaller, local competitors in these regions.
The Company intends to expand its presence in these areas in 1997 by
opening a new sales office in Colombia.
- PURSUE SELECTED ACQUISITIONS. Since the Management Buyout in July 1994,
the Company has pursued a plan of expanding its product offerings through
strategic acquisitions. In February 1996, it acquired Clinton, a leading
distributor of screen printing equipment and supplies, in November 1996,
it acquired Mitchell, a manufacturer of abrasive cords and tapes used
principally by apparel manufacturers, and in January 1997 it acquired
Macpherson, a leading distributor of embroidery equipment and supplies.
The Company intends to pursue other strategic acquisitions to expand its
product lines and to enter into new geographic markets.
SUNBRAND
Sunbrand, which has been operating for over 40 years, believes it is the
largest distributor in North America of replacement parts, supplies and
specialized equipment to manufacturers of apparel and other sewn products.
Sunbrand's products are purchased from many of the leading manufacturers of
equipment for the apparel and sewn products industry. The Company believes that
Sunbrand's breadth of product selection makes it the apparel industry's leading
one-stop shop for replacement parts and supplies. On a pro forma basis assuming
the Clinton Acquisition, the Mitchell Acquisition and the Macpherson Acquisition
were consummated on January 1, 1996, Sunbrand's net sales would have accounted
for approximately 32.7% of the Company's 1996 consolidated net sales.
PRODUCTS. Sunbrand carries one of the most extensive lines of replacement
parts and supplies for the apparel and other sewn products industry in North
America. Its product line includes a full range of replacement parts for sewing
machines, spreading and cutting equipment, finishing equipment, and general
supplies. Sunbrand also offers a broad base of manufacturing equipment,
distribution systems, information systems and management services. Sunbrand
offers over 180,000 items, while the Company
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<PAGE>
believes that its closest competitor offers approximately 40,000 items. The
Company believes that Sunbrand's broad product line gives it the advantage of
being the apparel industry's leading one-stop shop for replacement parts and
supplies.
SUPPLIERS. Sunbrand purchases products from 1,200 different vendors,
including many of the leading manufacturers of equipment for the apparel and
sewn products industry. In addition, Sunbrand is the exclusive distributor of
Pfaff and Pegasus genuine replacement parts in the United States. Sunbrand's
five largest suppliers (other than Unity) accounted for 39.6% of its total
purchases in 1996, and Pfaff and Pegasus accounted for approximately 11.0% and
13.9%, respectively, of Sunbrand's purchases for such year. Sunbrand obtains all
of its generic sewing parts and supplies from Unity.
Pfaff, a German company, is a major manufacturer of industrial sewing
equipment for the apparel industry and, in 1995, the Company believes Pfaff had
an estimated 8.0% share of the U.S. "lock-stitch" industrial sewing machine
market. Pegasus is a significant Japanese manufacturer of industrial sewing
equipment, and, in 1995, the Company estimates that Pegasus had a 30.0% share of
the U.S. "chain-stitch" industrial sewing machine market. The Company (including
its predecessor) has been the exclusive distributor in the United States of
Pfaff genuine parts since 1958 and of Pegasus genuine parts since 1966.
Under the Company's distributor agreements with Pfaff and Pegasus, the
Company is the exclusive United States distributor of Pfaff and Pegasus genuine
parts through 1998, which exclusive arrangements automatically renew for
successive two year periods unless notice of termination is given at least one
year prior to December 31, 1998 or the end of any successive two year period of
exclusivity. In order to maintain the exclusivity of the Pfaff and Pegasus
distribution agreements, the Company must meet certain performance targets.
Historically the Company has generally satisfied these requirements, although in
certain prior years they were not satisfied and Pfaff and Pegasus waived such
shortfalls. Although the Company believes that its relationships with Pfaff and
Pegasus have been good, there can be no assurance that the Pfaff or Pegasus
distribution agreement will be extended beyond its current term or that the
Company will continue to be the distributor for Pfaff or Pegasus parts. No
assurance can be given that the failure to extend either the Pfaff or Pegasus
distribution agreement or the loss by the Company of its supplier relationship
with Pfaff or Pegasus would not have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors--Dependence on Suppliers."
SALES AND DISTRIBUTION. Sunbrand has its headquarters and principal
warehouse facility in Atlanta, Georgia. In addition, Sunbrand maintains six
strategically located branches that serve as regional sales offices and
distribution points: Fall River, Massachusetts; Miami, Florida; El Paso, Texas;
Mexico City and Gomez Palacio/Torreon, Mexico; and Santo Domingo, Dominican
Republic. All of its branches are connected by a sophisticated computer ordering
system that allows real-time ordering and rapid inventory replenishment. The
Atlanta warehouse provides over 180,000 different items, and the branches stock
the parts ordered most frequently in their particular regions. The typical
branch carries approximately 3,500 items.
Sunbrand is well known for its 1,600 page catalog, which serves as a
reference source for the apparel industry due to the breadth of Sunbrand's
product lines. This catalog, which is published about every three years, is a
valuable marketing tool that is used by many existing and potential buyers of
parts and supplies.
Sunbrand's customers are offered five convenient methods of placing orders:
(i) through the main Atlanta distribution center via a toll-free number printed
at the bottom of each page of Sunbrand's catalog; (ii) through customer service
representatives in the branch closest to them; (iii) through an on-line ordering
system installed at the customer's location linked to Sunbrand's mainframe
computer; (iv) through electronic data interchange; and (v) via facsimile.
As of December 31, 1996, Sunbrand maintained a staff of 25 customer service
representatives, 13 of whom were located in Atlanta. Upon receipt of an order,
customer service relays it either to the Atlanta
59
<PAGE>
warehouse or the closest branch via on-line computer, where the item is packed,
shipped, and automatically re-ordered for inventory. During 1996, over 95% of
Sunbrand's orders were shipped within 24 hours. Most packages are shipped via
U.P.S. overnight and received by customers the following day.
In addition, Sunbrand maintains three groups of specialized personnel to
serve its customers: field sales representatives, product specialists and
service technicians. Field sales representatives, who numbered 40 at December
31, 1996, are based in Atlanta and each of Sunbrand's branch offices. Each field
sales representative is responsible for expanding existing customer
relationships and developing new customers in his or her assigned territory.
Sunbrand's product specialists, who totalled 23 as of December 31, 1996, are
required to maintain thorough technical knowledge about their assigned products.
Product specialists are available to respond to inquiries regarding the
Company's products and often accompany field representatives on customer calls.
They also monitor product lines for profitability. Sunbrand's technical
specialists repair, install, and train plant maintenance staffs in the operation
and maintenance of parts and equipment. The staff of technical specialists
totalled 16 at December 31, 1996.
CUSTOMERS. Sunbrand serviced over 11,400 customers in 1996, the largest of
which accounted for 6.1% of Sunbrand's 1996 net sales. Sunbrand's top ten
customers, which included Levi Strauss, Fruit of the Loom, Fieldcrest Cannon,
Russell Athletic and VF Corporation, represented 20.1% of Sunbrand's net sales
in 1996. Sunbrand's top fifteen customers have all been Sunbrand customers for
more than 15 years.
Historically, a majority of Sunbrand's sales have been to customers in the
United States, although sales to customers in Latin America have increased
significantly in recent years. Approximately 10% of Sunbrand's net sales in 1990
were to Latin America, which increased to 23.8% in 1996. The balance of
Sunbrand's sales were to customers in the United States and Canada. Mexico was
the principal location of Sunbrand's customers outside of the United States in
1996, comprising 12.6% of Sunbrand's net sales, followed by the CBI countries
and other South American countries. The Company may continue to follow important
customers from the U.S. as they pursue opportunities in the CBI and other South
American countries.
COMPETITION. While there is strong competition throughout the markets
served by Sunbrand, Sunbrand believes that it is the largest distributor in
North America of replacement parts and supplies to manufacturers of apparel and
other sewn products. Most of Sunbrand's competitors are small, regional
distributors. In addition, there are three national competitors to Sunbrand,
some of which may have greater financial resources than the Company. Competition
is principally based on product availability, price and speed of delivery.
UNITY
Unity, founded over 50 years ago in New York City, is a leading wholesale
distributor to dealers in North America of replacement parts and supplies for
use in the apparel and sewn products industry. Unity does not sell directly to
manufacturers or other end-users. On a pro forma basis assuming the Clinton
Acquisition, the Mitchell Acquisition and the Macpherson Acquisition were
consummated on January 1, 1996, Unity's net sales would have accounted for
approximately 5.9% of the Company's 1996 consolidated net sales.
PRODUCTS. Unity's product line includes genuine and generic replacement
parts, needles, motors, tables, stands, cleaning guns and sewing lights. Unity
offers over 70,000 items. Since Unity's customers (other than Sunbrand) are
dealers who typically resell to medium-sized and smaller apparel manufacturers,
Unity's sales have generally been substantially comprised of more economical
generic replacement parts rather than genuine parts. In each of the past three
years, generic parts have accounted for over 92% of Unity's net sales.
SUPPLIERS. Unity purchases the majority of its products from the Far East
and Germany. Japanese and German generic parts are generally regarded as the
highest quality. Taiwanese products have a lesser
60
<PAGE>
reputation but are lower priced, and Unity purchases many commodity items from
Taiwan in order to meet customers' low cost needs. In 1996, approximately 41% of
Unity's purchases came from Japan, 9% from Germany and 13% from Taiwan. United
States purchases accounted for approximately 23% of the total in 1996, and the
balance of its purchases came from Sunbrand.
Unity purchases generic parts from hundreds of small manufacturers,
principally through trading houses or similar arrangements. Many parts made in
Japan and Taiwan are available to Unity's competitors through similar
arrangements. However, Unity has exclusive arrangements with some manufacturers
that give it either sole distribution rights or shared rights with a limited
number of other wholesalers.
Unity's largest supplier is Sogawa, located in Osaka, Japan. The primary
products purchased by Unity from Sogawa are hooks used for sewing equipment,
principally Hirose hooks. In 1996, Hirose hooks comprised approximately 19.9% of
Unity's total sales, and Sogawa products accounted for approximately 34.3% of
Unity's purchases.
SALES AND DISTRIBUTION. Unity operates warehouses in Carteret, New Jersey;
Los Angeles, California; and Miami, Florida. The Carteret warehouse serves the
eastern and midwestern United States, from Massachusetts to Georgia, and as far
west as Dallas. The Los Angeles facility serves the western United States and as
far east as Denver. The Miami facility principally serves the Latin American
trade. The Miami office initially collected orders that were filled from the
Company's principal warehouse. Due to a rapid increase in orders, Unity opened a
full stocking warehouse in Miami in April 1993. During 1996, the Miami warehouse
filled approximately 85% of the orders taken by the office, and Unity plans to
expand the Miami product line to improve same-day delivery capability.
Unity utilizes a sophisticated inventory tracking computer system that
closely analyzes inventory turnover for each replacement part. This system
enables Unity to minimize inventory levels, yet maintain a very high service
level.
Unity markets its products through its extensive 700 page catalog, which is
a leading source of information for dealers of replacement parts and supplies.
In addition, Unity currently employs two full-time traveling salesmen who visit
regularly with dealers and eight customer service representatives who regularly
visit with large accounts to assist in service, delivery and new product needs.
Most of Unity's orders are booked via telephone or facsimile due to the time
sensitivity of the typical customer's needs. Both New York and California have
nationwide 800 telephone service, and the Miami office offers 800 telephone
service throughout Latin America.
Approximately half of all of Unity's shipped orders are sent directly to the
end-user, with dealers receiving, and subsequently redistributing, the other
half. Whenever Unity delivers a product directly to an end-user, the dealer's
label is placed on the package. U.P.S. ground deliveries represent approximately
80% of Unity's total deliveries, with overnight service comprising the remaining
20%. In order to reduce delivery time to customers, Unity often direct drop
ships to end-users, thus bypassing inventory and shipping, and reducing the cost
to Unity.
CUSTOMERS. Unity sells to a network of over 1,000 independently owned and
operated dealers, none of which accounted for more than 2.0% of Unity's net
sales in 1996. Historically, a majority of Unity's sales have been to customers
in the United States, although sales to customers in Latin America have
increased significantly in recent years. Approximately 14% of Unity's sales in
1990 were to Latin America, which increased to 25.2% in 1996. The balance of
Unity's sales were to customers in the United States and Canada. To increase the
Company's participation in the Latin American markets, Unity plans to open a new
warehouse in Colombia, and similar plans in two other South American countries
are under negotiation.
COMPETITION. Unity's business is highly competitive. There are four other
significant wholesalers that supply dealers with apparel parts and supplies,
none of which has more than two warehouses, as compared
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to Unity's three distribution centers. In addition, there are numerous smaller,
regional competitors, and in some instances dealers bypass wholesalers and buy
directly from manufacturers or trading companies when purchasing a significant
quantity of parts or supplies or if it is otherwise cost effective. Competition
is principally based on product availability, price and speed of delivery.
W&G, LTD.
W&G, Ltd., a United Kingdom corporation organized in 1908, is a leading
distributor of generic and genuine replacement parts, supplies and specialized
equipment to apparel manufacturers and dealers in the United Kingdom and Europe.
The Company believes that the breadth of W&G, Ltd.'s inventory and its
attainment of certain quality control standards make it a leading one-stop
provider for apparel manufacturers and dealers in the United Kingdom and Europe.
On a pro forma basis assuming the Clinton Acquisition, the Mitchell Acquisition
and the Macpherson Acquisition were consummated January 1, 1996, W&G, Ltd.'s net
sales would have accounted for approximately 4.0% of the Company's 1996
consolidated net sales.
PRODUCTS. W&G, Ltd. maintains an inventory of over 35,000 items, the
majority of which are generic parts for sewing machines from virtually every
manufacturer in the industry. In addition to generic machine parts, W&G, Ltd.
sells two needle lines, sewing equipment, cutting equipment and pressing
equipment.
W&G, Ltd. purchases a majority of its products from the Far East and
Germany, and also purchases a considerable amount of its products from Sunbrand
and Unity. W&G, Ltd. has long standing non-exclusive relationships with its
primary suppliers.
SALES AND DISTRIBUTION. W&G, Ltd. sells the majority of its products
directly to apparel manufacturers through its ten sales representatives. In
addition, W&G, Ltd. currently employs three representatives to service its
wholesale dealer business.
W&G, Ltd.'s central warehouse in Braintree, Essex is located close to major
highways, railways to London and Stanstead Airport. In addition to the Braintree
warehouse, two additional stocking facilities are located in Nottingham and
Leicester. To meet customers' time requirements, W&G, Ltd. often uses Royal Mail
and Parcelforce for next day delivery anywhere in the U.K. Less urgent shipments
are sent via regular mail.
CUSTOMERS. W&G, Ltd. has been servicing its top ten customers for an
average of 16 years. During 1996, approximately 60% of sales were direct to
manufacturers, with the balance generated through dealer accounts. None of W&G,
Ltd.'s customers accounted for more than 9.7% of its 1996 net sales.
COMPETITION. W&G, Ltd.'s business is highly competitive. There are a number
of smaller, local competitors, as well as one major national U.K. competitor
comparable in size to W&G, Ltd. Competition is principally based on product
availability, price and speed of delivery.
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CLINTON
Clinton, founded by its current management in 1985 and acquired by the
Company in February 1996, is a distributor of screen printing equipment and
supplies for the apparel industry. See "The Company-- The Clinton Acquisition."
Screen printing is the process by which designs are applied to fabric or other
material using patterned screens. The Company acquired Clinton pursuant to its
business strategy of expanding the product lines it is able to offer through its
existing distribution network. On a pro forma basis, assuming that the Clinton
Acquisition, the Mitchell Acquisition and the Macpherson Acquisition were
consummated on January 1, 1996, Clinton would have accounted for approximately
17.2% of the Company's 1996 consolidated net sales (including Mitchell, which
would have accounted for approximately 0.5% of such net sales).
PRODUCTS. Clinton sells and services a complete line of automatic and
manual screen printers, gas and electric dryers and other accessory equipment
for the screen printing industry. Clinton also offers a comprehensive line of
textile screen printing supplies, including inks, chemicals, emulsions, screen
frames, screen mesh and other accessory items.
The majority of Clinton's products are used to produce designs on men's,
women's and children's T-shirts and sweatshirts and other apparel items. Other
significant applications include home furnishings, towels, hats, industrial
fabrics and other non-apparel promotional articles made from fabric materials.
Clinton also sells a complete line of equipment to graphics customers primarily
for promotional signs and posters.
Clinton distributes the M&R line of screen printing equipment and dryers.
M&R is a major United States manufacturer of screen printing equipment. Pursuant
to two distribution agreements between Clinton and M&R, Clinton has certain
distribution rights for M&R's screen printing equipment. With respect to M&R's
textile equipment, Clinton has exclusive rights to distribute such equipment in
five southeastern states of the United States and in Latin America, Europe,
Africa, the Middle East, Asia and Australia (the "Worldwide Territory"). Clinton
has nonexclusive rights to distribute M&R's textile equipment in Mississippi and
Kentucky. With respect to M&R's graphics equipment, Clinton has nonexclusive
rights to distribute such equipment in seven southeastern states of the U.S. and
the Worldwide Territory. The M&R agreement governing U.S. territories expires on
December 31, 1998 and continues from year to year thereafter, although it may be
terminated at any year end if written notice is given to the other party on or
before July 1 of such year. The M&R agreement governing international territory
expired on December 31, 1996 but continues from year to year thereafter,
although it may be terminated by either party at any year end if written notice
is given to the other party on or before September 1 of such year. M&R products
comprised 51.2% of Clinton's total purchases in 1996. No other vendor accounted
for more than 18.0% of Clinton's purchases in 1996.
SALES AND DISTRIBUTION. Clinton's marketing strategy has been to align
itself with single manufacturers of major screen printing products, which has
allowed Clinton to secure agreements with leading manufacturers of certain
products. The Company believes that these affiliations have created competitive
advantages for Clinton, including closer working relationships, increased buying
power, opportunities for special terms and prices, increased stocking levels
(which significantly reduces backorders) and enhanced product knowledge by
Clinton personnel.
Clinton believes that it is one of the few companies within the screen
printing industry to carry an extensive inventory of both equipment and
supplies. This has enabled Clinton to serve as a "one-stop source" for
customers, providing them with the convenience of dealing with a single supplier
for all of their screen printing needs. By purchasing an extensive inventory of
equipment and supplies through single sources, Clinton is able to stock a more
targeted inventory, as well as allowing for quicker delivery.
Clinton direct sells to its customers with experienced sales representatives
supported by telemarketing, direct marketing materials and a monthly newsletter.
Clinton has a complete working showroom for
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sales demonstrations, customer seminars and personnel training. Customer classes
are given monthly in both English and Spanish.
Clinton has its headquarters in Miami Lakes, Florida with distribution
warehouses in Miami Lakes, Florida; Charlotte, North Carolina; Los Angeles,
California; Mexico City, Mexico; and Braintree, United Kingdom. Clinton markets
its products in the United States and Latin America through a sales force
currently numbering 17 backed up by a telemarketing department. In addition,
approximately eight distributors are currently used in Latin America. Outside of
the Western Hemisphere, sales are made primarily by approximately 40
distributors located throughout the world.
CUSTOMERS. Clinton sells its products to over 1,000 customers in the screen
printing industry, primarily apparel manufacturers and contract apparel
printers. These customers are located principally in the southeastern United
States, but also in Latin America, Europe, Asia, Africa and the Far East.
Clinton's largest customer accounted or approximately 3.5% of Clinton's 1996 net
sales, and Clinton's top ten customers accounted for approximately 22.2% of 1996
net sales.
COMPETITION. M&R's screen printing equipment has captured a major share of
the U.S. market over the past several years, and Clinton estimates that M&R had
approximately 70% of the U.S. market for such equipment in 1996. Competition
with respect to Clinton's other products is strong, mainly from a variety of
distributors of general printing equipment and supplies.
MACPHERSON
Macpherson, founded in 1976, is principally engaged in the distribution
throughout the United States and Canada of embroidery equipment used in the
apparel industry. Such embroidery equipment is used to create designs on apparel
and other products utilizing one or more needle heads and thread. Embroidery can
add value to a finished product with little incremental expense, and
technological developments in recent years have improved equipment capabilities
and lowered capital costs.
The Company acquired Macpherson in January 1997 using a portion of the net
proceeds from the sale of the Old Notes. On a pro forma basis, assuming that the
Clinton Acquisition, the Mitchell Acquisition and the Macpherson Acquisition
were consummated on January 1, 1996, Macpherson would have accounted for
approximately 36.7% of the Company's 1996 consolidated net sales. The Company
believes that Macpherson's products can be effectively marketed through the
Company's existing sales channels without significant added costs. In addition,
the Company believes that the products distributed by Clinton and Macpherson are
complementary and can be targeted for sale to the same end-user group.
PRODUCTS. Macpherson provides a complete line of technologically advanced
embroidery equipment for the apparel industry, as well as customer service,
support and training, and a comprehensive line of embroidery supplies and
accessories. Macpherson's principal supplier of embroidery machines is Barudan,
a Japanese manufacturer.
Embroidery machines may contain single or multiple sewing heads. Each sewing
head consists of a group of needles that are fed by spools of thread attached to
the equipment. The needles operate in conjunction with each other to embroider
the thread into the cloth or other surface in such configuration as to produce
the intended design. Thread flowing to each needle can be of the same or varying
color. Each head creates a design, and heads operating at the same time create
the same size and shape designs. Thus, a 30 head machine with all heads
operating simultaneously can create an identical-design on thirty surfaces. The
design and production capabilities are enhanced through the integration of
computers and specialized software applications.
Growth in Macpherson's sales of singlehead and multihead machines continues
to be driven by technological advances in the machines and related computer
software. These advances have reduced
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customers' embroidery production costs and created new embroidery applications
and markets. Macpherson collaborates with its suppliers in connection with their
development of new embroidery equipment and develops application software to
enhance the efficiency of producing embroidered designs.
Barudan is one of the world's major manufacturers of embroidery machines.
Under the distribution agreement among Macpherson, Barudan and certain of their
affiliates, Macpherson is the exclusive distributor of new Barudan embroidery
equipment in the United States and Canada until December 31, 2003. The Barudan
Agreement automatically renews for a period of five years unless either party
terminates such agreement on not less than 30 days notice. Purchases of Barudan
products accounted for 78.0% of Macpherson's 1996 total purchases. No other
product accounted for more than 5.3% of Macpherson's 1996 purchases.
SALES AND DISTRIBUTION. Macpherson has been selling embroidery equipment in
the United States and Canada since 1976, and believes that it is one of the
major distributors of Barudan equipment in the world. Macpherson is
headquartered in Greensboro, North Carolina, and has seven additional sales
offices located throughout the United States and in Canada. Each location has
showrooms for the demonstration of equipment and embroidery techniques.
Macpherson markets its products through 13 sales representatives and four
dealers. In addition, the sales force is supported by 37 technical
representatives who travel throughout the sales territory to train, instruct and
offer technical assistance to Macpherson's customer base. Macpherson also
maintains eight technicians at its Greensboro, North Carolina, and Costa Mesa,
California, facilities to offer telephone support to customers in technical
applications.
Macpherson provides a full training facility located in Greensboro, North
Carolina, which conducts technical and application training courses throughout
the year. In addition, a series of regional training sessions are conducted
throughout the year at various trade shows, sales offices, and customer
locations.
CUSTOMERS. The products sold by Macpherson are used primarily by contract
embroiderers, manufacturers of apparel and fashion accessories, retail stores
and embroidery entrepreneurs serving specialized niche markets. Macpherson's
customers include Champion Products, Liberty Embroidery, Antiqua, Russell
Athletic, Things Remembered and other major apparel manufacturers. Macpherson's
largest customer accounted for approximately 4.9% of Macpherson's 1996 net
sales, and its top ten customers accounted for approximately 19.9% of its 1996
net sales.
COMPETITION. Macpherson competes with Hirsch International Corp., a
distributor of Tajima singlehead and multihead embroidery machines. The Company
believes that sales of Tajima machines comprised approximately 55.0% of the U.S.
market in 1996, compared to approximately 40.0% for Barudan. Macpherson also
competes with a number of smaller distributors of competitive embroidery
machines and with original equipment manufacturers, such as Melco Industries,
which distribute products directly into Macpherson's markets. Macpherson
believes it competes on the basis of the quality of the embroidery equipment it
distributes, as well as its knowledge, experience and customer service.
Macpherson's customers are subject to competition from importers of embroidered
products, which could effect Macpherson's operations.
THE LEASING COMPANY
In connection with the Macpherson Acquisition, the Company acquired the
Leasing Company, a leasing company affiliate of Macpherson, for approximately
$0.5 million, payable over three years, plus interest at 6.0% per annum. The
Leasing Company commenced operations in March 1996. The Company intends to
utilize the Leasing Company to offer flexible lease financing to its customers
to support the Company's sales of equipment.
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The Leasing Company intends to sell a portion of its leases to financial
institutions on a non-recourse basis. The selling price of the leases to
financial institutions is expected to equal the sales price of the equipment
leased, plus a portion of the finance charges paid by the lessee. In addition,
at the end of the lease term, the residual value of the equipment will either
revert to the Leasing Company or the Leasing Company will sell the equipment to
the lessee at terms agreed upon in the original lease agreement. Each lease will
generally have a term of 3-5 years.
The Leasing Company will retain a majority of its leases. The Company
intends to make an equity investment in the Leasing Company of approximately
$3.5 million in 1997, and the Leasing Company is expected to arrange for
additional borrowings to finance its operations.
Prior to its acquisition by the Company, substantially all of the assets and
liabilities of the Leasing Company were removed. Accordingly, the principal
benefit of the acquisition was the existing organization of the Leasing Company.
The Leasing Company will be an Unrestricted Subsidiary for purposes of the
Indenture and, therefore, will not be subject to the covenants contained in the
Indenture. See "Description of Senior Notes."
LEADTEC
Leadtec, founded by its current chief executive officer in 1978 and acquired
by the Company's Predecessor in 1985, develops, distributes and supports
computer software and specialized hardware for sewn products manufacturers. On a
pro forma basis assuming the Clinton Acquisition, the Mitchell Acquisition and
the Macpherson Acquisition were consummated January 1, 1996, Leadtec's net sales
would have accounted for approximately 3.5% of the Company's 1996 consolidated
net sales.
PRODUCTS. Leadtec's primary product is "Satelite Plus", which is a
production planning and control system designed to allow apparel factory
operators to monitor production progress and efficiency. The manufacture of sewn
products has unique characteristics like piecework incentives, products defined
by style/color/size and highly engineered labor operations which render generic
manufacturing software unable to deliver satisfactory solutions for the control
and management of production. Leadtec's Satelite Plus-Registered Trademark-
system is specifically designed for the sewn product manufacturing process.
Satelite Plus is available in both "batch" and "real-time" formats. Under
the batch product, production operators clip bar-coded coupons to capture data
for each bundle or lot they produce. At the end of the day, or possibly at
predetermined intervals during the day, coupons are submitted in "batch" for
data input. This data is then processed by the Satelite Plus system to calculate
pay and generate reports for management.
The real-time Satelite Plus product is a computerized system that captures
production events as they occur and provides corresponding up-to-the-minute
information to management. When the real-time system is installed at a factory,
production workers have Satelite Plus proprietary terminals at their
workstations that communicate with the computer system. Operator terminals are
multilingual, and are capable of communicating in English, Spanish and other
languages. The operators use these terminals to report for work, start bundles,
report difficulties, and pace themselves for improved performance. The regular
input of data by operators during the work shift and the processing of that data
by Satelite Plus enables management to monitor the productivity of the factory
on a real-time basis. In addition, Satelite Plus can simulate the factory's
performance after giving effect to changes under consideration by management.
For example, the system predicts production on each job, recommends transfers,
and projects the effects of each transfer on excess costs and daily production.
The Satelite Plus real-time system is a complete package of hardware,
software, installation and training support. The main processing computer is an
IBM AS/400 with display stations for plant managers, supervisors, engineers,
production planners and office/support staff. Production employees have
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individual Satelite Plus terminals with barcode slot readers and displays for
two-way communication with the system. The Network Manager consists of an IBM
compatible PC and specialized communications hardware to complete the link
between the AS/400 and the operator terminals.
SALES AND DISTRIBUTION. Leadtec, through Satelite Plus, believes it has the
world's largest installed base of batch and real-time apparel production control
systems, with 200 installed systems and 44,300 user terminals as of December 31,
1996. To capitalize on its product recognition and the growth of off-shore
apparel production, Leadtec established distribution arrangements in Australia
in 1990, added its multi-lingual capabilities in 1991 and is presently enhancing
its systems for sale in Latin America.
Sales of Satelite Plus factory installations typically require long
lead-times to develop, given the significant capital expenditure and management
resource commitment required. Leadtec's products are sold by a three-person
direct sales force based in Atlanta, as well as by Sunbrand sales
representatives who generate sales opportunities for Leadtec. Typically,
customers commit to implement Satellite Plus in one plant on a trial basis. If
the trial is successful, the customer then rolls-out the product on a plant by
plant basis to the remainder of its manufacturing facilities. Accordingly,
Leadtec's sales may vary significantly from year to year, as an installation of
numerous plants for a single large customer can have a major impact on sales
volume in any single year.
SUPPORT AND DEVELOPMENT. Leadtec provides installation and training support
on-site at the customer's facility. Leadtec also provides software and
proprietary hardware maintenance services on a contract or time and material fee
basis. Support is offered to its real-time customers 24 hours per day, 7 days
per week. Virtually all software support after the installation and training
period is provided over the telephone by voice and/or data linkages.
Approximately once each year, Leadtec distributes software updates to Satelite
Plus customers who have an annual software maintenance contract. Support of
proprietary hardware is provided on a time and material or annual contract basis
using Leadtec's repair center in California or vendors located in Los Angeles
and in Europe. Leadtec also provides software development services to customers
who require added features or customize software modules. Most software
development is provided on a time and material fee basis.
CUSTOMERS. Leadtec's customers include Levi Strauss, Fruit of the Loom, Lee
Apparel, Van Heusen and Healthtex.
COMPETITION. Leadtec is not aware of any system similar to Satelite Plus'
real-time system. However, its real-time system competes with traditional batch
systems. There are numerous competitors with respect to the batch system.
Competition is usually based on price, functionality and support.
PROPERTIES
The Company leases all of its office and warehouse properties at its various
locations, except for the facilities owned by W&G, Ltd. in Braintree, England.
The Company's headquarters are located in approximately 33,000 square feet of
space in Carteret, New Jersey under a lease expiring in 2005, which also serves
as the headquarters and principal warehouse for Unity. Sunbrand's Atlanta
offices and warehouse occupy approximately 88,000 square feet under a lease
expiring in 2001. Clinton operates its headquarters, showroom and warehouse and
shipping facilities out of approximately 40,000 square feet located in Miami
Lakes, Florida under a lease expiring in 1998. The Company's other operations
are located in smaller leased spaces. The Company believes that, if necessary,
it would be able to lease adequate replacement space without material additional
expense.
EMPLOYEES
As of December 31, 1996, the Company employed 433 full time employees,
including 5 by WG Apparel, 237 by Sunbrand, 60 by Unity, 38 by W&G, Ltd., 71 by
Clinton and 22 by Leadtec. The Company's employees are not represented by any
labor union. As a result of the Macpherson Acquisition, approximately 141
employees joined the Company's workforce effective January 3, 1997, none of whom
is represented by a union. The Company considers its employee relations to be
good.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth certain information regarding the Company's
executive officers and directors. Ages are as of January 31, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- --------------------------------- --- -----------------------------------------------------
<S> <C> <C>
John K. Ziegler(1)............... 59 Chairman of the Board, Chief Executive Officer and
Director
Maxwell L. Tripp................. 57 President, Chief Operating Officer and Director
John K. Ziegler, Jr. ............ 29 Chief Financial Officer
Jack Klasky...................... 53 Vice President, President of Leadtec and Director
Alan B. Lee...................... 49 Vice President, President of Unity and Director
Marc Glazer...................... 35 Director
Richard J. Mackey(1)............. 65 Director and Consultant to the Company
Mary-Anne Kieran................. 37 Secretary
Sidney B. Becker(2).............. 86 Director
Christopher W. Roser(2).......... 38 Director
Frank E. Walsh, III(1)(2)........ 30 Director
</TABLE>
- ------------------------
(1) Member of the Compensation and Stock Incentive Committee of the Board of
Directors.
(2) Member of the Audit Committee of the Board of Directors.
JOHN K. ZIEGLER. Mr. Ziegler has been Chairman, Chief Executive Officer and
a Director of the Company since its incorporation in 1994. From 1987 to 1994, he
served as Chairman and Chief Executive Officer of the Company's Predecessor. Mr.
Ziegler joined the Company's Predecessor in 1966 as the Controller and
Treasurer. During his 28 year tenure with the Company's Predecessor, Mr. Ziegler
held the positions of Controller, Treasurer, Executive Vice President, Chief
Operating Officer, President and Director. Prior to joining the Company's
Predecessor, he worked for six years with Coopers & Lybrand. Mr. Ziegler is a
certified public accountant and received a Bachelor of Arts degree from
Lafayette College and a Master of Business Administration from New York
University's Stern School of Business. Mr. Ziegler is on the Board of Directors
of Worldtex, Inc. ("Worldtex"), a manufacturer of covered elastic yarn that is
listed on the New York Stock Exchange.
MAXWELL L. TRIPP. Mr. Tripp has been President, Chief Operating Officer and
a Director of the Company since January 1, 1997. From the date of the Company's
incorporation in 1994 until 1996, he was a Vice President and Director of the
Company and he served as Sunbrand's President from 1985 until 1996. He joined
the Company's Predecessor in 1960 and served as a technical service
representative and a field sales representative. Mr. Tripp became Vice President
of Sales of Sunbrand in 1977 and Executive Vice President of Sales in 1982.
Prior to joining the Company, Mr. Tripp spent five years at Swirl Inc. Mr. Tripp
regularly attends sales and technical workshops and is an active member in
several industry associations. Mr. Tripp is the Chairman of the Associate Member
Congress and the Chairman of the
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Technical Advisory Committee of the American Apparel Machinery Association and
has been honored numerous times in recognition of his contributions to the
apparel industry.
JOHN K. ZIEGLER, JR. Mr. Ziegler has been Chief Financial Officer of the
Company since September 1995. From 1994 until 1996, he also served as Controller
of the Company. From 1990 to 1994, Mr. Ziegler worked as an accountant for
Coopers & Lybrand. Mr. Ziegler is a certified public accountant and received his
Bachelor of Arts degree from Lafayette College. John K. Ziegler, Jr. is the son
of John K. Ziegler.
JACK KLASKY. Mr. Klasky has been a Vice President and Director of the
Company since its incorporation in 1994. He founded Leadtec in 1978 and has
served as its President since that time. His primary responsibilities include
short- and long-range planning, marketing and overall management. Previously, he
had been a Vice President of Lexitron Corporation and a program manager for
Litton Industries, where he was responsible for managing development of large
defense oriented computer systems. Mr. Klasky is a member of the American
Apparel Manufacturers Association and numerous other industry organizations. He
received a Bachelor of Science degree in Engineering in 1965 and a Master of
Business Administration in 1966 from UCLA.
ALAN B. LEE. Mr. Lee has been a Vice President and Director of the Company
since its incorporation in 1994. He has served as Unity's President since 1985.
Previously, Mr. Lee served as Unity's Controller from 1980 to 1985 and as a
staff accountant with the Company's Predecessor from 1975 to 1980. Mr. Lee holds
a Master of Business Administration from the City University of New York and a
Bachelor of Arts degree from Queens College, City University of New York.
RICHARD J. MACKEY. Mr. Mackey has served as a Director and consultant to
the Company since January 1, 1997. From the date of the Company's incorporation
in 1994 until 1996, he was President and a Director of the Company. Mr. Mackey
joined the Company's Predecessor in 1976 as a Vice President and Treasurer.
During his 18 year tenure with the Company's Predecessor, Mr. Mackey served as
Treasurer, Executive Vice President, Director, President and Chief Operating
Officer. Since 1992, Mr. Mackey has served as Chairman and Chief Executive
Officer of Worldtex, in which capacity he devotes a substantial amount of his
business time. Prior to joining the Company's Predecessor, Mr. Mackey worked for
Viewlex, Republic Intermodal Inc., Avis Inc., and Arthur Andersen. Mr. Mackey is
a certified public accountant and received a Bachelor of Science degree from the
University of Illinois.
MARY-ANNE KIERAN. Ms. Kieran has been the Secretary of the Company since
1995. From 1987 until 1994, she was employed at the Company's Predecessor where
she served as Secretary from 1992 until 1994. Ms. Kieran has a Bachelor of Arts
degree from Fordham University.
SIDNEY B. BECKER. Mr. Becker has been a Director of the Company since its
incorporation in 1994. From 1987 until 1992, Mr. Becker was a Director of the
Company's Predecessor. From 1976 until 1987, Mr. Becker served as the Chairman
of the Board of Directors and Chief Executive Officer of the Company's
Predecessor. During the years 1970 through 1976, he was a member of the Board of
Directors of and a consultant to the Company's Predecessor. Prior to such time,
from 1958 until 1970, Mr. Becker first served as Chairman of the Company's
Predecessor, and from 1958 until 1965, he also served as the Chief Executive
Officer of the Company's Predecessor. Mr. Becker also serves on the Board of
Directors of Worldtex.
MARC GLAZER. Mr. Glazer has been Vice President of Operations/Domestic
Sales of Clinton and a Director of the Company since the Company acquired
Clinton effective February 1, 1996. Prior to the Clinton Acquisition, from 1985
to 1996, Mr. Glazer served on the Board of Directors of Clinton and acted as
Clinton's Vice President of Operations/Domestic Sales. Before joining Clinton,
Mr. Glazer served as Corporate Controller for Precision Screen Machines.
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CHRISTOPHER W. ROSER. Mr. Roser has been a Director of the Company since
its incorporation in 1994. Since 1987, Mr. Roser has been a General Partner of
The Roser Partnerships I, II and III, which are venture capital partnerships.
From 1986 until 1987, Mr. Roser worked at Ladenburg Thalmann & Co.
("Ladenburg"), an investment bank listed on the New York Stock Exchange, as an
associate in the corporate finance department. For one year prior to such period
from 1985 to 1986, he was a securities analyst with Equity Research Associates,
a subsidiary of Ladenburg. During the years 1982 through 1984, Mr. Roser was
employed as a staff public accountant with Main Hurdman KMG. Mr. Roser graduated
from the University of Colorado in 1981 with a Bachelor of Arts degree in
economics and received a Master of Business Administration from New York
University's Stern School of Business in 1984. Mr. Roser is also a Director of
Hauser Chemical Research, Inc., a publicly traded chemical company, and the
North American Technology Group, Inc., a publicly traded diversified concern.
FRANK E. WALSH, III. Mr. Walsh has been a Director of the Company since its
incorporation in 1994. He is Vice President of Jupiter Capital Management, a New
Jersey registered investment advisory firm, where he has been employed since
1991. Mr. Walsh also serves on the Board of Directors of Dynamotion/ ATI, a
publicly traded capital goods manufacturer for the printed circuit board
industry.
Each director will hold office for one year or until his or her successor
has been elected and qualified. Officers serve at the pleasure of the Board of
Directors.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table sets forth certain information
concerning the compensation earned during the year ended December 31, 1996 for
the Chief Executive Officer of the Company and its four other most highly
compensated executive officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
--------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2)
- ---------------------------------------------------------------- --------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
John K. Ziegler................................................. 1996 $ 200,000 $ 100,000 $ 3,000
Chairman of the Board, Chief Executive Officer and Director
Jack Klasky..................................................... 1996 154,908 100,151 3,000
Vice President, President of Leadtec and Director
Maxwell L. Tripp................................................ 1996 124,840 105,910 3,000
Vice President, President of Sunbrand and Director(3)
Alan B. Lee..................................................... 1996 110,000 30,000 3,000
Vice President, President of Unity and Director
Richard J. Mackey............................................... 1996 100,000 0 0
President and Director(4)
</TABLE>
- ------------------------
(1) The aggregate amount of perquisites and other personal benefits, if any, did
not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for each Named Executive Officer and has therefore been omitted.
(2) Amounts shown reflect matching contributions made by the Company to the
Company's Savings and Employee Stock Ownership Plan, a defined contribution
plan, of $3,000 on behalf of the indicated Named Executive Officers.
(3) Effective January 1, 1997, Mr. Tripp became President and Chief Operating
Officer of the Company and remained a Director of the Company.
(4) Effective January 1, 1997, Mr. Mackey became a consultant to the Company and
remained a Director of the Company.
OPTION GRANTS. No stock appreciation rights have been granted by the
Company. The Company granted no stock options during the year ended December 31,
1996.
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AGGREGATED OPTIONS. The table below sets forth certain information with
respect to options held as of December 31, 1996 by each Named Executive Officer.
AGGREGATED OPTIONS TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT FISCAL YEAR-END
AT FISCAL YEAR-END (#) ($)
------------------------------- --------------------
<S> <C> <C>
EXERCISABLE (E)/ EXERCISABLE (E)/
NAME UNEXERCISABLE (U) UNEXERCISABLE (U)
- ---------------------------------------- ------------------------------- --------------------
John K. Ziegler......................... 1,600(E) $ 30,400
2,400(U) 45,600
Richard J. Mackey....................... 800(E) 15,200
1,200(U) 22,800
Maxwell L. Tripp........................ 2,000(E) 38,000
3,000(U) 57,000
Jack Klasky............................. 2,000(E) 38,000
3,000(U) 57,000
Alan B. Lee............................. 2,000(E) 38,000
3,000(U) 57,000
</TABLE>
RETIREMENT PLAN. Under the Company's non-contributory retirement plan,
eligible employees will be entitled at the normal retirement age of 65 to an
annual retirement benefit equal to 11/4% of their earnings up to the maximum
earnings subject to Social Security withholding and 1 % of all earnings in
excess of such amount but less than $222,220 (as adjusted annually for cost of
living increases) for each full year of service under the plan. Benefits under
this plan are 100% vested after five years of service. The estimated annual
retirement benefits payable under the plan formula described above at current
Social Security withholding rates, assuming that normal retirement occurs at age
65, to the Named Executive Officers are as follows: to Mr. Ziegler, $107,500; to
Mr. Mackey, $64,455; to Mr. Tripp, $45,619; to Mr. Klasky, $39,729; and to Mr.
Lee, $51,604.
Under the Company's supplemental retirement plan, key employees selected by
the Compensation and Stock Incentive Committee (the "Committee") are entitled to
an amount, payable monthly over a ten-year period following any specified event
of retirement, death, disability or termination of employment, equal to a
percentage (up to 40%) determined by the Committee of the portion (determined by
the Committee) of the employee's base salary for the Company's last full fiscal
year prior to the specified event, multiplied by the employee's years of
participation in the plan (not exceeding 10). Thus, upon normal retirement at
age 65 (or, if later, then years as a participant), an employee receiving the
maximum award possible under the plan will receive a total retirement benefit of
400% of base salary. If death or disability occurs prior to age 65, the employee
will receive a total death or disability benefit of up to 400% of base salary.
After three full years as a plan participant, 30% of the retirement benefit
becomes vested and thereafter an additional 10% of the retirement benefit vests
for each additional full year of service. Upon involuntary termination (other
than for cause, as defined) of any participant's employment or upon voluntary
early retirement of any "designated participant" selected by the Committee, a
portion of the vested retirement benefit will be paid which is in the same ratio
to the full vested benefit as the ratio of the total years worked for the
Company to the total years which would have been worked to age 65. Amounts
representing annual accruals under the plan have not been and cannot be readily
calculated for individual participants. Messrs. Ziegler, Tripp, Klasky and Lee
participate in the plan, and are entitled to benefits of 40%, 37%, 31% and 27%,
respectively, of their base salary per year for 10 years.
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EMPLOYMENT CONTRACTS
The Company has entered into employment contracts with Mr. Ziegler and Mr.
Tripp, Alan B. Lee, President of Unity, Jack Klasky, President of Leadtec and
Jerry Lee, President of Macpherson. The term of each of the Company's employment
contracts with Mr. Ziegler, Mr. Tripp, Mr. A. Lee, Mr. Klasky and Mr. J. Lee is
indefinite, but each employment contract may be terminated by the Company upon
not less than one year written notice. Despite the existence of employment
contracts, the continued employment of such persons cannot be assured. The loss
of the services of any such person could have a material adverse impact on the
Company's business, financial condition and results of operations. See "Risk
Factors-- Dependence on Existing Management."
COMPENSATION OF DIRECTORS
The Company does not compensate the members of its Board of Directors for
their service as directors.
COMPENSATION AND STOCK INCENTIVE COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, John K. Ziegler and Richard J. Mackey, Chief Executive
Officer and President of the Company, respectively, served on the Compensation
and Stock Incentive Committee of the Company's Board of Directors. Mr. Ziegler
and Mr. Mackey also serve on the Board of Directors of Worldtex. There are no
other Compensation and Stock Incentive Committee interlocks or insider
participation with respect to such individuals. Effective January 1, 1997, Mr.
Mackey became a consultant to the Company.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1997
regarding the beneficial ownership of: (i) each class of the Company's voting
securities by each person who is known by the Company to be the beneficial owner
of more than 5% of any class of the Company's voting securities, and (ii) each
class of equity securities of the Company by (a) each director of the Company,
(b) each of the Named Executive Officers (as defined under the heading
"Executive Compensation"), and (c) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES(1) CLASS(2)
- --------------------------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
John K. Ziegler.................................................................. 116,959(3) 11.7%
c/o Willcox & Gibbs, Inc.
900 Milik Street
Carteret, New Jersey 07008
Richard J. Mackey................................................................ 66,558(4) 6.6
104 Crescent Beach Drive
Huntington Bay, New York 11743
The Roser Partnership II, Ltd.................................................... 65,483(5) 6.5
1105 Spruce Street
Boulder, Colorado 80302
Sidney B. Becker................................................................. 26,193(6) 2.6
201 East 79th Street
Apartment 19B
New York, New York 10021
Frank E. Walsh, III.............................................................. 130,965(7) 13.0
330 South Street
Morristown, New Jersey 07962
Marc Glazer...................................................................... 33,657 3.3
c/o Clinton Machinery & Supply Co.
5800 Miami Lakes Drive
Miami Lakes, Florida 33014
Jack Klasky...................................................................... 36,450(8) 3.6
c/o Leadtec Systems, Inc.
6800 Owensmouth Avenue
Suite 320
Canoga Park, California 91303
Alan B. Lee...................................................................... 12,644(9) 1.3
c/o Unity Sewing Supply Co.
900 Milik Street
Carteret, New Jersey 07008
Maxwell L. Tripp................................................................. 43,138(10) 4.3
c/o Sunbrand
3900 Green Industrial Way
Atlanta, Georgia 30341
</TABLE>
74
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES(1) CLASS(2)
- --------------------------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
Company's Savings and Employee Stock Ownership Plan.............................. 167,005 16.6%
Riggs Bank, N.A., as trustee
808 17th St., N.W.
Washington, D.C. 20006
All directors and executive officers of the Company as a group................... 699,052(11) 69.5
</TABLE>
- ------------------------
(1) The persons included in the table had sole voting and investment power with
respect to shares reported as beneficially owned, except as otherwise
indicated in the following notes. The table includes shares beneficially
owned through the Company's Savings and Employee Stock Ownership Plan as of
March 31, 1997.
(2) Percentages are calculated by dividing (x) shares in the "Number of Shares"
column by (y) the sum of shares outstanding on March 31, 1997 and the shares
which a particular owner (or group of owners) has a right to acquire within
60 days of such dates.
(3) Includes 16,730 shares of common stock held by Mr. Ziegler as trustee for
the benefit of his wife, as to which Mr. Ziegler shares voting and
investment power, and 2,000 shares for which options are presently
exercisable.
(4) Includes 800 shares of common stock for which options are presently
exercisable.
(5) Christopher W. Roser, a director of the Company, is a principal of the
general partner of The Roser Partnership II, Ltd.
(6) Includes 26,193 shares of common stock owned by Mr. Becker's wife, as to
which he disclaims beneficial ownership.
(7) Includes 130,965 shares of common stock held by WG Inc. Trust under which an
uncle of Mr. Walsh acts as trustee and holds voting and investment power.
Mr. Walsh is a beneficiary of such trust.
(8) Includes 2,000 shares of common stock for which options are presently
exercisable.
(9) Includes 2,000 shares of common stock for which options are presently
exercisable.
(10) Includes 2,000 shares of common stock for which options are presently
exercisable.
(11) Includes 8,400 shares of common stock for which options are presently
exercisable.
DESCRIPTION OF CERTAIN INDEBTEDNESS
THE NEW CREDIT FACILITY
In connection with the sale of the Old Notes, the Old Credit Facility was
terminated and the Company entered into the New Credit Facility with
NationsBank, as lender. The New Credit Facility provides for borrowings of up to
$18.5 million in the aggregate outstanding at any time, subject to a borrowing
base limitation equal to 80% of the Company's eligible accounts receivable.
Borrowings under the New Credit Facility will bear interest at a rate per annum,
at the Company's option, equal to (i) NationsBank's prime rate plus 0.75% or
(ii) LIBOR plus 2.75%. The New Credit Facility is secured by all accounts
receivable of the Company and includes certain covenants applicable to the
Company, including requirements that the Company comply with certain financial
ratios. The New Credit Facility expires on July 13, 2001.
75
<PAGE>
THE W&G, LTD. CREDIT FACILITY
In October 1996, W&G, Ltd. borrowed L1.0 million under the W&G, Ltd. Credit
Facility with Coutts & Co. The loan under the W&G, Ltd. Credit Facility bears
interest at a rate per annum equal to the bank's prevailing Base Rate, which is
currently 6.0% per annum, plus a margin of 2.25% per annum. The loan is payable
in eight semiannual installments of L125,000, commencing April 1997. The W&G,
Ltd. Credit Facility is secured by substantially all of the assets of W&G, Ltd.
The proceeds of this loan were used to repay indebtedness of W&G, Ltd. to the
Company, and the Company used such funds to repay higher cost indebtedness.
DESCRIPTION OF SENIOR NOTES
The Senior Notes are issued under the Indenture, dated as of January 3,
1997, among the Company, as issuer, the Subsidiary Guarantors and IBJ Schroder
Bank & Trust Company, as trustee (the "Trustee"). The terms of the Senior Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Senior Notes are subject to all such terms, and Holders of Senior
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions of certain terms contained therein. The
definitions of certain capitalized terms used in the following summary are set
forth below under "--Certain Definitions."
GENERAL
The Senior Notes are senior unsecured obligations of the Company
unconditionally guaranteed by the Subsidiary Guarantors limited to $85.0 million
aggregate principal amount. The Senior Notes are issued only in registered form,
without coupons, in denominations of $1,000 and integral multiples thereof.
Principal of, premium, if any, and interest on the Senior Notes are payable, and
the Senior Notes are transferable, at the office or agency of the Company
maintained for such purposes, which in the case of payments on the Senior Notes
initially is the corporate trust office or agency of the Trustee maintained at
One State Street, New York, New York 10004. No service charge will be made for
any transfer, exchange or redemption of the Senior Notes, but the Company or the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge that may be payable in connection therewith.
MATURITY, INTEREST AND PRINCIPAL PAYMENTS
The Senior Notes will mature on December 15, 2003. The New Notes will bear
interest at a rate equal to 12 1/4% per annum from the last date on which
interest was paid on the Old Notes surrendered in exchange therefor, or if no
interest has been paid from the date of the original issuance of such Old Notes.
Interest on the New Notes is payable semiannually in cash arrears on June 15 and
December 15 of each year, commencing June 15, 1997 to the Persons in whose names
the Senior Notes are registered in the Note Register at the close of business on
the June 1 or December 1 next preceding such interest payment date. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
REDEMPTION
OPTIONAL REDEMPTION. The Senior Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after December 15, 2001, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest and Old Note Liquidated Damages, if any, to the date of
redemption (subject to the right of Holders of record on the relevant record
date to receive interest due on an interest payment date that is
76
<PAGE>
on or prior to the date of redemption), if redeemed during the 12-month period
beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2001............................................................................. 106.125%
2002............................................................................. 103.063%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to December 15, 1999,
up to 30% of the originally issued principal amount of Senior Notes will be
redeemable, at the option of the Company, from the Net Cash Proceeds of a Public
Equity Offering, at a redemption price equal to 112 1/4% of the principal amount
thereof, together with accrued and unpaid interest and Old Note Liquidated
Damages, if any, to the date of redemption, PROVIDED that at least $59.5 million
of the originally issued principal amount of Senior Notes remains outstanding
immediately after such redemption and that such redemption occurs within 60 days
following the closing of such Public Equity Offering.
In the event that less than all of the Senior Notes are to be redeemed, the
particular Senior Notes (or any portion thereof that is an integral multiple of
$1,000) to be redeemed shall be selected not less than 30 nor more than 60 days
prior to the date of redemption by the Trustee, from the outstanding Senior
Notes not previously called for redemption, PRO RATA, by lot or by any other
method the Trustee shall deem fair and appropriate.
MANDATORY REDEMPTION. The Company will not be required to make mandatory
redemption or sinking fund payments with respect to the Senior Notes.
OFFERS TO PURCHASE. As described below, (a) upon the occurrence of a Change
of Control, the Company will be obligated to make an offer to purchase all
outstanding Senior Notes at a purchase price equal to 101% of the principal
amount thereof, together with accrued and unpaid interest and Old Note
Liquidated Damages, if any, to the date of purchase and (b) upon certain sales
or other dispositions of assets, the Company may be obligated to make offers to
purchase Senior Notes with a portion of the Net Available Proceeds of such sales
or other dispositions at a purchase price equal to 100% of the principal amount
thereof, together with accrued and unpaid interest and Old Note Liquidated
Damages, if any, to the date of purchase. See "--Certain Covenants--Change of
Control" and "--Limitation on Asset Sales."
RANKING
The Senior Notes and each Subsidiary Guarantee are senior unsecured
obligations (except for the security interest in 65% of the shares of W&G, Ltd.)
of the Company, and the applicable Subsidiary Guarantor, respectively, and rank
PARI PASSU in right of payment with all other existing and future unsecured and
unsubordinated Indebtedness of the Company and the applicable Subsidiary
Guarantor, respectively, and senior to all existing and future Subordinated
Indebtedness of the Company and the Subsidiary Guarantors. The Senior Notes and
Subsidiary Guarantees, however, are effectively subordinated to secured
Indebtedness of the Company and the Subsidiary Guarantors with respect to the
assets securing such Indebtedness. At December 31, 1996, on a pro forma basis
assuming that the sale of the Old Notes, the application of the net proceeds
therefrom and the Macpherson Acquisition occurred on such date, the Company and
the Subsidiary Guarantors would have had no unsecured Indebtedness outstanding
other than the Senior Notes and $1.3 million of secured Indebtedness
outstanding. Subject to certain limitations, the Company and its Subsidiaries
(including the Subsidiary Guarantors) may incur additional Indebtedness in the
future. See "--Certain Covenants--Limitation on Indebtedness and Disqualified
Capital Stock."
77
<PAGE>
SUBSIDIARY GUARANTEES AND OTHER SECURITY
Each Subsidiary Guarantor fully and unconditionally guarantees (each, a
"Subsidiary Guarantee"), jointly and severally, to each Holder of Senior Notes
and the Trustee, the full and punctual performance of the Company's obligations
under the Indenture and the Senior Notes, including the payment of principal of
and interest and Old Note Liquidated Damages, if any, on the Senior Notes. Each
of the Subsidiary Guarantees is a senior unsecured obligation of the respective
Subsidiary Guarantor and ranks PARI PASSU with all existing and future unsecured
and unsubordinated Indebtedness of such Subsidiary Guarantor. However, each
Subsidiary Guarantee is effectively subordinated to the secured Indebtedness of
the respective Subsidiary Guarantor with respect to the assets securing such
Indebtedness.
The obligations of each Subsidiary Guarantor are limited to the maximum
amount which, after giving effect to any collections from or payments made by or
on behalf of any other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to
its contribution obligations under the Indenture, will result in the obligations
of such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal law or state law.
Each Subsidiary Guarantor that makes a payment or distribution under a
Subsidiary Guarantee shall be entitled to a PRO RATA contribution from each
other Subsidiary Guarantor based on the net assets of each Subsidiary Guarantor,
determined in accordance with GAAP.
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person) another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless (i) subject to the provisions of the following
paragraph, the Person formed by or surviving any such consolidation or merger
(if other than such Subsidiary Guarantor) assumes all of the obligations of such
Subsidiary Guarantor pursuant to a supplemental indenture, in form and substance
satisfactory to the Trustee, under the Senior Notes and the Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists; and (iii) immediately after giving effect to such transaction as
if the same had occurred at the beginning of the most recently ended four full
fiscal quarter period for which internal financial statements are available, the
Company could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in accordance with paragraph (a) of the "--Limitation on
Indebtedness and Disqualified Capital Stock" covenant.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the Capital Stock of any
Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation or otherwise, of all
of the capital stock of such Subsidiary Guarantor) or the corporation acquiring
the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Subsidiary Guarantor) will be released
and relieved of any obligations under its Subsidiary Guarantee, PROVIDED that
the Net Available Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "Certain
Covenants--Limitation on Asset Sales." In addition, any Subsidiary Guarantor
that is designated by the Board of Directors as an Unrestricted Subsidiary in
accordance with the terms of the Indenture may, at such time, at the option of
the Board of Directors at the time of such designation, be released and relieved
of any obligation under its Subsidiary Guarantee.
Pursuant to a Pledge and Security Agreement (the "Pledge Agreement"), the
Senior Notes are secured by a pledge of 65% of the capital stock of W&G, Ltd.
Upon declaration of a default under the Indenture and acceleration of the
Indebtedness thereunder, the Collateral Agent named in the Pledge Agreement may
sell the capital stock of W&G, Ltd. pledged pursuant to the Pledge Agreement.
The Pledge Agreement establishes certain procedures to be followed by the
Collateral Agent that are designed to provide the maximum possible proceeds as a
result of such a sale.
78
<PAGE>
CERTAIN COVENANTS
The Indenture contains, among others, the covenants described below.
LIMITATION ON INDEBTEDNESS AND DISQUALIFIED CAPITAL STOCK. (a) The Company
will not, and will not permit any of its Restricted Subsidiaries to, create,
incur, issue, assume, guarantee or in any manner become directly or indirectly
liable for the payment of (collectively, "incur") any Indebtedness (including
any Acquired Indebtedness but excluding any Permitted Indebtedness) or issue any
Disqualified Capital Stock, unless, on a pro forma basis after giving effect to
such incurrence or issuance and the application of the proceeds therefrom, the
Consolidated Fixed Charge Coverage Ratio for the four most recent consecutive
fiscal quarters would have been equal to or greater than 2.0 to 1.0.
(b) Neither the Company nor any Subsidiary Guarantor will incur any
Indebtedness unless such Indebtedness is expressly PARI PASSU with, or
subordinated in right of payment to, in the case of the Company, the Senior
Notes or, in the case of a Subsidiary Guarantor, its Subsidiary Guarantee.
LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. The Company will not permit
any of its Restricted Subsidiaries to issue any Preferred Stock (other than to
the Company or to a Wholly Owned Subsidiary) or permit any Person (other than
the Company or a Wholly Owned Subsidiary) to own any Preferred Stock of any
Restricted Subsidiary of the Company.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any other distribution to
holders of, any shares of Capital Stock of the Company (other than dividends
or distributions payable solely in shares of Qualified Capital Stock of the
Company or in options, warrants or other rights to purchase Qualified
Capital Stock of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any Affiliate thereof (other than any
Capital Stock owned by a Restricted Subsidiary) or any options, warrants or
other rights to acquire such Capital Stock;
(iii) make any principal payment on or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, scheduled sinking fund payment or maturity, any Subordinated
Indebtedness; or
(iv) make any Restricted Investment;
(such payments or other actions described in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless at the time of
and after giving effect to the proposed Restricted Payment (the amount of any
such Restricted Payment, if other than cash, shall be the amount determined by
the Board of Directors of the Company, whose determination shall be conclusive
and evidenced by a Board Resolution),
(1) no Default or Event of Default shall have occurred and be continuing,
(2) the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in accordance with paragraph (a) of the "--Limitation on
Indebtedness and Disqualified Capital Stock" covenant, and
(3) the aggregate amount of all Restricted Payments declared or made after
the date of the Indenture shall not exceed the sum (without duplication) of the
following:
(A) 50% of the Consolidated Net Income of the Company (or, if such
Consolidated Net Income is a loss, minus 100% of such loss) accrued on a
cumulative basis during the period beginning on
79
<PAGE>
October 1, 1996 and ending on the last day of the Company's last fiscal
quarter for which quarterly or annual financial statements are available
next preceding such proposed Restricted Payment,
(B) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of its
Restricted Subsidiaries) of shares of Qualified Capital Stock of the Company
or any options, warrants or rights to purchase such shares of Qualified
Capital Stock of the Company,
(C) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase shares of Qualified Capital Stock of the Company,
(D) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any of its
Restricted Subsidiaries) of Indebtedness or shares of Disqualified Capital
Stock that have been converted into or exchanged for Qualified Capital Stock
of the Company, together with the aggregate cash received by the Company at
the time of such conversion or exchange,
(E) the aggregate Net Cash Proceeds received by the Company from the
issuance or sale of its Qualified Capital Stock subsequent to the date of
original issuance of the Senior Notes to any employee stock ownership plan
or a trust established by the Company or any of its Restricted Subsidiaries
for the benefit of their employees to the extent that any such Net Cash
Proceeds are equal to an increase in the Consolidated Net Worth of the
Company resulting from principal repayments paid by such employee stock
ownership plan or trust with respect to Indebtedness incurred by it to
finance the purchase of such Qualified Capital Stock, and
(F) to the extent not otherwise included in Consolidated Net Income, the
net reduction in Investments by the Company and its Restricted Subsidiaries,
subsequent to the date of the original issuance of the Senior Notes, in any
Person resulting from dividends, repayments of loans or advances, or other
transfers of assets to the Company or a Restricted Subsidiary, or from the
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary
(valued in each case as provided in the definition of Investment), not to
exceed the total amount of Investments (other than Permitted Investments)
made by the Company and its Restricted Subsidiaries in such Unrestricted
Subsidiary that were previously treated as a Restricted Payment.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take the following actions so long as (in the case of clauses
(ii), (iii) and (iv) below) no Default or Event of Default shall have occurred
and be continuing:
(i) the payment of any dividend on any Capital Stock of the Company or
any Restricted Subsidiary within 60 days after the date of declaration
thereof, if at such declaration date such declaration complied with the
provisions of paragraph (a) above (and such payment shall be deemed to have
been paid on such date of declaration for purposes of any calculation
required by the provisions of paragraph (a) above);
(ii) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate Net Cash Proceeds from,
a substantially concurrent issuance and sale (other than to a Restricted
Subsidiary) of shares of Qualified Capital Stock of the Company (other than
Capital Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees);
(iii) the repurchase, redemption, repayment, defeasance or other
acquisition or retirement for value of any Subordinated Indebtedness in
exchange for, or out of the aggregate Net Cash Proceeds
80
<PAGE>
from, a substantially concurrent issuance and sale (other than to a
Restricted Subsidiary) of shares of Qualified Capital Stock of the Company;
and
(iv) the repurchase of shares of, or options to purchase shares of,
Capital Stock (other than Preferred Stock) of the Company or any of its
Subsidiaries from employees, former employees, directors or former directors
of the Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors or their
respective estates), pursuant to the terms of the agreements (including
employment agreements) or plans (or amendments thereto) approved by the
Board of Directors of the Company under which such individuals purchase or
sell or are granted the option or right to purchase or sell such Capital
Stock (other than Preferred Stock); PROVIDED, HOWEVER, that the aggregate
amount of such repurchases shall not exceed $250,000 in any calendar year.
The actions described in clauses (i), (ii), (iii) and (iv) of this paragraph
(b) shall be Restricted Payments that shall be permitted to be made in
accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph
(a), PROVIDED that any dividend paid pursuant to clause (i) of this paragraph
(b) shall reduce the amount that would otherwise be available under clause (3)
of paragraph (a) when declared, but not also when subsequently paid pursuant to
such clause (i).
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that the Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company (i) will not permit any Restricted Subsidiary to
issue or sell any Capital Stock to any Person other than the Company or a Wholly
Owned Restricted Subsidiary and (ii) will not permit any Person other than the
Company or a Wholly Owned Restricted Subsidiary to own any Capital Stock of any
Restricted Subsidiary, except, in the case of clause (i) or (ii), with respect
to a Wholly Owned Restricted Subsidiary as described in the definition of
"Wholly Owned Restricted Subsidiary." The sale of all of the Capital Stock of
any Restricted Subsidiary is permitted by this covenant but is subject to the
limitations described under "--Limitation on Asset Sales."
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into,
assume, guarantee or otherwise become liable with respect to any Sale/Leaseback
Transaction unless (i) the Company or such Restricted Subsidiary, as the case
may be, would be able to incur Indebtedness (not including the incurrence of
Permitted Indebtedness) pursuant to and in an amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction pursuant to the
covenants described in paragraph (a) under "--Limitation on Indebtedness and
Disqualified Capital Stock," (ii) the Company or such Restricted Subsidiary
receives proceeds from such Sales/Leaseback Transaction at least equal to the
fair market value of the property or assets subject thereto (as determined in
good faith by the Company's Board of Directors, whose determination in good
faith and evidenced by a Board Resolution will be conclusive) and (iii) the
Company applies an amount in cash equal to the Net Available Proceeds of the
Sale/Leaseback Transaction in accordance with the provisions of the "Limitation
on Asset Sales" covenant as if such Sale/Leaseback Transaction were an Asset
Sale.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets or property
or the rendering of any service) with, or for the benefit of, any of their
respective Affiliates (each an "Affiliate Transaction") other than (i) Affiliate
Transactions permitted by clause (b) of this covenant, (ii) Affiliate
Transactions on terms that are no less favorable to the Company or such
Restricted
81
<PAGE>
Subsidiary, as the case may be, than those that would be available in a
comparable arm's length transaction with an unrelated Person, (iii) with respect
to any one transaction or series of related transactions involving aggregate
payments in excess of $1.0 million but less than $5.0 million in the aggregate,
the Company delivers an Officers' Certificate to the Trustee certifying that (A)
such transaction or series of related transactions complies with clause (i)
above and (B) such transaction or series of related transactions has been
approved by the Board of Directors (including a majority of the Disinterested
Directors) of the Company, and (iv) with respect to any one transaction or
series of related transactions involving aggregate payments in excess of $5.0
million, the Company delivers an Officers' Certificate to the Trustee certifying
to the two matters referred to in clause (iii) above and that the Company has
obtained a written opinion, a copy of which shall be attached to such Officers'
Certificate, from an independent nationally recognized investment banking firm
or appraisal firm specializing or having a speciality in the type and subject
matter of the transaction or series of related transactions at issue, which
opinion shall be to the effect set forth in clause (i) above or shall state that
such transaction or series of related transactions is fair from a financial
point of view to the Company or such Restricted Subsidiary, as the case may be.
(b) The restrictions set forth in clause (a) shall not apply to (i)
transactions exclusively between or among the Company and any of its Restricted
Subsidiaries or exclusively between or among the Restricted Subsidiaries so long
as such transactions are not otherwise prohibited by the Indenture, (ii)
reasonable indemnities of officers, directors and employees of the Company or
any Restricted Subsidiary permitted by bylaw or statutory provisions, (iii) the
payment of reasonable and customary regular fees to directors of the Company or
any of its Restricted Subsidiaries who are employees of the Company or any
Affiliate and (iv) reasonable employee compensation and other benefit
arrangements approved by the Board of Directors of the Company.
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume, affirm
or suffer to exist or become effective any Lien of any kind, except for
Permitted Liens, upon any of their respective property or assets, whether now
owned or acquired after the date of the Indenture, or any income, profits or
proceeds therefrom, or assign or otherwise convey any right to receive income or
profits therefrom, to secure any Indebtedness of the Company or such Restricted
Subsidiary, unless prior to, or contemporaneously therewith, the Senior Notes
are equally and ratably secured; PROVIDED, HOWEVER, that if such Indebtedness is
expressly subordinated to the Senior Notes, the Lien securing such Indebtedness
will be subordinated and junior to the Lien securing the Senior Notes, with the
same relative priority as such Indebtedness has with respect to the Senior
Notes. The incurrence of additional secured Indebtedness by the Company and its
Restricted Subsidiaries is subject to further limitations on the incurrence of
Indebtedness as described under "--Limitation on Indebtedness and Disqualified
Capital Stock."
CHANGE OF CONTROL. Upon the occurrence of a Change of Control, the Company
will be obligated to make an offer to purchase all of the then outstanding
Senior Notes (a "Change of Control Offer"), and will purchase, on a Business Day
(the "Change of Control Purchase Date"), not more than 60 nor less than 30 days
following the date notice is mailed, as provided below, all of the then
outstanding Senior Notes validly tendered pursuant to such Change of Control
Offer and not withdrawn, at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof plus accrued and unpaid
interest and Old Note Liquidated Damages, if any, to the Change of Control
Purchase Date. The Change of Control Offer is required to remain open for at
least 20 Business Days and until the close of business on the fifth Business Day
prior to the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company will, not later
than the 30th day after the Change of Control, send, by first class mail, to the
Trustee and each Holder a notice of the Change of Control Offer, which notice
shall govern the terms of the Change of Control Offer and shall state, among
other things, the procedures that Holders must follow to accept the Change of
Control Offer.
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There can be no assurance that the Company will have available funds
sufficient to fund the purchase of the Senior Notes that might be delivered by
Holders seeking to accept a Change of Control Offer. In the event a Change of
Control occurs at a time when the Company does not have available funds
sufficient to pay the Change of Control Purchase Price for all of the Senior
Notes delivered by Holders seeking to accept the Change of Control Offer, an
Event of Default would occur under the Indenture. The definition of Change of
Control includes an event by which the Company sells, conveys, transfers, leases
or otherwise disposes of all or substantially all of the properties and assets
of the Company and its Restricted Subsidiaries, taken as a whole; the phrase
"all or substantially all" is subject to applicable legal precedent and, as a
result, in the future there may be uncertainty as to whether or not a Change of
Control has occurred.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if another Person makes the Change of Control Offer at the
same purchase price, at the same time and otherwise in substantial compliance
with the requirements applicable to a Change of Control Offer to be made by the
Company and purchases all Senior Notes validly tendered and not withdrawn under
such Change of Control Offer. The existence of a Holder's right to require,
subject to certain conditions, the Company to repurchase its Senior Notes upon a
Change of Control may deter a third party from acquiring the Company in a
transaction that constitutes, or results in, a Change of Control.
The New Credit Facility also contains a "change of control" provision. Under
the New Credit Facility, any change in the ownership of any borrower thereunder
(which term includes the Company, WG Apparel, Clinton, Leadtec and Macpherson)
such that John K. Ziegler, Sr., the Company's Chairman and Chief Executive
Officer, owns less than ten percent (10%) of the Company, constitutes an event
of default under the New Credit Facility. In addition, the Company's
indebtedness under the New Credit Facility is cross-defaulted to the New Notes
such that certain defaults under the New Notes which accelerate their maturity
or enable a Holder to call the New Notes prior to their stated maturity are also
defaults under the New Credit Facility. The Company has no other Senior
Indebtedness that is subject to a change of control provision similar to the one
applicable to the New Notes or that is cross-defaulted to the New Notes.
The Company is not entitled to waive the covenant relating to a Holder's
right to require the Company to repurchase such Holder's Notes upon a Change of
Control or the "change of control" event of default under the New Credit
Facility. As a consequence, the Company believes that these change of control
provisions may make more difficult or discourage a takeover of the Company,
whether favored or opposed by the management of the Company. In addition, the
change of control covenant and other restrictive covenants in the Indenture may
not afford the Holders of the Notes protection in all circumstances from the
adverse affects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction, including a leveraged transaction
initiated or supported by the Company or its subsidiaries. Consummation of any
such transaction in certain circumstances may require a repurchase of the Notes
and the refinancing of the New Credit Facility, and there can be no assurance
that the Company or the acquiring party will have sufficient financial resources
to effect such repurchase.
The Company will comply with Rule 14e-1 under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and any other securities laws and
regulations thereunder, if applicable, in the event that a Change of Control
occurs and the Company is required to purchase Senior Notes as described above.
LIMITATION ON ASSET SALES. (a) The Company will not, and will not permit
any Restricted Subsidiary to, engage in any Asset Sales unless (i) the Company
or such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the fair market value of the assets
and properties sold or otherwise disposed of pursuant to the Asset Sale (as
determined by the Board of Directors of the Company, whose determination in good
faith shall be conclusive and evidenced by a Board Resolution), (ii) at least
80% of the consideration received by the Company or the Restricted Subsidiary,
as the case may be, in respect of such Asset Sale consists of cash or Cash
Equivalents and (iii) the Company delivers to the Trustee an Officers'
Certificate certifying that such Asset Sale complies
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with clauses (i) and (ii). The amount (without duplication) of any Indebtedness
(other than Subordinated Indebtedness) of the Company or such Restricted
Subsidiary that is expressly assumed by the transferee in such Asset Sale and
with respect to which the Company or such Restricted Subsidiary, as the case may
be, is unconditionally released by the holder of such Indebtedness, shall be
deemed to be cash or Cash Equivalents for purposes of clause (ii) and shall also
be deemed to constitute a repayment of, and a permanent reduction in, the amount
of such Indebtedness for purposes of the following paragraph (b). If at any time
any non-cash consideration received by the Company or any Restricted Subsidiary
of the Company, as the case may be, in connection with any Asset Sale is
converted into or sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration), then such conversion
or disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Available Proceeds thereof shall be applied in accordance with this covenant. A
transfer of assets by the Company to a Restricted Subsidiary or by a Subsidiary
to the Company or to a Restricted Subsidiary will not be deemed to be an Asset
Sale and a transfer of assets that constitutes a Restricted Investment and that
is permitted under "--Restricted Payments" will not be deemed to be an Asset
Sale.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under " --Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Subsidiaries not so transferred for
purposes of this covenant, and shall comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its
Subsidiaries deemed to be sold shall be deemed to be Net Available Proceeds for
purposes of this covenant.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company or any Restricted Subsidiary may either, no later than 270 days
after such Asset Sale, (i) apply all or any of the Net Available Proceeds
therefrom to repay Indebtedness (other than Subordinated Indebtedness) of the
Company or any Restricted Subsidiary, PROVIDED, in each case, that the related
loan commitment (if any) is thereby permanently reduced by the amount of such
Indebtedness so repaid or (ii) invest all or any part of the Net Available
Proceeds thereof in properties and assets that replace the properties or assets
that were the subject of such Asset Sale or in other properties or assets that
will be used in the business of the Company and its Restricted Subsidiaries. The
amount of such Net Available Proceeds not applied or invested as provided in
this paragraph will constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceeds $5.0
million, the Company will be required to make an offer to purchase, from all
Holders of the Senior Notes, an aggregate principal amount of Senior Notes equal
to such Excess Proceeds as follows:
(i) The Company will make an offer to purchase (a "Net Proceeds Offer")
from all Holders of the Senior Notes in accordance with the procedures set
forth in the Indenture the maximum principal amount (expressed as a multiple
of $1,000) of Senior Notes that may be purchased out of the amount (the
"Payment Amount") of such Excess Proceeds.
(ii) The offer price for the Senior Notes will be payable in cash in an
amount equal to 100% of the principal amount of the Senior Notes tendered
pursuant to a Net Proceeds Offer, plus accrued and unpaid interest and Old
Note Liquidated Damages, if any, to the date such Net Proceeds Offer is
consummated (the "Offered Price"), in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate Offered Price of
Senior Notes tendered pursuant to a Net Proceeds Offer is less than the
Payment Amount relating thereto (such shortfall constituting a "Net Proceeds
Deficiency"), the Company may use such Net Proceeds Deficiency, or a portion
thereof, for general corporate purposes, subject to the limitations of the
"Limitation on Restricted Payments" covenant.
(iii) If the aggregate Offered Price of Senior Notes validly tendered and
not withdrawn by Holders thereof exceeds the Payment Amount, Senior Notes to
be purchased will be selected on a PRO RATA basis.
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(iv) Upon completion of such Net Proceeds Offer, the amount of Excess
Proceeds remaining shall be zero.
The Company will not permit any Restricted Subsidiary to enter into or suffer to
exist any agreement that would place any restriction of any kind (other than
pursuant to law or regulation) on the ability of the Company to make a Net
Proceeds Offer following any Asset Sale. The Company will comply with Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder,
if applicable, in the event that an Asset Sale occurs and the Company is
required to purchase Senior Notes as described above.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Company will not, and will not cause or permit any Restricted
Subsidiary to, directly or indirectly, create or suffer to exist or allow to
become effective any consensual encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary (a) to pay dividends, in cash or otherwise,
or make any other distributions on its Capital Stock, or make payments on any
Indebtedness owed, to the Company or any other Restricted Subsidiary, (b) to
make loans or advances to the Company or any other Restricted Subsidiary or (c)
to transfer any of its property or assets to the Company or any other Restricted
Subsidiary (any such restrictions being collectively referred to herein as a
"Payment Restriction"), except in any such case for such encumbrances or
restrictions existing under or by reason of (i) the Indenture or any other
agreement in effect or entered into on the date of the Indenture, or (ii) any
agreement, instrument or charter of or in respect of a Restricted Subsidiary
entered into prior to the date on which such Restricted Subsidiary became a
Restricted Subsidiary and outstanding on such date and not entered into in
connection with or in contemplation of becoming a Restricted Subsidiary,
PROVIDED such consensual encumbrance or restriction is not applicable to any
properties or assets subsequently acquired by such Restricted Subsidiary, or
(iii) pursuant to an agreement effecting a modification, renewal, refinancing,
replacement or extension of any agreement, instrument or charter (other than the
Indenture) referred to in clause (i) or (ii) above, PROVIDED, HOWEVER, that the
provisions relating to such encumbrance or restriction are not materially less
favorable to the Holder of the Senior Notes than those under or pursuant to the
agreement, instrument or charter so modified, renewed, refinanced, replaced or
extended, or (iv) customary provisions restricting the subletting or assignment
of any lease or the transfer of copyrighted or patented material, or (v)
provisions in agreements that restrict the assignment of such agreements or
rights thereunder, or (vi) the sale or other disposition of any properties or
assets subject to a Lien securing Indebtedness.
LIMITATION ON CONDUCT OF BUSINESS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, engage in the conduct of any
business other than any Related Business.
FUTURE DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The
foregoing covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness and Liens) may be
affected by the designation by the Company of any existing or future Subsidiary
of the Company as an Unrestricted Subsidiary. The definition of "Unrestricted
Subsidiary" set forth under the caption "--Certain Definitions" describes the
circumstances under which a Subsidiary of the Company may be designated as an
Unrestricted Subsidiary by the Board of Directors of the Company.
ADDITIONAL COVENANTS. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium and interest, if any,
and Old Note Liquidated Damages, if any; (ii) maintenance of an office or agency
in The City of New York; (iii) arrangements regarding the handling of money held
in trust; (iv) maintenance of corporate existence; (v) payment of taxes and
other claims; and (vi) maintenance of properties.
REPORTS. The Company will file on a timely basis with the Commission, to
the extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. The
Company will also be
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required (a) to file with the Trustee (with exhibits), and provide to each
Holder of Senior Notes (without exhibits), without cost to such Holder, copies
of such reports and documents within 15 days after the date on which the Company
files such reports and documents with the Commission or the date on which the
Company would be required to file such reports and documents if the Company were
so required and (b) if filing such reports and documents with the Commission is
not accepted by the Commission or is prohibited under the Exchange Act, to
supply at its cost copies of such reports and documents (including any exhibits
thereto) to any Holder of Senior Notes promptly upon written request.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company will not, in any single transaction or series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of the properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any Person or group of Affiliated Persons, and the Company
will not permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions, if, in any event, such transaction or
series of transactions, in the aggregate, would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of the Company and its Restricted Subsidiaries on a
consolidated basis to any other Person or group of Affiliated Persons, unless
(i) either (A) if the transaction is a merger or consolidation, the Company
shall be the surviving Person of such merger or consolidation, or (B) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or to which the properties and assets of the Company or its
Restricted Subsidiaries, as the case may be, are sold, assigned, conveyed,
transferred, leased or otherwise disposed of (any such surviving Person or
transferee Person being the "Surviving Entity") shall be a corporation organized
and existing under the laws of the United States of America, any state thereof
or the District of Columbia and shall, in either case, expressly assume by a
supplemental indenture to the Indenture executed and delivered to the Trustee,
in form satisfactory to the Trustee, all the obligations of the Company or the
Restricted Subsidiary, as the case may be, with respect to the Senior Notes and
the Indenture, and, in any case, the Indenture shall remain in full force and
effect; and (ii) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (and treating any
Indebtedness not previously an obligation of the Company or any of its
Restricted Subsidiaries which becomes an obligation of the Company or any of its
Restricted Subsidiaries in connection with or as a result of such transaction or
transactions as having been incurred at the time of such transaction or
transactions), no Default or Event of Default shall have occurred and be
continuing; (iii) except in the case of the consolidation or merger of any
Restricted Subsidiary with or into the Company, immediately after giving effect
to such transaction or transactions on a pro forma basis, the Consolidated Net
Worth of the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) is at least equal to the Consolidated
Net Worth of the Company immediately before such transaction or transactions;
(iv) except in the case of the consolidation or merger of the Company with or
into a Restricted Subsidiary or any Restricted Subsidiary with or into the
Company or another Restricted Subsidiary, immediately before and immediately
after giving effect to such transaction or transactions on a pro forma basis
(assuming that the transaction or transactions occurred on the first day of the
period of four fiscal quarters ending immediately prior to the consummation of
such transaction or transactions, with the appropriate adjustments with respect
to the transaction or transactions being included in such pro forma
calculation), the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the first paragraph
of the "--Limitation on Indebtedness and Disqualified Capital Stock" covenant;
(v) if any of the properties or assets of the Company or any of its Restricted
Subsidiaries would upon such transaction or series of related transactions
become subject to any Lien (other than a Permitted Lien), the creation and
imposition of such Lien shall have been in compliance with the "Limitation on
Liens" covenant; and (vi) the Company (or the Surviving Entity if the Company is
not the continuing obligor under the Indenture) shall have delivered to the
Trustee, in form and substance reasonably satisfactory to the Trustee, an
Officers' Certificate and an Opinion of Counsel, each stating that such
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consolidation, merger, transfer, lease or other disposition and any supplemental
indenture in respect thereto comply with the requirements under the Indenture
and that all conditions precedent in the Indenture relating to such transaction
have been satisfied.
Upon any consolidation or merger or any sale, assignment, lease, conveyance,
transfer or other disposition of all or substantially all of the properties and
assets of the Company and its Restricted Subsidiaries on a consolidated basis in
accordance with the foregoing, in which the Company is not the continuing
corporation, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture with the
same effect as if the Surviving Entity had been named as the Company therein,
and thereafter the Company, except in the case of a lease, will be discharged
from all obligations and covenants under the Indenture and the Senior Notes and
may be liquidated and dissolved.
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EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, on
any of the Senior Notes, whether such payment is due at Stated Maturity,
upon redemption, upon repurchase pursuant to a Change of Control Offer or a
Net Proceeds Offer, upon acceleration or otherwise; or
(ii) default in the payment of any installment of interest and Old Note
Liquidated Damages, if any, on any of the Senior Notes, when due, and the
continuance of such default for a period of 30 days; or
(iii) failure to comply with the "--Limitation on Indebtedness and
Disqualified Capital Stock," "--Limitation on Preferred Stock of
Subsidiaries," "--Limitation on Restricted Payments,"
"--Limitation on Liens" covenants, default in the performance or breach of
the provisions of the "Merger, Consolidation and Sale of Assets" section of
the Indenture, the failure to make or consummate a Change of Control Offer
in accordance with the provisions of the "Change of Control" covenant or the
failure to make or consummate a Net Proceeds Offer in accordance with the
provisions of the "Limitation on Asset Sales" covenant; or
(iv) the Company or the Subsidiary Guarantors shall fail to perform or
observe any other term, covenant or agreement contained in the Senior Notes,
the Indenture (other than a default specified in (i), (ii) or (iii) above)
or the Subsidiary Guarantees, as the case may be, for a period of 30 days
after written notice of such failure stating that it is a "notice of
default" under the Indenture and requiring the Company or the Subsidiary
Guarantors, as the case may be, to remedy the same shall have been given (x)
to the Company or the Subsidiary Guarantors, as the case may be, by the
Trustee or (y) to the Company or the Subsidiary Guarantors, as the case may
be, and the Trustee by the Holders of at least 25% in aggregate principal
amount of the Senior Notes then outstanding; or
(v) the occurrence and continuation beyond any applicable grace period
of any default in the payment of the principal of, premium, if any, or
interest on any Indebtedness of the Company (other than the Senior Notes) or
any Subsidiary for money borrowed when due, or any other default resulting
in acceleration of any Indebtedness of the Company or any Subsidiary for
money borrowed, provided that the aggregate principal amount of such
Indebtedness shall exceed $2.5 million; or
(vi) one or more final judgments or orders rendered against the Company
or any Subsidiary that are unsatisfied and that require the payment in
money, either individually or in an aggregate amount, in excess of $2.5
million, which judgments or orders are not paid, discharged or stayed for a
period of 60 days; or
(vii) certain events of bankruptcy or insolvency with respect to the
Company or any Restricted Subsidiary; or
(viii) except as permitted by the Indenture and the Senior Notes, the
cessation of the effectiveness of any Subsidiary Guarantee or the
repudiation by any Subsidiary Guarantor (or by any Person acting on behalf
of any Subsidiary Guarantor) of its obligations under its Subsidiary
Guarantee; or
(ix) the cessation of the effectiveness of the Pledge Agreement or the
repudiation by the Pledgor thereunder (or by any Person acting on behalf of
such Pledgor) of its obligations under the Pledge Agreement.
If an Event of Default (other than as specified in clause (vii) above) shall
occur and be continuing, the Trustee, by written notice to the Company, or the
Holders of at least 25% in aggregate principal amount of the Senior Notes then
outstanding, by written notice to the Trustee and the Company, may, and the
Trustee upon the request of the Holders of not less than 25% in aggregate
principal amount of the Senior Notes then outstanding shall, declare the
principal of, premium, if any, and accrued and unpaid interest and Old Note
Liquidated Damages, if any, on all of the Senior Notes due and payable
immediately, upon which declaration all amounts payable in respect of the Senior
Notes shall be immediately due and payable. If an
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Event of Default specified in clause (vii) above occurs and is continuing, then
the principal of, premium, if any, and accrued and unpaid interest and Old Note
Liquidated Damages, if any, on all of the Senior Notes shall become and be
immediately due and payable without any declaration, notice or other act on the
part of the Trustee or any Holder of Senior Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Senior Notes, by written notice to the Company and the Trustee, may,
under certain circumstances, rescind and annul such declaration and its
consequences if all Events of Default, other than the non-payment of principal
of, premium, if any, or interest on the Senior Notes that has become due solely
by such declaration of acceleration, have been cured or waived. No such
rescission shall affect any subsequent Default or Event of Default or impair any
right consequent thereto.
No Holder will have any right to institute any proceeding with respect to
the Indenture or any remedy thereunder, unless such Holder has notified the
Trustee of a continuing Event of Default and the Holders of at least 25% in
aggregate principal amount of the outstanding Senior Notes have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as Trustee under the Senior Notes and the Indenture, the Trustee has
failed to institute such proceeding within 60 days after receipt of such notice
and the Trustee, within such 60-day period, has not received directions
inconsistent with such written request by Holders of a majority in aggregate
principal amount of the outstanding Senior Notes. Such limitations will not
apply, however, to a suit instituted by the Holder of a Senior Note for the
enforcement of the payment of the principal of, premium, if any, or interest on
such Senior Note on or after the respective due dates expressed in such Senior
Note.
The Holders of a majority in principal amount of the Senior Notes may waive
any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest on
any Senior Notes.
The Company will be required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such performance. The Company will also be
required to notify the Trustee within 10 days of any Default or Event of
Default.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations of
the Company with respect to the outstanding Senior Notes (such action being a
"legal defeasance"). Such legal defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Senior Notes and to have been discharged from all their other
obligations with respect to the Senior Notes, except for (i) the rights of
Holders of outstanding Senior Notes to receive payment in respect of the
principal of, premium, if any, and interest on such Senior Notes when such
payments are due, (ii) the Company's obligations to replace any temporary Senior
Notes, register the transfer or exchange of any Senior Notes, replace mutilated,
destroyed, lost or stolen Senior Notes and maintain an office or agency for
payments in respect of the Senior Notes, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and (iv) the legal defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to terminate the obligations of the Company with respect to certain
covenants that are set forth in the Indenture, some of which are described under
"--Certain Covenants" above, and any omission to comply with such obligations
shall not constitute a Default or an Event of Default with respect to the Senior
Notes (such action being a "covenant defeasance"). In the event covenant
defeasance occurs, certain events (not including nonpayment, bankruptcy,
insolvency and reorganization events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Senior Notes.
In order to exercise either legal defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Senior Notes, cash in United States
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dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest and Old Note Liquidated Damages, if
any, on the outstanding Senior Notes to redemption or maturity; (ii) the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the outstanding Senior Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such legal defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such legal
defeasance or covenant defeasance had not occurred (in the case of legal
defeasance, such Opinion must refer to and be based upon a published ruling of
the Internal Revenue Service or a change in applicable federal income tax laws);
(iii) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as clauses (vii) and (viii) under the first
paragraph of "Events of Default" are concerned, at any time during the period
ending on the 91st day after the date of deposit; (iv) such legal defeasance or
covenant defeasance shall not cause the Trustee to have a conflicting interest
under the Indenture or the Trust Indenture Act with respect to any securities of
the Company; (v) such legal defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument to which the Company or any of its Restricted
Subsidiaries is a party or by which the Company or any of its Restricted
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of the Senior Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel satisfactory
to the Trustee, each stating that all conditions precedent under the Indenture
to either legal defeasance or covenant defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Senior Notes, as expressly provided for in the Indenture) as to all outstanding
Senior Notes when (i) either (a) all the Senior Notes theretofore authenticated
and delivered (except lost, stolen, mutilated or destroyed Senior Notes which
have been replaced or paid and Senior Notes for whose payment money or certain
U.S. Government Obligations have theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Senior Notes not theretofore delivered to the Trustee
for cancellation have become due and payable or will become due and payable at
their Stated Maturity within one year, or are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the serving of
notice of redemption by the Trustee in the name, and at the expense, of the
Company, and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and discharge the entire
Indebtedness on the Senior Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest and Old Note
Liquidated Damages, if any, on the Senior Notes to the date of deposit (in the
case of Senior Notes which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be, together with instructions from
the Company irrevocably directing the Trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be; (ii) the Company has paid
all other sums payable under the Indenture by the Company; and (iii) the Company
has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
which, taken together, state that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
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AMENDMENTS AND WAIVERS
From time to time, the Company and the Trustee may, without the consent of
the Holders of the Senior Notes, amend or supplement the Indenture or the Senior
Notes for certain specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies, qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act or making any
change that does not materially adversely affect the rights of any Holder of
Senior Notes. Other amendments and modifications of the Indenture or the Senior
Notes may be made by the Company and the Trustee with the consent of the Holders
of not less than a majority of the aggregate principal amount of the outstanding
Senior Notes; provided, however, that no such modification or amendment may,
without the consent of the Holder of each outstanding Senior Note affected
thereby, (a) change the Stated Maturity of the principal of, or any installment
of interest on, any Senior Note or alter the provisions with respect to
redemption of the Senior Notes, (b) reduce the principal amount of, premium, if
any, or interest or Old Note Liquidated Damages, if any, on any Senior Note, (c)
change the coin or currency in which principal of, premium, if any, or interest
or Old Note Liquidated Damages, if any, on, any Senior Note is payable, (d)
impair the right to institute suit for the enforcement of any payment on or with
respect to any Senior Note, (e) reduce the above-stated percentage of aggregate
principal amount of outstanding Senior Notes necessary to modify or amend the
Indenture, (f) reduce the percentage of aggregate principal amount of
outstanding Senior Notes necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults, (g) modify any
provisions of the Indenture relating to the modification and amendment of the
Indenture or the waiver of past Defaults or covenants, except as otherwise
specified, or the rights of any Holder to receive payments of principal of or
premium, if any, or interest or Old Note Liquidated Damages, if any, on the
Senior Notes, (h) change the ranking of the Senior Notes in a manner adverse to
the Holders or expressly subordinate in right of payment the Senior Notes to any
other Indebtedness, (i) amend, change or modify the obligation of the Company to
make and consummate a Change of Control Offer in the event of a Change of
Control or make and consummate a Net Proceeds Offer with respect to any Asset
Sale or modify any of the provisions or definitions with respect thereto or (j)
release any security that may have been granted in respect of the Senior Notes
except as expressly provided in the Indenture.
The Holders of not less than a majority in aggregate principal amount of the
outstanding Senior Notes may, on behalf of the Senior Holders of all Senior
Notes, waive any past default under the Indenture, except a default in the
payment of principal of, premium, if any, or interest or Old Note Liquidated
Damages, if any, on the Senior Notes, or in respect of a covenant or provision
which under the Indenture cannot be modified or amended without the consent of
the Holder of each Senior Note outstanding.
THE TRUSTEE
IBJ Schroder Bank & Trust Company serves as trustee under the Indenture.
The Indenture (including provisions of the Trust Indenture Act incorporated
by reference therein) contains limitations on the rights of the Trustee
thereunder, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Indenture permits the
Trustee to engage in other transactions; provided, however, if it acquires any
conflicting interest (as defined in the Trust Indenture Act) it must eliminate
such conflict or resign.
GOVERNING LAW
The Indenture and the Senior Notes are governed by the laws of the State of
New York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means, with respect to any specified Person, (a)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of
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such specified Person, including Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person or (b) assumed in connection with
acquisitions of properties or assets from such Person. Acquired Indebtedness
shall be deemed to be incurred on the date the acquired Person becomes a
Restricted Subsidiary or the date of the related acquisition of properties or
assets from such Person.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of this definition, beneficial ownership of 10% or more of the voting
common equity (on a fully diluted basis) or options or warrants to purchase such
equity (but only if exercisable at the date of determination or within 60 days
thereof) of a Person shall be deemed to constitute control of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition to any Person other than the Company or any of
its Restricted Subsidiaries (including, without limitation, by means of a
Sale/Leaseback Transaction or a merger or consolidation) (collectively, for
purposes of this definition, a "transfer"), directly or indirectly, in one or a
series of related transactions, of (a) any Capital Stock of any Restricted
Subsidiary held by the Company or any other Restricted Subsidiary or (b) any
other properties or assets of the Company or any of its Restricted Subsidiaries
other than transfers of cash, Cash Equivalents, accounts receivable or other
properties or assets in the ordinary course of business. For the purposes of
this definition, the term "Asset Sale" also shall not include any of the
following: (i) any transfer of properties or assets (including Capital Stock)
that is governed by, and made in accordance with, the provisions described under
"--Merger, Consolidation and Sale of Assets"; (ii) any transfer of properties or
assets to an Unrestricted Subsidiary, if permitted under the "Limitation on
Restricted Payments" covenant; (iii) sales of damaged, worn-out or obsolete
equipment or assets that, in the Company's reasonable judgment, are either (x)
no longer used or (y) no longer useful in the business of the Company or its
Restricted Subsidiaries; and (iv) any transfers that, but for this clause (iv),
would be Asset Sales, if after giving effect to such transfers, the aggregate
fair market value of the properties or assets transferred in such transaction or
any such series of related transactions so designated by the Company does not
exceed $500,000.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable, whether or not accounted for as a
Capitalized Lease Obligation, and at any date as of which the amount thereof is
to be determined, the present value of the total net amount of rent required to
be paid by such Person under the lease during the primary term thereof, without
giving effect to any renewals at the option of the lessee, discounted from the
respective due dates thereof to such date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capitalized Lease
Obligation with a like term in accordance with GAAP. As used in the preceding
sentence, the "net amount of rent" under any such lease for any such period
shall mean the sum of rental and other payments required to be paid with respect
to such period by the lessee thereunder, excluding any amounts required to be
paid by such lessee on account of maintenance and repairs, insurance, taxes,
assessments, water rates or similar charges. In the case of any lease which is
terminable by the lessee upon payment of a penalty, such net amount of rent
shall also include the amount of such penalty, but no rent shall be considered
as required to be paid under such lease subsequent to the first date upon which
it may be so terminated.
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund or mandatory redemption payment
requirements) of such Indebtedness multiplied by (ii) the amount of each such
principal payment by (b) the sum of all such principal payments.
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"Capitalized Lease Obligation" means, with respect to any Person, any
obligation to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) any property (whether real, personal or mixed) that
is required to be classified and accounted for as a capital lease obligation
under GAAP and, for the purpose of the Indenture, the amount of such obligation
at any date shall be the capitalized amount thereof at such date, determined in
accordance with GAAP.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation, rights or other equivalents in the equity interests
(however designated) in such Person, and any rights (other than debt securities
convertible into an equity interest), warrants or options exercisable for,
exchangeable for or convertible into such an equity interest in such Person.
"Cash Equivalents" means (i) marketable obligations with a maturity of 180
days or less issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500 million; (iii) commercial
paper maturing no more than 180 days from the date of creation thereof issued by
a corporation that is not an Affiliate of the Company and is organized under the
laws of any state of the United States or the District of Columbia and rated at
least A-1 by S&P or at least P-1 by Moody's; (iv) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any commercial bank meeting the
specifications of clause (ii) above; and (v) investments in money market or
other mutual funds substantially all of whose assets comprise securities of the
types described in clauses (i) through (iv) above.
"Change of Control" means the occurrence of any event or series of events
(whether or not otherwise in compliance with the provisions of the Indenture) by
which: (a) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) (other than the Principals) is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of more than 35% of the total Voting Stock of the Company, (b) the
Company consolidates with or merges into another Person or any Person
consolidates with, or merges into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is changed into
or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is changed
into or exchanged for Voting Stock of the surviving or resulting Person that is
Qualified Capital Stock and (ii) the holders of the Voting Stock of the Company
immediately prior to such transaction own, directly or indirectly, not less than
a majority of the Voting Stock of the surviving or resulting Person immediately
after such transaction; (c) the Company, either individually or in conjunction
with one or more Restricted Subsidiaries, sells, assigns, conveys, transfers,
leases or otherwise disposes of, or the Restricted Subsidiaries sell, assign,
convey, transfer, lease or otherwise dispose of, all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries, taken as a
whole (either in one transaction or a series of related transactions), including
Capital Stock of the Restricted Subsidiaries, to any Person (other than the
Company or a Wholly Owned Restricted Subsidiary); (d) during any consecutive
two-year period, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of two-thirds of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or (e) the approval by the holders of
Capital Stock of the Company of any plan or proposal for liquidation or
dissolution of the Company.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
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"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Company for any period, the ratio of (a) the sum of Consolidated Net Income,
Consolidated Fixed Charges, Consolidated Income Tax Expense and Consolidated
Non-cash Charges of the Company and its Restricted Subsidiaries, on a
consolidated basis for such period, all determined in accordance with GAAP to
(b) Consolidated Fixed Charges for such period. In making such computations, (i)
the Consolidated Fixed Charge Coverage Ratio shall be calculated on a pro forma
basis assuming that (A) the Indebtedness to be incurred or the Disqualified
Capital Stock to be issued (and all other Indebtedness incurred or Disqualified
Capital Stock issued after the first day of such period of four full fiscal
quarters referred to in the covenant described in paragraph (a) under "--Certain
Covenants--Limitation on Indebtedness and Disqualified Capital Stock" through
and including the date of determination), and (if applicable) the application of
the net proceeds therefrom (and from any other such Indebtedness or Disqualified
Capital Stock), including to refinance other Indebtedness, had been incurred on
the first day of such four quarter period and, in the case of Acquired
Indebtedness, on the assumption that the related transaction (whether by means
of purchase, merger or otherwise) also had occurred on such date with the
appropriate adjustments with respect to such acquisition being included in such
pro forma calculation and (B) any acquisition or disposition by the Company or
any Restricted Subsidiary of any properties or assets outside the ordinary
course of business, or any repayment of any principal amount of any Indebtedness
of the Company or any Restricted Subsidiary prior to the Stated Maturity
thereof, in either case since the first day of such period of four full fiscal
quarters through and including the date of determination, had been consummated
on such first day of such four-quarter period; (ii) the Consolidated Fixed
Charges attributable to interest on any Indebtedness required to be computed on
a pro forma basis in accordance with the covenant described in paragraph (a)
under "--Certain Covenants--Limitation on Indebtedness and Disqualified Capital
Stock" and (A) bearing a floating interest rate shall be computed as if the rate
in effect on the date of computation had been the applicable rate for the entire
period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of the Company, a fixed
or floating rate of interest, shall be computed by applying, at the option of
the Company, either the fixed or floating rate; (iii) the Consolidated Fixed
Charges attributable to interest on any Indebtedness under a revolving credit
facility required to be computed on a pro forma basis in accordance with the
covenant described in paragraph (a) under "--Certain Covenants--Limitation on
Indebtedness and Disqualified Capital Stock" shall be computed based upon the
average daily balance of such Indebtedness during the applicable period,
provided that such average daily balance shall be reduced by the amount of any
repayment of Indebtedness under a revolving credit facility during the
applicable period, which repayment permanently reduced the commitments or
amounts available to be reborrowed under such facility; (iv) notwithstanding
clauses (ii) and (iii) of this proviso, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating
to Interest Rate Protection Obligations, shall be deemed to have accrued at the
rate per annum resulting after giving effect to the operation of such
agreements; and (v) if after the first day of the period referred to in clause
(a) of this definition the Company has permanently retired any Indebtedness out
of the Net Cash Proceeds of the issuance and sale of shares of Qualified Capital
Stock of the Company within 30 days of such issuance and sale, Consolidated
Fixed Charges shall be calculated on a pro forma basis as if such Indebtedness
had been retired on the first day of such period.
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"Consolidated Fixed Charges" means, for any period, without duplication, (i)
the sum of (a) the interest expense of the Company and its Restricted
Subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP, including, without limitation, any amortization of debt discount, the
net cost under Interest Rate Protection Obligations (including any amortization
of discounts), the interest portion of any deferred payment obligation
constituting Indebtedness, all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing and all
accrued interest, in each case to the extent attributable to such period, (b) to
the extent any Indebtedness of any Person (other than the Company or a
Restricted Subsidiary) is guaranteed by the Company or any Restricted
Subsidiary, the aggregate amount of interest paid (to the extent not accrued in
a prior period) or accrued by such other Person during such period attributable
to any such Indebtedness, in each case to the extent attributable to that
period, (c) the aggregate amount of the interest component of Capitalized Lease
Obligations paid (to the extent not accrued in a prior period), accrued or
scheduled to be paid or accrued by the Company and its Restricted Subsidiaries
during such period, and (d) the aggregate amount of dividends paid (to the
extent not accrued in a prior period) or accrued on Preferred Stock or
Disqualified Capital Stock of the Company and its Restricted Subsidiaries, to
the extent such Preferred Stock or Disqualified Capital Stock is owned by
Persons other than the Company or any Restricted Subsidiary, less (ii), to the
extent included in clause (i) above, amortization of capitalized debt issuance
costs of the Company and its Restricted Subsidiaries during such period.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes (including state franchise taxes
accounted for as income taxes in accordance with GAAP) of the Company and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net income
(or loss) of the Company and its Restricted Subsidiaries for such period as
determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto), (b)
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) net income (or net loss) of any Person (other
than the Company or any of its Restricted Subsidiaries), in which the Company or
any of its Restricted Subsidiaries has an ownership interest, except to the
extent of the amount of dividends or other distributions actually paid to the
Company or any of its Restricted Subsidiaries in cash by such other Person
during such period (regardless of whether such cash dividends or distributions
are attributable to net income (or net loss) of such Person during such period
or during any prior period), (d) net income (or net loss) of any Person combined
with the Company or any of its Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(e) net income of any Restricted Subsidiary to the extent that the declaration
or payment of dividends or similar distributions by that Restricted Subsidiary
of its net income is not at the date of determination permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, and (f) income
resulting from transfers of assets received by the Company or any Restricted
Subsidiary from an Unrestricted Subsidiary.
"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of the Company less (without duplication) the amount of such
stockholders' equity attributable to Disqualified Capital Stock or treasury
stock of the Company and its Restricted Subsidiaries, as determined in
accordance with GAAP.
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and other non-cash expenses of the Company
and its Restricted Subsidiaries deducted in computing Consolidated Net Income
for such period, all determined on a consolidated basis in accordance with GAAP
(excluding any such non-cash charge for which an accrual of or reserve for cash
charges for any future period is required).
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"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or futures contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition that is, or after notice or
passage of time or both would become, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
transactions in respect of which the Board of Directors of the Company is
required to deliver a resolution of the Board of Directors under the Indenture,
a member of the Board of Directors of the Company who does not have any material
direct or indirect financial interest (other than an interest arising solely
from the beneficial ownership of Capital Stock of the Company) in or with
respect to such transaction or series of transactions.
"Disqualified Capital Stock" means any Capital Stock that, either by its
terms, by the terms of any security into which it is convertible or exchangeable
or by contract or otherwise, is, or upon the happening of an event or passage of
time or both would be, required to be redeemed or repurchased, in whole or in
part, prior to the final Stated Maturity of the Senior Notes or is redeemable at
the option of the holder thereof at any time prior to such final Stated
Maturity, or is convertible into or exchangeable for debt securities at any time
prior to such final Stated Maturity.
"Event of Default" has the meaning set forth above under the caption "Events
of Default."
"GAAP" means generally accepted accounting principles, consistently applied,
that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
applicable as of the date of the Indenture.
"Guarantee" or "guarantee" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of such obligation and (ii) an agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down under letters of credit. When used as a verb,
"guarantee" has a corresponding meaning.
"Holder" means a Person in whose name a Senior Note is registered in the
Note Register.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person, contingent or otherwise, for borrowed money or
for the deferred purchase price of property or services (excluding any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business) and all liabilities of such Person incurred in connection
with any letters of credit, bankers' acceptances or other similar credit
transactions or any agreement to purchase, redeem, exchange, convert or
otherwise acquire for value any Capital Stock of such Person, or any warrants,
rights or options to acquire such Capital Stock, outstanding on the date of the
Indenture or thereafter, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, (b) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (c) all Indebtedness of such Person created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of a default are limited
to repossession or sale of such property), (d) the Attributable Indebtedness of
any
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Capitalized Lease Obligation of such Persons, (e) all Indebtedness described in
the preceding clauses and all dividends, the payment of which is secured by (or
for which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness
(the amount of such obligation being deemed to be the lesser of the value of
such property or the amount of the obligation so secured), (f) all guarantees by
such Person of Indebtedness referred to in this definition, and (g) all
obligations of such Person under or in respect of Currency Hedge Obligations and
Interest Rate Protection Obligations.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and other similar agreements or arrangements designed to
protect against or manage such Person's or any of its Subsidiaries' exposure to
fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or capital
contribution to (by means of any transfer of cash or other property or assets to
others or any payment for property, assets or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities (including derivatives) or
evidences of Indebtedness issued by, any other Person. In addition, the fair
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by the Company in such Unrestricted Subsidiary
at such time. "Investments" shall exclude (a) extensions of trade credit or
other advances to customers on commercially reasonable terms in accordance with
normal trade practices or otherwise in the ordinary course of business, (b)
Interest Rate Protection Obligations and Currency Hedge Obligations, but only to
the extent that the same constitute Permitted Indebtedness and (c) endorsements
of negotiable instruments and documents in the ordinary course of business.
"Leasing Company" means Embroidery Leasing Corporation.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or similar type
of encumbrance (including, without limitation, any agreement to give or grant
any lease, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing) upon or with
respect to any property of any kind. A Person shall be deemed to own subject to
a Lien any property which such Person has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement.
"Maturity" means, with respect to any Senior Note, the date on which any
principal of such Senior Note becomes due and payable as therein or in the
Indenture provided, whether at the Stated Maturity with respect to such
principal or by declaration of acceleration, call for redemption or purchase or
otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary), net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel, accountants and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale (after taking
into account
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any available tax credits or deductions and any tax sharing arrangements), (iii)
amounts required to be paid to any Person (other than the Company or any
Restricted Subsidiary) owning a beneficial interest in the properties or assets
subject to the Asset Sale or having a Lien therein and (iv) appropriate amounts
to be provided by the Company or any Restricted Subsidiary, as the case may be,
as a reserve required in accordance with GAAP against any liabilities associated
with such Asset Sale and retained by the Company or any Restricted Subsidiary,
as the case may be, after such Asset Sale, including, without limitation,
pensions and other postemployment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an Officers' Certificate;
provided, however, that any amounts remaining after adjustments, revaluations or
liquidations of such reserves shall constitute Net Available Proceeds.
"Net Cash Proceeds," with respect to any issuance or sale of Qualified
Capital Stock or other securities, means the cash proceeds of such issuance or
sale net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
and expenses actually incurred in connection with such issuance or sale and net
of taxes paid or payable as a result thereof.
"Note Register" means the register maintained by or for the Company in which
the Company shall provide for the registration of the Senior Notes and the
transfer of the Senior Notes.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness under Working Capital Agreements in an aggregate
principal amount at any time outstanding not to exceed the greater of (A)
$20.0 million or (B) 60% of the book value of the accounts receivable of the
Company and its Restricted Subsidiaries, calculated on a consolidated basis
and in accordance with GAAP,
(ii) Indebtedness under the Senior Notes or the Indebtedness under the
senior notes issued in the Exchange Offer;
(iii) Indebtedness outstanding or in effect on the date of the Indenture
after giving effect to the Offering and the application of the net proceeds
therefrom;
(iv) Indebtedness under Interest Rate Protection Obligations, provided
that (1) such Interest Rate Protection Obligations are related to payment
obligations on Permitted Indebtedness or Indebtedness otherwise permitted by
paragraph (a) of the "Limitation on Indebtedness and Disqualified Capital
Stock" covenant, and (2) the notional principal amount of such Interest Rate
Protection Obligations does not exceed the principal amount of such
Indebtedness to which such Interest Rate Protection Obligations relate;
(v) Indebtedness under Currency Hedge Obligations, provided that (1)
such Currency Hedge Obligations are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by paragraph (a)
of the "Limitation on Indebtedness and Disqualified Capital Stock" covenant
or to the foreign currency cash flows reasonably expected to be generated or
required by the Company and its Restricted Subsidiaries, (2) the notional
principal amount of such Currency Hedge Obligations does not exceed the
principal amount of such Indebtedness and the amount of such foreign
currency cash flows to which such Currency Hedge Obligations relate and (3)
such Currency Hedge Obligations are entered into for the purpose of limiting
currency exchange rate risks in connection with transactions entered into in
the ordinary course of business;
(vi) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary
and Indebtedness of any Restricted Subsidiary to the Company or a Wholly
Owned Restricted Subsidiary; provided, however, that upon either (1) the
subsequent issuance (other than directors' qualifying shares), sale,
transfer or other disposition of any Capital Stock or any other event which
results in any such Wholly Owned Restricted Subsidiary ceasing to be a
Wholly Owned Restricted Subsidiary or (2) the transfer
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or other disposition of any such Indebtedness (except to the Company or a
Wholly Owned Restricted Subsidiary), the provisions of this clause (vi)
shall no longer be applicable to such Indebtedness and such Indebtedness
shall be deemed, in each case, to be incurred and shall be treated as an
incurrence for purposes of paragraph (a) of the "Limitation on Indebtedness
and Disqualified Capital Stock" covenant at the time the Wholly Owned
Restricted Subsidiary in question ceased to be a Wholly Owned Restricted
Subsidiary or the time such transfer or other disposition occurred;
(vii) Indebtedness in respect of bid, performance or surety bonds issued
for the account of the Company in the ordinary course of business, including
guaranties or obligations of the Company with respect to letters of credit
supporting such bid, performance or surety obligations (in each case other
than for an obligation for money borrowed);
(viii) Indebtedness in respect of Capitalized Lease Obligations directly
incurred by the Company, provided that such Indebtedness incurred under this
clause (viii) does not exceed $2.5 million at any one time outstanding; and
(ix) any renewals, amendments, extensions, supplements, modifications,
deferrals, substitutions, refinancing or replacements (each, for purpose of
this clause (ix), a "refinancing") by the Company or a Restricted Subsidiary
of any Indebtedness incurred pursuant to paragraph (a) of the "Limitation on
Indebtedness and Disqualified Capital Stock" covenant (without giving effect
to the parenthetical excluding Permitted Indebtedness) or referred to above
in clauses (ii) through (vi) or this clause (ix), so long as (A) any such
new Indebtedness shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness being refinanced provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, such lesser amount as of the date of
determination) so refinanced plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the
Indebtedness refinanced or the amount of any premium reasonably determined
by the Company or such Restricted Subsidiary as necessary to accomplish such
refinancing, plus the amount of expenses of the Company or such Restricted
Subsidiary incurred in connection with such refinancing, (B) in the case of
any refinancing of Indebtedness (including the Senior Notes) that is PARI
PASSU with or subordinated in right of payment to the Senior Notes, then
such new Indebtedness is PARI PASSU with or subordinated in right of payment
to the Senior Notes at least to the same extent as the Indebtedness being
refinanced and (C) such new Indebtedness has an Average Life equal to or
longer than the Average Life of the Indebtedness being refinanced and a
final Stated Maturity that is at least 91 days later than the final Stated
Maturity of the Indebtedness being refinanced.
"Permitted Investments" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in the Company or any of its Wholly Owned
Restricted Subsidiaries; (iii) Investments by the Company or any of its
Restricted Subsidiaries in another Person, if as a result of such Investment (A)
such other Person becomes a Wholly Owned Restricted Subsidiary or (B) such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all of its properties and assets to, the Company or a Wholly Owned
Restricted Subsidiary; (iv) Investments permitted under the "Limitation on Asset
Sales" covenant; (v) Investments made in the ordinary course of business in
prepaid expenses, lease, utility, workers' compensation, performance and other
similar deposits; (vi) Investments in an aggregate amount not to exceed $2.5
million in any Person engaged primarily in a Related Business on the date of any
such Investment; and (vii) Investments in the Leasing Company in an aggregate
amount not to exceed $5.0 million.
"Permitted Liens" means the following types of Liens:
(i) Liens existing as of the date of the Indenture;
(ii) Liens securing the Senior Notes;
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(iii) Liens in favor of the Company or, with respect to a Restricted
Subsidiary, Liens in favor of another Restricted Subsidiary;
(iv) Liens on accounts receivable, notes receivable or chattel paper
securing Indebtedness under one or more Working Capital Agreements that do
not, in the aggregate, exceed the amounts permitted pursuant to clause (i)
of the definition of Permitted Indebtedness;
(v) Liens securing Indebtedness that constitutes Permitted Indebtedness
pursuant to clause (ix) of the definition of "Permitted Indebtedness"
incurred as a refinancing of any Indebtedness secured by Liens described in
clause (i) or (iv) of this definition; provided, however, that such Liens
(x) are not less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being refinanced and (y) do not extend to or cover any property
or assets of the Company or any of its Restricted Subsidiaries not securing
the Indebtedness so refinanced;
(vi) Liens for taxes, assessments or governmental charges or claims
either (A) not delinquent or (B) contested in good faith by appropriate
proceedings and as to which the Company or a Restricted Subsidiary of the
Company, as the case may be, shall have set aside on its books such reserves
as may be required pursuant to GAAP;
(vii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not delinquent or being
contested in good faith, if such reserve or other appropriate provision, if
any, as shall be required by GAAP shall have been made in respect thereof;
(viii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety and appeal bonds, bids,
government contracts and leases, performance and return of money bonds and
other similar obligations (exclusive of obligations for the payment of
borrowed money);
(ix) judgment Liens not giving rise to a Default or Event of Default and
so long as any appropriate legal proceedings which may have been duly
initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated shall
not have expired;
(x) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of business of the Company or any
of its Restricted Subsidiaries;
(xi) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease; provided that (A) the Attributable
Indebtedness related thereto constitutes Indebtedness permitted to be
incurred under the terms of the Indenture and (B) with respect to any
Capitalized Lease Obligation, such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(xii) Liens securing Purchase Money Indebtedness; provided, however, that
(A) the Purchase Money Indebtedness shall not be secured by any property or
assets of the Company or any Restricted Subsidiary other than the property
or assets so acquired and any proceeds therefrom and (B) the Lien securing
such Purchase Money Indebtedness shall be created within 90 days of such
acquisition;
(xiii) Liens upon specific items of inventory or other goods of any Person
securing such Person's obligations in respect of bankers acceptances issued
or created for the account of such Person to facilitate the purchase,
shipment or storage of such inventory or other goods;
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(xiv) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property or assets
relating to such letters of credit and products and proceeds thereof;
(xv) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
setoff;
(xvi) Liens securing Acquired Indebtedness incurred in accordance with
the covenant described under "--Certain Covenants--Limitation on
Indebtedness and Disqualified Capital Stock;" provided that (A) such Liens
secured such Acquired Indebtedness at the time of and prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company and were not granted in connection with, or in
anticipation of, the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and (B) such Liens do not extend
to or cover any property or assets of the Company or of any of its
Restricted Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Restricted Subsidiary of the Company and
are no more favorable to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary of the Company; and
(xvii) Liens on substantially all of the assets of W&G, Ltd. under any
Working Capital Agreement.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the date of the Indenture, including, without limitation, all classes and series
of preferred or preference stock of such Person.
"Principals" means (i) John K. Ziegler, Richard J. Mackey, John K. Ziegler,
Jr., Jack Klasky, Alan B. Lee, Maxwell L. Tripp, and other members of the
Company's principal management or (ii) the Company's Savings and Employee Stock
Ownership Plan and its other retirement plans holding shares of the Company's
Capital Stock.
"Public Equity Offering" means an offer and sale of Common Stock of the
Company pursuant to a registration statement that has been declared effective by
the Commission pursuant to the Securities Act (other than a registration
statement on Form S-8 or otherwise relating to equity securities issuable under
any employee benefit plan of the Company).
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in connection with the purchase of property or
assets for the business of the Company and its Restricted Subsidiaries.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Capital Stock.
"Related Business" means the businesses of the Company and the Restricted
Subsidiaries on the date on which the Senior Notes were originally issued and
any business related, ancillary or complementary to the business of the Company
and the Restricted Subsidiaries on such date.
"Restricted Investment" means (without duplication) any Investment other
than a Permitted Investment including without limitation a Subsidiary designated
as an Unrestricted Subsidiary.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the date of the Indenture, unless such Subsidiary of the
Company is an Unrestricted Subsidiary or is designated as
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an Unrestricted Subsidiary in the manner described in the definition of the term
"Unrestricted Subsidiary."
"S&P" means Standard and Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale/Leaseback Transaction" means any direct or indirect arrangement
pursuant to which properties or assets are sold or transferred by the Company or
a Restricted Subsidiary and are thereafter leased back from the purchaser or
transferee thereof by the Company or one of its Restricted Subsidiaries.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the date specified in the instrument evidencing
or governing such Indebtedness as the fixed date on which the principal of such
Indebtedness or such installment of interest is due and payable.
"Subordinated Indebtedness" means any Indebtedness of the Company or the
Subsidiary Guarantors which is expressly subordinated in right of payment to the
Senior Notes or Subsidiary Guarantees, respectively.
"Subsidiary" means, with respect to any Person, (i) a corporation a majority
of whose Voting Stock is at the time, directly or indirectly, owned by such
Person, by one or more Subsidiaries of such Person or by such Person and one or
more Subsidiaries thereof or (ii) any other Person (other than a corporation),
including, without limitation, a joint venture, in which such Person, one or
more Subsidiaries thereof or such Person and one or more Subsidiaries thereof,
directly or indirectly, at the date of determination thereof, have at least
majority ownership interest entitled to vote in the election of directors,
managers or trustees thereof (or other Person performing similar functions).
"Subsidiary Guarantors" mean (i) all U.S. subsidiaries of the Company
existing as of the date of the Indenture and (ii) any other Subsidiary of the
Company or a Subsidiary thereof that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture, and their respective successors
and assigns.
"Unrestricted Subsidiary" means (i) the Leasing Company, (ii) any Subsidiary
of the Company that at the time of determination will be designated an
Unrestricted Subsidiary by the Board of Directors of the Company as provided
below and (iii) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors of the Company may designate any Subsidiary of the Company as an
Unrestricted Subsidiary so long as (a) neither the Company nor any Restricted
Subsidiary is directly or indirectly liable pursuant to the terms of any
Indebtedness of such Subsidiary; (b) no default with respect to any Indebtedness
of such Subsidiary would permit (upon notice, lapse of time or otherwise) any
holder of any other Indebtedness of the Company or any Restricted Subsidiary to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity; (c) such designation as an
Unrestricted Subsidiary would be permitted under the "Limitation on Restricted
Payments" covenant; (d) such designation shall not result in the creation or
imposition of any Lien on any of the properties or assets of the Company or any
Restricted Subsidiary (other than any Permitted Lien) and (e) the Company could
incur $1.00 of additional Indebtedness (not including the incurrence of
Permitted Indebtedness) under clause (a) of the "Limitation on Indebtedness and
Disqualified Capital Stock" covenant; provided, however, that with respect to
clause (a) above, the Company or a Restricted Subsidiary may be liable for
Indebtedness of an Unrestricted Subsidiary if (x) such liability constituted a
Permitted Investment or a Restricted Payment permitted by the "Limitation on
Restricted Payments" covenant, in each case, at the time of incurrence, or (y)
the liability would be a Permitted Investment in each case at the time of
designation of such Subsidiary as an Unrestricted Subsidiary. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing a Board Resolution with the Trustee giving effect to such
designation along with an Officers' Certificate stating that such designation is
in compliance with the requirements under the Indenture. The Board of Directors
of the Company may designate any Unrestricted Subsidiary as a Restricted
Subsidiary if, immediately after giving effect to such designation on a pro
forma basis, (i) no Default or Event of Default shall have occurred and be
continuing,
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(ii) the Company could incur $1.00 of additional Indebtedness (not including the
incurrence of Permitted Indebtedness) under clause (a) of the "Limitation on
Indebtedness and Disqualified Capital Stock" covenant and (iii) if any of the
properties and assets of the Company or any of its Restricted Subsidiaries would
upon such designation become subject to any Lien (other than a Permitted Lien),
the creation or imposition of such Lien shall have been in compliance with the
"Limitation on Liens" covenant.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent (i) all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company or (ii) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Restricted Subsidiary to
transact business in such foreign jurisdiction, provided that the Company,
directly or indirectly, owns the remaining Capital Stock or ownership interest
in such Restricted Subsidiary and, by contract or otherwise, controls the
management and business of such Restricted Subsidiary and derives the economic
benefits of ownership of such Restricted Subsidiary to substantially the same
extent as if such Restricted Subsidiary were a wholly owned Subsidiary.
"Working Capital Agreements" mean (i) the New Credit Facility, (ii) the W&G,
Ltd. Credit Facility, (iii) with respect to any Person (including the Company),
without duplication, any agreement or agreements between such Person and a
financial institution or any institutions providing for the making of loans or
advances on a revolving basis, the issuance of letters of credit and/or the
creation of bankers' acceptances to fund such Person's general corporate
requirements, and (iv) any refinancings, renewals, replacements, modification
and extensions of any of the agreements described in clauses (i), (ii) and
(iii).
BOOK ENTRY; DELIVERY AND FORM
The New Notes will be issued in the form of a single, permanent global
certificate in the definitive, fully registered form (the "Global New Note"), to
be deposited with the Trustee as custodian for DTC and registered in the name of
the nominee of DTC. Except as set forth below, the Global New Note may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
DTC has advised the Company as follows: It is a limited-purpose trust
company which was created to hold securities for its participating organizations
(the "Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to the
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("indirect
participants"). Persons who are not Participants may beneficially own securities
held by DTC only through Participants or indirect participants.
DTC has also advised that pursuant to procedures established by it ownership
of beneficial interests in the Global New Note will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC (with respect to Participants' interest), the Participants and the indirect
participants. The laws of some states require that certain persons take physical
delivery in definitive form of securities which they own. Consequently, the
ability to transfer beneficial interests in the Global New Note is limited to
such extent.
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So long as a nominee of DTC is the registered owner of the Global New Note,
such nominee will be considered the sole owner or holder of the Senior Notes for
all purposes under the Indenture. Except as provided below, owners of beneficial
interests in the Global New Note will not be entitled to have Senior Notes
registered in their names, will not receive or be entitled to receive physical
delivery of Senior Notes in definitive form and will not be considered the
owners or holders thereof under the Indenture.
Neither the Company, the Trustee, the paying agent nor the Senior Notes
registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global New Note, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
Principal, interest payments and payments of Old Note Liquidated Damages, if
any, on the Global New Note registered in the name of DTC's nominee or DTC will
be made by the Company, either directly or through a paying agent, to DTC's
nominee as the registered owner of the Global New Note. Under the terms of the
Indenture, the Company and the Trustee will treat the persons in whose names the
Senior Notes are registered as the owners of such Senior Notes for the purpose
of receiving payments of principal and interest on such Senior Notes and for all
other purposes whatsoever. Therefore, neither the Company, the Trustee nor any
paying agent has any direct responsibility or liability for the payment of
principal or interest on the Senior Notes to owners of beneficial interests in
the Global New Note. DTC has advised the Company and the Trustee that its
present practice is, upon receipt of any payment of principal or interest to
credit immediately the accounts of the Participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in the Global New Note as shown on the records of DTC. Payments by
Participants and indirect participants to owners of beneficial interests in the
Global New Note will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
in bearer form or registered in "street name" and will be the responsibility of
such Participants or indirect participants.
As long as the Senior Notes are represented by a Global New Note, DTC's
nominee will be the holder of the Senior Notes and therefore will be the only
entity that can exercise a right to repayment or repurchase of the Senior Notes.
See " --Certain Covenants--Change of Control" and "--Limitation on Asset Sales."
Notice by Participants or indirect participants or by owners of beneficial
interests in a Global New Note held through such Participants or indirect
participants of the exercise of the option to elect repayment of beneficial
interests in Senior Notes represented by a Global New Note must be transmitted
to DTC in accordance with its procedures on a form required by DTC and provided
to Participants. In order to ensure that DTC's nominee will timely exercise a
right to repayment with respect to a particular Senior Note, the beneficial
owner of such Senior Note must instruct the broker or other Participant or
exercise a right to repayment. Different firms have cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner should
consult the broker or other Participant or indirect participant through which it
holds an interest in a Senior Note in order to ascertain the cut-off time by
which such an instruction must be given in order for timely notice to be
delivered to DTC. The Company will not be liable for any delay in delivery of
notices of the exercise of the option to elect repayment.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global New Note may, upon request to the Trustee, exchange such beneficial
interest for Senior Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof).
In addition, the Company will issue Senior Notes in definitive form in
exchange for the Global Note if DTC is at any time unwilling or unable to
continue as depository and a successor depository is not appointed by the
Company within 90 days. In such an instance, an owner of a beneficial interest
in the
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Global Note will be entitled to have Senior Notes equal in principal amount to
such beneficial interest registered in its name and will be entitled to physical
delivery of such Senior Notes in definitive form. Senior Notes so issued in
definitive form will be issued in denominations of $1,000 and integral multiples
thereof and will be issued in registered form only, without coupons.
Neither the Company nor the Trustee will be liable for any delay by DTC or
its nominee in identifying the beneficial owners of Senior Notes and the Company
and the Trustee any conclusively rely on, and will be protected in relying on,
instructions from DTC or its nominee for all purposes.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material generally applicable U.S. federal
income tax consequences resulting from the exchange of Old Notes for New Notes
pursuant to the Exchange Offer and from the beneficial ownership of Senior Notes
by certain persons. This summary does not purport to consider all the possible
U.S. federal tax consequences of the participation in the Exchange Offer or the
ownership or disposition of the Senior Notes and is not intended to reflect the
particular tax position of any beneficial owner. It deals only with Senior Notes
held as capital assets. Moreover, it does not purport to deal with all aspects
of federal taxation that may be relevant to particular investors in light of
their personal investment circumstances and it does not address beneficial
owners that may be subject to special tax rules, such as banks, insurance
companies, tax-exempt organizations, dealers in securities or currencies,
purchasers that hold Senior Notes as part of a hedging transaction or as part of
a straddle with other investments or as part of a "synthetic security" or other
integrated investment (including a "conversion transaction") comprised of a
Senior Note and one or more other investments, or purchasers that have a
"functional currency" other than the U.S. dollar. Except to the extent discussed
below under "Non-U.S. Holders," this summary is addressed only to beneficial
owners of Senior Notes ("U.S. Holders") that are citizens or residents of the
United States, corporations, partnerships, or other business entities created or
organized in or under the laws of the United States or any State (including the
District of Columbia), or estates or trusts the income of which is subject to
U.S. federal income taxation regardless of its source ("U.S. Persons"). This
summary is based upon the U.S. federal tax laws and regulations as now in effect
and as currently interpreted and does not take into account possible changes in
such tax laws or such interpretations, any of which may be applied
retroactively. It does not include any description of estate or gift tax laws or
the tax laws of any state, local or foreign government that may be applicable to
the Senior Notes or the beneficial owners thereof. Persons considering
participating in the Exchange Offer or making an investment in the Senior Notes
should consult their own tax advisors concerning the application of the U.S.
federal tax laws to their particular situations as well as any consequences to
them under the laws of any other taxing jurisdiction.
EXCHANGE
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer should not be treated as a taxable transaction for federal income tax
purposes because the New Notes do not differ materially in kind or extent from
the Old Notes. Accordingly, no gain or loss should be recognized by a Holder who
exchanges an Old Note for a New Note pursuant to the Exchange Offer, and each
New Note should be viewed as a continuation of the corresponding Old Note. For
purposes of determining gain or loss upon a subsequent sale or exchange of the
New Notes, a holder's initial basis in the New Notes will be the same as such
holder's adjusted basis in the Old Notes exchanged therefor, and the holding
period of a holder in the New Note should include the period during which such
holder held such corresponding Old Note.
U.S. HOLDERS
PAYMENTS OF INTEREST. In general, interest on a Senior Note will be taxable
to a U.S. Holder as ordinary income at the time it is received or accrued,
depending on the U.S. Holder's method of accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT. The Old Notes were issued with original issue
discount ("OID") for federal income tax purposes. Because the New Notes are
treated as a continuation of the Old Notes, the OID on the Old Notes will carry
over to the New Notes, and continue to be treated in the same manner.
U.S. Holders of Senior Notes are required to include OID as ordinary income
as it accrues in accordance with a constant yield method based on compounding at
the end of each accrual period. The term "accrual period" may be any set of
periods (which may be of varying lengths) selected by the U.S. Holder as long as
(i) no accrual period is longer than one year, and (ii) each scheduled payment
of interest
106
<PAGE>
or principal on the Senior Note occurs on the first or final day of an accrual
period. In general, the amount of OID required to be included in income will
increase with each successive accrual period.
The Company will report annually to the Internal Revenue Service (the "IRS")
and to each holder other than exempt holders not subject to the information
reporting requirements, the amount of OID and interest accrued with respect to
the Senior Notes.
SALE OR REDEMPTION. A U.S. Holder generally will recognize taxable gain or
loss on the sale or redemption of a Senior Note equal to the difference between
the amount realized from such sale or redemption (other than any amount
attributable to accrued interest) and such U.S. Holder's adjusted tax basis for
such Senior Note. Such gain or loss generally will be capital gain or loss and
will be long-term capital gain or loss if the holding period for such Senior
Notes is more than one year. A U.S. Holder's adjusted tax basis in a Senior Note
is generally equal to the amount paid therefor, increased by accrued OID
previously included in the U.S. Holder's gross income with respect to the Senior
Note.
OLD NOTE LIQUIDATED DAMAGES. The Company intends to take the position that
the Old Note Liquidated Damages, if any, will be taxable to a U.S. Holder as
ordinary income in accordance with the U.S. Holder's method of accounting for
federal income tax purposes. The IRS may take a different view, however, which
could affect the timing of the U.S. Holder's income with respect to the Old Note
Liquidated Damages and possibly could affect the timing of inclusion of interest
income.
NON-U.S. HOLDERS
The following discussion summarizes material U.S. federal income tax
consequences generally applicable to the ownership and disposition of the Senior
Notes by a beneficial owner who is not a U.S. Person ("Non-U.S. Holder"). This
discussion does not purport to deal with all aspects of U.S. federal income
taxation that may be relevant to a Non-U.S. Holder and does not describe any tax
consequences arising out of the laws of any state, locality or foreign
jurisdiction or out of U.S. federal estate and gift tax laws. Non-U.S. Holders
are advised to consult their tax advisors regarding the U.S. federal, state,
local and foreign tax consequences of their participation in the Offering.
Under present U.S. federal income tax law and subject to the discussion of
backup withholding below:
(a) payments of principal and interest (including OID) on the Senior
Notes by the Company or any agent of the Company to any Non-U.S. Holder
whose income from the Senior Notes is not effectively connected with a U.S.
trade or business will not be subject to U.S. federal withholding tax,
provided that (i) the Non-U.S. Holder does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock
of the Company entitled to vote, (ii) the Non-U.S. Holder is not a
controlled foreign corporation (as defined for U.S. federal income tax
purposes) that is related to the Company through stock ownership or a bank
making an extension of credit pursuant to a loan agreement in the ordinary
course of business, and (iii) either (A) the beneficial owner of the Senior
Notes certifies to the Company or its agent, under penalties of perjury,
that he is not a U.S. Person and provides his name and address, or (B) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
(a "financial institution") and holds the Senior Notes on behalf of the
beneficial owner, certifies to the Company or its agent under penalties of
perjury that such statement has been received from the beneficial owner by
it or by another financial institution and furnishes the payor with a copy
thereof; and
(b) a Non-U.S. Holder generally will not be subject to U.S. federal
income tax on gain recognized on a sale or other disposition (including a
redemption) of Senior Notes 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 or (ii) in the case of a Non-U.S. Holder who is a nonresident
alien individual, such holder is present in the U.S. for 183 or more days in
the taxable year of the sale or disposition and either has
107
<PAGE>
a "tax home" (as defined for U.S. federal income tax purposes) in the United
States or an office or other fixed place of business in the United States to
which the sale or disposition is attributable.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Senior Notes are outstanding, the
Company is required to provide the IRS with certain information, including the
holder's name, address and taxpayer identification number, the aggregate amount
of principal and interest paid to that holder during the calendar year and the
amount of tax withheld, if any. This obligation, however, does not apply with
respect to certain U.S. Holders, including corporations, tax-exempt
organizations, qualified pension and profit sharing trusts and individual
retirement accounts.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or under reports its tax liability, the
Company, its agents or paying agents or a broker may be required to "backup"
withhold a tax equal to 31% of each payment of interest and principal (and
premium, if any) on the Senior Notes. This backup withholding is not an
additional tax and may be credited against the U.S. Holder's U.S. federal income
tax liability, provided that the required information is furnished to the IRS.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Non-U.S. Holder of a Senior Note if such holder
has provided the required certification that it is not a U.S. Person as set
forth in clause (iii) in paragraph (a) under "--Non-U.S. Holders," or has
otherwise established an exemption (provided that neither the Company nor its
agent has actual knowledge that the holder is a U.S. Person or that the
conditions of any exemption are not in fact satisfied).
Payment of the proceeds from the sale of a Senior Note to or through a
foreign office of a broker will not be subject to information reporting or
backup withholding, except that information reporting may apply to such payments
if the broker is a U.S. Person, a controlled foreign corporation for U.S. tax
purposes or 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 was effectively connected with a United States trade or business.
Payment of the proceeds from a sale of a Senior Note to or through the United
States office of a broker is subject to information reporting and backup
withholding unless the holder or beneficial owner certifies as to its taxpayer
identification number or otherwise establishes an exemption from information
reporting and backup withholding.
108
<PAGE>
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 time to time may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market making activities or their
trading activities. The Company has agreed that for a period of up to 180 days
after the Expiration Date, it will use its reasonable efforts to make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 1997 (90 days
after commencement of the Exchange Offer), all dealers effecting transactions in
the New Notes may be required to deliver a prospectus.
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 up to 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay the expenses
incident to the Exchange Offer and will indemnify the Holders of the Old Notes
against certain liabilities, including certain liabilities under the Securities
Act, in connection with the Exchange Offer.
LEGAL MATTERS
The legality of the New Notes offered hereby will be passed upon by Hughes
Hubbard & Reed LLP, New York, New York.
EXPERTS
The consolidated balance sheets of Willcox & Gibbs, Inc. and subsidiaries as
of December 31, 1996 and 1995 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended December
31, 1996 and 1995 and for the period from July 13, 1994 (date of formation) to
December 31, 1994 and the consolidated statements of operations and cash flows
of the Company's Predecessor for the period from January 1, 1994 to July 12,
1994 have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The combined balance sheet of Clinton Management Corp. (d/b/a Clinton
Machine & Supply) and Clinton Machinery Corp. as of December 31, 1995 and the
related combined statements of operations, stockholders' equity (deficit) and
cash flows for the year then ended have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified
109
<PAGE>
public accountants appearing elsewhere herein and upon the authority of said
firm as experts in accounting and auditing.
The consolidated balance sheets of Macpherson Meistergram, Inc. and
subsidiary as of December 31, 1996 and 1995, the related consolidated statements
of income, stockholders' investment and cash flows for each of the three years
in the period ended December 31, 1996, and the information set forth in the
selected historical financial information as of December 31, 1996, 1995 and 1994
and each of the three years in the period ended December 31, 1996, included in
this Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act for the registration of the New Notes offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the New Notes offered hereby, reference is made to the Registration
Statement and to the exhibits filed therewith. Statements contained in this
Prospectus concerning the contents of any contract or other document are not
necessarily complete. With respect to each such contract or other document filed
with the Commission as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Company is not currently subject to the periodic reporting and other
informational requirements of the Exchange Act. The Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Senior Notes remain outstanding, it will
furnish to the Holders of the Senior Notes all annual reports, quarterly reports
and other documents that would be required to be filed with the Commission if
the Company were subject to Section 13 or 15 of the Exchange Act. In addition,
whether or not required by the rules and regulations of the Commission,
following consummation of the Exchange Offer, the Company will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and will make such
information available to any prospective investors upon request. In addition,
for so long as any of the Senior Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser of the Senior Notes or
beneficial owner of the Senior Notes in connection with any sale thereof, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act to the extent required from time to time to enable Transfer
Restricted Notes to be sold without registration under the Securities Act.
110
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
Audited Financial Statements:
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1996 and 1995, for the period July F-4
13, 1994 to December 31, 1994 and for the period January 1, 1994 to July 12, 1994......................
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996 and 1995, for the F-5
period July 13, 1994 to December 31, 1994 and for the period January 1, 1994 to July 12, 1994..........
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995, for the period July F-6
13, 1994 to December 31, 1994 and for the period January 1, 1994 to July 12, 1994......................
Notes to Consolidated Financial Statements............................................................... F-7
Unaudited Financial Statements:
Consolidated Balance Sheet (Unaudited) as of March 31, 1997.............................................. F-28
Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 1997 and 1996..... F-29
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1997 and 1996..... F-30
Notes to Consolidated Financial Statements (Unaudited)................................................... F-31
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
Report of Independent Public Accountants................................................................. F-36
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................. F-37
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994................... F-38
Consolidated Statements of Stockholders' Investment for the years ended December 31, 1996, 1995 and F-39
1994...................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994............... F-40
Notes to Consolidated Financial Statements............................................................... F-41
CLINTON MANAGEMENT CORP. AND CLINTON MACHINERY CORP.
Independent Auditors' Report............................................................................. F-50
Combined Balance Sheet as of December 31, 1995........................................................... F-51
Combined Statement of Operations for the year ended December 31, 1995.................................... F-52
Combined Statement of Stockholders' Equity (Deficit) for the year ended December 31, 1995................ F-53
Combined Statement of Cash Flows for the year ended December 31, 1995.................................... F-54
Notes to Combined Financial Statements................................................................... F-55
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Willcox & Gibbs, Inc.:
We have audited the accompanying consolidated balance sheets of Willcox &
Gibbs, Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years ended December 31, 1996 and 1995 and for the period
from July 13, 1994 (date of formation) to December 31, 1994 and the consolidated
statements of operations and cash flows of the Company's Predecessor (see note
1) for the period from January 1, 1994 to July 12, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Willcox &
Gibbs, Inc. and subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years ended December 31, 1996 and
1995 and for the period from July 13, 1994 (date of formation) to December 31,
1994 and the results of operations and cash flows of the Company's Predecessor
(see note 1) for the period from January 1, 1994 to July 12, 1994, in conformity
with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, effective
July 13, 1994, Willcox & Gibbs, Inc. acquired the assets and liabilities of
certain divisions of Rexel, Inc. in a transaction accounted for as a purchase.
As a result of the transaction, the consolidated financial statements for
periods after the transaction are presented on a different cost basis than that
for the period before the acquisition and, therefore, are not comparable.
KPMG Peat Marwick LLP
Atlanta, Georgia
February 26, 1997
F-2
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMPANY
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
ASSETS (NOTE 5)
Current assets:
Cash............................................................................. $ 881,500 920,238
Trade accounts receivable, net of allowance for doubtful accounts of $2,419,000
in 1996 and $1,596,000 in 1995................................................. 22,335,977 14,235,751
Inventories (note 3)............................................................. 34,223,674 29,447,999
Prepaid expenses and other current assets........................................ 2,655,412 2,021,276
Deferred income taxes (note 7)................................................... 804,006 563,408
------------- -------------
Total current assets......................................................... 60,900,569 47,188,672
Property and equipment, net (note 4)............................................... 4,400,341 2,811,486
Deferred financing costs, less accumulated amortization of $811,755 in 1996 and
$435,439 in 1995 (notes 2 and 15)................................................ 2,323,168 1,344,706
Intangible assets, less accumulated amortization of $228,622
in 1996 (notes 2 and 10)......................................................... 11,059,878 603,000
Other assets....................................................................... 1,044,532 579,659
------------- -------------
$ 79,728,488 52,527,523
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit (notes 5 and 15)........................................ $ 19,347,392 12,941,374
Book overdrafts.................................................................. 1,499,297 597,110
Current installments of long-term debt (notes 6 and 15).......................... 3,195,401 1,812,500
Trade accounts payable........................................................... 12,806,244 6,230,155
Income taxes payable............................................................. 641,568 308,725
Accrued liabilities and other current liabilities................................ 4,757,983 3,375,362
------------- -------------
Total current liabilities.................................................... 42,247,885 25,265,226
Deferred income taxes (note 7)..................................................... 290,113 154,946
Accrued retirement benefits (note 8)............................................... 2,451,939 2,647,724
Long-term debt, excluding current installments (notes 2, 6, and 15)................ 18,893,332 16,354,787
Other liabilities.................................................................. 168,258 212,890
------------- -------------
Total liabilities............................................................ 64,051,527 44,635,573
------------- -------------
Common stock subject to put option (note 2)........................................ 3,000,000 --
Stockholders' equity (notes 2, 9, 10, and 15):
Common stock:
Class A, $10 stated value. Authorized 1,500,000 shares; issued and outstanding
976,277 shares (including 100,000 shares subject to put option) in 1996 and
658,248 shares in 1995....................................................... 8,762,770 6,582,480
Class B, no par value. Authorized 250,000 shares; none issued.................. -- --
Class C, no par value. Authorized 250,000 shares; none issued.................. -- --
Additional paid-in capital....................................................... 1,904,398 826,612
Subscriptions receivable......................................................... (429,462) (113,881)
Retained earnings................................................................ 2,201,527 888,400
Cumulative translation adjustment................................................ 237,728 (291,661)
------------- -------------
Total stockholders' equity....................................................... 12,676,961 7,891,950
------------- -------------
Commitments (note 14)
$ 79,728,488 52,527,523
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995, FOR THE PERIOD FROM
JULY 13, 1994 (DATE OF FORMATION) TO DECEMBER 31, 1994
AND FOR THE PERIOD FROM JANUARY 1, 1994 TO JULY 12, 1994
<TABLE>
<CAPTION>
COMPANY'S
COMPANY PREDECESSOR
------------------------------------------------ -----------------
PERIOD FROM PERIOD FROM
JULY 13, 1994 TO JANUARY 1,1994
1996 1995 DECEMBER 31, 1994 TO JULY 12, 1994
-------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales........................................ $ 113,851,258 90,431,431 41,643,728 41,308,902
Cost of goods sold............................... 77,623,034 60,642,521 29,161,827 26,908,448
-------------- ------------- ----------------- -----------------
Gross profit................................... 36,228,224 29,788,910 12,481,901 14,400,454
Selling, general, and administrative expenses.... 28,968,827 23,606,126 11,263,508 11,997,834
-------------- ------------- ----------------- -----------------
Operating income............................... 7,259,397 6,182,784 1,218,393 2,402,620
Other income (expense):
Interest expense............................... (4,824,553) (4,248,820) (1,946,071) (1,390,274)
Other, net..................................... 14,968 17,806 85,373 (223,922)
-------------- ------------- ----------------- -----------------
Income (loss) before income taxes and
extraordinary item............................. 2,449,812 1,951,770 (642,305) 788,424
Income tax expense (benefit) (note 7)............ 1,136,685 557,513 (288,022) 425,561
-------------- ------------- ----------------- -----------------
Income (loss) before extraordinary item........ 1,313,127 1,394,257 (354,283) 362,863
Extraordinary loss, net of income tax benefit of
$92,901 (note 10).............................. -- (151,574) -- --
-------------- ------------- ----------------- -----------------
Net income (loss)............................ $ 1,313,127 1,242,683 (354,283) 362,863
-------------- ------------- ----------------- -----------------
-------------- ------------- ----------------- -----------------
Earnings (loss) per common share and common share
equivalent:
Income (loss) before extraordinary item........ $ 1.23 1.85 (.74)
Extraordinary item, net........................ -- (.20) --
-------------- ------------- -----------------
Net income (loss)............................ $ 1.23 1.65 (.74)
-------------- ------------- -----------------
-------------- ------------- -----------------
Weighted average number of common shares and
common share equivalents....................... 1,068,645 754,153 481,250
-------------- ------------- -----------------
-------------- ------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND FOR THE PERIOD
FROM JULY 13, 1994 (DATE OF FORMATION) TO DECEMBER 31, 1994
<TABLE>
<CAPTION>
CLASS A COMMON RETAINED CLASS A
STOCK ADDITIONAL EARNINGS COMMON STOCK CUMULATIVE TOTAL
-------------------- PAID-IN (ACCUMULATED SUBSCRIPTIONS TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) RECEIVABLE ADJUSTMENTS EQUITY
--------- --------- ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization at July 13,
1994............................. 481,250 $4,812,500 -- -- -- -- 4,812,500
Fair value of common stock warrants
issued (note 10)................. -- -- 1,688,000 -- -- -- 1,688,000
Net loss........................... -- -- -- (354,283) -- -- (354,283)
Class A common stock issued to the
Company's Employee Stock
Ownership Plan ("ESOP") relating
to Rexel, Inc.'s ESOP rollover... 101,500 1,015,000 -- -- (1,015,000) -- --
Class A common stock issued to the
Company's ESOP................... 24,827 248,267 -- -- (248,267) -- --
Translation adjustments............ -- -- -- -- -- (179,710) (179,710)
--------- --------- ----------- ------------ ------------ ----------- ------------
Balance at December 31, 1994....... 607,577 6,075,767 1,688,000 (354,283) (1,263,267) (179,710) 5,966,507
Net income......................... -- -- -- 1,242,683 -- -- 1,242,683
Proceeds from subscriptions
receivable....................... -- -- -- -- 1,263,267 -- 1,263,267
Class A common stock issued to the
Company's ESOP................... 50,671 506,713 138,612 -- (113,881) -- 531,444
Repurchase and retirement of
warrants (note 10)............... -- -- (1,000,000) -- -- -- (1,000,000)
Translation adjustments............ -- -- -- -- -- (111,951) (111,951)
--------- --------- ----------- ------------ ------------ ----------- ------------
Balance at December 31, 1995....... 658,248 6,582,480 826,612 888,400 (113,881) (291,661) 7,891,950
Net income......................... -- -- -- 1,313,127 -- -- 1,313,127
Proceeds from subscriptions
receivable....................... -- -- -- -- 113,881 -- 113,881
Class A common stock issued to the
Company's ESOP................... 33,715 337,150 281,781 -- (429,462) -- 189,469
Fair value of common stock warrants
issued (note 9).................. -- -- 357,000 -- -- -- 357,000
Class A common stock issued in
Clinton acquisition (note 2)..... 100,000 -- -- -- -- -- --
Class A common stock sold in
private placement (note 2)....... 184,314 1,843,140 439,005 -- -- -- 2,282,145
Translation adjustments............ -- -- -- -- -- 529,389 529,389
--------- --------- ----------- ------------ ------------ ----------- ------------
Balance at December 31, 1996....... 976,277 $8,762,770 1,904,398 2,201,527 (429,462) 237,728 12,676,961
--------- --------- ----------- ------------ ------------ ----------- ------------
--------- --------- ----------- ------------ ------------ ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995, FOR THE PERIOD FROM
JULY 13, 1994 (DATE OF FORMATION) TO DECEMBER 31, 1994
AND FOR THE PERIOD FROM JANUARY 1, 1994 TO JULY 12, 1994
<TABLE>
<CAPTION>
COMPANY
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................................. $ 1,313,127 1,242,683
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization............................................................... 651,606 458,514
Provision for losses on accounts receivable................................................. 267,034 580,520
Amortization of deferred financing costs and intangible assets.............................. 604,938 290,292
Amortization of debt discounts.............................................................. 175,929 187,786
Deferred income taxes....................................................................... 271,252 17,424
Extraordinary loss on debt extinguishment, net.............................................. -- 151,574
Changes in operating assets and liabilities, net of effects of business acquisitions:
Trade accounts receivable................................................................. (4,462,574) 723,813
Inventories............................................................................... (1,005,426) (797,067)
Prepaid expenses and other current assets................................................. (363,358) (371,160)
Other assets.............................................................................. (203,064) (652,758)
Income taxes payable...................................................................... 332,843 201,605
Trade accounts payable and other liabilities.............................................. 2,164,304 (191,825)
-------------- --------------
Net cash provided by (used in) operating activities..................................... (253,389) 1,841,401
-------------- --------------
Cash flows from investing activities:
Capital expenditures.......................................................................... (1,247,380) (772,575)
Proceeds from sale of property and equipment.................................................. 76,094 14,716
Payments for business acquisitions, net of cash acquired...................................... (12,012,103) --
-------------- --------------
Net cash used in investing activities....................................................... (13,183,389) (757,859)
-------------- --------------
Cash flows from financing activities:
Net proceeds from (reduction of) revolving line of credit, net of proceeds from debt issued
in business acquisitions.................................................................. 1,738,579 2,327,342
Increase (decrease) in book overdraft....................................................... 902,187 (22,497)
Proceeds from debt issued in business acquisitions.......................................... 9,167,439 --
Proceeds from other debt.................................................................... 1,603,500 --
Principal payments on long-term debt........................................................ (2,110,083) (1,375,000)
Payment of financing costs.................................................................. (530,930) --
Proceeds from common stock sold in private placement........................................ 2,282,145 --
Extinguishment of debt...................................................................... -- (2,500,000)
Repurchase and retirement of warrants....................................................... -- (1,000,000)
Proceeds from common stock issued to the Company's ESOP..................................... 303,350 1,794,711
Net financing transactions with Rexel, Inc.................................................. -- --
-------------- --------------
Net cash provided by (used in) financing activities....................................... 13,356,187 (775,444)
Effect of exchange rate changes in cash................................................... 41,853 (22,162)
-------------- --------------
Net change in cash........................................................................ (38,738) 285,936
Cash at beginning of period..................................................................... 920,238 634,302
-------------- --------------
Cash at end of period........................................................................... $ 881,500 920,238
-------------- --------------
-------------- --------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.................................................................................... $ 4,157,170 3,618,429
-------------- --------------
-------------- --------------
Income taxes, net of refunds................................................................ $ 320,277 339,185
-------------- --------------
-------------- --------------
Supplemental disclosure of noncash investing and financing activities:
Issuance of common stock subscriptions receivable............................................. $ 429,462 113,881
-------------- --------------
-------------- --------------
Effects of business acquisitions:
Fair value of assets acquired............................................................... $ 8,875,546 --
-------------- --------------
-------------- --------------
Liabilities assumed......................................................................... $ 4,167,724 --
-------------- --------------
-------------- --------------
<CAPTION>
COMPANY'S
PREDECESSOR
----------------
PERIOD FROM PERIOD FROM
JULY 13, 1994 JANUARY 1, 1994
TO DECEMBER 31, TO JULY 12,
1994 1994
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................................. (354,283) 362,863
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization............................................................... 184,421 315,615
Provision for losses on accounts receivable................................................. 320,678 223,551
Amortization of deferred financing costs and intangible assets.............................. 411,498 --
Amortization of debt discounts.............................................................. 110,526 --
Deferred income taxes....................................................................... (425,886) --
Extraordinary loss on debt extinguishment, net.............................................. -- --
Changes in operating assets and liabilities, net of effects of business acquisitions:
Trade accounts receivable................................................................. (2,861,097) (377,517)
Inventories............................................................................... 3,005,525 1,587,496
Prepaid expenses and other current assets................................................. (483,308) (54,322)
Other assets.............................................................................. 121,236 500,650
Income taxes payable...................................................................... (76,125) 134,627
Trade accounts payable and other liabilities.............................................. 3,146,368 (845,704)
---------------- ----------------
Net cash provided by (used in) operating activities..................................... 3,099,553 1,847,259
---------------- ----------------
Cash flows from investing activities:
Capital expenditures.......................................................................... (279,808) (283,864)
Proceeds from sale of property and equipment.................................................. 181,802 --
Payments for business acquisitions, net of cash acquired...................................... (39,089,106) --
---------------- ----------------
Net cash used in investing activities....................................................... (39,187,112) (283,864)
---------------- ----------------
Cash flows from financing activities:
Net proceeds from (reduction of) revolving line of credit, net of proceeds from debt issued
in business acquisitions.................................................................. (4,565,968) --
Increase (decrease) in book overdraft....................................................... 619,607 --
Proceeds from debt issued in business acquisitions.......................................... 36,187,500 --
Proceeds from other debt.................................................................... -- --
Principal payments on long-term debt........................................................ (312,500) (48,245)
Payment of financing costs.................................................................. -- --
Proceeds from common stock sold in private placement........................................ 4,812,500 --
Extinguishment of debt...................................................................... -- --
Repurchase and retirement of warrants....................................................... -- --
Proceeds from common stock issued to the Company's ESOP..................................... -- --
Net financing transactions with Rexel, Inc.................................................. -- (940,955)
---------------- ----------------
Net cash provided by (used in) financing activities....................................... 36,741,139 (989,200)
Effect of exchange rate changes in cash................................................... (19,278) 26,286
---------------- ----------------
Net change in cash........................................................................ 634,302 600,481
Cash at beginning of period..................................................................... -- 1,310,780
---------------- ----------------
Cash at end of period........................................................................... 634,302 1,911,261
---------------- ----------------
---------------- ----------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.................................................................................... 1,341,083 1,390,274
---------------- ----------------
---------------- ----------------
Income taxes, net of refunds................................................................ -- --
---------------- ----------------
---------------- ----------------
Supplemental disclosure of noncash investing and financing activities:
Issuance of common stock subscriptions receivable............................................. 1,263,267 --
---------------- ----------------
---------------- ----------------
Effects of business acquisitions:
Fair value of assets acquired............................................................... 52,934,575 --
---------------- ----------------
---------------- ----------------
Liabilities assumed......................................................................... 11,934,575 --
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) OPERATIONS AND PRINCIPLES OF CONSOLIDATION
Willcox & Gibbs, Inc. and subsidiaries (the "Company") are engaged
principally in the distribution of replacement parts, supplies, and specialized
equipment to manufacturers of apparel and other sewn products in the domestic
and export markets. The accompanying consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The consolidated financial statements of the Company reflect a new basis of
accounting allocating the purchase price to the assets and liabilities acquired
using the purchase method of accounting (note 2). The consolidated financial
statements of the Company's Predecessor for the period from January 1, 1994 to
July 12, 1994 consist of the apparel operations of Rexel, Inc. prior to their
acquisition by Willcox & Gibbs, Inc. on July 13, 1994.
(B) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
primarily by using the first-in, first-out method. Provisions for slow moving
inventories are made based upon management's analysis of current inventory
levels and expected sales in the future.
(C) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided
primarily using the straight-line method over the following estimated useful
lives of the respective assets:
<TABLE>
<S> <C>
Buildings...................................................... 40 years
3 to 7
Machinery and equipment........................................ years
5 to 7
Furniture and fixtures......................................... years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
shorter of the lease term or estimated useful life of the asset.
(D) DEFERRED FINANCING COSTS
Deferred financing costs represent origination fees and other related costs
incurred in connection with establishment of the Company's existing credit
agreement. These costs have been deferred and are being amortized using the
straight-line method over the term of the related debt.
(E) INTANGIBLE ASSETS
Intangible assets consist primarily of costs in excess of the fair value of
net assets acquired in business combinations. Intangible assets are amortized on
a straight-line basis over the expected periods to be benefited, generally 40
years. The Company assesses the recoverability of its intangible assets by
determining whether the amortization of such balances over their remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of impairment, if any, is
F-7
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The assessment of
the recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved.
(F) BOOK OVERDRAFTS
Under the Company's cash management system, checks issued but not presented
to banks frequently result in overdraft balances for accounting purposes and are
classified as book overdrafts in the accompanying consolidated balance sheets.
(G) INCOME TAXES
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Federal taxable income of the Company's Predecessor was included in
Rexel, Inc.'s consolidated Federal income tax return. The allocation of Federal
income tax expense was provided as if the Company's Predecessor filed a separate
Federal income tax return.
(H) FORWARD EXCHANGE CONTRACTS
The Company enters into forward exchange contracts for foreign currency as a
hedge against accounts payable denominated in a foreign currency. These
contracts are used by the Company to minimize exposure and reduce risk from
exchange rate fluctuations in the normal course of its foreign business. Gains
and losses on forward exchange contracts are deferred and included in the
measurement of foreign currency transaction gains and losses when realized. Cash
provided and used for forward exchange contracts is included in the cash flows
resulting from changes in trade accounts payable. Contracts amounting to $45,514
and $1,123,098, whose contractual amounts approximate market value, were
outstanding at December 31, 1996 and 1995, respectively.
(I) FOREIGN CURRENCY TRANSLATION
The local currency has been used as the functional currency of the Company's
subsidiaries located outside of the United States. Assets and liabilities
denominated in foreign currency are translated from their respective foreign
currencies into U.S. dollars using exchange rates in effect at the balance sheet
date. Revenues and expenses are translated at the average exchange rates in
effect during the period. Translation gains and losses are included as a
separate component of stockholders' equity. Transaction gains and losses
included in results of operations are not material in 1996, 1995, or 1994.
(J) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's senior notes payable are estimated based
upon cash flows discounted using the interest rate available to the Company for
debt with similar terms and remaining
F-8
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
maturities. The carrying value of the Company's remaining borrowings approximate
fair value due to the variable rate nature of the borrowings and/or the short
maturity of the borrowings. The fair value of the Company's forward exchange
contracts is estimated by obtaining quotes for contracts with similar terms. The
fair value of letters of credit are based on fees currently charged for similar
arrangements. The carrying value of all other financial instruments approximate
fair value due to the short-term nature of such instruments.
(K) EARNINGS PER SHARE
Earnings per share is based on the weighted average number of common shares
and common share equivalents outstanding during the period. Stock options,
warrants, and subscriptions receivable are considered to be common share
equivalents and, accordingly, have been included in the computation of earnings
per share in the accompanying consolidated statements of operations. The
Company's Predecessor operated as divisions of Rexel, Inc. As a result, the
earnings per share for the Company's Predecessor for the period from January 1,
1994 to July 12, 1994 does not provide a meaningful comparison to the earnings
per share of the Company and is, therefore, excluded from the accompanying
consolidated statements of operations.
(L) STOCK OPTIONS
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, Statement 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based method
defined in Statement 123 had been applied. The Company has elected to continue
to apply the provisions of APB Opinion No. 25. Pro forma disclosure in
accordance with the provisions of Statement 123 is not applicable to the
accompanying consolidated financial statements since no stock options had been
granted by the Company in 1995 or 1996.
(M) USE OF ESTIMATES
Management of the Company and the Company's Predecessor have made a number
of estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.
(N) RECLASSIFICATIONS
Certain reclassifications were made to the 1995 and 1994 accounts to conform
to classifications adopted in 1996.
F-9
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITIONS
On July 13, 1994, the Company was incorporated and entered into a Sale and
Purchase Agreement to acquire the net assets and certain common stock of the
apparel operations of Rexel, Inc. The aggregate purchase price consisted of
$41,000,000 in cash and a $3,000,000 subordinated note with detachable Class B
common stock warrants issued to Rexel, Inc. Concurrent with the acquisition, the
Company sold common stock of the Company totaling $4,812,500 (note 9) and
borrowed $35,680,000 from a lender and $507,500 from two officers of the
Company. As discussed in note 10, the subordinated note and warrants were
retired in 1995.
Effective February 1, 1996, the Company purchased Clinton Machinery
Corporation and Clinton Management Corporation (collectively, "Clinton").
Clinton is a distributor of screen-printing equipment and supplies for the
apparel industry. The aggregate purchase price of $8,600,000 consisted of
$4,000,000 in cash and the issuance of 100,000 shares of the Company's Class A
common stock valued at $30 per share, due to the guarantee of the value by the
Company; the assumption of approximately $4,500,000 of indebtedness and
payables, which were subsequently repaid; and contingent payments of up to
38.87% of the operating income (as defined in the purchase agreement) of Clinton
during each of the five years ending through December 31, 2000. Such contingent
payments shall not exceed $10,500,000 and will be recorded as additional
purchase consideration as such amounts become determinable. In addition, the
shareholders of Clinton received a put option, giving them the right to sell the
Class A common shares to the Company at $30 per share at the earlier of four
years from the acquisition date, the closing date of an initial public offering
by the Company, any accelerated due date of the senior notes described in note
15, or upon a change in control of the Company, as defined. In accordance with
the rules and regulations of the Securities and Exchange Commission, the equity
subject to this put option has been classified as common stock subject to put
option in the accompanying consolidated balance sheet. The acquisition was
financed by the issuance of 184,314 shares of Class A common stock, with
proceeds of a 10.98% senior note payable for $1,200,000, and with proceeds of
increasing the Company's variable rate senior note payable by $1,050,000 (note
6). As a result of the transaction, the Company recorded approximately
$8,531,000 of intangible assets and $463,000 of deferred financing costs.
Effective November 27, 1996, the Company acquired certain assets of E. C.
Mitchell Co., Inc. for $3,000,000 in cash. The acquired assets relate to the
manufacture and sale of abrasive cords and tape used principally in the apparel
industry. The Company financed the acquisition primarily by increasing its
variable rate senior note payable by $2,050,000 and by issuing an 11.66% senior
note payable for $200,000 (note 6). As a result of the transaction, the Company
recorded approximately $1,900,000 of intangible assets and $68,000 of deferred
financing costs.
Each of the acquisitions have been accounted for as a purchase transaction
and, accordingly, the assets acquired and liabilities assumed have been recorded
at their estimated fair market values at the date of acquisition. The results of
operations of the acquired companies have been included in the accompanying
consolidated financial statements as of the respective acquisition dates.
The following represents the summary (unaudited) pro forma results of
operations for the years ended December 31, 1996 and 1995 as if the acquisitions
of Clinton and E. C. Mitchell Co., Inc. had
F-10
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITIONS (CONTINUED)
occurred at the beginning of 1995. The pro forma results are not necessarily
indicative of the results which may occur in the future.
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Net sales..................................................... $ 117,003,698 118,104,101
-------------- -------------
-------------- -------------
Income before extraordinary item.............................. $ 1,626,078 1,935,007
-------------- -------------
-------------- -------------
Net income.................................................... $ 1,626,078 1,783,433
-------------- -------------
-------------- -------------
Earnings per share............................................ $ 1.49 1.66
-------------- -------------
-------------- -------------
</TABLE>
(3) INVENTORIES
Inventories consist of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Parts and supplies............................................... $ 29,501,944 28,470,926
Machinery and equipment.......................................... 4,721,730 977,073
------------- ------------
$ 34,223,674 29,447,999
------------- ------------
------------- ------------
</TABLE>
Cost of goods sold includes an amount related to the Company's step-up of
inventory costs when acquired on July 13, 1994. The amounts expensed were
$480,000 for the year ended December 31, 1996 $1,402,000 for the year ended
December 31, 1995 and $2,616,000 for the period from July 13, 1994 to December
31, 1994. The amounts expensed are based upon sales of the inventory acquired.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
Buildings and leasehold improvements............................... $ 2,139,416 1,276,506
Machinery and equipment............................................ 3,006,760 1,923,789
Furniture and fixtures............................................. 699,096 245,745
------------ ----------
5,845,272 3,446,040
Less accumulated depreciation and amortization..................... 1,444,931 634,554
------------ ----------
Net property and equipment....................................... $ 4,400,341 2,811,486
------------ ----------
------------ ----------
</TABLE>
(5) REVOLVING LINE OF CREDIT
The Company has a Credit Agreement with its principal lenders which provides
for a revolving credit facility through July 2001 of up to the lesser of (i)
$25,000,000 or (ii) the sum of 80% (85% for certain subsidiaries) of eligible
accounts receivable and 55% of eligible inventory, less outstanding letters of
credit. At December 31, 1996, approximately $3,229,000 was available under the
facility. Under the Credit Agreement, substantially all assets of the Company
are pledged as security. Borrowings under the facility bear interest at 4% plus
the one month commercial paper rate for dealer-placed commercial paper of
F-11
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) REVOLVING LINE OF CREDIT (CONTINUED)
issuers whose corporate bonds are rated "AA" or its equivalent (9.566% at
December 31, 1996 and 9.858% at December 31, 1995). The Company pays an annual
fee of 0.5% of the total unused availability of the facility. The Company also
pays an annual fee of 2% on outstanding letters of credit. Letters of credit
approximating $1,467,000 and $1,972,000 were outstanding at December 31, 1996
and 1995, respectively. The Company has available approximately $3,533,000 and
$3,028,000 in unused letters of credit at December 31, 1996 and 1995,
respectively.
The Credit Agreement includes various covenants, including restrictions on
liens, capital expenditures, debt and lease obligations, dividends, and
requirements that certain financial ratios be maintained. At December 31, 1996,
the Company was not in compliance with a covenant specifying minimum tangible
net worth and with covenants requiring that certain leverage and debt coverage
ratios be maintained. These covenant violations were cured, however, as a result
of the refinancing described in note 15.
(6) LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Variable rate senior notes payable, with final installment due
July 13, 2000................................................ $ 12,802,417 11,812,500
12.95% senior note payable, due July 13, 2001, net of
unamortized discount of $528,784 and $645,213 at December 31,
1996 and 1995, respectively.................................. 6,471,216 6,354,787
10.98% senior note payable, due July 13, 2001, net of
unamortized discount of $297,500 at December 31, 1996........ 902,500 --
11.66% senior note payable, due July 13, 2001.................. 200,000 --
Variable rate UK note payable.................................. 1,712,600 --
------------- ------------
22,088,733 18,167,287
Less current installments...................................... 3,195,401 1,812,500
------------- ------------
Long-term debt, excluding current installments................. $ 18,893,332 16,354,787
------------- ------------
------------- ------------
</TABLE>
The variable rate senior notes payable are included in the Company's Credit
Agreement with its principal lender and are subject to the covenants described
in note 5. The notes accrue interest at 4.25% plus the one month commercial
paper rate for dealer-placed commercial paper of issuers whose corporate bonds
are rated "AA" or its equivalent (9.816% at December 31, 1996 and 10.108% at
December 31, 1995) and are payable in escalating quarterly installments with
interest payable monthly.
Both the 12.95% and 10.98% senior notes payable were issued with detachable
warrants for certain classes of common stock of the Company (note 9). The
proceeds from the issuance of the debt were allocated between the debt and the
warrants based on their relative fair values at the date of issuance. The
F-12
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) LONG-TERM DEBT (CONTINUED)
resulting debt discount is being amortized using the interest method over the
life of the related debt. The fair value of the 12.95% senior note payable, net
of the unamortized discount, is approximately $7,250,000 and $6,900,000 at
December 31, 1996 and 1995, respectively. The fair value of the 10.98% senior
note payable, net of the unamortized discount, is approximately $1,160,000 at
December 31, 1996.
The variable rate UK note payable is denominated in pound sterling and is an
obligation of the Company's United Kingdom subsidiary. The note is subject to
certain financial covenants, accrues interest at 2.25% plus the bank's
prevailing base rate (8.25% at December 31, 1996), and is payable in equal
semiannual installments through September 2000.
The aggregate maturities of long-term debt, excluding debt discount, at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------
<S> <C>
1997........................................................................... $ 3,195,401
1998........................................................................... 3,667,400
1999........................................................................... 3,907,900
2000........................................................................... 3,744,316
2001........................................................................... 8,400,000
-------------
$ 22,915,017
-------------
-------------
</TABLE>
The Company's outstanding long-term debt and their contractual maturities,
except for the variable rate UK note payable, changed in connection with the
refinancing described in note 15.
(7) INCOME TAXES
Total income tax expense (benefit) for the years ended December 31, 1996 and
1995, for the period from July 13, 1994 to December 31, 1994, and for the period
from January 1, 1994 to July 12, 1994 was allocated as follows:
<TABLE>
<CAPTION>
COMPANY'S
PREDECESSOR
COMPANY ---------------
------------------------------------------ PERIOD FROM
PERIOD FROM JANUARY 1, 1994
JULY 13, 1994 TO TO JULY 12,
1996 1995 DECEMBER 31, 1994 1994
------------ --------- ----------------- ---------------
<S> <C> <C> <C> <C>
Income (loss) from continuing
operations.................... $ 1,136,685 557,513 (288,022) 425,561
Extraordinary item.............. -- (92,901) -- --
------------ --------- -------- -------
$ 1,136,685 464,612 (288,022) 425,561
------------ --------- -------- -------
------------ --------- -------- -------
</TABLE>
F-13
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES (CONTINUED)
Income tax expense (benefit) attributable to continuing operations for the
years ended December 31, 1996 and 1995, for the period from July 13, 1994 to
December 31, 1994, and for the period from January 1, 1994 to July 12, 1994
consists of the following:
<TABLE>
<CAPTION>
COMPANY'S
PREDECESSOR
COMPANY ---------------
------------------------------------------ PERIOD FROM
PERIOD FROM JANUARY 1, 1994
JULY 13, 1994 TO TO JULY 12,
1996 1995 DECEMBER 31, 1994 1994
------------ --------- ----------------- ---------------
<S> <C> <C> <C> <C>
Current:
Federal....................... $ 641,255 240,210 -- 318,647
State......................... 75,442 75,604 -- 31,500
Foreign....................... 148,736 224,275 137,864 75,414
Deferred:
Federal....................... 242,689 15,590 (381,056) --
State......................... 28,563 1,834 (44,830) --
------------ --------- -------- -------
$ 1,136,685 557,513 (288,022) 425,561
------------ --------- -------- -------
------------ --------- -------- -------
</TABLE>
Actual income tax expense (benefit) attributable to continuing operations
differs from expected income tax expense (benefit)--(computed by applying the
U.S. Federal statutory income tax rate of 34% to income (loss) before income
taxes and extraordinary item) for the years ended December 31, 1996 and
F-14
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES (CONTINUED)
1995, for the period from July 13, 1994 to December 31, 1994, and for the period
from January 1, 1994 to July 12, 1994 as follows:
<TABLE>
<CAPTION>
COMPANY'S
PREDECESSOR
--------------
COMPANY PERIOD FROM
------------------------------------------- JANUARY 1,
PERIOD FROM 1994
JULY 13, 1994 TO TO JULY 12,
1996 1995 DECEMBER 31, 1994 1994
------------ ---------- ----------------- --------------
<S> <C> <C> <C> <C>
Computed expected income tax expense (benefit)..... $832,936 663,602 (218,384) 268,064
Increase (decrease) in income taxes resulting from:
Effect of lower foreign tax rates................ (100,866) (164,898) (75,737) (41,478)
Nondeductible expenses........................... 70,437 60,862 35,687 30,702
State taxes, net of Federal income tax benefit... 68,643 44,654 (29,588) 31,222
Other, net....................................... 265,535 (46,707) -- 137,051
------------ ---------- -------- --------------
$1,136,685 557,513 (288,022) 425,561
------------ ---------- -------- --------------
------------ ---------- -------- --------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts......... $ 251,424 235,948
Inventory, due to reserves for obsolescence and costs capitalized
for tax purposes.................................................... 532,466 327,460
Accrued expenses deductible for tax purposes when paid.............. 20,116 --
---------- ----------
Total deferred tax assets......................................... 804,006 563,408
---------- ----------
Deferred tax liabilities:
Accelerated depreciation............................................ (242,074) (94,897)
Costs not yet expensed for book purposes............................ (48,039) (60,049)
---------- ----------
Total deferred tax liabilities.................................... (290,113) (154,946)
---------- ----------
Net deferred tax asset............................................ $ 513,893 408,462
---------- ----------
---------- ----------
</TABLE>
F-15
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES (CONTINUED)
Income (loss) before income taxes and extraordinary item for U.S. operations
were $1,715,726, $807,145, $(1,270,539), and $427,929 for the years ended
December 31, 1996 and 1995, for the period from July 13, 1994 to December 31,
1994, and for the period from January 1, 1994 to July 12, 1994, respectively.
Income before income taxes and extraordinary item for non-U.S. operations were
$734,086, $1,144,625, $628,234, and $360,495 for the years ended December 31,
1996 and 1995, for the period from July 13, 1994 to December 31, 1994, and for
the period from January 1, 1994 to July 12, 1994, respectively.
At December 31, 1996 and 1995, there was no valuation allowance recorded for
deferred tax assets. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the nature of the temporary differences and projections
for future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences.
(8) PENSION BENEFITS AND OTHER RETIREMENT PLANS
The Company has a qualified noncontributory defined benefit pension plan
covering substantially all of its domestic employees. The benefits are based on
years of service and defined levels of compensation. The Company makes annual
contributions to the plan equal to the maximum amount that can be deducted for
income tax purposes. The Company also has a nonqualified supplemental retirement
plan covering key employees, which is not funded.
The Company also maintains a defined benefit plan for substantially all
employees of its United Kingdom subsidiary. The plan is funded annually for the
maximum amount permitted by local statute. The benefits are based on years of
service and defined levels of compensation.
F-16
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) PENSION BENEFITS AND OTHER RETIREMENT PLANS (CONTINUED)
The following table sets forth the plans' funded status and amounts
recognized in the accompanying consolidated balance sheets at December 31, 1996
and 1995.
<TABLE>
<CAPTION>
1996 1995
-------------------------- ----------------------
UNITED UNITED
DOMESTIC KINGDOM DOMESTIC KINGDOM
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................... $ 7,020,864 1,944,989 5,877,756 1,879,312
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
Accumulated benefit obligation.......................... $ 7,136,559 2,109,029 6,001,744 2,015,609
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
Projected benefit obligation................................ $ 8,055,925 2,620,021 6,745,972 2,175,990
Plan assets at fair value................................... 6,730,352 2,305,726 5,615,569 1,792,257
------------ ------------ ---------- ----------
Projected benefit obligation in excess of plan assets....... 1,325,573 314,295 1,130,403 383,733
Unrecognized net gain....................................... 11,911 -- 393,023 --
------------ ------------ ---------- ----------
Total accrued pension benefits........................ 1,337,484 314,295 1,523,426 383,733
Supplemental retirement plan accrued liability.............. 800,160 -- 740,565 --
------------ ------------ ---------- ----------
Total accrued retirement benefits..................... $ 2,137,644 314,295 2,263,991 383,733
------------ ------------ ---------- ----------
------------ ------------ ---------- ----------
</TABLE>
For the nonqualified supplemental retirement plan, the assumed discount rate
was 8% at December 31, 1996 and 1995. No salary increase was assumed as the
Company has frozen salaries at specified amounts. Net periodic supplemental
retirement plan expense included in the accompanying consolidated statements of
operations for the years ended December 31, 1996 and 1995, for the period from
July 13, 1994 to December 31, 1994, and for the period from January 1, 1994 to
July 12, 1994 was $59,595, $55,530, $110,420, and $146,592, respectively.
F-17
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) PENSION BENEFITS AND OTHER RETIREMENT PLANS (CONTINUED)
Net pension cost for the years ended December 31, 1996 and 1995 and for the
period from July 13, 1994 to December 31, 1994 include the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ---------------------- -----------------------
UNITED UNITED UNITED
DOMESTIC KINGDOM DOMESTIC KINGDOM DOMESTIC KINGDOM
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Service cost--benefits earned during the period..... $ 338,182 128,732 264,428 113,766 175,165 45,000
Interest cost on projected benefit obligation....... 548,625 216,485 456,836 199,169 203,753 84,000
Actual return on plan assets........................ (785,405) (190,516) (702,713) (136,114) 42,794 (74,000)
Net amortization and deferral....................... 323,959 -- 321,963 -- (211,731) --
---------- ---------- ---------- ---------- ---------- -----------
Net pension cost................................ $ 425,361 154,701 340,514 176,821 209,981 55,000
---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- -----------
</TABLE>
Assumptions used in accounting for the pension plans as of December 31, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
DOMESTIC UNITED KINGDOM
------------------------------------- -----------------------------------
1996 1995 1994 1996 1995 1994
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Discount rates...................................... 7.5% 7.5 8.0 9.0 9.0 10.0
Rates of increase in compensation levels............ 4.5 4.5 4.5 8.0 8.0 9.0
Expected long-term rate of return on assets......... 8.0 8.0 8.0 9.0 9.0 10.0
</TABLE>
The Company also maintains the Willcox & Gibbs, Inc. Savings and Employee
Stock Ownership Plan to provide eligible employees with an opportunity to
purchase the Company's Class A common stock through payroll deductions, which
are matched by the Company, subject to certain limitations. The purchase price
is based on an independent appraisal of the value of the Company's shares at the
subscription date. The Company's matching contributions vest at a rate of 20%
for each year of service by the employee, with 100% vesting after five years of
service. The Company's contribution to the plan, net of forfeitures, was
approximately $305,000, $272,000, and $111,000 for the years ended December 31,
1996 and 1995 and for the period from July 13, 1994 to December 31, 1994,
respectively.
(9) STOCKHOLDERS' EQUITY
On July 13, 1994, the Company authorized 1,500,000 shares of Class A common
stock, no par value; 250,000 shares of Class B common stock, no par value; and
250,000 shares of Class C common stock, no par value. All classes of common
stock have identical rights and privileges. Pursuant to the purchase agreement,
the Company entered into a Stockholders' Agreement to sell 481,250 shares of
Class A common stock at $10 per share to certain investors. Additionally, as
part of the purchase agreement, the Company issued detachable warrants for
122,970 shares of Class B common stock attached to the subordinated note to
Rexel, Inc. and 114,773 shares of Class C common stock attached to the 12.95%
senior note payable to its principal lender (note 6). The warrants for the Class
C shares are convertible at
F-18
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCKHOLDERS' EQUITY (CONTINUED)
any time for nominal consideration, subject to certain redemption provisions. As
discussed in note 10, all of the warrants for the Class B shares were
repurchased and retired by the Company in 1995. As discussed in note 15,
warrants for 110,818 Class C shares were repurchased and retired by the Company
on January 3, 1997.
In February 1996, the Company issued additional detachable warrants for
32,985 shares of Class C common stock attached to the 10.98% senior note payable
to its principal lender (note 6).
(10) TRANSACTION WITH FORMER STOCKHOLDER
On July 26, 1995, the Company retired its 8% subordinated note payable to
Rexel, Inc. and repurchased the associated detachable warrants and certain other
assets for $4,050,000 in cash. The purchase price was allocated as follows:
<TABLE>
<S> <C>
8% subordinated note............................................ $2,500,000
Common stock warrants........................................... 1,000,000
Trademark....................................................... 250,000
Other assets.................................................... 300,000
---------
$4,050,000
---------
---------
</TABLE>
As a result of the transaction, the Company recorded an extraordinary loss
from the extinguishment of debt (net of the income tax benefit of $92,901) of
$151,574 in the accompanying financial statements. The Company funded the
transaction with its revolving line of credit.
The Company also acquired the rights to the Willcox & Gibbs, Inc. name as a
result of this transaction and changed the Company name from WG, Inc. effective
January 1, 1996.
(11) STOCK OPTIONS
On August 15, 1994, the Company adopted the Willcox & Gibbs, Inc. Stock
Incentive Plan. Under the plan, options to purchase 41,250 shares were available
to be granted to key employees of the Company. During 1994, options for 36,500
shares were issued at an exercise price of $10 per share, which the Company
believes approximated fair value at the date of grant. As of December 31, 1996
and 1995, 36,500 options remain outstanding. The options expire after ten years
and vest at a rate of 20% per year of service, with 100% vesting after five
years of service. At December 31, 1996, options for 14,600 shares were
exercisable.
F-19
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) FOREIGN OPERATIONS
Following is a summary of geographic area information, as measured by the
locale of revenue-producing operations, for the years ended December 31, 1996
and 1995, for the period from July 13, 1994 to December 31, 1994, and for the
period from January 1, 1994 to July 12, 1994:
<TABLE>
<CAPTION>
COMPANY'S
PREDECESSOR
COMPANY --------------
----------------------------------------------- PERIOD FROM
JANUARY 1,
YEARS ENDED DECEMBER 31, PERIOD FROM 1994
---------------------------- JULY 13, 1994 TO TO JULY 12,
1996 1995 DECEMBER 31, 1994 1994
-------------- ------------ ----------------- --------------
<S> <C> <C> <C> <C>
Net sales:
United States............................... $ 100,995,604 79,381,846 36,837,194 36,131,154
United Kingdom.............................. 7,371,861 6,535,063 2,953,944 3,726,342
Latin America............................... 5,483,793 4,514,522 1,852,590 1,451,406
-------------- ------------ ----------------- --------------
$ 113,851,258 90,431,431 41,643,728 41,308,902
-------------- ------------ ----------------- --------------
-------------- ------------ ----------------- --------------
Net income (loss):
United States............................... $ 727,777 322,333 (844,653) 77,782
United Kingdom.............................. 301,818 429,264 277,621 212,170
Latin America............................... 283,532 491,086 212,749 72,911
-------------- ------------ ----------------- --------------
$ 1,313,127 1,242,683 (354,283) 362,863
-------------- ------------ ----------------- --------------
-------------- ------------ ----------------- --------------
</TABLE>
<TABLE>
<CAPTION>
COMPANY
----------------------------
<S> <C> <C> <C> <C>
DECEMBER 31,
----------------------------
<CAPTION>
1996 1995
-------------- ------------
<S> <C> <C> <C> <C>
Identifiable assets:
United States............................... $ 69,727,547 44,281,551
United Kingdom.............................. 7,110,908 6,333,340
Latin America............................... 2,890,033 1,912,632
-------------- ------------
$ 79,728,488 52,527,523
-------------- ------------
-------------- ------------
</TABLE>
Export sales from the United States to unaffiliated customers were
approximately $26,100,000, $12,400,000, $4,200,000, and $5,000,000 for the years
ended December 31, 1996 and 1995, for the period from July 13, 1994 to December
31, 1994, and for the period from January 1, 1994 to July 12, 1994,
respectively.
F-20
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) FOREIGN OPERATIONS (CONTINUED)
No provision is made for income taxes which may be payable if undistributed
earnings of foreign subsidiaries were to be paid as dividends to the Company,
since the Company intends that such earnings will continue to be invested in
those countries. Foreign tax credits may be available as a reduction of United
States income taxes in the event of such distributions.
(13) SIGNIFICANT SUPPLIERS
The Company is the exclusive distributor of genuine replacement parts in the
United States for Pfaff AG ("Pfaff"), a German sewing equipment manufacturer,
and for Pegasus Sewing Machine Mfg. Co., Ltd. ("Pegasus"), a Japanese sewing
equipment manufacturer. The Company's distribution agreements with Pfaff and
Pegasus extend through 1998 and automatically renew for successive two-year
periods unless notice of termination is given at least one year prior to
December 31, 1998 or the end of any successive two-year period of exclusivity.
In order to maintain the exclusivity of the Pfaff and Pegasus distribution
agreements, the Company must meet certain performance targets. Historically, the
Company has generally satisfied these requirements, although in certain prior
years they were not satisfied and Pfaff and Pegasus waived such shortfalls.
During the year ended December 31, 1996, approximately 6% of the Company's total
purchases were from Pfaff and approximately 7% of the Company's total purchases
were from Pegasus.
The Company also maintains exclusive distribution rights in certain
territories for M&R Printing Equipment, Inc. ("M&R"), a manufacturer of
screen-printing equipment for the apparel industry. The Company's distribution
agreements with M&R may be terminated by either party at the end of any year on
net less than 120 days' notice. During the year ended December 31, 1996,
approximately 16% of the Company's total purchases were from M&R.
(14) COMMITMENTS
The Company had certain commitments to purchase inventories for
approximately $10,000 and $170,000 at December 31, 1996 and 1995, respectively.
The Company does not expect to incur losses in connection with these purchase
commitments.
The Company has several noncancelable operating leases, primarily for
buildings and equipment. These leases generally contain renewal options for
periods ranging from three to seven years and require the Company to pay most
executory costs such as maintenance and insurance.
F-21
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) COMMITMENTS (CONTINUED)
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are approximately:
<TABLE>
<CAPTION>
Year ending
December 31
- ----------------------------------------------------------------
1997............................................................ $1,126,000
<S> <C>
1998............................................................ 824,000
1999............................................................ 670,000
2000............................................................ 655,000
2001............................................................ 539,000
Thereafter...................................................... 755,000
---------
$4,569,000
---------
---------
</TABLE>
Total rental expense for the years ended December 31, 1996 and 1995, for the
period from July 13, 1994 to December 31, 1994, and for the period from January
1, 1994 to July 12, 1994 was approximately $1,559,000, $1,229,000, $515,000, and
$381,000, respectively.
(15) SUBSEQUENT EVENTS
Effective January 3, 1997, the Company acquired all the outstanding capital
stock of Macpherson Meistergram, Inc. ("Macpherson") for $24,000,000 in cash and
the assumption of approximately $6,100,000 of indebtedness and $6,400,000 of
trade payables. Macpherson is primarily engaged in the distribution of
embroidery equipment and supplies to the apparel industry.
In connection with the acquisition of Macpherson, the Company also acquired
all the outstanding capital stock of Embroidery Leasing Corp., a leasing
affiliate of Macpherson, for approximately $500,000, payable over three years
with interest at 6% per annum.
Effective January 3, 1997, the Company issued $85,000,000 principal amount
of 12.25% Series A senior notes which are due in December 2003. The Company used
the proceeds, in part, to repay approximately $40,952,000 of its indebtedness
($40,550,000 of which existed at December 31, 1996)-- (notes 5 and 6), to redeem
common stock warrants for a total of $3,026,000 (note 9), and to finance the
acquisition of Macpherson.
Set forth below are condensed consolidating financial statements of the
subsidiaries of the Company that have fully and unconditionally, jointly and
severally guaranteed the Company's 12 1/4% Senior Notes (the "Guarantor
Subsidiaries") and the non-guarantor subsidiaries of the Company (the
"Non-Guarantor Subsidiaries"). Information with respect to the Company (parent
only) is not presented since it is a holding company with no operations and no
assets other than its investments in its subsidiaries. As of the date of
issuance of the 12 1/4% Senior Notes, the Guarantor Subsidiaries were WG
Apparel, Inc., Leadtec Systems, Inc., J&E Sewing Supplies, Inc., W&G Daon, Inc.
W&G Tennessee Imports, Inc., Clinton Management Corp., Clinton Machinery
Corporation, Clinton Leasing Corp., Clinton Equipment Corp., Macpherson
Meistergram, Inc. and Paradise Color Incorporated, and the Non-Guarantor
Subsidiaries were Willcox &
F-22
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUBSEQUENT EVENTS (CONTINUED)
Gibbs, Ltd., Sunbrand S.A. de C.V., Sunbrand Caribe S.A., Allied Machine Parts
Ltd., M.E.C. (Sewing Machine Limited), Unity Sewing Supply Company (UK) Limited,
Allide Machine Parts Limited, Matyork Limited, Forest Needle Company Limited,
Morris & Ingram (Textiles) Limited, Eildon Electronics Limited, and Geoffrey E.
Macpherson Canada, Inc. The Guarantor Subsidiaries are wholly owned by the
Company, and there are no restrictions on the ability of the Guarantor
Subsidiaries to make distributions to the Company, except those generally
applicable under relevant corporation laws. Separate financial statements of
each Guarantor Subsidiary and the eliminating entries have not been included
because management has determined that they are not material to investors.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Assets
Cash.................................................................. $ 343 539 882
Accounts receivable, net.............................................. 18,941 3,395 22,336
Inventories........................................................... 30,133 4,091 34,224
Other current assets.................................................. 3,133 326 3459
----------- -------------- ------------
Current assets...................................................... 52,550 8,351 60,901
Property and equipment, net........................................... 2,853 1,547 4,400
Intangible assets, net................................................ 13,383 -- 13,383
Other assets.......................................................... 1,025 19 1,044
----------- -------------- ------------
$ 69,811 9,917 79,728
----------- -------------- ------------
----------- -------------- ------------
Liabilities and Stockholders' Equity
Current notes and long-term debt...................................... $ 22,114 428 22,542
Accounts payable...................................................... 13,462 844 14,306
Accrued liabilities................................................... 4,231 1,169 5,400
----------- -------------- ------------
Current liabilities................................................. 39,807 2,441 42,248
Long-term debt........................................................ 17,609 1,284 18,893
Other liabilities..................................................... 2,910 -- 2,910
----------- -------------- ------------
Total liabilities................................................... 60,326 3,725 64,051
Common stock subject to put option.................................... 3,000 -- 3,000
Common stock.......................................................... 8,763 -- 8,763
Other equity.......................................................... (2,278) 6,192 3,914
----------- -------------- ------------
Total equity........................................................ 6,485 6,192 12,677
----------- -------------- ------------
$ 69,811 9,917 79,728
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
F-23
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUBSEQUENT EVENTS (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Assets
Cash.................................................................. $ 315 605 920
Accounts receivable, net.............................................. 11,753 2,483 14,236
Inventories........................................................... 25,798 3,650 29,448
Other current assets.................................................. 2,395 190 2,585
----------- -------------- ------------
Current assets...................................................... 40,261 6,928 47,189
Property and equipment, net........................................... 1,479 1,332 2,811
Intangible assets, net................................................ 1,948 -- 1,948
Other assets.......................................................... 561 19 580
----------- -------------- ------------
$ 44,249 8,279 52,528
----------- -------------- ------------
----------- -------------- ------------
Liabilities and Stockholders' Equity
Current notes and long-term debt...................................... $ 14,754 -- 14,754
Accounts payable...................................................... 6,054 743 6,797
Accrued liabilities................................................... 3,112 602 3,714
----------- -------------- ------------
Current liabilities................................................. 23,920 1,345 25,265
Long-term debt........................................................ 16,355 -- 16,355
Other liabilities..................................................... 3,016 -- 3,016
----------- -------------- ------------
Total liabilities................................................... 43,291 1,345 44,636
Common stock.......................................................... 6,582 -- 6,582
Other equity.......................................................... (5,624) 6,934 1,310
----------- -------------- ------------
Total equity........................................................ 958 6,934 7,892
----------- -------------- ------------
$ 44,249 8,279 52,528
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
F-24
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUBSEQUENT EVENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
-----------------------------------------
<S> <C> <C> <C>
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
Net sales............................................................. $ 100,995 12,856 113,851
Cost of goods sold.................................................... 68,712 8,911 77,623
----------- -------------- ------------
Gross profit........................................................ 32,283 3,945 36,228
Selling, general and administrative expenses.......................... 25,661 3,308 28,969
----------- -------------- ------------
Operating income.................................................... 6,622 637 7,259
Interest expense...................................................... (4,602) (222) (4,824)
Other income, net..................................................... (118) 133 15
----------- -------------- ------------
Income before income taxes.......................................... 1,902 548 2,450
Income tax expense.................................................... 940 197 1,137
----------- -------------- ------------
Net income.......................................................... $ 962 351 1,313
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Net sales............................................................. $ 79,382 11,049 90,431
Cost of goods sold.................................................... 53,287 7,355 60,642
----------- -------------- ------------
Gross profit........................................................ 26,095 3,694 29,789
Selling, general and administrative expenses.......................... 20,862 2,744 23,606
----------- -------------- ------------
Operating income.................................................... 5,233 950 6,183
Interest expense...................................................... (4,066) (183) (4,249)
Other income, net..................................................... (180) 198 18
----------- -------------- ------------
Income before income taxes and extraordinary item................... 987 965 1,952
Income tax expense.................................................... 254 304 558
----------- -------------- ------------
Income before extraordinary item.................................... 733 661 1,394
Extraordinary item, net............................................... (151) -- (151)
----------- -------------- ------------
Net income.......................................................... $ 582 661 1,243
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
F-25
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUBSEQUENT EVENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM JULY 13, 1994
TO DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Net sales............................................................. $ 36,837 4,807 41,644
Cost of goods sold.................................................... 26,018 3,144 29,162
----------- -------------- ------------
Gross profit........................................................ 10,819 1,663 12,482
Selling, general and administrative expenses.......................... 10,101 1,163 11,264
----------- -------------- ------------
Operating income.................................................... 718 500 1,218
Interest expense...................................................... (1,877) (69) (1,946)
Other income, net..................................................... (43) 129 86
----------- -------------- ------------
Income (loss) before income taxes................................... (1,202) 560 (642)
Income tax expense (benefit).......................................... (498) 210 (288)
----------- -------------- ------------
Net income (loss)................................................... $ (704) 350 (354)
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities.................................. $ 1,209 (1,462) (253)
------------
Cash flows from investing activities:
Payments for business acquisitions, net of assets acquired.......... (12,012) -- (12,012)
Other changes....................................................... (921) (250) (1,171)
----------- -------------- ------------
(12,933) (250) (13,183)
----------- -------------- ------------
Cash flows from financing activities:
Proceeds from debt issuance......................................... 10,906 1,604 12,510
Proceeds from sale of common stock.................................. 2,585 -- 2,585
Other changes....................................................... (1,739) -- (1,739)
----------- -------------- ------------
11,752 1,604 13,356
----------- -------------- ------------
Effect of exchange rates.............................................. -- 42 42
------------
Net change in cash.................................................... 28 (66) (38)
Cash at beginning of period........................................... 315 605 920
-------------- ------------
Cash at end of period................................................. $ 343 539 882
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
F-26
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) SUBSEQUENT EVENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities.................................. $ 1,533 308 1,841
----------- -------------- ------------
Cash flows from investing activities.................................. (670) (88) (758)
----------- -------------- ------------
Cash flows from financing activities:
Proceeds from debt issuance......................................... 2,327 -- 2,327
Payments of debt.................................................... (3,875) -- (3,875)
Proceeds from sale of common stock.................................. 1,795 -- 1,795
Other changes....................................................... (1,022) -- (1,022)
----------- -------------- ------------
(775) (775)
----------- -------------- ------------
Effect of exchange rates.............................................. -- (22) (22)
------------
Net change in cash.................................................... 88 198 286
Cash at beginning of period........................................... 227 407 634
----------- -------------- ------------
Cash at end of period................................................. $ 315 605 920
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD FROM JULY 13, 1994
TO DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- -------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities.................................. $ 2,584 515 3,099
----------- -------------- ------------
Cash flows from investing activities:
Payments for business acquisitions, net............................. (39,089) -- (39,089)
Other changes....................................................... (9) (89) (98)
----------- -------------- ------------
(39,098) (89) (39,187)
----------- -------------- ------------
Cash flows from financing activities:
Proceeds from debt issuance......................................... 36,188 -- 36,188
Payments of debt...................................................... (4,878) -- (4,878)
Proceeds from sale of common stock.................................. 4,813 -- 4,813
Other changes....................................................... 618 -- 618
----------- -------------- ------------
36,741 -- 36,741
----------- -------------- ------------
Effect of exchange rates.............................................. -- (19) (19)
----------- -------------- ------------
Net change in cash.................................................... 227 407 634
Cash at beginning of period........................................... -- -- --
----------- -------------- ------------
Cash at end of period................................................. $ 227 407 634
----------- -------------- ------------
----------- -------------- ------------
</TABLE>
F-27
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
MARCH 31,
1997
--------------
<S> <C>
(UNAUDITED)
Assets
Current Assets:
Cash............................................................................................ $ 1,667,423
Accounts receivable, less allowance for doubtful accounts of $3,506,318......................... 32,416,181
Inventories..................................................................................... 49,229,003
Prepaid expenses and other current assets....................................................... 4,862,376
Assets held for sale............................................................................ 826,205
Deferred income taxes........................................................................... 938,825
--------------
Total current assets........................................................................ 89,940,013
Property and equipment, net....................................................................... 5,475,048
Deferred financing costs, less accumulated amortization of $152,679............................... 4,122,321
Intangible assets, less accumulated amortization of $431,407...................................... 31,719,302
Other assets...................................................................................... 1,384,295
--------------
$ 132,640,979
--------------
--------------
Liabilities and Stockholders' Equity
Current Liabilities:
Revolving line of credit........................................................................ $ 4,314,082
Book overdrafts................................................................................. 1,494,620
Current installments of long-term debt.......................................................... 609,900
Trade accounts payable.......................................................................... 17,699,844
Accrued liabilities and other current liabilities............................................... 9,867,627
--------------
Total current liabilities................................................................... 33,986,073
Deferred income taxes............................................................................. 422,760
Accrued retirement benefits....................................................................... 2,517,598
Long-term debt, excluding current installments.................................................... 85,101,453
Other liabilities................................................................................. 168,258
--------------
Total liabilities........................................................................... 122,196,142
--------------
Common stock subject to put option................................................................ 3,000,000
Stockholders' Equity:
Common stock:
Class A, $10 stated value. Authorized 1,500,000 shares; issued and outstanding 987,223........ 8,872,234
Class B, no par value. Authorized 250,000 shares; none issued................................. --
Class C, no par value. Authorized 250,000 shares; none issued................................. --
Additional paid in capital...................................................................... --
Subscriptions receivable........................................................................ (637,383)
Retained earnings (accumulated deficit)......................................................... (881,932)
Cumulative translation adjustment............................................................... 91,918
--------------
Total stockholders' equity.................................................................. 7,444,837
--------------
$ 132,640,979
--------------
--------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-28
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
<S> <C> <C>
1997 1996
------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Net sales.......................................................................... $ 42,042,970 $ 26,319,787
Cost of goods sold................................................................. 29,083,575 17,975,883
------------- -------------
Gross profit................................................................... 12,959,395 8,343,904
Selling, general, and administrative expenses...................................... 10,973,947 6,763,393
------------- -------------
Operating income............................................................... 1,985,448 1,580,511
Other income (expense):
Interest expense................................................................... (2,882,745) (1,100,190)
Other income, net.................................................................. 38,940 14,114
------------- -------------
Income (loss) before income taxes and extraordinary item....................... (858,357) 494,435
Income tax expense (benefit)....................................................... (355,395) 178,776
------------- -------------
Income (loss) before extraordinary item........................................ (502,962) 315,659
Extraordinary loss, net of income tax benefit...................................... (1,556,898) --
------------- -------------
Net income (loss).............................................................. $ (2,059,860) $ 315,659
------------- -------------
------------- -------------
Earnings (loss) per common share and common share equivalent:
Income (loss) before extraordinary item........................................ $ (0.53) $ 0.32
Extraordinary item, net........................................................ (1.63) --
------------- -------------
Net income (loss) per share................................................ $ (2.16) $ 0.32
------------- -------------
------------- -------------
Weighted average number of common shares and common share equivalents.......... 953,674 977,196
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-29
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
<S> <C> <C>
1997 1996
-------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................ $ (2,059,860) $ 315,659
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization.................................................... 260,608 151,472
Provision for losses on accounts receivable...................................... 237,563 164,367
Amortization of deferred financing costs......................................... 355,464 123,819
Amortization of debt discount.................................................... 51,717 39,924
Deferred income taxes............................................................ (2,172) --
Extraordinary loss on debt extinguishment, net................................... 1,556,898 --
Changes in operating assets and liabilities, net of effect of business
acquisitions:
Trade accounts receivable...................................................... 3,386,992 (4,021,701)
Inventories.................................................................... 1,192,733 408,309
Prepaid expenses and other current assets...................................... (940,425) 38,640
Other assets................................................................... 22,959 (43,865)
Income taxes payable........................................................... (614,867) 42,222
Trade accounts payable and other liabilities................................... (5,883,994) 244,204
-------------- -------------
Net cash used in operating activities........................................ (2,436,384) (2,536,950)
Cash flows from investing activities:
Capital expenditures............................................................. (538,641) (210,519)
Proceeds from sale of property and equipment..................................... 58,455 10,125
Payment for business acquisitions, net of cash acquired.......................... (36,732,470) (8,219,165)
-------------- -------------
Net cash used in investing activities........................................ (37,212,656) (8,419,559)
Cash flows from financing activities:
Net proceeds from revolving line of credit....................................... 4,248,499 2,440,461
Increase (decrease) in book overdrafts........................................... (4,677) 13,007
Proceeds from debt issued........................................................ 83,980,050 6,167,439
Principal payments on long-term debt............................................. (41,137,297) (437,500)
Payment of financing costs....................................................... (3,605,926) (265,108)
Proceeds from common stock issued in private placement........................... -- 2,282,145
Repurchase and retirement of warrants............................................ (3,026,454) --
-------------- -------------
Net cash provided by financing activities.................................... 40,454,195 10,200,444
-------------- -------------
Effect of exchange rate changes in cash............................................ (19,232) (8,966)
Net increase (decrease) in cash.................................................... 785,923 (765,031)
Cash at beginning of period........................................................ 881,500 920,238
-------------- -------------
Cash at end of period.............................................................. $ 1,667,423 $ 155,207
-------------- -------------
-------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest....................................................................... $ 479,327 $ 927,880
-------------- -------------
Income taxes................................................................... $ 261,645 $ 145,305
-------------- -------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-30
<PAGE>
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Willcox &
Gibbs, Inc. and subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principals for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter ending March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
The operations of Clinton Management Corp. (d/b/a Clinton Machine & Supply)
and Clinton Machinery Corp. (together, "Clinton") have been included in the
Company's consolidated operations since their February 1, 1996 acquisition date.
The operations of E.C. Mitchell Co., Inc. ("Mitchell") have been included in the
Company's consolidated operations since its November 27, 1996 acquisition date.
The operations of Macpherson Meistergram, Inc. ("Macpherson") have been included
in the Company's consolidated operations since its January 3, 1997 acquisition
date. The operations of Embroidery Leasing Corp. ("ELC") have been included in
the Company's consolidated operations since its January 3, 1997 acquisition
date.
2. ACQUISITIONS
Effective February 1, 1996, the Company acquired Clinton in exchange for
$4,000,000 in cash, assumption of $4,500,000 in debt and payables, 100,000
shares of Company Class A common stock and contingent payments of up to 38.87%
of operating income (as defined in the purchase agreement) of Clinton during
each of the five years ending December 31, 2000. Such contingent payments shall
not exceed $10,500,000. In addition, the former shareholders of Clinton have the
right to require the Company to purchase their shares of Company common stock at
a purchase price of $30 per share upon the occurrence of certain events.
Effective November 27, 1996, the Company acquired certain assets of E.C.
Mitchell, Co., Inc. for $3,000,000 in cash. The acquired assets relate to the
manufacture and sale of abrasive cords and tape used principally in the apparel
industry.
Effective January 3, 1997, the Company acquired all the outstanding capital
stock of Macpherson for $24,000,000 in cash. The acquisition included the
assumption of approximately $6,100,000 of indebtedness and $6,400,000 of trade
payables which were repaid from the proceeds of the refinancing (note 3).
Macpherson is primarily engaged in the distribution of embroidery equipment and
supplies to the apparel industry. The acquisition has been accounted for using
the purchase method of accounting, with the purchase price allocated based on
the fair value of the assets acquired and liabilities assumed, with the
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED (CONTINUED)
2. ACQUISITIONS (CONTINUED)
excess purchase price allocated to goodwill, which is being amortized over 40
years. The amounts used in the purchase price allocation were as follows:
<TABLE>
<CAPTION>
Fair value of:
<S> <C>
Assets acquired....................................................... $33,378,426
Liabilities assumed................................................... (28,506,519)
----------
4,871,907
Excess purchase price, recorded as goodwill........................... 19,128,093
Total purchase price.............................................. $24,000,000
----------
----------
</TABLE>
3. REFINANCING
Effective January 3, 1997, the Company issued $85,000,000 principal amount
of 12.25% Series A senior notes which are due in December 2003. The Company used
the proceeds, in part, to repay approximately $40,952,000 of its indebtedness
($40,550,000 of which existed at December 31, 1996), to redeem common stock
warrants for a total of $3,026,000, and to finance the Macpherson acquisition.
The Company recorded an extraordinary loss of $1,556,898 from the
refinancing (which is net of income tax benefit of $954,228).
4. GUARANTOR SUBSIDIARIES
Set forth below are condensed consolidating financial statements of the
subsidiaries of the Company that have fully and unconditionally, jointly and
severally guaranteed the Company's 12 1/4% Senior Notes (the "Guarantor
Subsidiaries") and the non-guarantor subsidiaries of the Company (the
"Non-Guarantor Subsidiaries"). As of March 31, 1997, the Guarantor Subsidiaries
were WG Apparel, Inc., Leadtec Systems, Inc., J&E Sewing Supplies, Inc., W&G
Daon, Inc. W&G Tennessee Imports, Inc., Clinton Management Corp., Clinton
Machinery Corporation, Clinton Leasing Corp., Clinton Equipment Corp.,
Macpherson Meistergram, Inc. and Paradise Color Incorporated, and the
Non-Guarantor Subsidiaries were Willcox & Gibbs, Ltd., Sunbrand S.A. de C.V.,
Sunbrand Caribe S.A., Allied Machine Parts Ltd., M.E.C. (Sewing Machine
Limited), Unity Sewing Supply Company (UK) Limited, Allide Machine Parts
Limited, Matyork Limited, Forest Needle Company Limited, Morris & Ingram
(Textiles) Limited, Eildon Electronics Limited, Geoffrey E. Macpherson Canada,
Inc., Embroidery Leasing Corporation, Sunbrand de Colombia, Unity de Colombia
and Clinton de Mexico. The Guarantor Subsidiaries are wholly owned by the
Company, and there are no restrictions on the ability of the Guarantor
Subsidiaries to make distributions to the Company, except those generally
applicable under relevant corporation laws. Separate financial statements of
each Guarantor Subsidiary have not been included because management has
determined that they are not material to investors.
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED (CONTINUED)
4. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
-------------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- --------------- -------------
<S> <C> <C> <C>
Assets
- ----------------------------------------------------------------------
Cash.................................................................. $ 1,037 630 1,667
Accounts receivable, net.............................................. 27,803 4,613 32,416
Inventories........................................................... 44,093 5,136 49,229
Other current assets.................................................. 6,300 328 6,628
----------- ------- -------------
Total current assets................................................ 79,233 10,707 89,940
Property and equipment, net........................................... 3,920 1,555 5,475
Intangible assets, net................................................ 35,172 670 35,842
Other assets.......................................................... 1,203 181 1,384
----------- ------- -------------
$ 119,528 13,113 132,641
----------- ------- -------------
----------- ------- -------------
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------
Current notes and long-term debt...................................... $ 4,496 428 4,924
Accounts payable...................................................... 17,035 2,159 19,194
Accrued liabilities................................................... 9,262 606 9,868
----------- ------- -------------
Current liabilities................................................. 30,793 3,193 33,986
Long-term debt........................................................ 83,816 1,285 85,101
Other liabilities..................................................... 3,109 -- 3,109
----------- ------- -------------
Total liabilities................................................... 117,718 4,478 122,196
Common stock subject to put option.................................... 3,000 -- 3,000
Common stock.......................................................... 8,872 -- 8,872
Other equity (deficit)................................................ (10,062) 8,635 (1,427)
----------- ------- -------------
Total stockholders' equity............................................ (1,190) 8,635 7,445
----------- ------- -------------
$ 119,528 13,113 132,641
----------- ------- -------------
----------- ------- -------------
</TABLE>
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED (CONTINUED)
4. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
-------------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- --------------- -------------
<S> <C> <C> <C>
Net sales............................................................. $ 36,777 5,266 42,043
Cost of goods sold.................................................... 25,487 3,597 29,084
----------- ------ -------------
Gross profit........................................................ 11,290 1,669 12,959
Selling, general and administrative expenses.......................... 9,778 1,196 10,974
----------- ------ -------------
Operating income.................................................... 1,512 473 1,985
Interest expense...................................................... (2,708) (174) (2,882)
Other income,net...................................................... 32 7 39
----------- ------ -------------
Income (loss) before income taxes and extraordinary item............ (1,164) 306 (858)
Income tax expense (benefit).......................................... (477) 122 (355)
----------- ------ -------------
Income (loss) before extraordinary item............................. (687) 184 (503)
Extraordinary item, net............................................... (1,557) -- (1,557)
----------- ------ -------------
Net income (loss)................................................... $ (2,244) 184 (2,060)
----------- ------ -------------
----------- ------ -------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
(AMOUNTS IN THOUSANDS)
-------------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- --------------- -------------
<S> <C> <C> <C>
Net sales............................................................. $ 23,377 2,943 26,320
Cost of goods sold.................................................... 15,976 2,000 17,976
----------- ------ -------------
Gross profit........................................................ 7,401 943 8,344
Selling, general and administrative expenses.......................... 6,005 758 6,763
----------- ------ -------------
Operating income.................................................... 1,396 185 1,581
Interest expense...................................................... (1,071) (29) (1,100)
Other income, net..................................................... (17) 31 14
----------- ------ -------------
Income before income taxes.......................................... 308 187 495
Income tax expense.................................................... 117 62 179
----------- ------ -------------
Net income.......................................................... $ 191 125 316
----------- ------ -------------
----------- ------ -------------
</TABLE>
F-34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED (CONTINUED)
4. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS)
-------------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- --------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities.................................. $ (2,680) 244 (2,436)
----------- -------------
Cash flows from investing activities:
Payments for business acquisitions.................................. (36,732) -- (36,732)
Other changes....................................................... (347) (134) (481)
----------- ------ -------------
(37,079) (134) (37,213)
----------- ------ -------------
Cash flows from financing activities:
Proceeds from debt issuance......................................... 88,228 -- 88,228
Principal payments on debt.......................................... (41,137) -- (41,137)
Payments for financing costs........................................ (3,606) -- (3,606)
Repurchase and retirement of warrants............................... (3,026) -- (3,026)
Other changes....................................................... (5) -- (5)
----------- ------ -------------
40,454 -- 40,454
----------- ------ -------------
Effect of exchange rates............................................ -- (19) (19)
----------- ------ -------------
Net change in cash.................................................. 695 91 786
Cash at beginning of period......................................... 343 539 882
----------- ------ -------------
Cash at end of period............................................... $ 1,038 630 1,668
----------- ------ -------------
----------- ------ -------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
(AMOUNTS IN THOUSANDS)
---------------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
----------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities.................................. $ (2,634) 97 (2,537)
Cash flows from investing activities:
Payment for business acquisition.................................... (8,219) -- (8,219)
------
Other changes....................................................... (129) (71) (200)
----------- ------ ------
(8,348) (71) (8,419)
----------- ------ ------
Cash flows from financing activities:
Proceeds from debt issuance......................................... 8,608 -- 8,608
Proceeds from sale of common stock.................................. 2,282 -- 2,282
Other changes....................................................... (690) -- (690)
----------- ------ ------
10,200 -- 10,200
----------- ------ ------
Effect of exchange rates............................................ -- (9) (9)
----------- ------ ------
Net change in cash.................................................. (782) 17 (765)
Cash at beginning of period......................................... 315 605 920
----------- ------ ------
Cash at end of period............................................... $ (467) 622 155
----------- ------ ------
----------- ------ ------
</TABLE>
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Macpherson Meistergram, Inc.:
We have audited the accompanying consolidated balance sheets of Macpherson
Meistergram, Inc. (a North Carolina corporation) and subsidiary as of December
31, 1996 and 1995, and the related consolidated statements of income,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Macpherson Meistergram, Inc.
and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
We have also audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1994 (which is not presented
herein), and have expressed an unqualified opinion on that balance sheet. In our
opinion, the information set forth in the selected historical financial
information as of December 31, 1996, 1995 and 1994 and for each of the three
years in the period ended December 31, 1996, appearing on pages 20 and 44, is
fairly stated in all material respects in relation to the financial statements
from which it has been derived.
Greensboro, North Carolina,
February 21, 1997. Arthur Andersen LLP
F-36
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ---------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
(NOTES 3 AND 6)
CURRENT ASSETS:
Cash............................................................................ $ 470,972 $ 260,297
Trade accounts receivable, less allowances for doubtful accounts of $869,000 and
$778,000...................................................................... 14,921,024 20,322,528
Inventories (Note 2)............................................................ 21,462,266 22,079,873
Prepayments, deposits and other................................................. 587,114 474,158
-------------- -------------
Total current assets...................................................... 37,441,376 43,136,856
-------------- -------------
PROPERTY AND EQUIPMENT:
Leasehold improvements.......................................................... 1,031,489 1,030,241
Machinery and equipment......................................................... 1,658,446 1,348,113
Furniture and fixtures.......................................................... 651,832 641,315
Automobiles..................................................................... 128,259 124,708
-------------- -------------
3,470,026 3,144,377
Less--Accumulated depreciation.................................................. 2,410,186 2,195,230
-------------- -------------
1,059,840 949,147
-------------- -------------
OTHER ASSETS...................................................................... 362,722 316,843
-------------- -------------
$ 38,863,938 $ 44,402,846
-------------- -------------
-------------- -------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 6)................................... $ 462,225 $ 424,547
Short-term bank borrowings (Note 6)............................................. 6,247,835 4,060,136
Accounts payable and accrued liabilities (Note 4)............................... 20,765,463 27,726,856
-------------- -------------
Total current liabilities................................................. 27,475,523 32,211,539
-------------- -------------
LONG-TERM DEBT (Note 6)........................................................... 0 461,840
-------------- -------------
DEFERRED COMPENSATION (Note 8).................................................... 425,356 354,747
-------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 7, 9 and 11)
STOCKHOLDERS' INVESTMENT (Note 2):
Common stock, $1 par value, 300,000 authorized shares; 11,119 shares issued and
outstanding................................................................... 11,119 11,119
Additional paid-in capital...................................................... 1,564,833 1,564,833
Retained earnings............................................................... 9,367,896 9,777,980
Foreign currency translation gain (Note 2)...................................... 19,211 20,788
-------------- -------------
10,963,059 11,374,720
-------------- -------------
$ 38,863,938 $ 44,402,846
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-37
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES:
Machines.......................................................... $ 56,622,534 $ 59,169,340 $ 56,994,446
Parts, supplies and services...................................... 13,435,333 12,497,607 11,866,437
------------- ------------- -------------
70,057,867 71,666,947 68,860,883
------------- ------------- -------------
COST OF GOODS SOLD:
Machines.......................................................... 42,784,499 44,521,220 42,583,772
Parts, supplies and services...................................... 9,825,085 9,247,868 9,631,986
------------- ------------- -------------
52,609,584 53,769,088 52,215,758
------------- ------------- -------------
Gross profit................................................ 17,448,283 17,897,859 16,645,125
OPERATING EXPENSES.................................................. 14,211,038 13,586,510 13,566,538
------------- ------------- -------------
Income from operations...................................... 3,237,245 4,311,349 3,078,587
------------- ------------- -------------
OTHER EXPENSE (INCOME):
Interest expense, net............................................. 781,454 217,615 389,930
Foreign exchange costs (Note 2)................................... 934,618 811,588 683,068
Costs incurred in connection with the sale of the Company (Note
12)............................................................. 242,225 0 0
Other, net........................................................ (15,500) (43,347) (40,201)
------------- ------------- -------------
1,942,797 985,856 1,032,797
------------- ------------- -------------
INCOME BEFORE INCOME TAX PROVISION.................................. 1,294,448 3,325,493 2,045,790
INCOME TAX PROVISION (Note 5)....................................... 54,432 76,600 53,486
------------- ------------- -------------
NET INCOME.......................................................... $ 1,240,016 $ 3,248,893 $ 1,992,304
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-38
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(NOTE 2)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
-------------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS GAIN TOTAL
--------- --------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.................... 11,119 $ 11,119 $ 499,643 $ 8,533,556 $ 27,205 $ 9,071,523
Net income.................................. 0 0 0 1,992,304 0 1,992,304
Foreign currency translation loss (Note
2)........................................ 0 0 0 0 (5,652) (5,652)
Cash dividends paid to stockholders (Note
5)........................................ 0 0 0 (2,067,908) 0 (2,067,908)
Cash contribution from stockholders......... 0 0 804,033 0 0 804,033
--------- --------- ------------ ------------ ----------- -------------
BALANCE, December 31, 1994.................... 11,119 11,119 1,303,676 8,457,952 21,553 9,794,300
Net income.................................. 0 0 0 3,248,893 0 3,248,893
Foreign currency translation loss (Note
2)........................................ 0 0 0 0 (765) (765)
Cash dividends paid to stockholders (Note
5)........................................ 0 0 0 (1,928,865) 0 (1,928,865)
Cash contribution from stockholders......... 0 0 261,157 0 0 261,157
--------- --------- ------------ ------------ ----------- -------------
BALANCE, December 31, 1995.................... 11,119 11,119 1,564,833 9,777,980 20,788 11,374,720
Net income.................................. 0 0 0 1,240,016 0 1,240,016
Foreign currency translation loss (Note
2)........................................ 0 0 0 0 (1,577) (1,577)
Cash dividends paid to stockholders (Note
5)........................................ 0 0 0 (1,650,100) 0 (1,650,100)
--------- --------- ------------ ------------ ----------- -------------
BALANCE, December 31, 1996.................... 11,119 $ 11,119 $ 1,564,833 $ 9,367,896 $ 19,211 $ 10,963,059
--------- --------- ------------ ------------ ----------- -------------
--------- --------- ------------ ------------ ----------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-39
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 1,240,016 $ 3,248,893 $ 1,992,304
Adjustments to reconcile net income to net cash provided by (used in)
operating activities-
Depreciation and amortization..................................... 317,799 171,895 214,000
Increase in cash surrender value of life insurance................ (77,655) (66,556) (76,757)
Gain on sales of property and equipment, net...................... (13,000) (21,208) (31,753)
Deferred compensation expense..................................... 83,749 59,503 78,336
Payments made under deferred compensation arrangements............ (13,140) (13,140) 0
Changes in current assets and liabilities:
Trade accounts receivable....................................... 5,401,504 (5,085,305) (201,274)
Inventories..................................................... 418,838 (7,803,867) 5,883,863
Prepayments, deposits and other................................. (112,956) 161,642 5,784
Accounts payable and accrued liabilities........................ (6,961,393) 9,243,033 (4,172,488)
Other............................................................. (1,577) 6,469 33,107
------------ ------------ ------------
Net cash provided by (used in) operating activities........... 282,185 (98,641) 3,725,122
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................................... (281,577) (178,028) (171,067)
Proceeds from sales of property and equipment......................... 64,854 36,737 112,041
Other................................................................. 31,776 0 0
------------ ------------ ------------
Net cash used in investing activities......................... (184,947) (141,291) (59,026)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash contribution received from stockholders.......................... 0 261,157 804,033
Payments of cash dividends............................................ (1,650,100) (1,928,865) (2,067,908)
Increase (decrease) in short-term borrowings, net..................... 2,187,699 2,523,236 (2,712,881)
Payments of long-term debt............................................ (424,162) (396,624) (370,561)
------------ ------------ ------------
Net cash provided by (used in) financing activities........... 113,437 458,904 (4,347,317)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH......................................... 210,675 218,972 (681,221)
CASH, beginning of year................................................. 260,297 41,325 722,546
------------ ------------ ------------
CASH, end of year....................................................... $ 470,972 $ 260,297 $ 41,325
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-40
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. DESCRIPTION OF OPERATIONS:
The principal activities of Macpherson Meistergram, Inc. and subsidiary (the
Company) include the distribution, marketing and servicing, throughout the
United States and Canada, of embroidery and monogram machines (stitching
machines), textile machines and engraving machines used primarily in the apparel
industry.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Macpherson Meistergram, Inc. (a North Carolina corporation) and its
majority-owned subsidiary, Geoffrey E. Macpherson Canada, Inc. (an Ontario,
Canada, corporation). All significant intercompany accounts and transactions
have been eliminated in consolidation.
The financial statements of the Canadian subsidiary have been translated
into U.S. dollars at the balance sheet date rate of exchange for asset and
liability accounts and the average rate of exchange for income statement
accounts. Translation gains and losses are reflected in the foreign currency
translation account in the stockholders' investment section of the accompanying
consolidated balance sheets.
On December 31, 1994, Macpherson, Inc. acquired all of the outstanding
common stock of Meistergram, Inc. and Macpherson Monogram, Inc. in exchange for
1,119 shares of common stock of Macpherson, Inc. The Company accounted for the
acquisition in a manner similar to a pooling-of-interests due to the common
ownership of all three companies. As a result, the stockholders' investment
information in the accompanying consolidated financial statements was restated
in 1994 to record the effect of this transaction. In conjunction with this
transaction, the name of Macpherson, Inc. was changed to Macpherson Meistergram,
Inc.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CONCENTRATIONS OF CREDIT RISK IN TRADE ACCOUNTS RECEIVABLE
The Company does not have significant concentrations of credit risk with
respect to trade accounts receivable due to the large number of entities
comprising the Company's customer base and dispersion of the Company's customers
across all segments of the apparel industry and many geographic regions of the
United States and Canada. The Company distributes a portion of its products
through third-party distributors. The Company performs ongoing credit
evaluations of its customers' financial condition. The Company establishes an
allowance for doubtful accounts based upon factors related to credit risk of
specific customers, historical trends and other information.
F-41
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FOREIGN EXCHANGE COSTS
Gains and losses from foreign exchange transactions that hedge existing
assets or liabilities are included in the carrying amounts of those assets and
liabilities and are ultimately recognized in the consolidated statements of
income as part of those carrying amounts. Gains and losses from foreign exchange
transactions that hedge firm purchase commitments are deferred and recognized as
adjustments to the carrying amounts of the related inventory items when the
inventory items are purchased. Premiums paid for foreign exchange contracts and
contract options are amortized over the lives of the respective contracts. See
Note 9 regarding foreign exchange risk management.
INVENTORIES
Inventories consist of machines, parts and supplies held for sale. Machines
are recorded at the lower of specific cost or market value while parts and
supplies are recorded at the lower of first-in, first-out (FIFO) cost or market.
Inventories also include rental machines held at customer locations under a
"rent-to-own" program. Rental machines are recorded at specific cost and the
specific cost of each machine is reduced to reflect a portion of the rental
revenues earned to date. Reserves are established to record provisions for slow
moving inventories in the period in which it becomes reasonably evident that the
product is not salable or the market value is less than cost. Inventories at
December 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Stitching machines (includes $211,043, and $0 of rental
machines at December 31, 1996 and 1995)...................... $ 12,174,002 $ 13,295,211
Textile machines............................................... 662,607 582,631
Engraving machines (includes $16,049 and $113,322 of rental
machines at December 31, 1996 and 1995)...................... 1,487,388 1,637,419
Parts, supplies and other...................................... 7,138,269 6,564,612
------------- -------------
$ 21,462,266 $ 22,079,873
------------- -------------
------------- -------------
</TABLE>
PROPERTY AND EQUIPMENT
All property and equipment is stated at cost. Depreciation is computed using
accelerated methods for both financial and income tax reporting purposes. The
estimated service lives used for calculating depreciation are as follows:
<TABLE>
<S> <C>
7-31.5
Leasehold improvements......................................... years
Machinery and equipment and furniture and fixtures............. 5-7 years
Automobiles.................................................... 5 years
</TABLE>
F-42
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
POSTRETIREMENT BENEFITS
The Company adopted a plan during 1996 whereby it provides certain health
care and life insurance benefits for eligible retired employees and their
eligible dependents. Employees retiring from the Company with 15 consecutive
years of service immediately prior to retirement are eligible for these
benefits, subject to deductibles, copayment provisions and other limitations.
The Company accrues the estimated cost of retiree health and life insurance
benefits over the 15 years that employees render service immediately preceding
retirement age. The initial accumulated liability of approximately $50,000 is
being amortized over 10 years. The Company intends to amend its postretirement
benefits plan in 1997 whereby no new participants will be admitted to the plan
after February 28, 1997.
INCOME TAXES
The stockholders of the Company have elected under Subchapter S of the
Internal Revenue Code (IRC) to have the Company's income taxed directly to the
stockholders. Under this election, the corporate income or loss of the S
Corporation is allocated to its stockholders for inclusion in their personal
federal income tax returns and, accordingly, no provision for federal income
taxes is required in the accompanying consolidated statements of income. In
addition, state income taxes are provided for any income attributable to states
that do not recognize S Corporation status.
Deferred income taxes are provided, when applicable, for timing differences
between the recognition of certain income and expense items for financial
reporting and income tax purposes. These differences relate primarily to certain
accrued expenses not currently deductible for state income tax purposes.
MINORITY INTEREST IN SUBSIDIARY
During 1996, 1995 and 1994, the principal stockholder of Macpherson
Meistergram, Inc. held a 21% interest in Geoffrey E. Macpherson Canada, Inc.
Geoffrey E. Macpherson Canada, Inc. has been in a negative equity position
throughout each of the three years in the period ended December 31, 1996.
Accordingly, the minority stockholder's interest in subsidiary has been reduced
to zero in the accompanying consolidated balance sheets. The minority
stockholder's interest in the cumulative net losses of the Canadian subsidiary
exceeded the minority stockholder's net investment by approximately $99,500 at
December 31, 1996. The minority stockholder's interest in future income, if any,
of Geoffrey E. Macpherson Canada, Inc. will be offset by this amount. Subsequent
to December 31, 1996, the minority interest in Geoffrey E. Macpherson Canada was
acquired by W.G. Apparel Inc. in connection with its acquisition of the Company
(See Note 12).
REVENUE RECOGNITION
The Company distributes embroidery, monogramming, textile and engraving
machines, which it offers for sale or rent. Revenue related to the sale of
equipment is recorded at the time of shipment. Aggregate rental revenue is
recognized over the term of the lease and is included in parts, supplies and
services sales in the accompanying consolidated statements of income.
The Company's customer support services include training, technical support,
warranty and maintenance services. Service revenues and costs are recognized
when services are provided. Sales of computer
F-43
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
hardware and software are recognized when shipped provided that no significant
vendor and postcontract and support obligations remain and collection is
probable. Warranty costs associated with products sold with warranty protection,
as well as other vendor and postcontract support obligations, are estimated
based on the Company's historical experience and recorded in the period the
product is sold.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments consist primarily of investments in cash, trade
accounts receivable, accounts payable and debt obligations. At December 31, 1996
and 1995, the fair value of the Company's financial instruments approximated the
carrying value.
CONSOLIDATED STATEMENTS OF CASH FLOWS
During the years ended December 31, 1996, 1995 and 1994, the Company paid
interest of $712,000, $272,000 and $397,000, and income taxes of $78,000,
$76,000 and $69,000, respectively.
RECLASSIFICATIONS
Certain balances in the 1995 and 1994 financial statements have been
reclassified to conform with the current period presentation.
3. MAJOR SUPPLIER AND DISTRIBUTION AGREEMENT:
The Company's principal suppliers of embroidery and monogramming machines
are Barudan America, Inc. and Barudan Co. Ltd. (hereinafter referred to
collectively as Barudan) with manufacturing facilities in Cleveland, Ohio, and
Nagoya, Japan, respectively. The Company made purchases of $38,697,000,
$47,213,000 and $30,563,000 for the years ended December 31, 1996, 1995 and
1994, respectively, representing 78%, 80% and 70% of the Company's total
purchases. Purchases are made through Tekmatex, which is the trading company
through which Barudan sells its machines to the Company. Payment terms on
purchases range from 30 to 150 days. In addition, Tekmatex charges interest on
past due amounts at prime plus 1%. Interest expense related to machine purchases
was $387,000, $0 and $64,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Accounts payable to Tekmatex are collateralized by
approximately $10,044,000 of stitching machine inventory and all other assets
not pledged under the Company's debt arrangement (See Note 6). $6,442,000 of
outstanding accounts payable to Tekmatex was repaid in January 1997 in
connection with the acquisition of the Company by W.G. Apparel, Inc. (See Note
12).
The Company has a distribution agreement with Barudan (Distribution
Agreement) which provides the Company with the exclusive right to distribute
Barudan's products throughout the United States and Canada. The Distribution
Agreement expires December 31, 2003, at which time it automatically renews for a
five-year period unless it has been terminated with prior written notice of 30
days. The Distribution Agreement, among other things, requires the Company to
make certain minimum purchases, which are agreed upon by the parties on an
annual basis. The minimum purchases were met in 1996, 1995 and 1994.
Although management of the Company is of the opinion that the likelihood of
termination of the Distribution Agreement with Barudan is remote, management
believes that it could represent and sell other embroidery and monogramming
machine product lines, if required.
F-44
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities at December 31, 1996 and 1995,
consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Accounts payable to major supplier--
Domestic currency............................................ $ 7,102,450 $ 7,986,182
Foreign currencies........................................... 8,095,002 14,843,600
All other trade accounts payable--
Domestic currency............................................ 3,085,115 2,207,101
Foreign currencies........................................... 628,184 305,588
Accrued payroll and commissions................................ 1,068,099 1,631,337
Other accrued liabilities...................................... 786,613 753,048
------------- -------------
$ 20,765,463 $ 27,726,856
------------- -------------
------------- -------------
</TABLE>
5. INCOME TAXES:
State income taxes for certain states in which the Company operates are
payable directly by the Company and, as such, the income tax provision included
in the accompanying consolidated statements of income is for these state income
taxes only. The income tax provision does not include federal and certain state
income taxes of approximately $505,000, $1,226,000 and $745,000 for the years
ended December 31, 1996, 1995 and 1994, respectively, which otherwise would have
been payable if the Company had not elected Subchapter S status under the IRC.
Distributions are generally paid in amounts approximating the stockholders'
personal income tax liabilities resulting from the current S Corporation
earnings. No distributions to the stockholders have been made subsequent to
December 31, 1996, to fund their expected S Corporation tax liabilities for the
year ended December 31, 1996.
6. BANK BORROWINGS AND LONG-TERM DEBT:
On September 30, 1996, the Company refinanced its revolving credit line and
term note with a new revolving credit line of $7,000,000 and a term note of
$570,992. The revolving credit line is due and payable upon expiration on July
31, 1998, and bears interest, payable monthly on the first day of each month, at
the lower of the LIBOR rate plus the LIBOR margin (2 1/2% at December 31, 1996),
as defined, or the bank's prime rate less the bank's prime rate margin (0% at
December 31, 1996), as defined. Borrowings under the revolving credit line are
limited to specified percentages of eligible inventory and receivables of the
Company. The Company had outstanding borrowings of $6,247,835, with additional
borrowings of $752,165 available under this agreement at December 31, 1996. This
revolving credit line is collateralized by all trade accounts receivable and all
inventories of the Company, except for approximately $10,044,000 of stitching
machine inventory. The stitching machine inventory and all remaining assets of
the Company are pledged under purchase money agreements with trading companies
of the Company's principal supplier (See Note 3). The term note is due and
payable in 15 equal installments of $39,320 beginning October 15, 1996, with the
final installment due and payable on December 15, 1997. The term note bears
interest at 6.7%. Collateral on the term note is the same as the revolving
credit line above. As of December 31, 1996, the Company had outstanding
borrowings of $462,225 on the term note, all of which
F-45
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
6. BANK BORROWINGS AND LONG-TERM DEBT: (CONTINUED)
mature in 1997. All borrowings outstanding under these credit arrangements were
repaid in January 1997 in connection with the acquisition of the Company by W.G.
Apparel Inc. (See Note 12).
The loan agreements contain various covenants which, among other
requirements, limit acquisitions and dispositions of property and equipment,
require maintenance of insurance coverage satisfactory to the lenders, limit the
payment of cash dividends, prohibit additional debt and require maintenance of
certain financial covenants. At December 31, 1996, there were no events of
noncompliance with these loan agreements.
7. LEASE COMMITMENTS:
The Company leases certain operating assets as well as office and warehouse
space under operating leases, with the primary facilities being leased from the
principal stockholder through November 1998, with options to renew through
November 2018. At December 31, 1996, future minimum payments due under operating
leases with the principal stockholder and unrelated parties are as follows:
<TABLE>
<CAPTION>
PRINCIPAL UNRELATED
STOCKHOLDER PARTIES
----------- ----------
<S> <C> <C>
1997................................................................. $ 399,000 $ 100,000
1998................................................................. 369,000 77,000
1999................................................................. 0 60,000
2000................................................................. 0 25,000
2001................................................................. 0 4,000
Thereafter........................................................... 0 0
----------- ----------
$ 768,000 $ 266,000
----------- ----------
----------- ----------
</TABLE>
Rent expense for the years ended December 31, 1996, 1995 and 1994, by lessor
was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Principal stockholder.................................... $ 379,000 $ 359,000 $ 343,000
Unrelated parties........................................ 129,000 179,000 263,000
---------- ---------- ----------
$ 508,000 $ 538,000 $ 606,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
8. BENEFIT PLANS:
401(K) PLAN
The Company has a 401(k) profit sharing plan covering substantially all
full-time employees. The Company matches 25% of eligible employees'
contributions up to 4% of the eligible employees' compensation for the year. The
Company may make additional contributions to the plan at the discretion of the
Board of Directors. Total contributions to the plan were $41,000, $85,000 and
$64,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
F-46
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
8. BENEFIT PLANS: (CONTINUED)
PHANTOM STOCK PLAN
The Company maintains a phantom stock plan as a means of attracting and
retaining key employees, including officers and directors. Under the provisions
of the plan, "units" are awarded to participants based on the consolidated
operating income of the Company. Unit values are determined annually through the
provisions of the plan. Participants vest in annual awards at 20% per annum, and
become fully vested upon the occurrence of a vesting event, as defined by the
plan. The Company recognized compensation expense of $84,000, $60,000 and
$78,000 in the accompanying consolidated statements of income for the years
ended December 31, 1996, 1995 and 1994, respectively. At December 31, 1996, the
book value of the total units awarded to date under the plan is approximately
$540,000, of which $425,000 is vested.
Under the provisions of the plan, if more than 50% of the voting capital
stock of the Company is sold in any 12-month period, the plan immediately
terminates, all units become 100% vested, are payable within 45 days of the date
of the transaction and are valued based on the average sales price of the stock.
As discussed in Note 12, the Company was sold to W.G. Apparel, Inc. subsequent
to year-end. Based on the terms of the sale, the value of the units issued to
date under the plan is estimated to be approximately $1,043,000, and is payable
in February 1997.
POSTRETIREMENT PLAN
The Company provides certain health care and life insurance benefits for
eligible retired employees and their eligible dependents. The Company does not
fund this benefit arrangement and may modify plan provisions to terminate the
plan at its discretion. Financial information related to the plan was determined
by an independent actuary. At December 31, 1996, the accumulated benefit
obligation was $50,000, none of which is funded. The unrecognized initial
obligation at December 31, 1996, was $45,000 and the net periodic postretirement
benefit expense recorded for the year ended December 31, 1996, was $5,000.
The accumulated postretirement benefit obligation was computed using an
assumed discount rate of 7.0% for 1996. The health care cost trend rate was
assumed to be 11% for 1996 and was assumed to decline by approximately 1% in
each subsequent year to 5.5% where it remains thereafter.
9. FOREIGN EXCHANGE RISK MANAGEMENT:
Because of potential volatile fluctuations in the exchange rate between
Japanese yen and U.S. dollar, the Company enters into forward foreign exchange
contracts in order to establish the dollar cost of purchases and firm purchase
commitments from its Japanese suppliers payable in yen.
The terms of these contracts are less than one year. The Company does not
engage in foreign currency speculation. At December 31, 1996, the Company had
entered into forward foreign exchange contracts to purchase 1,018,622,999
Japanese yen subsequent to December 31, 1996, at a contracted cost of
$9,385,321, including $7,930,200 to hedge accounts payable as of December 31,
1996, and $1,455,121 to cover outstanding commitments to purchase machines and
parts. The difference between the contracted costs and the fair value of the
contracts that hedge the outstanding purchase commitments at December 31, 1996,
based on foreign currency exchange rates at December 31, 1996, was a deferred
loss of $58,299. These deferred losses will be recognized in operations as part
of the purchases that will be made over the next 12 months. The fair market
value of all foreign currency exchange contracts was $8,792,603 at
F-47
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
9. FOREIGN EXCHANGE RISK MANAGEMENT: (CONTINUED)
December 31, 1996. The unamortized premium paid for these contracts at December
31, 1996, of $78,042 is being amortized over the life of the contracts.
The Company's credit risk in these transactions is the cost of replacing, at
current market rates, these contracts in the event of default by the other
party. Management believes the risk of incurring such losses is remote as the
contracts are with major financial institutions.
10. RELATED-PARTY TRANSACTIONS:
LOAN RECEIVABLE FROM PRINCIPAL STOCKHOLDER
At December 31, 1995, the Company had a loan receivable of $54,000 from the
principal stockholder. During the year ended December 31, 1996, this note
receivable was repaid by the principal stockholder. During the year ended
December 31, 1996, the Company made advances of $99,900 to the principal
stockholder. At December 31, 1996, $32,900 remained outstanding.
RECEIVABLE FROM THE CAROLINA DYNAMO
The Company performs certain accounting functions and pays accounts payable
on behalf of the Carolina Dynamo, which is owned by the principal stockholder of
the Company. At December 31, 1996 and 1995, the Company had receivables from the
Carolina Dynamo of $44,684 and $62,762, respectively. These receivables have
been included in prepayments, deposits and other assets in the accompanying
consolidated balance sheets.
LEASING AND MANAGEMENT AGREEMENT
Effective March 1, 1996, the Company entered into a leasing and management
agreement (the Agreement) with Embroidery Leasing Corporation (ELC), which is
50% owned by the principal stockholder of the Company. The Agreement establishes
a contractual arrangement whereby ELC arranges financing for the Company's
domestic customers, at the customer's option, and pays the Company a commission
for each financing transaction completed. The Company's primary
responsibilities, as defined in the Agreement, are delivery and installation of
the equipment, providing support for the leasing program, providing its standard
warranty and certain other administrative tasks. The Agreement expires on March
1, 2001. ELC paid the Company approximately $27,000 in commissions during the
year ended December 31, 1996. Subsequent to year-end, ELC was acquired by W.G.
Apparel Inc. in connection with its acquisition of the Company (See Note 12).
11. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is subject to various claims and actions which arise in the
ordinary course of its business. Although the final outcome of these matters
cannot be determined, based on the facts presently known, it is management's
opinion that the amount of ultimate liability with respect to these actions will
not materially affect the consolidated financial position, results of operations
and cash flows of the Company.
F-48
<PAGE>
MACPHERSON MEISTERGRAM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
PURCHASE COMMITMENTS
As of year-end, the Company had outstanding purchase commitments for
inventory of approximately $13,601,000.
12. SUBSEQUENT EVENTS:
On January 3, 1997, 100% of the outstanding common stock of the Company was
sold to W.G. Apparel, Inc., a wholly owned subsidiary of Willcox & Gibbs, Inc.,
for $24,000,000 in cash. Concurrent with its acquisition of the Company, Willcox
& Gibbs, Inc. issued $85,000,000 of 12- 1/4% Series A Senior Notes Due 2003. The
Company is a guarantor under these notes.
On January 3, 1997, the Company entered into employment contracts with five
key employees. The Company may terminate these contracts at any time subsequent
to January 2, 1998, by providing not less than one year's advance written notice
to the employee.
F-49
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Boards of Directors
Clinton Management Corp. and Clinton Machinery Corp.:
We have audited the accompanying combined balance sheet of Clinton
Management Corp. (d/b/a Clinton Machine & Supply) and Clinton Machinery Corp.
(together, "Clinton") as of December 31, 1995, and the related combined
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. These combined financial statements are the responsibility of
Clinton's management. Our responsibility is to express an opinion on the
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Clinton Management
Corp. (d/b/a Clinton Machine & Supply) and Clinton Machinery Corp. as of
December 31, 1995 and the results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
November 2, 1996
F-50
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
COMBINED BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
ASSETS (NOTE 4)
<S> <C>
Current assets:
Cash.......................................................................... $ --
Accounts receivable, net of allowance for doubtful accounts of $463,884....... 3,802,067
Inventory (note 1 (c))........................................................ 3,437,016
Prepaid expenses.............................................................. 142,940
Notes receivable.............................................................. 36,920
Employee advances............................................................. 101,213
Due from affiliates (note 3).................................................. 523,360
---------
Total current assets........................................................ 8,043,516
Property and equipment, net (note 2)............................................ 342,574
Other receivables............................................................... 71,986
Other assets.................................................................... 35,103
Notes receivable, net of allowance for doubtful accounts of $200,000............ 112,014
---------
$8,605,193
---------
---------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C>
Current liabilities:
Bank overdraft................................................................ $ 43,092
Revolving line of credit (note 4)............................................. 3,436,361
Accounts payable.............................................................. 4,361,965
Accrued expenses and other current liabilities................................ 597,407
Distribution payable to shareholders.......................................... 186,375
Current installments of long-term debt (note 5)............................... 1,910
---------
Total current liabilities................................................... 8,627,110
Long-term debt, excluding current installments (note 5)......................... 5,793
---------
Total liabilities........................................................... 8,632,903
---------
Stockholders' deficit:
Common stock (note 6)......................................................... 600
Additional paid-in capital.................................................... 2,700
Accumulated deficit........................................................... (31,010)
---------
Total stockholders' deficit................................................. (27,710)
Commitments and contingencies (notes 8 and 10)
---------
$8,605,193
---------
---------
</TABLE>
See accompanying notes to combined financial statements.
F-51
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Net sales (note 3)............................................................. $26,764,365
Cost of goods sold (note 9).................................................... 20,267,799
----------
Gross profit............................................................... 6,496,566
Selling, general and administrative expenses................................... 6,304,184
----------
Operating income........................................................... 192,382
Interest expense............................................................... 334,630
Other expense, net............................................................. 65,129
----------
Net loss................................................................... $ 207,377
----------
----------
</TABLE>
See accompanying notes to combined financial statements.
F-52
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
RETAINED TOTAL
ADDITIONAL EARNINGS STOCKHOLDERS'
COMMON PAID-IN (ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT) (DEFICIT)
----------- ----------- -------------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994......................... $ 600 $ 2,700 $ 1,125,015 $ 1,128,315
Net loss............................................. -- -- (207,377) (207,377)
Distributions to stockholders........................ -- -- (948,648) (948,648)
----- ----------- ----------- -------------
Balance at December 31, 1995......................... $ 600 $ 2,700 $ (31,010) $ (27,710)
----- ----------- ----------- -------------
----- ----------- ----------- -------------
</TABLE>
See accompanying notes to combined financial statements.
F-53
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss....................................................................... $(207,377)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization................................................ 73,659
Changes in operating assets and liabilities:
Accounts receivable........................................................ 503,866
Inventory.................................................................. (717,381)
Prepaid expenses........................................................... (2,400)
Notes receivable........................................................... 13,870
Employee advances.......................................................... (33,949)
Due from affiliates........................................................ (144,996)
Other receivables.......................................................... 4,155
Other assets............................................................... 21,152
Accounts payable and other liabilities..................................... 844,655
---------
Net cash provided by operating activities................................ 355,254
---------
Cash flows used in investing activities--capital expenditures.................... (212,253)
---------
Cash flows from financing activities:
Net proceeds from line of credit and other borrowings.......................... 535,934
Distributions to stockholders.................................................. (762,273)
Principal payments on long-term debt........................................... (5,506)
Bank overdraft................................................................. 43,092
---------
Net cash used in financing activities.................................... (188,753)
---------
Net decrease in cash............................................................. (45,752)
Cash, beginning of year.......................................................... 45,752
---------
Cash, end of year................................................................ $ --
---------
---------
</TABLE>
See accompanying notes to combined financial statements.
F-54
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION AND OPERATIONS
Clinton Management Corp. (d/b/a Clinton Machine & Supply) distributes screen
printing supplies, printing and drying equipment, accessory equipment and
replacement parts worldwide. Clinton Machinery Corp., under the name of M&R
International, distributes screen printing and drying equipment, accessory
equipment and replacement parts worldwide.
The accompanying combined financial statements include the accounts of
Clinton Management Corp. (d/b/a Clinton Machine & Supply) and Clinton Machinery
Corp. (together, "Clinton"). The companies that comprise Clinton have the same
stockholders whose ownership shares are the same for each company.
(B) ACCOUNTS AND OTHER RECEIVABLES
Clinton has established allowances for doubtful accounts based upon
management's judgment of collectibility of receivables and returns on sales
using factors such as historical experience and past customer payment history.
Other receivables consist of amounts which are retained by third party
creditors financing customers' purchases.
(C) INVENTORY
Inventory is stated at the lower of cost or market using the first-in,
first-out method. Inventory at December 31, 1995 consists of the following:
<TABLE>
<S> <C>
New machines.................................................... $ 587,764
Used machines................................................... 588,980
Parts and supplies.............................................. 2,260,272
---------
$3,437,016
---------
---------
</TABLE>
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
calculated using the straight-line method over the shorter of the lease term or
the estimated useful lives of the respective assets. Repairs and maintenance
expenditures are expensed as incurred.
(E) BANK OVERDRAFT
Under Clinton's cash management system, checks issued but not presented to
banks frequently result in overdraft balances for accounting purposes and are
classified as bank overdraft in the accompanying combined balance sheet.
F-55
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) INCOME TAXES
Clinton, with the consent of its stockholders, elected subchapter S
corporation status under the Internal Revenue Code, effective January 1, 1991
for Clinton Management Corp. and January 1, 1990 for Clinton Machinery Corp. In
lieu of corporation income taxes, the stockholders of an S corporation are taxed
on their proportionate share of each company's taxable income. Therefore, no
liability for federal or state income taxes has been included in these combined
financial statements.
(G) FAIR VALUE OF FINANCIAL INSTRUMENTS
Clinton has determined that the carrying value of all financial instruments
approximate fair value. The carrying value of Clinton's borrowings approximate
fair value due to the nature of the variable interest rate on the borrowings and
their maturity.
(H) USE OF ESTIMATES
Management of Clinton has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these combined financial statements
in conformity with generally accepted accounting principles. Actual results
could differ from these estimates.
(I) NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which becomes
effective for fiscal years beginning after December 15, 1995. Statement 121
establishes accounting standards for the impairment of long-lived assets and
certain identifiable intangible assets. Clinton does not believe the impact of
Statement 121 will have a material impact on its financial position or results
of operations.
(2) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 consists of the following:
<TABLE>
<S> <C>
Leasehold improvements............................................ $ 77,950
Machinery and equipment........................................... 526,024
---------
603,974
Less accumulated depreciation..................................... 261,400
---------
Net property and equipment........................................ $ 342,574
---------
---------
</TABLE>
(3) RELATED PARTY TRANSACTIONS
The stockholders of Clinton are also stockholders of Clinton Leasing Corp.,
Golden Brush, Clinton Equipment Corp., Equip-Net, Inc., Clinton de Mexico, Citex
and Paradise Color. At December 31, 1995,
F-56
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(3) RELATED PARTY TRANSACTIONS (CONTINUED)
due from affiliates represent receivables from sales transactions, payment of
operating expenses and advances to stockholders. During the year ended December
31, 1995, Clinton had sales to these entities of approximately $388,000.
(4) REVOLVING LINE OF CREDIT
At December 31, 1995, $3,436,361 is outstanding under a $3,500,000 revolving
line of credit arrangement with a bank. Under the terms of the line of credit,
interest is payable monthly at the bank's prime rate plus five-eighths percent
(9.125% at December 31, 1995). The line of credit is due on demand and is
secured by inventory, equipment, accounts receivable, assignments of all
insurance policies applicable to insured accounts receivable, and keyman life
insurance policies on each of the stockholder guarantors.
The line of credit contains certain restrictive covenants including
requirements to maintain working capital of $1,500,000 commencing December 31,
1995 ($1,000,000 from December 31, 1994 through December 31, 1995), and limit
capital expenditures to $100,000 annually. At December 31, 1995, Clinton was not
in compliance with the debt covenants. In February 1996, the line of credit was
paid in full by Willcox & Gibbs, Inc. ("Willcox & Gibbs") upon the acquisition
of Clinton (note 10).
(5) LONG-TERM DEBT
Long-term debt at December 31, 1995 consists of the following:
<TABLE>
<S> <C>
Note payable in installments of $261 per month, including interest
at 10% through December 1998, collaterized by equipment........... $ 7,703
Less current maturities............................................. 1,910
---------
Total long-term debt................................................ $ 5,793
---------
---------
</TABLE>
The aggregate annual maturities of long-term debt at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1996................................................................................. $ 1,910
1997................................................................................. 2,732
1998................................................................................. 3,061
---------
$ 7,703
---------
---------
</TABLE>
F-57
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(6) COMMON STOCK
At December 31, 1995, common stock consisted of the following:
<TABLE>
<S> <C>
Clinton Management Corp. (d/b/a Clinton Machine & Supply), $1 par
value, 7,500 shares authorized, 300 shares issued and
outstanding........................................................ $ 300
Clinton Machinery Corp., $1 par value, 10,000 shares authorized, 300
shares issued and outstanding...................................... 300
---------
Total common stock................................................... $ 600
---------
---------
</TABLE>
(7) PROFIT SHARING PLAN
Clinton has a qualified profit sharing plan covering all employees who have
attained twenty-one years of age with one year of service. The profit sharing
plan contribution is determined annually by management. A contribution of
$10,000 was accrued for the year ended December 31, 1995.
(8) COMMITMENTS
Clinton has several noncancelable operating leases, primarily for buildings
and equipment. These leases generally contain options for periods ranging from
three to five years and require Clinton to pay most executory costs such as
maintenance and insurance.
Future minimum lease payments under non-cancelable leases (with initial or
remaining base terms in excess of one year) as of December 31, 1995 are
approximately:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------------
<S> <C>
1996.................................................................................. $ 162,000
1997.................................................................................. 162,000
1998.................................................................................. 162,000
----------
$ 486,000
----------
----------
</TABLE>
The lease for Clinton's primary operating facility has a five-year option to
renew. Management has not made a decision whether or not to renew the lease.
Total rental expense for the year ended December 31, 1995 was approximately
$212,780.
(9) MAJOR SUPPLIERS
Clinton purchases a majority of the equipment they sell from one vendor.
Clinton Machinery Corp. distributes this vendor's equipment in seven
southeastern states and internationally, exclusive of Canada. For the year ended
December 31, 1995, approximately 55% of combined purchases were from this
vendor.
A majority of printing supplies are purchased from one vendor. For the year
ended December 31, 1995, approximately 17% of combined purchases were from this
vendor.
F-58
<PAGE>
CLINTON MANAGEMENT CORP.
(D/B/A CLINTON MACHINE & SUPPLY)
AND CLINTON MACHINERY CORP.
NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(10) ACQUISITION BY WILLCOX & GIBBS, INC.
Effective February 1, 1996, Clinton was purchased by Willcox & Gibbs in
exchange for $4,000,000 in cash, the assumption of $4.5 million in debt and
payables, 100,000 shares of Willcox & Gibbs' Class A common stock, and
contingent payments of up to 38.87% of the operating income (as defined) of
Clinton during each of the five years to December 31, 2000. Such contingent
payments shall not exceed $10,500,000 in the aggregate. In addition, the
stockholders of the Company received a put option, giving them the right to sell
the Class A common shares to Willcox & Gibbs at $30 per share at the earlier of
four years from the acquisition date or such time Willcox & Gibbs has an initial
public offering.
F-59
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE INITIAL PURCHASER. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING
LETTER OF TRANSMITTAL CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS NOT BEEN A CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 5
Risk Factors................................... 21
Use of Proceeds................................ 26
The Exchange Offer............................. 26
The Company.................................... 35
The Macpherson Acquisition..................... 36
Capitalization................................. 37
Pro Forma Combined Financial Information....... 39
Selected Historical Financial Information...... 42
Management's Discussion and Analysis of
Financial Condition and Results of
Operations--The Company....................... 45
Management's Discussion and Analysis of
Financial Condition and Results of
Operations--Macpherson........................ 51
Business....................................... 54
Management..................................... 68
Security Ownership of Certain Beneficial Owners
and Management................................ 74
Description of Certain Indebtedness............ 75
Description of Senior Notes.................... 76
Material Federal Income Tax Consequences....... 105
Plan of Distribution........................... 108
Legal Matters.................................. 108
Independent Public Accountants................. 108
Available Information.......................... 109
Index to Financial Statements.................. F-1
</TABLE>
UNTIL , 199 , ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OF SUBSCRIPTIONS.
WILLCOX & GIBBS, INC.
---------------
OFFER TO EXCHANGE ITS
12 1/4% SERIES B SENIOR NOTES
DUE 2003 WHICH HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS
AMENDED, FOR ANY AND ALL
OF ITS OUTSTANDING 12 1/4%
SERIES A SENIOR NOTES DUE 2003
---------------------
PROSPECTUS
---------------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation provides that the Company shall
indemnify its officers, directors and employees made, or threatened to be made,
a party to any action whether or not such is by or in the right of the Company
by reason of the fact that he is or was a director or officer of the Company
against liabilities and expenses incurred in connection with such action.
The Certificate of Incorporation of the Company limits the liability of
directors of the Company or its stockholders to the fullest extent permitted by
the Delaware General Corporation Law (the "DGCL"). Accordingly, pursuant to the
provisions of the DGCL presently in effect, directors of the Company will not be
personally liable for monetary damages for breach of a director's fiduciary duty
as a director, except for liability: (i) for any breach of the director's duty
of loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL; or (iv) for any transaction
from which the director derived an improper personal benefit. In addition, the
bylaws of the Company require the Company to indemnify its directors and
officers to the full extent permitted by the laws of the State of Delaware.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
(Management contracts or compensatory plans are indicated by an asterisk.)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Stock Purchase Agreement, dated November 27, 1996, among WG Apparel, Inc., Willcox & Gibbs, Inc. and
Macpherson Meistergram, Inc., Geoffrey E. Macpherson Canada, Inc., Neil A. Macpherson , Bridget
Macpherson, Bridget Macpherson as Trustee under the Mark Edward Macpherson Trust Agreement, dated
February 1, 1982, Ouida B. Brown as Trustee under the Mark Edward Macpherson Trust No. 2, Bridget M.
Macpherson as Trustee under the Katherine Emma Macpherson Trust Agreement, dated February 1, 1982,
Ouida B. Brown as Trustee under the Katherine Emma Macpherson Trust No. 2, and Neil A. Macpherson as
Trustee under the Nicholas Ian Macpherson Trust Agreement.+
3.1 Second Amended and Restated Certificate of Incorporation of Willcox & Gibbs, Inc.+
3.2 Bylaws of Willcox & Gibbs, Inc.+
</TABLE>
- ------------------------
+ Previously filed
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<C> <S> <S>
4.1 Indenture, dated as of January 3, 1997, by and among Willcox & Gibbs, Inc., WG Apparel, Inc. Clinton
Management Corp., Clinton Machinery Corporation, Leadtec Systems, Inc., W&G Daon, Inc., J&E Sewing
Supplies, Inc. W&G Tennessee Imports, Inc., Clinton Leasing Corp., Clinton Equipment Corp., Paradise
Color Corp. (collectively, the "Subsidiary Guarantors"), and IBJ Schroder Bank & Trust Company, as
Trustee, with respect to the 12 1/4% Senior Notes due 2003.+
4.2 Supplemental Indenture, dated as of January 3, 1997, by and among Willcox & Gibbs, Inc., the Subsidiary
Guarantors and IBJ Schroder Bank & Trust Company, as Trustee.+
4.3 Purchase Agreement, dated December 20, 1996, by and among Willcox & Gibbs, Inc., the Subsidiary
Guarantors and Dillon, Read & Co., Inc. (the "Initial Purchaser").+
4.4 Registration Rights Agreement, dated as of December 20, 1996, by and among Willcox & Gibbs, Inc., the
Subsidiary Guarantors and the Initial Purchaser.+
4.5 Pledge and Security Agreement, dated January 3, 1997, between WG Apparel, Inc. and IBJ Schroder Bank &
Trust Company, as Trustee.+
4.6 Form of Old Note.+
4.7 Form of New Note.+
5.1 Opinion of Hughes Hubbard & Reed LLP, as to the legality of securities registered hereunder.+
10.1 Agreement to Purchase Stock, dated November 27, 1996, of Embroidery Leasing Company, between Michael
Bennett and WG Apparel, Inc.+
10.2 Amendment No. 1, dated December 17, 1996, to Merger Agreement among Willcox & Gibbs, Inc., Clinton
Machinery Corporation, WG Apparel, Inc., Frank Scannavino, Charles Nall and Marc Glazer.+
10.3 Financing and Security Agreement, dated December 17, 1996, among WG Apparel, Inc., Willcox & Gibbs,
Inc., Leadtec Systems, Inc., Clinton Management Corp., Clinton Machinery Corporation and Macpherson
Meistergram, Inc., as Borrowers, and NationsBank, N.A., as Lender.+
10.4 Termination of Security Agreement, dated January 3, 1997, among Willcox & Gibbs, Inc., Clinton
Machinery Corporation, WG Apparel, Inc., Frank Scannavino, Charles Nall and Marc Glazer.+
10.5 Employment Agreement, dated February 1, 1996, among Clinton Machinery Corp. and Clinton Management
Corp. and Frank Scannavino.*+
10.6 Employment Agreement, dated February 1, 1996, among Clinton Machinery Corp. and Clinton Management and
Marc Glazer.*+
10.7 Employment Agreement, dated February 1, 1996, among Clinton Machinery Corp. and Clinton Management
Corp. and Charles Nall.*+
10.8 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and Alan B. Lee.*+
10.9 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and John K. Ziegler, Sr.*+
10.10 Employment Agreement, dated June 27, 1994, among WG Apparel, Inc., WG Leadtec of Delaware, Inc. and
Jack Klasky.*+
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S> <S>
10.11 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and Maxwell Tripp.*+
10.12 Pegasus Sewing Machine Mfg. Co., Ltd. Distribution Agreement, dated January 1, 1995, between Pegasus
Sewing Machine Mfg. Co., Ltd. and WG, Inc., as amended as of June 8, 1995.+
10.13 GM Pfaff AG Distribution Agreement, dated October 1, 1994, between GM Pfaff AG and WG, Inc.+
10.14 M&R International Distributor Agreement, dated September 16, 1996, between M&R Sales and Service, Inc.
and Clinton Machinery Corp.+
10.15 M&R Distributor Agreement, dated January 10, 1996, between M&R Sales and Service, Inc. and Clinton
Machinery Corp.+
10.16 Distribution Agreement, dated June 27, 1996, among Rhein-Nadel Maschinennadel Gmbh, Muva Maschinennadel
Gmbh, WG, Inc., Unity Sewing Supply Co. and Sunbrand, as amended as of October 4, 1996.+
10.17 Second Revision of Fundamental Barudan Agreements and Contracts, dated November 27, 1996, among Barudan
Company, Ltd., Barudan America, Inc. and Macpherson Meistergram, Inc. as amended by letter agreement
dated December 4, 1996.+
10.18 Revision of Fundamental Agreements and Contracts, dated June 1, 1994, among Barudan Company, Ltd.,
Barudan America, Inc. and Macpherson Meistergram, Inc.+
10.19 Distribution Agreement, dated November 7, 1985, among Barudan Company, Ltd., Barudan America, Inc. and
Macpherson Meistergram, Inc.+
10.20 Asset Purchase Agreement, dated October 1996, between E.C. Mitchell Co. Inc., Everett Mitchell, as
Seller, and WG Apparel, Inc., as Buyer.+
10.21 Loan Agreement, dated October 1996, between W&G, Ltd., as Borrower, and Coutts & Co., as Lender.+
10.22 Consulting Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Neil A.
Macpherson.*+
10.23 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Jerry Lee.*+
10.24 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Ronald P.
Emerman.*+
10.25 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Jeffrey L.
Hickman.*+
10.26 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Jacob G. Bumm.*+
10.27 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Steven C.
Edwards.*+
10.28 Warrant Redemption Agreement, dated December 17, 1996, among Willcox & Gibbs, Inc., NationsCredit
Commercial Corporation and Bank of America Illinois.+
10.29 Fundamental Agreement, dated October 1, 1986, among Barudan Co., Ltd., Geoffrey E. Macpherson Ltd. and
Macpherson Inc.+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S> <S>
10.30 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and John K. Ziegler, Jr.*+
10.31 Amendment No. 2 to Warrantholders Rights Agreement, dated January 3, 1997, among Willcox & Gibbs, Inc.,
the Stockholders and Warrantholders.+
10.32 Amendment No. 1 to Warrantholders Rights Agreement, dated February 1, 1996, among Willcox & Gibbs,
Inc., the Stockholders and Warrantholders.+
10.33 Warrantholders Rights Agreement, dated July 13, 1994, among Investors, Stockholders and
Warrantholders.+
10.34 Form of Warrant.+
10.35 First Amendment to Financing and Security Agreement, dated April 23, 1997, among WG Apparel, Inc.,
Willcox & Gibbs, Inc; Leadtec Systems Inc., Clinton Management Corp., Clinton Machinery Corporation,
Macpherson Meistergram, Inc., as Borrowers, and NationsBank, N.A., as Lender.+
11.1 Statement re: Computation of Per Share Earnings.+
12.1 Computation of ratio of earnings to fixed charges.+
21.1 Subsidiaries of Willcox & Gibbs, Inc.+
23.1 Consent of Hughes Hubbard & Reed LLP (contained in Exhibit 5.1).+
23.2 Consents of KPMG Peat Marwick LLP.
23.3 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney of certain directors and officers of the Company.+
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, as amended,
of IBJ Schroder Bank & Trust Company, as Trustee.+
27.1 Financial Data Schedule.+
99.1 Form of Letter of Transmittal with respect to the Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery.+
99.3 Form of Letter to Brokers, Dealers.+
99.4 Form of Letter to Clients.+
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULE:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Schedule II Valuation and Qualifying Accounts for the years ended December 31, 1996 and 1995 and
for the period from July 13, 1994 to December 31, 1994. S-1
</TABLE>
ITEM 22. UNDERTAKINGS.
1. The undersigned registrant hereby undertakes as follows:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate,
II-4
<PAGE>
represent a fundamental change in the information set forth in the Registration
Statement; (iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(b) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
2. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
3. The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act of 1939, as amended
("Act") in accordance with the rules and regulations prescribed by the
Securities and Exchange Commission under Section 305(b)(2) of the Act.
4. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
5. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on June 10, 1997.
WILLCOX & GIBBS, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on June 10, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ JOHN K. ZIEGLER, SR. Chairman, Chief Executive
- ------------------------------ Officer, and Director
John K. Ziegler, Sr. (Principal Executive
Officer)
MAXWELL L. TRIPP* President, Chief Operating
- ------------------------------ Officer and Director
Maxwell L. Tripp
JOHN K. ZIEGLER, JR.* Chief Financial Officer
- ------------------------------ (Principal Financial and
John K. Ziegler, Jr. Accounting Officer)
JACK KLASKY* Vice President and Director
- ------------------------------
Jack Klasky
ALAN B. LEE* Vice President and Director
- ------------------------------
Alan B. Lee
RICHARD J. MACKEY* Director
- ------------------------------
Richard J. Mackey
MARC GLAZER* Director
- ------------------------------
Marc Glazer
SIDNEY B. BECKER* Director
- ------------------------------
Sidney B. Becker
CHRISTOPHER W. ROSER* Director
- ------------------------------
Christopher W. Roser
FRANK E. WALSH, III* Director
- ------------------------------
Frank E. Walsh, III
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on June 10, 1997.
WG APPAREL, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on June 10, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ JOHN K. ZIEGLER, SR. Chairman, Chief Executive
- ------------------------------ Officer, and Director
John K. Ziegler, Sr. (Principal
Executive Officer)
MAXWELL L. TRIPP* President and Director
- ------------------------------
Maxwell L. Tripp
JOHN K. ZIEGLER, JR.* Chief Financial Officer
- ------------------------------ (Principal Financial and
John K. Ziegler, Jr. Accounting Officer)
JACK KLASKY* Vice President and Director
- ------------------------------
Jack Klasky
ALAN B. LEE* Vice President and Director
- ------------------------------
Alan B. Lee
RICHARD J. MACKEY* Director
- ------------------------------
Richard J. Mackey
SIDNEY B. BECKER* Director
- ------------------------------
Sidney B. Becker
MARC GLAZER* Director
- ------------------------------
Marc Glazer
CHRISTOPHER W. ROSER* Director
- ------------------------------
Christopher W. Roser
FRANK E. WALSH, III* Director
- ------------------------------
Frank E. Walsh, III
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on June 10, 1997.
LEADTEC SYSTEMS, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on June 10, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
JACK KLASKY* President and Director
- ------------------------------
Jack Klasky*
/s/ JOHN K. ZIEGLER, SR.* Vice President and Director
- ------------------------------
John K. Zeigler, Sr.
JOHN K. ZIEGLER, JR.* Vice President and Director
- ------------------------------
John K. Ziegler, Jr.
RICHARD J. MACKEY* Director
- ------------------------------
Richard J. Mackey
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on June 10, 1997.
J&E SEWING SUPPLIES, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on June 10, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ JOHN K. ZIEGLER, SR. President, Vice President
- ------------------------------ and Director
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President, Secretary
- ------------------------------ and Director
John K. Ziegler, Jr.
RICHARD J. MACKEY* Director
- ------------------------------
Richard J. Mackey
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on June 10, 1997.
W&G DAON, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on June 10, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ JOHN K. ZIEGLER, SR. President, Vice President
- ------------------------------ and Director
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President, Secretary
- ------------------------------ and Director
John K. Ziegler, Jr.
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on June 10, 1997.
W&G TENNESSEE IMPORTS, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on June 10, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ JOHN K. ZIEGLER, SR. President, Vice President
- ------------------------------ and Director
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President, Secretary
- ------------------------------ and Director
John K. Ziegler, Jr.
RICHARD J. MACKEY* Director
- ------------------------------
Richard J. Mackey
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on June 10, 1997.
CLINTON MANAGEMENT CORP.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
VICE PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on June 10, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
FRANK SCANNAVINO* President and Director
- ------------------------------
Frank Scannavino
MARC GLAZER* Vice President and Director
- ------------------------------
Marc Glazer
CHARLES NALL* Vice President and Director
- ------------------------------
Charles Nall
/s/ JOHN K. ZIEGLER, SR. Vice President and Director
- ------------------------------
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President and Director
- ------------------------------
John K. Ziegler, Jr.
/s/ MARY-ANNE KIERAN Secretary and Director
- ------------------------------
Mary-Anne Kieran
MAXWELL L. TRIPP* Director
- ------------------------------
Maxwell L. Tripp
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on June 10, 1997.
CLINTON MACHINERY CORPORATION
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
VICE PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on June 10, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
FRANK SCANNAVINO* President and Director
- ------------------------------
Frank Scannavino
MARC GLAZER* Vice President and Director
- ------------------------------
Marc Glazer
CHARLES NALL* Vice President and Director
- ------------------------------
Charles Nall
/s/ JOHN K. ZIEGLER, SR. Vice President and Director
- ------------------------------
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President and Director
- ------------------------------
John K. Ziegler, Jr.
/s/ MARY-ANNE KIERAN Secretary and Director
- ------------------------------
Mary-Anne Kieran
MAXWELL L. TRIPP* Director
- ------------------------------
Maxwell L. Tripp
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on June 10, 1997.
CLINTON LEASING CORP.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
VICE PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on June 10, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
FRANK SCANNAVINO* President and Director
- ------------------------------
Frank Scannavino
MARC GLAZER* Vice President and Director
- ------------------------------
Marc Glazer
CHARLES NALL* Vice President and Director
- ------------------------------
Charles Nall
/s/ JOHN K. ZIEGLER, SR. Vice President and Director
- ------------------------------
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President and Director
- ------------------------------
John K. Ziegler, Jr.
/s/ MARY-ANNE KIERAN Secretary and Director
- ------------------------------
Mary-Anne Kieran
MAXWELL L. TRIPP* Director
- ------------------------------
Maxwell L. Tripp
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on June 10, 1997.
CLINTON EQUIPMENT CORP.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
VICE PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated, on June 10, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
FRANK SCANNAVINO* President and Director
- ------------------------------
Frank Scannavino
MARC GLAZER* Vice President and Director
- ------------------------------
Marc Glazer
CHARLES NALL* Vice President and Director
- ------------------------------
Charles Nall
/s/ JOHN K. ZIEGLER, SR. Vice President and Director
- ------------------------------
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President and Director
- ------------------------------
John K. Ziegler, Jr.
/s/ MARY-ANNE KIERAN Secretary and Director
- ------------------------------
Mary-Anne Kieran
MAXWELL L. TRIPP* Director
- ------------------------------
Maxwell L. Tripp
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on June 10, 1997.
PARADISE COLOR INCORPORATED
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
VICE PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on June 10, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
FRANK SCANNAVINO* President and Director
- ------------------------------
Frank Scannavino
MARC GLAZER* Vice President and Director
- ------------------------------
Marc Glazer
CHARLES NALL* Vice President and Director
- ------------------------------
Charles Nall
/s/ JOHN K. ZIEGLER, SR. Vice President and Director
- ------------------------------
John K. Ziegler, Sr.
JOHN K. ZIEGLER, JR.* Vice President and Director
- ------------------------------
John K. Ziegler, Jr.
/s/ MAY-ANNE KIERAN Secretary and Director
- ------------------------------
Mary-Anne Kieran
MAXWELL L. TRIPP* Director
- ------------------------------
Maxwell L. Tripp
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement on Form
S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Carteret, State of New Jersey, on June 10, 1997.
MACPHERSON MEISTERGRAM, INC.
By: /s/ JOHN K. ZIEGLER, SR.
-----------------------------------------
John K. Ziegler, Sr.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment to the Registration Statement on Form S-4 has been signed by the
following persons in the capacities indicated on June 10, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ JOHN K. ZIEGLER, SR. Chairman, Chief Executive
- ------------------------------ Officer and Director
John K. Ziegler, Sr.
JERRY D. LEE* President, Chief Operating
- ------------------------------ Officer and Director
Jerry D. Lee
JOHN K. ZIEGLER, JR.* Vice President, Assistant
- ------------------------------ Secretary and Director
John K. Ziegler, Jr.
/s/ MAY-ANNE KIERAN Secretary and Director
- ------------------------------
Mary-Anne Kieran
ALLAN B. LEE* Director
- ------------------------------
Allan B. Lee
MAXWELL L. TRIPP* Director
- ------------------------------
Maxwell L. Tripp
By: /s/ JOHN K. ZIEGLER,
SR.
--------------------
John K. Ziegler, Sr.
(Attorney-in-fact
for persons
indicated by an
asterisk)
II-17
<PAGE>
SCHEDULE II
WILLCOX & GIBBS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO ALLOWANCE BALANCE AT
BEGINNING COSTS AND OF ACQUIRED END OF
DESCRIPTION OF PERIOD EXPENSE SUBSIDIARIES DEDUCTIONS PERIOD
- ------------------------------------------------- ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts................ $ 1,596,000 267,000 746,000 190,000 2,419,000
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
Year ended December 31, 1995:
Allowance for doubtful accounts................ $ 2,002,000 580,000 -- 986,000 1,596,000
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
Period from July 13, 1994 to December 31, 1994:
Allowance for doubtful accounts................ $ 1,699,000 321,000 -- 18,000 2,002,000
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
<CAPTION>
BALANCE AT CHARGED TO RESERVE BALANCE AT
BEGINNING COSTS AND OF ACQUIRED END OF
OF PERIOD EXPENSE SUBSIDIARIES DEDUCTIONS PERIOD
------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Reserve for inventory obsolescence............. $ 6,441,000 531,000 297,000 455,000 6,814,000
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
Year ended December 31, 1995:
Reserve for inventory obsolescence............. $ 6,154,000 707,000 -- 420,000 6,441,000
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
Period from July 13, 1994 to December 31, 1994:
Reserve for inventory obsolescence............. $ 5,928,000 226,000 -- -- 6,154,000
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
2.1 Stock Purchase Agreement, dated November 27, 1996, among WG Apparel, Inc., Willcox & Gibbs,
Inc. and Macpherson Meistergram, Inc., Geoffrey E. Macpherson Canada, Inc., Neil A. Macpherson
, Bridget Macpherson, Bridget Macpherson as Trustee under the Mark Edward Macpherson Trust
Agreement, dated February 1, 1982, Ouida B. Brown as Trustee under the Mark Edward Macpherson
Trust No. 2, Bridget M. Macpherson as Trustee under the Katherine Emma Macpherson Trust
Agreement, dated February 1, 1982, Ouida B. Brown as Trustee under the Katherine Emma
Macpherson Trust No. 2, and Neil A. Macpherson as Trustee under the Nicholas Ian Macpherson
Trust Agreement.+
3.1 Second Amended and Restated Certificate of Incorporation of Willcox & Gibbs, Inc.+
3.2 Bylaws of Willcox & Gibbs, Inc.+
4.1 Indenture, dated as of January 3, 1997, by and among Willcox & Gibbs, Inc., WG Apparel, Inc.
Clinton Management Corp., Clinton Machinery Corporation, Leadtec Systems, Inc., W&G Daon,
Inc., J&E Sewing Supplies, Inc. W&G Tennessee Imports, Inc., Clinton Leasing Corp., Clinton
Equipment Corp., Paradise Color Corp. (collectively, the "Subsidiary Guarantors"), and IBJ
Schroder Bank & Trust Company, as Trustee, with respect to the 12 1/4% Senior Notes due 2003.+
4.2 Supplemental Indenture, dated as of January 3, 1997, by and among Willcox & Gibbs, Inc., the
Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as Trustee.+
4.3 Purchase Agreement, dated December 20, 1996, by and among Willcox & Gibbs, Inc., the
Subsidiary Guarantors and Dillon, Read & Co., Inc. (the "Initial Purchaser").+
4.4 Registration Rights Agreement, dated as of December 20, 1996, by and among Willcox & Gibbs,
Inc., the Subsidiary Guarantors and the Initial Purchaser.+
4.5 Pledge and Security Agreement, dated January 3, 1997, between WG Apparel, Inc. and IBJ
Schroder Bank & Trust Company, as Trustee.+
4.6 Form of Old Note.+
4.7 Form of New Note.+
5.1 Opinion of Hughes Hubbard & Reed LLP, as to the legality of securities registered hereunder.+
10.1 Agreement to Purchase Stock, dated November 27, 1996, of Embroidery Leasing Company, between
Michael Bennett and WG Apparel, Inc.+
10.2 Amendment No. 1, dated December 17, 1996, to Merger Agreement among Willcox & Gibbs, Inc.,
Clinton Machinery Corporation, WG Apparel, Inc., Frank Scannavino, Charles Nall and Marc
Glazer.+
10.3 Financing and Security Agreement, dated December 17, 1996, among WG Apparel, Inc., Willcox &
Gibbs, Inc., Leadtec Systems, Inc., Clinton Management Corp., Clinton Machinery Corporation
and Macpherson Meistergram, Inc., as Borrowers, and NationsBank, N.A., as Lender.+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.4 Termination of Security Agreement, dated January 3, 1997, among Willcox & Gibbs, Inc., Clinton
Machinery Corporation, WG Apparel, Inc., Frank Scannavino, Charles Nall and Marc Glazer.+
10.5 Employment Agreement, dated February 1, 1996, among Clinton Machinery Corp. and Clinton
Management Corp. and Frank Scannavino.*+
10.6 Employment Agreement, dated February 1, 1996, among Clinton Machinery Corp. and Clinton
Management and Marc Glazer.*+
10.7 Employment Agreement, dated February 1, 1996, among Clinton Machinery Corp. and Clinton
Management Corp. and Charles Nall.*+
10.8 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and Alan B. Lee.*+
10.9 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and John K. Ziegler, Sr.*+
10.10 Employment Agreement, dated June 27, 1994, among WG Apparel, Inc., WG Leadtec of Delaware,
Inc. and Jack Klasky.*+
10.11 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and Maxwell Tripp.*+
10.12 Pegasus Sewing Machine Mfg. Co., Ltd. Distribution Agreement, dated January 1, 1995, between
Pegasus Sewing Machine Mfg. Co., Ltd. and WG, Inc., as amended as of June 8, 1995.+
10.13 GM Pfaff AG Distribution Agreement, dated October 1, 1994, between GM Pfaff AG and WG, Inc.+
10.14 M&R International Distributor Agreement, dated September 16, 1996, between M&R Sales and
Service, Inc. and Clinton Machinery Corp.+
10.15 M&R Distributor Agreement, dated January 10, 1996, between M&R Sales and Service, Inc. and
Clinton Machinery Corp.+
10.16 Distribution Agreement, dated June 27, 1996, among Rhein-Nadel Maschinennadel Gmbh, Muva
Maschinennadel Gmbh, WG, Inc., Unity Sewing Supply Co. and Sunbrand, as amended as of October
4, 1996.+
10.17 Second Revision of Fundamental Barudan Agreements and Contracts, dated November 27, 1996,
among Barudan Company, Ltd., Barudan America, Inc. and Macpherson Meistergram, Inc. as amended
by letter agreement dated December 4, 1996.+
10.18 Revision of Fundamental Agreements and Contracts, dated June 1, 1994, among Barudan Company,
Ltd., Barudan America, Inc. and Macpherson Meistergram, Inc.+
10.19 Distribution Agreement, dated November 7, 1985, among Barudan Company, Ltd., Barudan America,
Inc. and Macpherson Meistergram, Inc.+
10.20 Asset Purchase Agreement, dated October 1996, between E.C. Mitchell Co. Inc., Everett
Mitchell, as Seller, and WG Apparel, Inc., as Buyer.+
10.21 Loan Agreement, dated October 1996, between W&G, Ltd., as Borrower, and Coutts & Co., as
Lender.+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.22 Consulting Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Neil A.
Macpherson.*+
10.23 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Jerry
Lee.*+
10.24 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Ronald
P. Emerman.*+
10.25 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Jeffrey
L. Hickman.*+
10.26 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Jacob G.
Bumm.*+
10.27 Employment Agreement, dated January 3, 1997, between Macpherson Meistergram, Inc. and Steven
C. Edwards.*+
10.28 Warrant Redemption Agreement, dated December 17, 1996, among Willcox & Gibbs, Inc.,
NationsCredit Commercial Corporation and Bank of America Illinois.+
10.29 Fundamental Agreement, dated October 1, 1986, among Barudan Co., Ltd., Geoffrey E. Macpherson
Ltd. and Macpherson Inc.+
10.30 Employment Agreement, dated June 27, 1994, between WG Apparel, Inc. and John K. Ziegler, Jr.*+
10.31 Amendment No. 2 to Warrantholders Rights Agreement, dated January 3, 1997, among Willcox &
Gibbs, Inc., the Stockholders and Warrantholders.+
10.32 Amendment No. 1 to Warrantholders Rights Agreements, dated February 1, 1996, among Willcox &
Gibbs, Inc., the Stockholders and Warrantholders.+
10.33 Warrantholders Rights Agreement, dated July 13, 1994, among Investors, Stockholders and
Warrantholders.+
10.34 Form of Warrant.+
10.35 First Amendment to Financing and Security Agreement, dated April 23, 1997, among WG Apparel,
Inc., Willcox & Gibbs, Inc., Leadtec Systems Inc., Clinton Management Corp., Clinton Machinery
Corporation, Macpherson Meistergram, Inc., as Borrowers, and NationsBank, N.A., as Lender.+
11.1 Statement re: Computation of Per Share Earnings.+
12.1 Computation of ratio of earnings to fixed charges.+
21.1 Subsidiaries of Willcox & Gibbs, Inc.+
23.1 Consent of Hughes Hubbard & Reed LLP (contained in Exhibit 5.1).+
23.2 Consents of KPMG Peat Marwick LLP.
23.3 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney of certain directors and officers of the Company.+
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, as
amended, of IBJ Schroder Bank & Trust Company, as Trustee.+
27.1 Financial Data Schedule.+
99.1 Form of Letter of Transmittal with respect to the Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery.+
99.3 Form of Letter to Brokers, Dealers.+
99.4 Form of Letter to Clients.+
</TABLE>
- ------------------------
+ Previously filed
<PAGE>
EXHIBIT 23.2
AUDITORS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors
Willcox & Gibbs, Inc.:
The audits referred to in our report dated February 26, 1997 included the
related financial statement schedule as of December 31, 1996 and 1995, and
for the years ended December 31, 1996 and 1995 and for the period from July
13, 1994 (date of formation) to December 31, 1994, included in the
registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to
the basis consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We consent to the use of our reports included herein and to reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
---------------------------------
KPMG Peat Marwick LLP
Atlanta, Georgia
June 10, 1997
<PAGE>
AUDITORS' CONSENT
The Board of Directors
Clinton Management Corp. and Clinton Machinery Corp.:
We consent to the use of our reports included herein and to reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
---------------------------------
KPMG Peat Marwick LLP
Atlanta, Georgia
June 10, 1997
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
use of our report dated February 21, 1997 and to all
references to our Firm included in this Registration Statement.
/s/ Arthur Andersen LLP
---------------------------
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
June 12, 1997
<PAGE>
LETTER OF TRANSMITTAL
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE").
WILLCOX & GIBBS, INC.
LETTER OF TRANSMITTAL
12 1/4% SERIES A SENIOR NOTES DUE 2003
TO: IBJ SCHRODER BANK & TRUST COMPANY, THE EXCHANGE AGENT
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT COURIER:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
Bowling Green Station One State Street
P.O. Box 84 New York, New York 10004
New York, New York 10274-0084 Attention: Securities Processing Window
Attention: Reorganization Operations Subcellar One, (SC-1)
Department
BY FACSIMILE:
(212) 858-2611
Attention: Customer Service
CONFIRM BY TELEPHONE:
(212) 858-2103
</TABLE>
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
The undersigned acknowledges that he or she has received the Prospectus
dated , 1997, (the "Prospectus") of Willcox & Gibbs, Inc. (the
"Company") and this Letter of Transmittal (the "Letter of Transmittal"), which
together constitute the Company's offer (the "Exchange Offer") to exchange
$1,000 principal amount of its 12 1/4% Series B Senior Notes due 2003 (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 the
Prospectus is a part, for each $1,000 principal amount of its outstanding
12 1/4% Series A Senior Notes due 2003 (the "Old Notes"), of which $85,000,000
aggregate principal amount is outstanding. Other capitalized terms used but not
defined herein have the meanings given to them in the Prospectus.
This Letter of Transmittal is to be used by Holders of Old Notes (i) if
certificates representing the Old Notes are to be physically delivered herewith;
or (ii) if tender of Old Notes is to be made by book-entry transfer to the
Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to
the procedures set forth in the Prospectus under "The Exchange Offer--Procedures
for Tendering" by any financial institution that is a participant in DTC and
whose name appears on a security position listing as the owner of Old Notes; or
(iii) if tender of Old Notes is to be made according to the guaranteed delivery
procedures set forth in the Prospectus under "The Exchange Offer--Guaranteed
Delivery Procedures." Delivery of documents to DTC does not constitute delivery
to the Exchange Agent.
1
<PAGE>
The term "Holder" with respect to the Exchange Offer means any person (i) in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder; or (ii) whose Old Notes are held of record by DTC who desires to deliver
such Old Notes by book-entry transfer at DTC. The undersigned has completed,
executed and delivered this Letter of Transmittal to indicate the action the
undersigned desires to take with respect to the Exchange Offer. Holders who wish
to tender their Old Notes must complete this Letter of Transmittal in its
entirety.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF 12 1/4% SERIES A SENIOR NOTES DUE 2003 ("OLD NOTES"):
<CAPTION>
PRINCIPAL AMOUNT
AGGREGATE TENDERED
PRINCIPAL (MUST BE IN
NAME(S) AND ADDRESS(ES) OF AMOUNT INTEGRAL
REGISTERED HOLDER(S) CERTIFICATE REPRESENTED BY MULTIPLE OF
(PLEASE FILL IN, IF BLANK) NUMBERS* CERTIFICATE(S) $1,000)*
<S> <C> <C> <C>
Total
* Need not be completed if Old Notes are being tendered by book-entry transfer.
Unless indicated in the column labeled "Principal Amount Tendered," any tendering Holder of Old
Notes will be deemed to have tendered the entire aggregate principal amount in the column
labeled "Aggregate Principal Amount Represented by Certificate(s)."
If the space provided above is inadequate, list the principal amounts on a separate signed
schedule and affix the list to this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount of Old Notes. All other tenders must
be in integral multiples of $1,000.
</TABLE>
LADIES AND GENTLEMEN:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Old Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Old Notes tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Company
all right, title and interest in and to the Old Notes tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent its
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Company) with respect to the tendered Old Notes with
full power of substitution to (i) deliver certificates for such Old Notes to the
Company, or transfer ownership of such Old Notes on the account books maintained
by DTC, and deliver all accompanying evidences of transfer and authenticity to,
or upon the order of, the Company; and (ii) present such Old Notes for transfer
on the books of the Company and receive all benefits and otherwise exercise all
rights of beneficial ownership of such Old Notes, all in accordance with the
terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full power
and authority to tender, sell, assign, and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when such Notes are acquired by the Company. THE
UNDERSIGNED HEREBY FURTHER REPRESENTS THAT ANY NEW NOTES ACQUIRED IN EXCHANGE
FOR
2
<PAGE>
OLD NOTES TENDERED HEREBY WILL HAVE BEEN ACQUIRED IN THE ORDINARY COURSE OF
BUSINESS OF THE HOLDER RECEIVING SUCH NEW NOTES, WHETHER OR NOT THE UNDERSIGNED,
THAT NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON HAS AN ARRANGEMENT OR
UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION OF SUCH NEW
NOTES AND THAT NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE,"
AS DEFINED UNDER RULE 405 OF THE SECURITIES ACT, OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If the undersigned is a broker-dealer that will
receive New Notes, it represents that the Old Notes to be exchanged for New
Notes were acquired as a result of market-making activities or other trading
activities and not acquired directly from the Company, and it acknowledges that
it will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be necessary
or desirable to complete the assignment, transfer and purchase of the Old Notes
tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned (except as noted below with respect to tenders through DTC),
without expense, to the undersigned at the address shown below or at a different
address as may be indicated herein under "Special Payment Instructions" as
promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer--Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company in accordance with the
terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Payment Instructions," please
issue the certificates representing the New Notes issued in exchange for the Old
Notes accepted for exchange and return any Old Notes not tendered or not
exchanged, in the name(s) of the undersigned (or in either such event in the
case of Old Notes tendered by DTC, by credit to the undersigned's account at
DTC). Similarly, unless otherwise indicated under "Special Delivery
Instructions," please send the certificates representing the New Notes issued in
exchange for the Old Notes accepted for exchange and any certificates for Old
Notes not tendered or not exchanged (and accompanying documents, as appropriate)
to the undersigned at the address shown above in the box entitled "Description
of 12 1/4% Series A Senior Notes due 2003", unless, in either event, tender is
being made through DTC. In the event that both "Special Payment Instructions"
and "Special Delivery Instructions" are completed, please issue the certificates
representing the New Notes issued in exchange for the Old Notes accepted for
exchange and return any Old Notes not tendered or not exchanged in the name(s)
of, and send said certificates to, the person(s) so indicated. The undersigned
recognizes that the Company has no obligation pursuant to the "Special Payment
Instructions" and "Special Delivery Instructions" to transfer any Old Notes from
the name of the registered holder(s) thereof if the Company does not accept for
exchange any of the Old Notes so tendered.
Holders of Old Notes who wish to tender their Old Notes and (i) whose Old
Notes are not immediately available, or (ii) who cannot deliver their Old Notes,
this Letter of Transmittal or any other documents required hereby to the
Exchange Agent, or cannot complete the procedure for book-entry transfer, prior
to the Expiration Date, may tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures." See Instruction 1 regarding the
completion of this Letter of Transmittal printed below.
3
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 7)
To be completed ONLY if certificates for Old Notes in a principal amount not
tendered or not accepted for exchange, or New Notes issued in exchange for Old
Notes accepted for exchange, are to be issued in the name of someone other than
the undersigned, or if the Old Notes tendered by book-entry transfer that are
not accepted for exchange are to be credited to an account maintained by DTC
other than the account indicated below from which the Old Notes were tendered.
ISSUE CERTIFICATE(S) TO:
Name ___________________________________________________________________________
(PLEASE PRINT)
Address ________________________________________________________________________
_______________________________________________________________________________
(INCLUDE ZIP CODE)
_______________________________________________________________________________
SOCIAL SECURITY OR EMPLOYER IDENTIFICATION NUMBER
Credit unexchanged Old Notes delivered by book-entry transfer to an account
maintained by DTC other than
the account indicated below from which the Old Notes
were tendered.
_______________________________________________________________________________
(BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER, IF APPLICABLE)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if certificates for Old Notes in a principal amount not
tendered or not accepted for exchange, or New Notes issued in exchange for Old
Notes accepted for exchange, are to be sent to someone other than the
undersigned, or to the undersigned at an address other than that shown above.
MAIL TO:
Name: __________________________________________________________________________
(PLEASE PRINT)
Address ________________________________________________________________________
_______________________________________________________________________________
(INCLUDE ZIP CODE)
_______________________________________________________________________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY DTC TO THE EXCHANGE
AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _________________________________________________
DTC Book-Entry Account No.: ____________________________________________________
Transaction Code No.: __________________________________________________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s): _______________________________________________
Window Ticket Number (if any): _________________________________________________
Date of Execution of Notice of Guaranteed Delivery: ____________________________
Name of Institution which guaranteed delivery: _________________________________
IF DELIVERY BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number: ___________________ Transaction Code Number: __________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
4
<PAGE>
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
<TABLE>
<S> <C> <C>
X
DATE
X
SIGNATURE(S) OF HOLDER(S) DATE
OR AUTHORIZED SIGNATORY
Area Code and Telephone Number:
</TABLE>
The above lines must be signed by the Holder(s) of Old Notes as their
name(s) appear(s) on the Old Notes or, if the Old Notes are tendered by a
participant in DTC, as such participant's name appears on a security position
listing as the owner of the Old Notes, or by person(s) authorized to become
Holder(s) by a properly completed bond power from the Holder(s), a copy of which
must be transmitted with this Letter of Transmittal. If Old Notes to which this
Letter of Transmittal relates are held of record by two or more joint Holders,
then all such Holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 4 regarding the completion of this
Letter of Transmittal printed below.
<TABLE>
<CAPTION>
Name(s):
<S> <C>
(PLEASE PRINT)
Capacity:
Address:
(INCLUDE ZIP CODE)
SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION:
(IF REQUIRED BY INSTRUCTION 4)
(AUTHORIZED SIGNATURE)
(TITLE)
(NAME OF FIRM)
Dated: , 1997
</TABLE>
5
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. The tendered Old
Notes (or a confirmation of a book-entry transfer into the Exchange Agent's
account at DTC of all Old Notes delivered electronically), as well as a properly
completed and duly executed copy of this Letter of Transmittal or facsimile
hereof and any other documents required by this Letter of Transmittal, must be
received by the Exchange Agent at its address set forth herein prior to 5:00
P.M., New York City time, on the Expiration Date. The method of delivery of the
tendered Old Notes, this Letter of Transmittal and all other required documents
to the Exchange Agent is at the election and risk of the Holder and, except as
otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. Instead of delivery by mail, it is
recommended that the Holder use an overnight or hand-delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. No Letter of
Transmittal or Old Notes should be sent to the Company.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available; or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent, or
cannot complete the procedure for book-entry transfer, prior to 5:00 P.M., New
York City time, on the Expiration Date must tender their Old Notes according to
the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through a 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 institution which falls within the
definition of "Eligible Guarantor Institution" contained in Rule 17Ad-15
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (each, an "Eligible Institution"); (ii) prior
to 5:00 P.M., New York City time, on the Expiration Date, the Exchange Agent
must have received from the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Holder of the Old Notes and
the principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock Exchange trading
days after the date of execution of the Notice of Guaranteed Delivery, this
Letter of Transmittal (or facsimile hereof) together with the certificate(s)
representing the Old Notes to be tendered in proper form for transfer (or a
confirmation of electronic delivery of book-entry transfer into the Exchange
Agent's account at DTC) and any other required documents will be deposited by
the Eligible Institution with the Exchange Agent; and (iii) such properly
completed and executed Letter of Transmittal (or facsimile hereof), as well as
all other documents required by this Letter of Transmittal and the
certificate(s) representing all tendered Old Notes in proper form for transfer
(or a confirmation of electronic delivery of book-entry transfer into the
Exchange Agent's account at DTC), must be received by the Exchange Agent within
three New York Stock Exchange trading days after the date of execution of the
Notice of Guaranteed Delivery, all as provided in the Prospectus under the
caption "Exchange Offer--Guaranteed Delivery Procedures." Any Holder of Old
Notes who wishes to tender his or her Old Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent receives
the Notice of Guaranteed Delivery prior to 5:00 P.M., New York City time, on the
Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed
Delivery will be sent to Holders who wish to tender their Old Notes according to
the guaranteed delivery procedures set forth above.
6
<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
absolute right to reject any and all Old Notes not properly tendered or any Old
Notes the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects
or irregularities or conditions of tender as to the Exchange Offer and/or
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in this Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. None of 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 Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which any defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering
Holder(s) of Old Notes, unless otherwise provided in this Letter of Transmittal,
as soon as practicable following the Expiration Date.
2. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instructions.
3. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in integral
multiples of $1,000. If less than the entire principal amount of any Old Note is
tendered, the tendering Holder should fill in the principal amount tendered in
the last column of the box entitled "Description of 12 1/4% Series A Senior
Notes due 2003 ("Old Notes")" above. The entire principal amount of Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of all Old Notes is not
tendered, then Old Notes for the principal amount of Old Notes not tendered and
a certificate or certificates representing New Notes issued in exchange for any
Old Notes accepted will be sent to the Holder at his or her registered address,
unless a different address is provided in the appropriate box on this Letter of
Transmittal, or credited to an appropriate account at DTC, if applicable,
promptly after the Old Notes are accepted for exchange.
4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is
signed by the record Holder(s) of the Old Notes tendered hereby, the signature
must correspond with the name(s) as written on the face of the Old Notes or, if
the Old Notes are tendered by a participant in DTC, as such participant's name
appears on a security position listing as the owner of the Old Notes, without
alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
Holder(s) of the Old Notes tendered hereby and the certificate or certificates
for New Notes issued in exchange therefor are to be issued (or any untendered
principal amount of Old Notes is to be reissued) to the Holder, said Holder need
not and should not endorse any tendered Old Notes, nor provide a separate bond
power. In any other case, such Holder must either properly endorse the Old Notes
tendered or transmit a properly completed separate bond power with this Letter
of Transmittal, with the signatures on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the Holder(s) of the Old Notes tendered hereby, such Old Notes must
be endorsed or accompanied by appropriate bond powers signed as the name(s) of
the registered Holder(s) appear(s) on the Old Notes, with the signatures on the
endorsement or bond power guaranteed by an Eligible Institution.
7
<PAGE>
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing and,
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Except as otherwise provided below, all signatures on this Letter of
Transmittal (or facsimile hereof) must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed if (i) this
Letter of Transmittal is signed by the Holder(s) of the Old Notes tendered
herewith (which term, for these purposes, includes any participant in DTC whose
name appears on a security position listing as the holder of such Old Notes) and
such Holder(s) have not completed the box set forth herein entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions"; or
(ii) such Old Notes are tendered for the account of an Eligible Institution.
5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which New
Notes or substitute Old Notes for principal amounts not tendered or not accepted
for exchange are to be issued or sent, if different from the name and address of
the person signing this Letter of Transmittal (or in the case of tender of Old
Notes through DTC, if different from DTC). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
Holder whose offered Old Notes are accepted for exchange must provide the
Company (as payer) with his, her or its correct Taxpayer Identification Number
("TIN"), which, in the case of an exchanging Holder who is an individual, is his
or her social security number. If the Company is not provided with the correct
TIN or an adequate basis for exemption, such Holder may be subject to a $50
penalty imposed by the Internal Revenue Service (the "IRS"). In addition,
delivery to such Holder of New Notes may be subject to backup withholding in an
amount equal to 31% of the gross proceeds resulting from the Exchange Offer. If
withholding results in an overpayment of taxes, a refund may be obtained from
the IRS by the Holder. Exempt Holders (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See instructions to the enclosed Guidelines of
Certificate of Taxpayer Identification Number on Substitute Form W-9.
To prevent backup withholding, each exchanging Holder must provide his, her
or its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the Holder is exempt from backup withholding; (ii) the Holder
has not been notified by the IRS that he, she or it is subject to backup
withholding as a result of a failure to report all interest or dividends; or
(iii) the IRS has notified the Holder that he, she or it is no longer subject to
backup withholding. In order to satisfy the Exchange Agent that a foreign
individual qualifies as an exempt recipient, such Holder must submit a statement
signed under penalty of perjury attesting to such exempt status. Such statements
may be obtained from the Exchange Agent. If the Old Notes are in more than one
name or are not in the name of the actual owner, consult the Form W-9 for
information on which TIN to report. If you do not provide your TIN to the
Company within 60 days, backup withholding will begin and continue until you
furnish your TIN to the Company.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the Holder of the Old
Notes tendered hereby, or if tendered Old Notes are registered in the name of
any person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the Holder or on any other person(s)) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes
8
<PAGE>
or exemption therefrom is not submitted with this Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Old Notes tendered.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
specified above. Holders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
CERTIFICATE(S) OLD NOTES OLD NOTES
SURRENDERED TENDERED ACCEPTED
- -------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
</TABLE>
Delivery Prepared by ______________ Checked By ______________ Date _____________
9
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 6)
PAYER'S NAME: WILLCOX & GIBBS, INC.
<TABLE>
<S> <C> <C> <C>
PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT
RIGHT AND CERTIFY BY SIGNING AND DATING BELOW
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT:
1. The number shown on this form is my correct
taxpayer identification number (or I am waiting
for a number to be issued to me), and
SOCIAL SECURITY NUMBER
OR
EMPLOYER IDENTIFICATION
NUMBER
2. I am not subject to backup withholding because:
(a) I am exempt from backup withholding, or (b) I
have not been notified by the Internal Revenue
Service that I am subject to backup withholding
as a result of a failure to report all interest
or dividends, or (c) the IRS has notified me
that I am no longer subject to backup
withholding.
Certification Instructions--You must cross out
item 2 above if you have been notified by the IRS
that you are currently subject to backup
withholding because of underreporting interest or
SUBSTITUTE dividends on your tax return.
FORM W-9 NAME
--------------------------------------------------
(Please Print)
DEPARTMENT OF THE
TREASURY
INTERNAL REVENUE
SERVICE ADDRESS PART 2
-------------------------------------------------
-----------------------------------------------
(Include Zip Code) AWAITING TIN / /
PAYER'S REQUEST FOR
TAXPAYER
IDENTIFICATION NUMBER
(TIN) SIGNATURE DATE
---------------- -----------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU
CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that, notwithstanding that I have checked the box in Part 2 (and
have completed this Certificate of Awaiting Taxpayer Identification Number),
all reportable payments made to me prior to the time I provide the US
Depositary with a properly certified taxpayer identification number will be
subject to a 31% back-up withholding tax.
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
Signature Date
</TABLE>
10
