As filed with the Securities and Exchange Commission on December 11, 1997.
Registration No. 333-37617
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DELTA MILLS, INC.
(Exact name of registrant as specified its charter)
<TABLE>
<CAPTION>
Delaware 2211 13-2677657
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
233 NORTH MAIN STREET, SUITE NO. 200
GREENVILLE, SOUTH CAROLINA 29601
(864) 232-8301
(Address, Including ZIP Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
BETTIS C. RAINSFORD, EXECUTIVE VICE PRESIDENT, TREASURER, AND CHIEF FINANCIAL OFFICER
DELTA MILLS, INC.
108-1/2 COURTHOUSE SQUARE
P. O. BOX 388
EDGEFIELD, SOUTH CAROLINA 29824
(803) 637-5304
(Name, Address, Including ZIP Code, and Telephone Number,
Including Area Code, of Agent for Service)
</TABLE>
Copies to:
ERIC B. AMSTUTZ, ESQ.
JO WATSON HACKL, ESQ.
WYCHE, BURGESS, FREEMAN & PARHAM, P.A.
POST OFFICE BOX 728
GREENVILLE, SOUTH CAROLINA 29602-0728
(864) 242-8200 (TELEPHONE)
(864) 235-8900 (FACSIMILE)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this form if filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| ____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ____________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed maximum
Title of each class of offering price per Proposed maximum Amount of
securities to be registered Amount to be registered note(1) aggregate offering price registration fee
<S> <C> <C> <C> <C>
- -------------------------- ------------------- ---------------------- ----------------------- ---------------------
9-5/8% Senior Notes due $150,000,000 100% $150,000,000 $45,454.55 (2)
2007, Series B
- -------------------------- -------------------- --------------------- ----------------------- ---------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED _____________, 1997
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.
PROSPECTUS [LOGO OF DELTA MILLS, INC. APPEARS HERE]
__________, 1998
DELTA MILLS, INC.
OFFER TO EXCHANGE
9-5/8% SENIOR NOTES DUE 2007, SERIES B
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OUTSTANDING
9-5/8% SENIOR NOTES DUE 2007, SERIES A
---------------------------------------
DELTA MILLS, INC., A DELAWARE CORPORATION (THE "COMPANY"), HAS NOT ISSUED, AND
DOES NOT HAVE ANY CURRENT FIRM ARRANGEMENTS TO ISSUE, ANY SIGNIFICANT ADDITIONAL
INDEBTEDNESS TO WHICH THESE NOTES WOULD BE SENIOR. BECAUSE THE COMPANY'S BANK
CREDIT FACILITY IS SECURED BY CERTAIN OF THE COMPANY'S ASSETS, THE NOTES ARE
EFFECTIVELY SUBORDINATE, TO THE EXTENT OF SUCH ASSETS, TO THE BANK CREDIT
FACILITY, WHICH REPRESENTS SUBSTANTIALLY ALL OF THE OUTSTANDING INDEBTEDNESS OF
THE COMPANY (OTHER THAN THE NOTES). THE GUARANTORS (AS DEFINED BELOW) HAVE NOT
ISSUED, AND DO NOT HAVE ANY CURRENT FIRM ARRANGEMENTS TO ISSUE, ANY SIGNIFICANT
ADDITIONAL INDEBTEDNESS TO WHICH THE GUARANTEES (AS DEFINED HEREIN) WOULD BE
SENIOR. BECAUSE THE GUARANTORS' GUARANTEE OF THE COMPANY'S BANK CREDIT FACILITY
IS SECURED BY CERTAIN OF THE GUARANTORS' ASSETS, THE GUARANTEES ARE EFFECTIVELY
SUBORDINATE, TO THE EXTENT OF SUCH ASSETS, TO SUCH GUARANTEE OF THE COMPANY'S
BANK CREDIT FACILITY, WHICH REPRESENTS SUBSTANTIALLY ALL OF THE OUTSTANDING
INDEBTEDNESS OF THE GUARANTORS (OTHER THAN THE GUARANTEES).
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON [25 business days
after effective date] , 1998, UNLESS EXTENDED BY THE COMPANY IN ITS SOLE
DISCRETION (THE "EXPIRATION DATE"). THE COMPANY WILL EXTEND THE EXPIRATION DATE
BEYOND [30 business days after the effective date] ONLY IN THE EVENT OF
UNFORESEEN CIRCUMSTANCES.
Delta Mills, Inc., a Delaware corporation (the "Company"), a wholly-owned
indirect subsidiary of Delta Woodside Industries, Inc., a South Carolina
corporation ("Delta Woodside"),and Delta Mills Marketing, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company, as guarantor (together
with all future subsidiaries of the Company, the "Guarantors"), hereby offer
(the "Exchange Offer"), upon the terms and subject to the conditions set forth
in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal
(the "Letter of Transmittal"), to exchange up to $150.0 million in aggregate
principal amount of the Company's 9-5/8% Senior Notes due 2007, Series B,
guaranteed by the Guarantors (the "Exchange Notes"), for equal principal amounts
of the Company's outstanding 9-5/8% Senior Notes due 2007, Series A, guaranteed
by the Guarantors (the "Senior Notes"). As of the date of this Prospectus, an
aggregate of $150.0 million in Senior Notes were outstanding. The Exchange
Notes, and the guarantee thereof, are substantially identical (including
principal amount, interest rate, maturity and redemption rights) to the Senior
Notes, and the guarantee thereof, for which they may be exchanged pursuant to
this offer, except that (i) the offering and sale of the Exchange Notes, and the
guarantee thereof, will have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and (ii) holders of Exchange Notes, and the
guarantee thereof, will not be entitled to certain rights of holders of Senior
Notes, and the guarantee thereof, under a Registration Rights Agreement (as
defined herein) of the Company. The Senior Notes, and the guarantee thereof,
have been, and the Exchange Notes, and the guarantee thereof, will be, issued
under an Indenture dated as of August 25, 1997 (the "Indenture") by and among
the Company, the Guarantor and The Bank of New York, as trustee (the "Trustee").
The Company will not receive any proceeds from this Exchange Offer; however,
pursuant to the Registration Rights Agreement, the Company will bear certain
offering expenses. See "The Exchange Offer-- Senior Notes Registration Rights."
The Senior Notes together with the Exchange Notes are referred to herein as the
"Notes."
The Exchange Notes will bear interest at the same rate and on the same
terms as the Senior Notes. Consequently, interest on the Exchange Notes will be
payable semi-annually in arrears on March 1 and September 1 of each year,
commencing on March 1, 1998. The Exchange Notes will mature on September 1,
2007, and may be redeemed at the option of the Company, in whole or in part, on
or after September 1, 2002, at the redemption prices set forth herein, plus
accrued and unpaid interest thereon and Liquidated Damages (as defined herein),
if any, to the applicable redemption date. Upon a Change of Control (as defined
herein), each holder of Exchange Notes will have the right to require the
Company to repurchase all or any part (equal to $1,000 or an integral multiple
thereof) of such holder's Exchange Notes at an offer price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of purchase. There is no assurance the
Company will have sufficient funds to repurchase the Exchange Notes upon a
Change of Control. See "Description of Exchange Notes -- Optional Redemption"
and " -- Repurchase at the Option of Holders -- Change of Control."
---------------------------------------
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.
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS WITH RESPECT TO THE SENIOR NOTES
AND THE EXCHANGE NOTES.
<PAGE>
The Exchange Notes will be general unsecured obligations of the Company
and will rank senior to all existing and future subordinated indebtedness of the
Company and PARI PASSU in right of payment to all existing and future unsecured
unsubordinated indebtedness of the Company (except to the extent any such other
indebtedness is secured), including indebtedness under the Company's new credit
facility (the "New Credit Facility"). The Company's payment of principal of and
premium, if any, interest and Liquidated Damages (as defined herein), if any, on
the Notes is fully and unconditionally guaranteed on a senior unsecured basis
(the "Guarantees") by each of the existing and future subsidiaries of the
Company other than Receivables Subsidiaries (as defined herein). Each
Guarantor's liability under its Guarantee is limited to such amount, the payment
of which would not have left the Guarantor insolvent or with unreasonably small
capital at the time its Guarantee was entered into, after giving effect to the
incurrence of existing indebtedness immediately prior to such time. The
Guarantees rank PARI PASSU in right of payment with all unsubordinated
indebtedness of the Guarantors, except to the extent any such other indebtedness
is secured. The obligations of the Company under the New Credit Facility are
secured by the accounts receivable and inventory (and related property) of the
Company and its subsidiaries (including the Guarantor), as well as all of the
outstanding capital stock of the Company and its subsidiaries and, accordingly,
such indebtedness effectively ranks senior in right of payment to the Exchange
Notes to the extent of such assets. The Company has no current or pending
arrangements or agreements to incur any additional significant indebtedness to
which the Notes would be subordinate or rank PARI PASSU in right of payment. At
September 27, 1997, after the issuance of the Senior Notes and the initial
borrowings under the New Credit Facility and the application of the net proceeds
therefrom (the "Refinancing"), the Company had approximately $208.0 million of
indebtedness outstanding (including approximately $65.7 million of secured
indebtedness outstanding under the New Credit Facility (including contingent
liability of approximately $0.7 million under letters of credit)). The Company
had approximately an additional $34.3 million of secured indebtedness available
to be incurred under the New Credit Facility. The terms of the Indenture permit
the Company to incur additional indebtedness, including additional secured
indebtedness, subject to certain limitations. See "Use of Proceeds" and
"Description of Other Indebtedness."
The Company will accept for exchange any and all Senior Notes validly
tendered by eligible holders and not withdrawn prior to 5:00 p.m. Eastern time
on [25 business days after effectiveness], 1998, unless extended by the Company
in its sole discretion (the "Expiration Date"). Tenders of Senior Notes may be
withdrawn at any time prior to the Expiration Date. The Exchange Offer is
subject to certain customary conditions. The Senior Notes may be tendered only
in integral multiples of $1,000. See "The Exchange Offer."
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal provides 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 the Exchange Notes received in exchange for Senior Notes where
such Senior Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, beginning on the date of this Prospectus and ending on the close of
business no more than one year after the date of this Prospectus, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Explanatory Note," "The Exchange Offer -- Terms of the
Exchange Offer" and "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the
Notes. The Company does not intend to list the Exchange Notes on any securities
exchange or to seek admission thereof to trading on the National Association of
Securities Dealers ("NASD") Automated Quotation System, Inc. ("Nasdaq"). The
Senior Notes are not listed on any securities exchange and are not traded on
Nasdaq, but the Senior Notes currently trade in the NASD Private Offering,
Resales and Trading through Automatic Linkages ("PORTAL") market under the
symbol "DeltaM." There can be no assurance that an active market for the Notes
will develop. To the extent that such a market for the Notes does develop, the
market value of the Notes will depend on market conditions (such as yields on
alternative investments), general economic conditions, the Company's financial
condition and certain other factors. Such conditions might cause the Notes, to
the extent that they are traded, to trade as a significant discount from face
value. See "Risk Factors -- Lack of Public Market, etc."
NationsBanc Capital Markets, Inc. has advised the Company that it has
made a market in the Senior Notes, and that it may make a market in the Senior
Notes and in the Exchange Notes; however, it is not obligated to do so and any
market-making activity may be discontinued at any time. As a result, there is no
assurance that an active public market will develop or continue for the Exchange
Notes, or that the market, if any, that develops for the Exchange Notes will be
similar to the limited market that currently exists for the Senior Notes. To the
extent that a market for the Exchange Notes does develop, the market value of
the Exchange Notes will depend on market conditions (such as yields on
alternative investments), general economic conditions, the Company's financial
condition and certain other factors. Such conditions might cause the Notes, to
the extent that they are traded, to trade at a significant discount from face
value. See "Risk Factors -- Lack of Public Market for the Notes."
Except as specifically requested by a holder on the Letter of
Transmittal, the Exchange Notes will be issued in the form of Global Notes (as
defined herein). Beneficial interests in the Global Note representing the
Exchange Note will be shown on, and transfers thereof will be effected through,
records maintained by The Depository Trust Company and its participants. See
"Explanatory Note."
The Company will not receive any proceeds from, and has agreed to bear
the expenses of, the Exchange Offer. No underwriter is being used in connection
with this Exchange Offer. See "The Exchange Offer."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SENIOR NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE
2
<PAGE>
OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES
OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL [95 DAYS AFTER EFFECTIVENESS] DEALERS EFFECTING TRANSACTIONS IN THE
EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE
REQUIRED TO DELIVER A PROSPECTUS IN CONNECTION THEREWITH. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers $150.0 million in aggregate principal
amount of 9-5/8% Senior Notes due 2007, Series B of the Company, guaranteed by
the Guarantors (the "Exchange Notes"), to be offered in exchange for equal
principal amounts of the Company's outstanding 9-5/8% Senior Notes due 2007,
Series A, guaranteed by the Guarantors (the "Senior Notes"). This Registration
Statement is being filed to satisfy certain requirements of a Registration
Rights Agreement (the "Registration Rights Agreement") dated as of August 25,
1997, by and among the Company, the Guarantor, and NationsBanc Capital Markets,
Inc., as the initial purchaser (the "Initial Purchaser") of the Senior Notes.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "SEC" or the "Commission") set forth in no-action letters issued
to unrelated third parties (see e.g. EXXON CAPITAL HOLDINGS CORP., SEC No-Action
Letter (available April 13, 1989) and MORGAN STANLEY & CO. INC., SEC No-Action
Letter (available June 5, 1991), collectively, the "No-Action Letters"), holders
of Senior Notes who tender their Senior Notes in the Exchange Offer with the
intention of participating in a distribution of the Exchange Notes will not be
able to rely on the No-Action Letters or similar no-action letters. The Company
believes that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for Senior Notes may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) a broker-dealer who purchases
Notes directly from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act; PROVIDED that the holder is acquiring the
Exchange Notes in the ordinary course of its business and is not participating,
and had no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes. Holders of Senior Notes wishing to accept
the Exchange Offer must represent to the Company, as required by the
Registration Rights Agreement, that such conditions have been met. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Senior Notes, where such Senior Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Company believes that none of the registered holders of the Senior
Notes is an affiliate (as such term is defined in Rule 405 under the Securities
Act) of the Company.
The Company hereby notifies each holder of Senior Notes that any
broker-dealer that holds Senior Notes acquired for its own account as a result
of market-making activities or other trading activities and who receives
Exchange Notes pursuant to the Exchange Offer may be a statutory underwriter,
and must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of the Exchange Notes. Any broker-dealer that holds
Senior Notes acquired for its own account as a result of market-making or other
trading activities acknowledges and agrees, as a term of the Exchange Offer,
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of Exchange Notes received pursuant to the
Exchange Offer. However, by so doing, the broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act. Such
broker-dealer will also be deemed to represent and warrant to the Company that
it is not participating in, and has no intent to participate in, any
distribution of Exchange Notes, and has not entered into any arrangement or
understanding with any person to distribute the Exchange Notes. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of the Exchange Notes received in
exchange for Senior Notes where such Senior Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities.
In the event that (i) any holder of Senior Notes is prohibited by
applicable law or Commission policy from participating in the Exchange Offer, or
(ii) any such holder may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in this Registration Statement is not appropriate or available for
such resales by such holder or (iii) such holder is a broker-dealer and holds
Senior Notes acquired directly from the Company or one of its affiliates, then
the Company has agreed to file a shelf registration statement pursuant to Rule
415 under the Securities Act for resales of Senior Notes for holders meeting
certain requirements, pursuant to the Registration Rights Agreement. See
"Summary -- The Exchange Offer," "The Exchange Offer" and "Plan of
Distribution."
Any Senior Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent any Senior Notes are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered and unregistered
Senior Notes could be adversely affected. Following consummation of the Exchange
Offer, the holders of Senior Notes will continue to be subject to the existing
restrictions upon transfer thereof and the Company will have fulfilled certain
of its obligations under the Registration Rights Agreement. Holders of Senior
Notes who do not tender their Senior Notes generally will not have any further
registration rights under the Registration Rights Agreement or otherwise. See
"Risk Factors -- Failure to Exchange Senior Notes, etc." and "The Exchange
Offer."
The Company expects that, similar to the Senior Notes, and except as
specifically requested by a holder on the Letter of Transmittal, the Exchange
Notes will be issued in the form of a Global Note (as defined herein), which
will be deposited with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in its name or in the name of the Depositary's
nominee, Cede & Co. Beneficial interests in the Global Note representing the
Exchange Notes will be shown on, and transfers thereof will be effected through,
records maintained by the Depositary and its participants. After the initial
issuance of the Global Note, Exchange Notes in certificated form may be issued
in exchange for the Global Note on the terms and conditions set forth in the
Indenture. See "Description of Exchange Notes -- Book-Entry, Delivery and Form."
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the offering of the Exchange Notes, the Company will become subject to
the informational requirements of the Exchange Act. So long as the Company is
subject to the periodic reporting requirements of the Exchange Act, it is
required to furnish the information required to be filed with the Commission to
the Trustee and the holders of the Senior Notes and the Exchange Notes. The
Company has agreed that, for so long as any of the Notes remain outstanding,
4
<PAGE>
even if it is not required under the Exchange Act to furnish such information to
the Commission, it will nonetheless continue to furnish information that would
be required to be furnished by the Company by Section 13 of the Exchange Act to
the Trustee and the holders of the Notes as if it were subject to such periodic
reporting requirements. See "Available Information."
In addition, the Company has agreed that, for so long as any of the
Senior Notes are "restricted securities" within the meaning of Rule 144(a)(3)
under the Securities Act, it will make available to any prospective purchaser of
the Senior Notes or holder of the Senior Notes upon the request of such
prospective purchaser or holder the information required by Rule 144A(d)(4)
under the Securities Act.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. SUCH
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS
OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT
FACTORS ("CAUTIONARY STATEMENTS") THAT COULD CAUSE THE ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THE
COMPANY'S EXPECTATIONS ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING, WITHOUT
LIMITATION, THOSE STATEMENTS INCLUDED UNDER "RISK FACTORS" AND OTHERWISE HEREIN.
ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. THE SAFE
HARBOR FOR FORWARD-LOOKING STATEMENTS CONTAINED IN SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT, WHICH LIMITS THE LIABILITY OF CERTAIN
PERSONS FOR FORWARD-LOOKING STATEMENTS, DOES NOT APPLY TO INITIAL PUBLIC
OFFERINGS SUCH AS THIS EXCHANGE OFFER.
REPORTS TO SECURITY HOLDERS
See "Description of Exchange Notes -- Certain Covenants -- Reports" for a
description of reports that will be available to Holders of the Exchange Notes.
5
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
EXPLANATORY NOTE..............................................................4
SUMMARY.......................................................................8
The Company...................................................................8
Industry Trends...............................................................8
Business Strategy.............................................................9
The Exchange Offer...........................................................11
Summary of Terms of Exchange Notes...........................................14
Risk Factors.................................................................16
Summary Historical and Pro Forma Consolidated Financial Data.................17
RISK FACTORS.................................................................19
Failure to Exchange Senior Notes.............................................19
Significant Leverage and Debt Service........................................19
Competition; Risks Associated with Changing Industry and Regulation..........20
Raw Materials................................................................21
Environmental Laws and Regulations...........................................22
The Company's Dependence on Key Personnel....................................22
Risk of Loss of Material Customers or Broker.................................22
Retail Industry and Cyclicality..............................................22
Repurchase of Notes upon a Change of Control.................................23
Fraudulent Conveyance Statutes...............................................23
Lack of Public Market........................................................24
FORWARD-LOOKING STATEMENTS...................................................25
USE OF PROCEEDS..............................................................26
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA................27
MANAGEMENT'S DISCUSSION AND ANALYSIS.........................................30
Overview of Results of Operations............................................30
Quarter Ended September 27, 1997 Compared to Quarter Ended September
28, 1996 ..................................................................30
Year Ended June 28, 1997 Compared to Year Ended June 29, 1996................31
Year Ended June 29, 1996 Compared to Year Ended July 1, 1995.................32
Year Ended July 1, 1995 Compared to Year Ended July 2, 1994..................33
Liquidity and Capital Resources..............................................33
BUSINESS.....................................................................36
General......................................................................36
Industry Trends..............................................................37
Business Strategy............................................................38
Manufacturing................................................................39
Products and Marketing.......................................................40
Raw Materials................................................................41
Competition..................................................................41
Environmental and Regulatory Matters.........................................42
Order Backlogs...............................................................43
Properties...................................................................44
Employees....................................................................44
Legal Proceedings............................................................44
MANAGEMENT...................................................................45
Directors and Executive Officers.............................................45
Management Compensation......................................................46
STOCK OWNERSHIP..............................................................50
CERTAIN TRANSACTIONS.........................................................52
THE EXCHANGE OFFER...........................................................54
Purpose of the Exchange Offer................................................54
Resale of the Exchange Notes.................................................54
Terms of the Exchange Offer..................................................55
Expiration Date; Extensions; Amendments......................................55
Interest on the Exchange Notes...............................................56
Procedures for Tendering.....................................................56
Return of Senior Notes.......................................................57
6
<PAGE>
Book-Entry Transfer..........................................................58
Guaranteed Delivery Procedures...............................................58
Withdrawal of Tenders........................................................58
Conditions...................................................................58
Senior Notes Registration Rights.............................................59
Termination of Certain Rights................................................60
Exchange Agent...............................................................60
Fees and Expenses............................................................61
Consequence of Failures to Exchange..........................................61
Accounting Treatment.........................................................61
Appraisal Rights.............................................................61
DESCRIPTION OF EXCHANGE NOTES................................................62
General......................................................................62
Principal, Maturity and Interest.............................................62
Guarantees...................................................................62
Optional Redemption..........................................................63
Selection and Notice.........................................................63
Mandatory Redemption.........................................................63
Repurchase at the Option of Holders..........................................63
Certain Covenants............................................................65
Events of Default and Remedies...............................................70
No Personal Liability of Directors, Officers, Employees or Stockholders......71
Legal Defeasance and Covenant Defeasance.....................................71
Transfer and Exchange........................................................72
Amendment, Supplement and Waiver.............................................72
Concerning the Trustee.......................................................72
Additional Information.......................................................73
Book-Entry, Delivery and Form................................................73
Certain Definitions..........................................................73
DESCRIPTION OF OTHER INDEBTEDNESS............................................81
New Credit Facility..........................................................81
Description of Delta Woodside Indebtedness...................................81
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS....................................82
PLAN OF DISTRIBUTION.........................................................83
LEGAL MATTERS................................................................84
EXPERTS......................................................................84
INDEMNIFICATION OF MANAGEMENT................................................84
AVAILABLE INFORMATION........................................................84
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..................................F-1
INDEPENDENT AUDITORS' REPORT................................................F-2
CONSOLIDATED BALANCE SHEETS.................................................F-3
CONSOLIDATED STATEMENTS OF OPERATIONS.......................................F-5
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)...................F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS.......................................F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................F-8
</TABLE>
7
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF, AMONG OTHER THINGS,
THE CAUTIONARY STATEMENTS, INCLUDING WITHOUT LIMITATION THE FACTORS SET FORTH
BELOW UNDER "RISK FACTORS." THE INFORMATION SET FORTH BELOW UNDER "RISK FACTORS"
SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE EXCHANGE OFFER. REFERENCES
HEREIN TO FISCAL YEAR ARE TO THE COMPANY'S FISCAL YEAR, WHICH ENDS ON THE
SATURDAY NEAREST JUNE 30 OF EACH YEAR.
THE COMPANY
The Company is a leading manufacturer and marketer of woven and knitted
finished and unfinished (or greige) cotton, synthetic and blended fabrics, which
are sold for the ultimate production of apparel, home furnishings and other
products. The Company sells a broad range of fabrics primarily to branded
apparel manufacturers and resellers, including Levi Strauss & Co. ("Levi
Strauss"), Haggar Corp., the Wrangler(R) and Lee(R) divisions of V.F.
Corporation, Farah Incorporated, Kellwood Company and Liz Claiborne, Inc., and
private label apparel manufacturers for J.C. Penney Company, Inc., Sears,
Roebuck & Co. and other retailers. The Company believes that it is a leading
producer of cotton pants-weight woven fabric used in the manufacture of casual
slacks such as Levi Strauss' Dockers(R) and Haggar Corp.'s Wrinkle-Free(R).
Other apparel items manufactured with the Company's woven fabrics include
women's chinos pants, women's blazers, career apparel (uniforms) and battle
dress camouflage military uniforms. Apparel items manufactured with the
Company's knitted fabrics include polo-type or golf shirts, career apparel,
children's apparel, specialty athletic wear and ladies' tops. For the 1997
fiscal year, the Company generated net sales and EBITDA of $464.5 million and
$60.8 million, respectively. "EBITDA" is defined herein as income (loss) before
income taxes, plus depreciation and amortization expense and interest expense,
plus impairment and restructuring charges (credits). While EBITDA should not be
construed as an alternative to operating earnings (loss) or net income (loss),
or as an indicator of operating performance or liquidity, the Company believes
that the ratio of EBITDA to interest expense is a measure that is commonly used
to evaluate a company's ability to service debt. See "Selected Historical and
Pro Forma Consolidated Financial Data." As a percentage of fiscal year 1997 net
sales, sales by the Delta Mills Marketing Company (woven fabrics) division
represented 72.4% and sales by the Stevcoknit Fabrics Company (knitted fabrics)
division represented 27.6%.
The Company believes that its woven fabrics division is a leading
world-wide producer of cotton, cotton blend and spun synthetic pants-weight
fabric, and that it has a reputation for reliability and high quality in the
pants industry. The Company's relationship with its customers has been
strengthened by its ability to develop new products that meet customer
requirements, including the following product innovations: (i) a successful
manufacturing process for "wrinkle-free" cotton fabrics, (ii) "baby gabardine"
fabric (an all-spun polyester-rayon blend fabric that is a core product for
certain pants, skirts and jackets for women), (iii) "Suncatcher linen" (a
synthetic fabric made of polyester and rayon fibers spun to resemble a natural
linen product), and (iv) Operation Desert Storm camouflage fabric. In addition,
the division has repeatedly responded to customer needs in a timely manner, such
as in its support of the growth of Levi Strauss' Dockers(R) pants line and
helping to launch Haggar Corp.'s Wrinkle-Free(R) pants, for each of whom the
Company continues to be a significant supplier.
Following Delta Woodside Industries, Inc.'s ("Delta Woodside")
acquisition of the Company in 1986, the Company has upgraded its facilities
through an extensive series of capital expenditure programs that have modernized
and consolidated certain fabric manufacturing processes. In addition to making
significant improvements in the Company's already high standards of quality,
these modernization programs have resulted in significant increases in operating
efficiencies as measured by sales per square foot of manufacturing space and
sales per employee and have, in many cases, resulted in substantial reductions
in the cost per unit of production. The Company is substantially vertically
integrated and currently operates eight production facilities in the woven
fabrics division and four production facilities in the knitted fabrics division.
Each division has its own management and employees and operates independently of
the other division under the overall direction of the Company's executive
officers.
The Company was incorporated in Delaware in 1971 under the name
Stevcoknit, Inc. Since 1986, the Company has operated the woven fabrics and
knitted fabrics businesses. The Company's principal executive offices are
located at 233 North Main Street, Suite 200, Greenville, South Carolina 29601
and its telephone number is (864) 232-8301. The Company is a wholly-owned
indirect subsidiary of Delta Woodside, a South Carolina corporation, the common
stock of which is listed on the New York Stock Exchange. Unless the context
otherwise requires, all references herein to "Delta Mills" or the "Company"
refer to Delta Mills, Inc. and any of its existing and future subsidiaries.
References to the "Delta Woodside Group" refer to Delta Woodside and all of its
direct and indirect subsidiaries, including the Company.
INDUSTRY TRENDS
The Company competes with other producers of woven and knitted fabrics to
supply the United States apparel market. In recent years, the fabric/apparel
industry has been undergoing significant changes both in the geographic
locations of production and in the type of garments produced. Specifically, two
trends have significantly impacted the industry: (i) the growth of a western
hemisphere fabric/apparel production chain, and (ii) the increased casualization
of the workplace. The Company believes that it is well-positioned to capitalize
on both of these trends.
GROWTH OF A WESTERN HEMISPHERE FABRIC/APPAREL PRODUCTION CHAIN
In recent years, the fabric/apparel industry has been marked by
fundamental changes in the sources of supply for apparel products. Specifically,
the Company believes that a western hemisphere fabric/apparel production chain
has been rapidly developing to compete with the Far Eastern supply chain, with
fabric manufacturing remaining in the United States and apparel
8
<PAGE>
manufacturing moving to Mexico, Central America and the Caribbean islands
("MCACI"). The shift to this configuration, which began several decades ago, has
accelerated significantly in the past several years with the passage of the
North American Free Trade Agreement ("NAFTA") and the General Agreement on
Tariffs and Trade ("GATT"). The western hemisphere fabric/apparel production
chain has also been strengthened by the requirements of United States retailers
for shorter delivery times and faster turnaround times, which can be more easily
met by suppliers in the western hemisphere.
Due to the relatively higher proportion of labor costs in apparel
manufacturing, much of the apparel production in the United States is shifting
to MCACI countries where labor costs are competitive on a world-wide basis. By
contrast, fabric production for apparel manufactured in MCACI countries has
largely remained in the United States for a number of reasons. First, because
the modern fabric manufacturing process includes relatively little manual labor,
United States wage rates no longer put domestic fabric manufacturers at a
competitive disadvantage. In addition, as fabric manufacturing today requires
substantial capital investment, the United States is a more attractive venue
than MCACI countries due to its political and economic stability and developed
infrastructure, including an abundant water supply and reliable, low-cost
electric power.
In addition, tariffs, quotas and other existing trade regulations provide
western hemisphere fabric/apparel production with a significant competitive
advantage in the United States market. Recent changes in trade regulation,
including NAFTA, have not only spurred growth among United States fabric
manufacturers and MCACI apparel manufacturers, but also have encouraged the
further development of a western hemisphere fabric/apparel production chain. In
the 1960s, Section 807 of the Tariff Schedules of the United States ("Section
807") created a platform for this growth. Section 807 provides for duty-free
treatment of United States origin components used in the assembly of imported
articles. The result is that duty is assessed only on the value of any foreign
components that may be present and the labor costs incurred offshore in the
assembly of apparel using United States origin fabric components. In addition,
under a related program referred to as "Section 807A," apparel articles
assembled in a Caribbean country, in which all fabric components have been
wholly formed and cut in the United States, are subject to preferential quotas
with respect to access into the United States. A similar program, enacted as a
result of NAFTA and referred to as the Special Regime Program, provides even
greater benefits for such apparel assembled in Mexico from fabric components
formed and cut in the United States. In contrast, apparel not meeting the
criteria of such programs is subject to quotas and/or relatively higher tariffs.
See "Risk Factors -- Competition and Risks Associated with Changing Industry and
Regulation, etc." and "Business -- Competition."
The shift to this western hemisphere fabric/apparel production chain has
occurred largely at the expense of the growth of Far Eastern fabric and apparel
production. Apparel retailers, many of which have in the past relied on Hong
Kong, China and other Far Eastern countries as their principal sources of
completed apparel products, are increasingly looking to the western hemisphere
fabric/apparel production chain. This is due in part to demands of United States
apparel retailers for shorter delivery times and quicker turnaround times.
Today, the working relationships between the fabric mills of the United States
and the apparel factories of MCACI countries are becoming more efficient and
well-developed, making western hemisphere fabric/apparel products competitive
with those imported from the Far East. From 1995 to 1996, apparel imports from
MCACI countries to the United States grew 18.7% from $8.3 billion to $9.8
billion, versus imports from all other countries of $28.5 billion in 1995 and
$28.8 billion in 1996, an increase of only 1.1%. In the first quarter of 1997,
imports from MCACI countries were $2.6 billion, an increase of 33.8% from $2.0
billion imported during the first quarter of 1996, while imports from all other
countries increased by 7.2% during the same period. The Company believes that
the majority of garments imported to the United States from MCACI countries
contain fabric from United States producers such as the Company.
The Company believes that its relationship with United States apparel
marketers, its modern manufacturing facilities and its reputation for quality
position it to compete effectively in this evolving western hemisphere
fabric/apparel production chain.
INCREASED CASUAL WORKPLACE ENVIRONMENT
Trends in consumer preferences are also creating growth opportunities for
the Company. With the advent of "casual Fridays" and increasingly casual dress
workplaces in recent years, the demand for casual wear has increased. The
Company's principal product lines are made into garments of the type being worn
in this more casual workplace environment, such as all-cotton pants and knit
polo-type shirts. The Company's recently completed modernization program has
increased its capacity for all-cotton finished fabrics used in casual wear. As a
result, the Company believes that it is in a position to benefit from this
casualization trend.
BUSINESS STRATEGY
Within the framework of an evolving fabric/apparel industry, the Company
has developed and is implementing the following business strategy aimed at
growing revenues and EBITDA:
o LEVERAGE WOVEN FABRICS DIVISION RELATIONSHIPS WITH KEY APPAREL MARKETERS.
The woven fabrics division has focused its marketing efforts on building
close relationships with major apparel companies that have broad
distribution channels and that the Company believes have positioned
themselves for long-term growth. These companies include Levi Strauss,
Haggar Corp., the Wrangler(R) and Lee(R) divisions of V.F. Corporation
and Farah Incorporated. In addition, the division is a significant
supplier to certain product lines of Liz Claiborne, Inc. and Kellwood
Company. In building these relationships, the Company seeks to be a
significant supplier for the major product lines of its customers which
the Company expects to provide a steady base of recurring revenues. The
woven fabrics division also maintains strong working relationships with
major retailers, such as J.C. Penney Company, Inc., Kmart Corporation,
Sears, Roebuck & Co. and Wal-Mart Stores, Inc., that specify or recommend
the purchase of fabric to contract manufacturers that produce their
apparel product lines.
9
<PAGE>
o FOCUS ON THE GROWTH SEGMENTS OF THE KNITTED FABRICS INDUSTRY. The knitted
fabric division's marketing resources are focused on the following
segments: (i) major apparel companies that market casual wear such as
knit polo-type shirts, (ii) children's wear manufacturers and (iii)
career apparel. Many major branded apparel companies, such as Levi
Strauss, NIKE, Inc. and the Lee(R) and Wrangler(R) divisions of V.F.
Corporation, as well as private label companies, are expected to increase
their demand for knitted fabrics. The knitted fabrics division also plans
to expand its children's wear business by targeting large manufacturers
of children's wear, such as Garan, Incorporated and Gerber Products
Company, that have successfully maintained and expanded their market
shares in a segment which the Company believes has experienced
significant concentration in recent years. In addition, delivery, fast
food and other service companies such as United Parcel Service of
America, Inc., Taco Bell North America and Kinko's, Inc. are requiring
uniforms that are not only durable, but fashionable and comfortable as
well. The Company believes that this trend is providing a rapidly growing
career apparel market for knit polo-type shirts.
o CAPITALIZE ON IMPROVED OPERATING EFFICIENCIES AND REDUCED COST STRUCTURE.
The Company has recognized that a critical element of being competitive
in the global textile industry is the ability to minimize manufacturing
costs. In an effort to become a low-cost, world competitive producer, the
Company has invested approximately $277.1 million during the last decade
to modernize and maintain its plants and equipment, including more than
$143.8 million over the past five fiscal years. As a result of its
extensive capital expenditure campaign in recent years, the Company
believes that it is in a position to return to substantially reduced
levels of capital expenditures, with an average of approximately $15.0
million per year expected to be required for the next three fiscal years.
The Company's initiatives have resulted in a significant reduction in its
manufacturing costs. Comparing the most recent fiscal year with fiscal
year 1992, sales generated per square foot of manufacturing space have
increased approximately 29.3%, and sales generated per employee have
increased approximately 29.4%.
o CONTINUE TO FOCUS ON QUALITY. Coupled with the modernization projects
described above, the Company's pursuit of quality improvements has
resulted in its reputation as a high quality producer of textile fabrics.
The woven fabrics division is a certified supplier to Levi Strauss and
Liz Claiborne because of its consistently meeting their high quality and
delivery standards. Other apparel manufacturers are following this trend
toward certifying key suppliers. As a consequence of the high quality of
the woven fabrics produced by the Company, some of the Company's largest
customers, such as Levi Strauss, do not find it necessary to inspect all
of the Company's goods upon receipt. The Company believes that its
product quality is a significant competitive advantage in the sale of its
higher margin woven products.
10
<PAGE>
THE EXCHANGE OFFER
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
Securities Offered.................. $150.0 million in aggregate principal
amount of 9-5/8% Senior Notes due
September 1, 2007, Series B,
guaranteed by the Guarantors, are
offered hereby.
The Exchange Offer.................. $1,000 principal amount of the
Exchange Notes in exchange for each
$1,000 principal amount of Senior
Notes. As of the date hereof, all of
the aggregate principal amount of
Senior Notes are outstanding. The
Exchange Notes will be issued to
eligible holders on or promptly after
the Expiration Date of the Exchange
Offer.
Based on interpretations by the staff
of the Commission set forth in
no-action letters issued to unrelated
third parties, the Company believes
that the Exchange Notes issued
pursuant to the Exchange Offer in
exchange for Senior Notes may be
offered for resale, resold and
otherwise transferred by a holder
thereof (other than (i) a
broker-dealer who purchases Notes
directly from the Company to resell
pursuant to Rule 144A or any other
available exemption under the
Securities Act or (ii) a person that
is an affiliate of the Company within
the meaning of Rule 405 under the
Securities Act), without compliance
with the registration and prospectus
delivery provisions of the Securities
Act; PROVIDED that the holder is
acquiring the Exchange Notes in the
ordinary course of its business and
is not participating, and had no
arrangement or understanding with any
person to participate, in the
distribution of the Exchange Notes.
(See the No-Action Letters). Holders
of Senior Notes who tender their
Senior Notes in the Exchange Offer
with the intention of participating
in a distribution of the Exchange
Notes will not be able to rely on the
No-Action Letters or similar
no-action letters. Each broker-dealer
that receives Exchange Notes for its
own account in exchange for Senior
Notes, where such Senior Notes were
acquired by such broker-dealer as a
result of market-making activities or
other trading activities, must
acknowledge that it will deliver a
prospectus in connection with any
resale of such Exchange Notes.
Holders of Senior Notes will not have
dissenters' rights or appraisal
rights in connection with the
Exchange Offer. See "The Exchange
Offer -- Appraisal Rights."
Expiration Date..................... The Exchange Offer will expire at
5:00 p.m., Eastern time, on [25
business days following
effectiveness], 1998, unless the
Exchange Offer is extended by the
Company in its sole discretion, in
which case the term "Expiration Date"
shall mean the latest date and time
to which the Exchange Offer is
extended. The Company will extend the
Expiration Date beyond [30 business
days following effectiveness] only in
the event of unforeseen
circumstances. See "The Exchange
Offer -- Expiration Date; Extensions;
Amendments."
Conditions to the
Exchange Offer........................ The Exchange Offer is subject to
customary conditions including the
conditions that Offer the Exchange
Offer not violate applicable law,
rules or regulations or an applicable
interpretation of the staff of the
Commission. The Company may waive
unsatisfied conditions to the
Exchange Offer, to the extent
permitted by law, and in certain
unforeseen circumstances extend the
Expiration Date by five to ten
business days. See "The Exchange
Offer -- Conditions."
11
<PAGE>
Procedures for Tendering
Senior Notes........................ Each eligible holder of Senior Notes
wishing to accept the Exchange Offer
must complete, sign and date the
accompanying Letter of Transmittal,
or a facsimile thereof, in accordance
with the instructions contained
herein and therein, and mail or
otherwise deliver such Letter of
Transmittal, or such facsimile,
together with the Senior Notes and
any other required documentation to
the Exchange Agent (as defined
herein) at the address set forth in
the Letter of Transmittal. By
executing the Letter of Transmittal,
each holder will represent to the
Company that, among other things, (i)
the Exchange Notes to be acquired by
such holder of Senior Notes in
connection with the Exchange Offer
are being acquired by such holder in
the ordinary course of its business,
(ii) such holder, if not a
broker-dealer, is not engaged in and
does not intend to engage in a
distribution of the Exchange Notes,
(iii) that if such holder is a
broker-dealer registered under the
Exchange Act (except as set forth
below) or is participating in the
Exchange Offer for the purposes of
distributing Exchange Notes, such
holder will comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with a secondary resale
transaction of the Exchange Notes
acquired by such person and cannot
rely on the position of the staff of
the Commission set forth in the
No-Action Letters (see "The Exchange
Offer -- Resale of the Exchange
Notes"), (iv) such holder understands
that a secondary resale transaction
described in clause (iii) above and
any resales of Exchange Notes
obtained by such holder directly from
the Company should be covered by an
effective registration statement
containing the selling security
holder information required by Item
507 or Item 508, as applicable, of
Regulation S-K of the Commission and
(v) such holder is not an "affiliate"
as defined in Rule 405 under the
Securities Act, of the Company. If
the holder is a broker-dealer that
will receive Exchange Notes for its
own account in exchange for Senior
Notes that were acquired as a result
of market-making activities or other
trading activities, such holder will
be required to acknowledge in the
Letter of Transmittal that such
holder will deliver a prospectus in
connection with any resale of such
Exchange Notes; however, by so
acknowledging and by delivering a
prospectus, such holder 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 the Exchange Notes
received in exchange for Senior Notes
where such Senior Notes were acquired
by such broker-dealer as a result of
market-making activities or other
trading activities. See "The Exchange
Offer -- Procedures for Tendering."
Special Procedures for Beneficial
Owners.............................. Any beneficial owner whose Senior
Notes are registered in the name of a
broker, dealer, commercial bank,
trust company or other nominee and
who wishes to tender such Senior
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
such owner's Senior Notes, either
make appropriate arrangements to
register ownership of the Senior
Notes in such owner's name or obtain
a properly completed bond power from
the registered holder. The transfer
of registered ownership may take
considerable time and may not be able
to be completed prior to the
Expiration Date. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures......................... Holders of Senior Notes who wish to
tender their Senior Notes and whose
Senior Notes are not immediately
available or who cannot deliver their
Senior Notes, the Letter of
Transmittal or any other documents
required by the Letter of Transmittal
to the Exchange Agent (or comply with
the procedures for book-entry
transfer) prior to the Expiration
Date must tender their Senior 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., Eastern time, on
the Expiration Date pursuant to the
procedures described under "The
Exchange Offer -- Withdrawal of
Tenders."
Acceptance of the Senior Notes and
Delivery of the Exchange Notes...... Subject to the satisfaction or waiver
of the conditions to the Exchange
Offer, the Company will accept for
exchange any and all Senior Notes
that are properly tendered in the
Exchange Offer, and not withdrawn,
prior to 5:00 p.m., Eastern time, on
the Expiration Date. The Exchange
Notes issued pursuant to the Exchange
Offer will be delivered on the
earliest practicable date following
the Expiration Date. See "The
Exchange Offer -- Terms of the
Exchange Offer."
12
<PAGE>
Certain Federal Income Tax
Consequences........................ For a discussion of certain federal
income tax considerations relating to
the exchange of the Exchange Notes
for Senior Notes, see "Certain
Federal Income Tax Considerations."
That discussion is based on the
opinion of Wyche, Burgess, Freeman
and Parham, P.A., Greenville, South
Carolina.
Registration Rights Agreement.......... The Senior Notes were sold by the
Company on August 25, 1997, to the
Initial Purchaser pursuant to a
purchase agreement dated August 20,
1997 (the "Purchase Agreement") by
and among the Company, the Guarantor
and the Initial Purchaser, in an
offering consisting in the aggregate
of $150,000,000 of the Senior Notes.
Pursuant to the Purchase Agreement,
the Company, the Guarantor and the
Initial Purchaser entered into the
Registration Rights Agreement, which
grants the holders of the Senior
Notes certain exchange and
registration rights. This Exchange
Offer is intended to satisfy such
rights, which generally will
terminate upon the consummation of
the Exchange Offer. The holders of
the Exchange Notes will not be
entitled to any exchange or
registration rights with respect to
the Exchange Notes. See "The Exchange
Offer -- Senior Notes Registration
Rights."
Effect on Holders of the
Senior Notes........................ As a result of the making of this
Exchange Offer, the Company will have
fulfilled certain of its obligations
under the Registration Rights
Agreement, and holders of Senior
Notes who do not tender their Senior
Notes generally will not have any
further registration rights under the
Registration Rights Agreement or
otherwise. Such holders will continue
to hold the untendered Senior Notes
and will be entitled to all the
rights and subject to all the
limitations, including, without
limitation, transfer restrictions,
applicable thereto under the
Indenture, except to the extent such
rights or limitations, by their
terms, terminate or cease to have
further effectiveness as a result of
the Exchange Offer. Accordingly, if
any Senior Notes are tendered and
accepted in the Exchange Offer, the
trading market, if any, for the
untendered Senior Notes could be
adversely affected.
Exchange Agent...................... The Bank of New York is serving as
exchange agent (the "Exchange Agent")
in connection with the Exchange
Offer.
13
<PAGE>
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are substantially identical to
the form and terms of the Senior Notes which they replace except that (i) the
Exchange Offer will have been registered under the Securities Act and,
therefore, the Exchange Notes will not bear legends restricting the transfer
thereof and (ii) the holders of Exchange Notes generally will not be entitled to
further registration rights under the Registration Rights Agreement, which
rights generally will have been satisfied when the Exchange Offer is
consummated. The Exchange Notes will evidence the same indebtedness as the
Senior Notes which they replace and will be issued under, and be entitled to the
benefits of, the Indenture. See "Description of Exchange Notes."
Maturity Date........................... September 1, 2007.
Interest Payment Dates................. March 1 and September 1, commencing
March 1, 1998.
Optional Redemption.................... On or after September 1, 2002, the
Company may redeem the Notes, in
whole or in part, at the redemption
prices set forth herein, plus accrued
and unpaid interest thereon and
Liquidated Damages, if any, to the
date of redemption. See "Description
of Exchange Notes -- Optional
Redemption."
Mandatory Redemption..................... None.
Ranking............................ The Notes are general unsecured
obligations of the Company and rank
senior to all existing and future
subordinated indebtedness of the
Company and PARI PASSU in right of
payment to all existing and future
unsubordinated indebtedness of the
Company (except and to the extent any
such other indebtedness is secured),
including indebtedness under the New
Credit Facility. THE COMPANY HAS NOT
ISSUED, AND DOES NOT HAVE ANY CURRENT
FIRM ARRANGEMENTS TO ISSUE, ANY
SIGNIFICANT ADDITIONAL INDEBTEDNESS
TO WHICH THESE NOTES WOULD BE SENIOR.
BECAUSE THE NEW CREDIT FACILITY IS
SECURED BY CERTAIN OF THE COMPANY'S
ASSETS, THE NOTES ARE EFFECTIVELY
SUBORDINATE, TO THE EXTENT OF SUCH
ASSETS, TO THE NEW CREDIT FACILITY,
WHICH REPRESENTS SUBSTANTIALLY ALL OF
THE OUTSTANDING INDEBTEDNESS OF THE
COMPANY (OTHER THAN THE NOTES). The
obligations of the Company under the
New Credit Facility are secured by
the accounts receivable and inventory
(and related property) of the Company
and its subsidiaries, as well as all
of the outstanding capital stock of
the Company and its subsidiaries,
and, accordingly, such indebtedness
effectively ranks senior to the Notes
to the extent of such assets. As of
August 25, 1997, on an as adjusted
basis after giving effect to the
Refinancing, the Company had
approximately $208.0 million of
indebtedness outstanding (including
approximately $58.0 million of
secured indebtedness outstanding
under the New Credit Facility). In
addition, the Company was
contingently liable with respect to
approximately $0.7 million under
letters of credit and had
approximately an additional $41.3
million of secured indebtedness
available to be incurred under the
New Credit Facility. See "Use of
Proceeds" and "Description of Other
Indebtedness."
14
<PAGE>
Guarantees........................... The Company's payment of principal of
and premium, if any, interest and
Liquidated Damages, if any, on the
Notes is fully and unconditionally
guaranteed by each of the existing
and future subsidiaries of the
Company other than Receivables
Subsidiaries (as defined herein)
(each a "Guarantor" and,
collectively, the "Guarantors"). Each
Guarantor's liability under its
Guarantee is limited to such amount,
the payment of which would not have
left the Guarantor insolvent or with
unreasonably small capital at the
time its Guarantee was entered into,
after giving effect to the incurrence
of existing indebtedness immediately
prior to such time. The Guarantees
rank senior to all existing and
future subordinated indebtedness of
the Guarantors and PARI PASSU in
right of payment with all existing
and future unsubordinated unsecured
indebtedness of the Guarantors. THE
GUARANTORS HAVE NOT ISSUED, AND DO
NOT HAVE ANY CURRENT FIRM
ARRANGEMENTS TO ISSUE, ANY
SIGNIFICANT ADDITIONAL INDEBTEDNESS
TO WHICH THE GUARANTEES WOULD BE
SENIOR. BECAUSE THE GUARANTORS'
GUARANTEE OF THE NEW CREDIT FACILITY
IS SECURED BY CERTAIN OF THE
GUARANTORS' ASSETS, THE GUARANTEES
ARE EFFECTIVELY SUBORDINATE, TO THE
EXTENT OF SUCH ASSETS, TO SUCH
GUARANTEE OF THE COMPANY'S BANK
CREDIT FACILITY, WHICH REPRESENTS
SUBSTANTIALLY ALL OF THE OUTSTANDING
INDEBTEDNESS OF THE GUARANTORS (OTHER
THAN THE GUARANTEES). The Guarantors'
obligations under the New Credit
Facility, however, are secured by a
lien on the accounts receivable and
inventory (and related property) of
the Guarantors and, accordingly, such
indebtedness ranks prior to the
Guarantees with respect to such
assets. See "Description of Exchange
Notes -- Guarantees."
Change of Control....................... Upon a Change of Control (as defined
herein), the Company will be required
to make an offer to repurchase all
outstanding Notes at 101% of the
principal amount thereof plus accrued
and unpaid interest thereon and
Liquidated Damages, if any, to the
date of repurchase. There can be no
assurance that the Company would be
able to obtain the consent of its
other lenders to repurchase the Notes
or have sufficient funds available to
finance the repurchase of the Notes
upon a Change of Control and that, in
such case, the Company's failure to
purchase tendered Notes would
constitute an Event of Default under
the Indenture which would, in turn,
constitute a default under the New
Credit Facility. A Change of Control
would constitute a default under the
New Credit Facility, the use of funds
to prepay the Notes could cause the
Company to breach one or more of the
financial covenants in the New Credit
Facility, and the New Credit Facility
prohibits the incurrence of material
new indebtedness. There can be no
assurance that, in the event of a
Change of Control, the Company would
be able to obtain a waiver of the
default under the New Credit Facility
or any successor facility or obtain
the consent of its lenders to
purchase the Notes or have sufficient
funds available to finance such
purchase of the Notes. In such case,
the Company's failure to purchase
tendered Notes would constitute an
Event of Default under the Indenture
which would, in turn, constitute a
default under the New Credit
Facility. See "Risk Factors
-Repurchase of Notes upon a Change of
Control, etc." and "Description of
Exchange Notes -- Repurchase at the
Option of Holders -- Change of
Control."
Covenants............................ The Indenture restricts, among other
things, the ability of the Company
and its subsidiaries to incur
additional indebtedness and issue
preferred stock, enter into sale and
leaseback transactions, incur liens,
pay dividends or make certain other
restricted payments, apply net
proceeds from certain asset sales,
enter into certain transactions with
affiliates, merge or consolidate with
any other person, sell stock of
subsidiaries, and assign, transfer,
lease, convey or otherwise dispose of
substantially all of the assets of
the Company. See "Description of
Exchange Notes -- Certain Covenants."
15
<PAGE>
Use of Proceeds........................ The Company will not receive proceeds
from the Exchange Offer. The net
proceeds from the sale of the Senior
Notes, together with approximately
$58.0 million of initial borrowings
under the New Credit Facility, were
paid to Delta Woodside in
satisfaction of outstanding
intercompany indebtedness, and Delta
Woodside utilized such payments to
repay outstanding indebtedness of
Delta Woodside (which was fully and
unconditionally guaranteed by the
Company). See "Use of Proceeds."
RISK FACTORS
There are a variety of risks facing the Company. Some of these are
discussed beginning on page 19 under the heading "Risk Factors" to which
reference is hereby made.
The Company is highly leveraged. The Company's ability to make scheduled
payments of principal of and to pay interest or Liquidated Damages, if any, on
the Notes, to satisfy its other debt obligations and to fund planned capital
expenditures will depend upon its future operating performance, which will be
affected by, among other factors, prevailing international and domestic economic
conditions and financial, business, regulatory, political and other factors,
including without limitation fluctuations in the rate of exchange of currency
and the continuation of favorable tariffs, quotas and other trade regulations,
certain of which are beyond its control, as well as the availability of
borrowings under the New Credit Facility or any successor credit facilities.
Borrowings under the New Credit Facility bear interest at floating rates.
Increases in interest rates on such borrowings could adversely affect the
Company and its ability to meet its debt service obligations, including its
obligations under the Notes.
The domestic textile and apparel industries are highly competitive. The
United States apparel market is served by a variety of producers, many of which
are located in rapidly growing, low-wage countries and use fabrics produced in
those regions. Many of these fabric producers have substantially greater
financial resources and lower cost of funds than the Company. Historically, the
Company has significantly benefitted from quotas and tariffs imposed by the
United States on the importation of textiles and apparel, which have reduced
competition from foreign manufacturers. The most recent round of the General
Agreement on Trade and Tariffs ("GATT"), which became effective on January 1,
1995, requires a complete phase-out of existing quotas over a ten-year period
for World Trade Organization members, a group which includes most countries in
the world with a few exceptions, the most notable of which is China (although
there can be no assurance that China will continue to be excluded). In addition,
the Company benefits from protections afforded to apparel manufacturers based in
certain Latin American and Caribbean countries that ship finished garments into
the United States, the loss of which protections would have a material adverse
effect on the Company. The North American Free Trade Agreement ("NAFTA") has
effectively eliminated or substantially reduced tariffs on goods imported from
Mexico if such goods are made from fabric originating in Canada, Mexico or the
United States.
The principal raw materials used by the Company in the manufacture of its
products are cotton of various grades, synthetic fiber and synthetic filament
yarns. Any shortage in the world cotton supply by reason of weather, crop
disease or other factors, or a significant increase in the price of cotton or
synthetic fiber or filament yarn, could adversely affect the Company.
For fiscal year 1997, sales to Levi Strauss and sales to the Company's top
five non-affiliated customers accounted for 17.1% and 37.8%, respectively, of
total sales. In fiscal year 1996, sales to Levi Strauss and sales to the
Company's top five non-affiliated customers accounted for 12.9% and 30.7%,
respectively, of the Company's total sales. Consistent with industry practice,
the Company does not operate under a supply contract with Levi Strauss or any of
its other major customers. The loss of Levi Strauss or other major customers
could have a material adverse effect upon the Company.
In addition to the risk factors summarized above, the Company faces
significant risks that could adversely affect investors pertaining to
environmental laws and regulatory concerns, its dependence on key personnel, the
nature of the retail industry and cyclicality, its obligation to repurchase the
Notes upon a Change of Control, fraudulent conveyance statutes, and the lack of
a public market for the Notes. ALL OF THE RISK FACTORS DESCRIBED IN THIS
PROSPECTUS ARE IMPORTANT, AND INVESTORS ARE URGED TO READ THE SECTION OF THIS
PROSPECTUS TITLED "RISK FACTORS" IN ITS ENTIRETY FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE EXCHANGE
NOTES.
16
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table presents summary historical and pro forma consolidated
financial information of the Company for each of the five fiscal years in the
period ended June 28, 1997 and the quarters ended September 28, 1996 and
September 27, 1997. The historical consolidated financial information for the
fiscal years ended July 2, 1994, July 1, 1995, June 29, 1996 and June 28, 1997
has been derived from the consolidated financial statements of the Company for
such periods, which have been audited by KPMG Peat Marwick LLP. The information
for the fiscal year ended July 3, 1993 and the quarters ended September 28, 1996
and September 27, 1997 is unaudited. The summary historical consolidated
financial information should be read in conjunction with, and is qualified in
its entirety by reference to, the information set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited consolidated financial statements of the Company as
of June 29, 1996 and June 28, 1997, and for each of the three fiscal years in
the period ended June 28, 1997, and the notes thereto, which appear elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR (1)
----------------------------------------------------------------------------
1993(2) 1994 1995 1996 1997
----------- ----------- ------------ ----------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
STATEMENTS OF OPERATIONS DATA (3):
<S> <C> <C> <C> <C> <C>
Net sales........................ $457,249 $407,037 $413,927 $402,461 $464,548
Cost of goods sold............... 400,187 361,531 369,785 389,977 399,378
----------- ----------- ------------ ----------- -----------
Gross profit..................... 57,062 45,506 44,142 12,484 65,170
Selling, general and administrative
expenses (4)..................... 24,863 25,734 23,717 22,767 25,382
Impairment and restructuring charges -- 3,066 (290) 13,291 --
(credits) (5)....................
Other (income) expense........... (638) 122 272 921 (1,632)
----------- ----------- ------------ ----------- -----------
Earnings (loss) from operations.. 32,837 16,584 20,443 (24,495) 41,420
Interest expense................. 4,918 10,795 12,251 14,099 14,285
Interest (income)................ (259) (131) (39) (92) (73)
----------- ----------- ------------ ----------- -----------
Income (loss) before income taxes 28,178 5,920 8,231 (38,502) 27,208
Income taxes (benefit)........... 6,009 2,500 3,180 (13,703) 10,655
----------- ----------- ------------ ----------- -----------
Net income (loss)................ $22,169 $3,420 $5,051 $(24,799) $16,553
=========== =========== ============ =========== ===========
CASH FLOW DATA:
Cash Provided (Used) By
Operating Activities $18,532 $22,998 $19,181 $24,254 $34,764
Investing Activities (38,079) (18,317) (27,195) (46,120) (13,444)
Financing Activities 19,697 (3,941) 7,112 21,865 (20,269)
<CAPTION>
QUARTER ENDED
----------------------------
SEPT. 28 SEPT. 27,
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
STATEMENTS OF OPERATIONS DATA (3):
<S> <C> <C>
Net sales........................ $99,939 $119,931
Cost of goods sold............... 86,751 103,111
----------- -----------
Gross profit..................... 13,188 16,820
--
Selling, general and administrative 5,810 6,562
expenses (4).....................
Impairment and restructuring charges --- ---
(credits) (5)....................
Other (income) expense........... (27) (15)
----------- -----------
Earnings (loss) from operations.. 7,405 10,273
Interest expense................. 3,426 4,323
Interest (income)................ (15) (15)
----------- -----------
Income (loss) before income taxes 3,994 5,965
Income taxes (benefit)........... 1,482 2,299
----------- -----------
Net income (loss)................ $2,512 $3,666
=========== ===========
CASH FLOW DATA:
Cash Provided (Used) By
Operating Activities $6,895 ($6,498)
Investing Activities (5,509) (1,514)
Financing Activities (1,384) 3,495
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO HISTORICAL
FORMA (6)
------------------------------------------------------------------------ ------------ ------------
FISCAL YEAR (1) SEPT. 27,
-----------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1997 1997
----------- ----------- ---------- ---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
BALANCE SHEET DATA (3):
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficit). $ 1,841 $ 59,320 $ 50,421 $ 16,010 $(7,525) $141,133 $139,841
Total assets.............. 328,155 318,468 336,672 333,577 345,010 351,010 353,472
Total debt and other long- 215,000
term obligations (7)...... 130,344 249,530 252,750 289,587 268,658 225,000
Shareholder's equity 127,552 11,122 16,090 (8,709) 7,844 57,502 61,168
(deficit).................
<CAPTION>
PRO HISTORICAL
FORMA (6)
------------ ------------
SEPT. 27,
--------------
1997 1997
------------ -- ------------
(UNAUDITED) (UNAUDITED)
BALANCE SHEET DATA (3):
<S> <C> <C>
Working capital (deficit)... $141,133 $139,841
Total assets.............. 351,010 353,472
Total debt and other long- 215,000
term obligations (7)...... 225,000
Shareholder's equity
(deficit)................. 57,502 61,168
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR (1)
----------------------------------------------------------------------------
1993(2) 1994 1995 1996 1997
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
OTHER DATA:
<S> <C> <C> <C> <C> <C>
Depreciation and amortization.... $13,087 $16,712 $16,997 $18,952 $19,323
Capital expenditures............. 34,446 18,334 35,182 42,128 13,719
EBITDA, As Adjusted (8).......... 46,183 36,493 37,189 7,840 60,816
Ratio of earnings to fixed charges 4.7x 1.5x 1.6x --(10) 2.3x
(9)..............................
Ratio of EBITDA to interest 9.4x 3.4x 3.0x --(10) 4.3x
expense (8).....................
PRO FORMA FINANCIAL DATA
(UNAUDITED) (9)
Ratio of earnings to fixed charges (9) 2.3x
Cash interest expense (11)....... $19,595
Ratio of EBITDA to cash interest 3.1x
expense (8)......................
Ratio of total debt to EBITDA (8) 3.7x
- ----------------------
<CAPTION>
QUARTER ENDED
-------------------------------
SEPT. 28, SEPT. 27,
1996 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
OTHER DATA:
<S> <C> <C>
Depreciation and amortization.... $4,801 $5,188
Capital expenditures............. 13,978 1,086
EBITDA, As Adjusted (8).......... 12,221 15,461
Ratio of earnings to fixed charges 1.8x 2.4x
(9)..............................
Ratio of EBITDA to interest 3.6x 3.6x
expense (8).....................
PRO FORMA FINANCIAL DATA
(UNAUDITED) (9)
Ratio of earnings to fixed charges (9) 1.8x 2.1x
Cash interest expense (11)....... $4,997 $5,024
Ratio of EBITDA to cash interest 2.4x 3.1x
expense (8)......................
Ratio of total debt to EBITDA (8) -- --
- ----------------------
</TABLE>
(1) The Company's operations are based on a fifty-two or fifty-three week
fiscal year ending on the Saturday nearest June 30. Fiscal year 1993 was
fifty-three weeks.
(2) During fiscal year 1993, two indirect subsidiaries of Delta Woodside
merged into Delta Holding, Inc. which was then renamed Delta Mills, Inc.
Amounts presented for fiscal year 1993 reflect the effect of this merger
as if the merger had occurred at the beginning of the fiscal year 1993.
(3) The statements of operations data and balance sheet data include the
accounts of Delta Mills, Inc. and certain marketing divisions of Delta
Consolidated Corporation. These divisions of Delta Consolidated
Corporation were transferred in August 1997 to Delta Mills Marketing,
Inc., now a wholly-owned subsidiary of the Company. The combination of
these entities under common control was accounted for in a manner similar
to pooling-of-interest accounting for business combinations. All prior
periods have been restated.
(4) Delta Woodside provides various corporate services to the Company,
including payroll, accounting, internal audit, employee benefits and
corporate services. These services have been charged to the Company on the
basis of Delta Woodside's costs and allocated to the Company based on
employee head count, computer time, projected sales and other criteria.
During fiscal years 1993, 1994, 1995, 1996 and 1997, Delta Woodside
charged the Company $3,280, $3,083, $2,950, $3,123 and $3,302,
respectively, for these services. See Note F to the Consolidated Financial
Statements.
(5) Impairment and restructuring charges (credits) include principally
writedowns of property, plant and equipment. Also included are expenses
incurred in connection with plant closings.
(6) The pro forma financial data give effect to the Refinancing as if it
occurred on June 30, 1996. The pro forma balance sheet data give effect to
the Refinancing as if it occurred on June 28, 1997.
(7) Total debt and other long-term obligations, on an historical basis,
consist of the long-term debt due to affiliate, the current loan payable
to affiliate and the noninterest-bearing payable to affiliates. See Notes
C and F to the Consolidated Financial Statements.
(8) "EBITDA, as adjusted" is defined herein as income (loss) before income
taxes, plus depreciation and amortization expense and interest expense,
plus impairment and restructuring charges (credits). While EBITDA, as
adjusted, should not be construed as an alternative to operating earnings
(loss) or net income (loss), or as an indicator of operating performance
or liquidity, the Company believes that the ratio of EBITDA, as adjusted,
to interest expense is a measure that is commonly used to evaluate a
company's ability to service debt.
(9) Earnings used in computing the ratio of earnings to fixed charges consist
of income (loss) before provision for income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness (including
amortization of deferred debt issuance costs) plus capitalized interest,
plus interest expense on the indebtedness of Delta Woodside guaranteed by
the Company (less interest paid by the Company with respect to
intercompany indebtedness).
(10) Fixed charges exceeded earnings in fiscal year 1996 by $38,502. Interest
expense exceeded EBITDA, as adjusted, in fiscal year 1996 by $6,258.
(11) Pro forma cash interest expense excludes amortization of deferred debt
issuance costs.
18
<PAGE>
RISK FACTORS
FAILURE TO EXCHANGE SENIOR NOTES COULD LEAVE A HOLDER OF SENIOR NOTES WITH LESS
MARKETABLE SECURITIES RESULTING FROM A LOWER FLOAT OF SENIOR NOTES FOLLOWING THE
EXCHANGE OFFER AND FROM RESTRICTIONS ON THE TRANSFER OF THE SENIOR NOTES
Exchange Notes will be issued in exchange for Senior Notes only after
timely receipt by the Exchange Agent of such Senior Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, holders of Senior Notes desiring to tender such Senior Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Senior
Notes for exchange. Senior Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
holder of Senior Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Senior Notes, where such
Senior Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. To
the extent that Senior Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Senior Notes could
be adversely affected due to the limited amount, or "float," of the Senior Notes
that is expected to remain outstanding following the Exchange Offer. Generally,
a lower "float" of a security could result in less demand to purchase such
security and could, therefore, result in lower prices for such security. For the
same reason, to the extent that a large amount of Senior Notes is not tendered
or is tendered and not accepted in the Exchange Offer, the trading market for
the Exchange Notes could be adversely affected. See "Plan of Distribution" and
"The Exchange Offer."
SIGNIFICANT LEVERAGE AND DEBT SERVICE OF THE COMPANY COULD MAKE IT DIFFICULT FOR
THE COMPANY TO SATISFY ITS OBLIGATIONS WITH RESPECT TO THE NOTES, INCREASE ITS
VULNERABILITY TO ADVERSE ECONOMIC CONDITIONS, LIMIT ITS ABILITY TO OBTAIN FUTURE
FINANCING, REDUCE THE AVAILABILITY OF FUTURE CASH FLOW, LIMIT THE COMPANY'S
FLEXIBILITY IN PLANNING AND PLACE THE COMPANY AT A COMPETITIVE DISADVANTAGE.
The Company is highly leveraged. At August 25, 1997, after the
Refinancing, including the application of the net proceeds from the offering of
Senior Notes in the manner described in "Use of Proceeds," the Company had
shareholder's equity of approximately $58.9 million and total outstanding
long-term debt of approximately $208.0 million, of which approximately $58.0
million was secured by the Company's accounts receivable and inventory (and
related property), as well as all of the outstanding capital stock of the
Company and its subsidiaries (and, accordingly, was effectively senior to the
Notes with respect to such assets). Also, after giving pro forma effect to the
Refinancing, the Company's earnings before taxes and interest expense would have
been insufficient to cover its fixed charges by approximately $38.5 million for
the 1996 fiscal year. In addition, as of August 25, 1997, after the Refinancing,
approximately $41.3 million was available for additional borrowing under the New
Credit Facility and the Company was contingently liable with respect to
approximately $0.7 million under letters of credit issued under the New Credit
Facility. The Indenture permits the incurrence of substantial additional secured
and other indebtedness by the Company and its subsidiaries. See "Description of
Exchange Notes -Certain Covenants," "Description of Other Indebtedness" and "Use
of Proceeds." The Company also has substantial additional obligations under
operating leases. See Notes A and C to the Consolidated Financial Statements.
Additionally, all of the indebtedness under the New Credit Facility will
mature prior to the Notes. Indebtedness under the New Credit Facility is secured
by a lien on accounts receivable and inventory (and related property), as well
as all of the outstanding capital stock of the Company and its subsidiaries,
while the Notes represent unsecured obligations of the Company. Accordingly, the
lenders under the New Credit Facility (and any other indebtedness secured by
assets of the Company) will have a claim ranking effectively prior to that of
the holders of the Notes with respect to the proceeds of assets securing such
indebtedness. In the event of bankruptcy, liquidation or reorganization of the
Company, holders of the Notes will participate ratably in the remaining assets
of the Company with all holders of unsecured indebtedness of the Company and
with all other general creditors of the Company based upon the respective
amounts owed to each holder or creditor. See "Description of Exchange Notes." In
any of the foregoing events, there can be no assurance that there would be
sufficient assets to pay amounts due on the Notes.
The Company's ability to make scheduled payments of principal of and to
pay interest or Liquidated Damages, if any, on the Notes, to satisfy its other
debt obligations and to fund planned capital expenditures will depend upon its
future operating performance, which will be affected by, among other factors,
prevailing international and domestic economic conditions and financial,
business, regulatory, political and other factors, including without limitation
fluctuations in the rate of exchange of currency and the continuation of
favorable tariffs, quotas and other trade regulations, certain of which are
beyond its control,
19
<PAGE>
as well as the availability of borrowings under the New Credit Facility or any
successor credit facilities. The Company will require substantial amounts of
cash to fund scheduled payments of principal and interest on its outstanding
indebtedness as well as future capital expenditures and any increased working
capital requirements. If the Company is unable to meet its cash requirements out
of cash flow from operations and its available borrowings, there can be no
assurance that it will be able to obtain alternative financing or that it will
be permitted to do so under the terms of the Indenture or the New Credit
Facility. In the absence of such financing, the Company's ability to respond to
changing business, political and economic conditions, to absorb adverse
operating results, to fund capital expenditures or to make future acquisitions
may be adversely affected. In addition, actions taken by the lending banks under
the New Credit Facility are not subject to approval by the holders of the Notes.
Finally, it is anticipated that, in order to pay the principal balance of the
Notes due at maturity, the Company will be required to obtain alternative
financing. There can be no assurance, however, that the Company will be able to
refinance the Notes at maturity at commercially reasonable terms, or at all, and
the inability to refinance the Notes would likely have a material adverse effect
on the Company and on the market value and marketability of the Notes.
The degree to which the Company is leveraged following the Refinancing
could have important consequences to holders of the Notes, including, but not
limited to: (i) making it more difficult for the Company to satisfy its
obligations with respect to the Notes and its other indebtedness and contingent
liabilities, (ii) increasing the Company's vulnerability to general adverse
economic and industry conditions, (iii) limiting the Company's ability to obtain
additional financing to fund future working capital needs, capital expenditures,
research and development and other general corporate purpose requirements, (iv)
requiring the dedication of a substantial portion of the Company's cash flow
from operations to the payment of principal of, and interest on, its
indebtedness, thereby reducing the availability of such cash flow to fund
working capital needs, capital expenditures, research and development or other
general corporate purposes, (v) limiting the Company's flexibility in planning
for, or reacting to, changes in its business and the industry, and (vi) placing
the Company at a competitive disadvantage vis-a-vis less leveraged competitors.
In addition, the Indenture and the New Credit Facility contain financial and
other restrictive covenants that limit the ability of the Company to, among
other things, borrow additional funds. Failure by the Company to comply with
such covenants could result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company. In addition, the
degree to which the Company is leveraged could prevent it from repurchasing all
of the Notes tendered to it upon the occurrence of a Change of Control. See
"Description of Exchange Notes -- Repurchase at the Option of Holders -- Change
of Control" and "Description of Other Indebtedness -- New Credit Facility."
Borrowings under the New Credit Facility bear interest at floating rates.
Increases in interest rates on such borrowings could adversely affect the
Company. While interest rates are currently at relatively low levels, increases
in interest rates could negatively impact the ability of the Company to meet its
debt service obligations, including its obligations under the Notes.
The New Credit Facility and the Indenture contain numerous operating
covenants that limit the discretion of management with respect to certain
business matters, and place significant restrictions on, among other things, the
ability of the Company to incur additional indebtedness, to create liens or
other encumbrances, to make certain payments or investments, loans and
guarantees and to sell or otherwise dispose of assets and merge or consolidate
with another entity. The New Credit Facility also contains financial covenants
that require the Company to maintain (i) a minimum consolidated tangible net
worth, (ii) a maximum leverage ratio, (iii) a minimum consolidated current ratio
and (iv) a minimum interest coverage ratio. See "Description of Exchange Notes--
Certain Covenants" and "Description of Other Indebtedness." A failure to comply
with the obligations contained in the New Credit Facility or the Indenture could
result in an event of default under the New Credit Facility or an Event of
Default under the Indenture that, if not cured or waived, could permit
acceleration of the relevant debt and acceleration of debt under other future
instruments that may contain cross-acceleration or cross-default provisions.
Other future indebtedness of the Company could contain amortization and other
prepayment provisions, or financial or other covenants, more restrictive than
those applicable to the New Credit Facility and the Notes. The foregoing factors
could have a material adverse effect on the Company's business, financial
condition, results of operations and debt service ability.
COMPETITION AND RISKS ASSOCIATED WITH CHANGING INDUSTRY AND REGULATION,
INCLUDING THE REDUCTION OF QUOTAS AND TARIFFS RESULTING FROM GATT AND NAFTA AND
IMPEDIMENTS TO ACCESS TO FUTURE TECHNOLOGICAL ADVANCES IN THE TEXTILE INDUSTRY,
COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY
The domestic textile and apparel industries are highly competitive. The
United States apparel market is served by a variety of producers, many of which
are located in rapidly growing, low-wage countries and use fabrics produced in
those regions. Many of these fabric producers have substantially greater
financial resources and lower cost of funds than the Company. Historically, the
Company has significantly benefitted from quotas and tariffs imposed by the
United States on the importation of textiles and apparel, which have reduced
competition from foreign manufacturers. GATT, which became effective on January
1, 1995, requires a complete phase-out of existing quotas over a ten-year period
for World Trade Organization members, a group which includes most countries in
the world with a few exceptions, the most notable of which is China (although
there can be no assurance that China will continue to be excluded). The
phase-out of such quotas is
20
<PAGE>
scheduled to take place in four stages as follows (expressed in a percentage of
total imports for 1994): 16% in 1995; 17% in 1998; 18% in 2002; and 49% in 2005.
To date, no products manufactured by the Company, and, to its knowledge, no
apparel products manufactured by its United States customers for the United
States market, have been subject to quota eliminations under GATT. The products
that will be subject to quota eliminations in 1998, however, include babywear
made from natural and synthetic fibers and in 2002 include dressing gowns,
bathrobes, wool products and woven two-piece track suits. Most of the Company's
products and the end-uses for such products are subject to quota elimination in
2005. In addition to the phasing-out of quotas, GATT also requires that the
United States reduce tariffs on fabric and apparel imports over the same
ten-year period. To date, the United States has not lowered such tariffs
significantly. The elimination of quotas or reduction of tariffs as contemplated
by GATT, or other changes in trade regulation that result in the lowering of
barriers to entry of foreign goods, may have a material adverse effect on the
Company.
In addition, the Company benefits from protections afforded to apparel
manufacturers based in certain Latin American and Caribbean countries that ship
finished garments into the United States, the loss of which protections would
have a material adverse effect on the Company. NAFTA has effectively eliminated
or substantially reduced tariffs on goods imported from Mexico if such goods are
made from fabric originating in Canada, Mexico or the United States. Section 807
provides for the duty-free treatment of United States origin components used in
the assembly of imported articles. The result is that duty is assessed only on
the value of any foreign components that may be present and the labor costs
incurred offshore in the assembly of apparel using United States origin fabric
components. Because Section 807 creates an incentive to use fabric manufactured
in the United States, it is beneficial to the Company and other domestic
producers of apparel fabrics. In addition, pursuant to a related section
referred to as "Section 807A" or the Special Access Program, apparel articles
assembled in a Caribbean country, in which all fabric components have been
wholly formed and cut in the United States, are subject to preferential quotas
with respect to access into the United States for such qualifying apparel, in
addition to the significant tariff reduction provided under Section 807. A
similar program, enacted as a result of NAFTA and referred to as the Special
Regime Program, provides even greater benefits (complete duty-free, quota-free
treatment) for apparel assembled in Mexico from fabric components formed and cut
in the United States. In contrast, apparel not meeting the criteria of Section
807, Section 807A, or the Special Regime Program is subject to quotas and/or
relatively higher tariffs. If Section 807, Section 807A or the Special Regime
Program were repealed or altered in whole or in part, the Company believes that
it could be at a serious competitive disadvantage relative to textile
manufacturers in other parts of the world seeking to enter the United States
market, which would have a material adverse effect on the Company. See "Business
- -- Industry Trends" and "Business -Competition."
Future technological advances in the textile industry may result in the
availability of new products or increase the efficiency of existing
manufacturing and distribution systems. If a new technology becomes available
that is more cost-effective or creates a competing product, the Company may be
unable to access such technology or its use may involve substantial capital
expenditure that the Company may be unable to finance. There can be no assurance
that existing, proposed or yet undeveloped technologies will not render the
Company's technology less profitable or less viable, or that the Company will
have available the financial and other resources to compete effectively against
companies possessing such technologies. The Company is unable to predict which
of the many possible future products and services will meet the evolving
industry standards and consumer demands. There can be no assurance that the
Company will be able to adapt to such technological changes or offer such
products on a timely basis or establish or maintain competitive positions.
RAW MATERIALS: ANY SHORTAGE IN THE WORLD SUPPLY OF COTTON COULD ADVERSELY AFFECT
THE COMPANY
The principal raw materials used by the Company in the manufacture of its
products are cotton of various grades, synthetic fiber and synthetic filament
yarns. Any shortage in the world cotton supply by reason of weather, crop
disease or other factors, or a significant increase in the price of cotton or
synthetic fiber or filament yarn, could adversely affect the Company.
As of September 27, 1997, the Company had contracted to purchase about 71%
of its expected cotton requirements for fiscal year 1998 and 18% of its expected
cotton requirements for fiscal year 1999. The percentage of the Company's cotton
requirements that the Company fixes each year varies depending upon the
Company's forecast of future cotton prices. The Company believes that recent
cotton prices have enabled it to contract for cotton at prices that will permit
it to be competitive with other companies in the United States textile industry
when the cotton purchased for future use is put into production. To the extent
that cotton prices decrease before the Company uses these future purchases, the
Company could be materially and adversely affected. In addition, to the extent
that cotton prices increase, the Company may be materially and adversely
affected as there can be no assurance that it would be able to pass along these
increased costs to its customers. For example, this factor contributed
significantly to the Company's operating losses during fiscal year 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Raw Materials."
21
<PAGE>
ENVIRONMENTAL LAWS AND REGULATIONS: MORE STRINGENT ENVIRONMENTAL REGULATIONS OR
DISCOVERY OF CURRENTLY UNKNOWN ENVIRONMENTAL PROBLEMS COULD HAVE A MATERIAL
ADVERSE EFFECT ON THE COMPANY
The Company is subject to various federal, state and local environmental
laws and regulations governing the discharge, emission, storage, handling and
disposal of a variety of substances and wastes used in or resulting from the
Company's operations. The Company continues to incur capital and other
expenditures in order to comply with applicable regulatory standards and certain
consent decrees that have been entered into by the Company. There can be no
assurance that environmental regulations (or the interpretation of existing
regulations) will not become more stringent in the future, that the Company will
not incur substantial costs in the future to comply with such requirements or
that the Company will not discover currently unknown environmental problems or
conditions. Any such event could have a material adverse effect on the Company.
See "Business -- Environmental and Regulatory Matters."
THE COMPANY'S DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the continued services of certain members of
senior management, including, among others, its Chief Executive Officer and
Chief Financial Officer. The Company believes that the loss of the services of
key members of senior management could have a material adverse effect on the
Company. In addition, the Company believes that its future success will depend
in large part upon its continued ability to attract, retain and motivate skilled
managers and other personnel. There can be no assurance that the Company will be
able to attract and retain sufficient qualified personnel to meet its business
needs. See "Management."
RISK OF LOSS OF MATERIAL CUSTOMERS OR BROKER
For fiscal year 1997, sales to Levi Strauss and sales to the Company's top
five non-affiliated customers accounted for 17.1% and 37.8%, respectively, of
total sales. In fiscal year 1996, sales to Levi Strauss and sales to the
Company's top five non-affiliated customers accounted for 12.9% and 30.7%,
respectively, of the Company's total sales. Consistent with industry practice,
the Company does not operate under a supply contract with Levi Strauss or any of
its other major customers. In addition, during fiscal years 1997, 1996 and 1995,
sales of camouflage military fabrics accounted for 8.4%, 12.8% and 3.1%,
respectively, of the Company's total sales. The loss of Levi Strauss or other
major customers could have a material adverse effect upon the Company. See
"--Retail Industry and Cyclicality, etc." and "Business -- Products and
Marketing."
The knitted fabrics division sells its prepared for print fabrics to
converters and printers principally through a broker. During fiscal year 1997,
sales through this broker were approximately $44.0 million, approximately 9.5%
of the Company's total sales. The Company believes that, because of the
competitive brokerage environment, the loss of this broker would not have a
material adverse effect on the Company. There can be no assurance, however, that
this would be the case. See "Business -- Products and Marketing."
RETAIL INDUSTRY AND CYCLICALITY
The textile and retail apparel industries are highly cyclical and
characterized by rapid shifts in fashion, consumer demand and competitive
pressures, and price and demand volatility. The demand for the Company's
products is principally dependent upon the level of United States demand for
retail apparel. The demand for retail apparel is in turn dependent on United
States consumer spending, which may be adversely affected by an economic
downturn, changing retailer and consumer demands, a decline in consumer
confidence or spending, and other factors beyond the Company's control. A
reduction in the level of demand for retail apparel could have a material
adverse effect on the Company.
The Company's success depends in part upon its ability to anticipate and
respond to changing consumer preferences and fashion trends in a timely manner.
Although the Company attempts to stay abreast of emerging lifestyle and consumer
preferences affecting its products, any sustained failure by the Company to
identify and be able to respond to such trends could have a material adverse
effect on the Company.
On November 3, 1997, one of the Company's major customers, Levi Strauss &
Co. ("Levi"), announced that it would close eleven plants in the United States
employing 6,395 workers or approximately 34 percent of its total manufacturing
workforce in the United States and Canada. In a letter to its suppliers dated
November 3, 1997, Levi stated that it did not know the extent of any impact of
the plant closings on its suppliers. To the Company's knowledge, the Levi plants
to be closed produce apparel that does not include the type of fabric
manufactured by the Company, and the Company does not believe that the course of
action announced by Levi will have a material adverse effect on the Company. If
Levi (or any other major customer) were to substantially reduce its demand for
the Company's products, this reduced demand could have a material adverse effect
upon the Company. See "-- Risk of Loss of Material Customers or Broker"
and "Business -- Products and Marketing."
22
<PAGE>
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL: THE COMPANY MAY BE UNABLE TO
REPURCHASE THE NOTES AS REQUIRED UPON A CHANGE IN CONTROL WHICH COULD RESULT IN
A DEFAULT UNDER THE INDENTURE AND THE NEW CREDIT FACILITY
Upon a Change of Control, the Company will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase and Liquidated Damages, if
any. There can be no assurance, however, that sufficient funds would be
available at the time of any Change of Control to make any required repurchases
of Notes tendered or that restrictions in the New Credit Facility or other
agreements governing outstanding indebtedness would allow the Company to make
such required purchases. The New Credit Facility Agreement prohibits such a
repurchase. Failure of the Company to repurchase the Notes upon a Change of
Control would constitute an Event of Default under the Indenture, which in turn
would result in a default under the New Credit Facility. Notwithstanding these
provisions, the Company could enter into certain transactions, including certain
recapitalizations, that would not constitute a Change of Control but would
increase the amount of debt outstanding at such time. See "Description of
Exchange Notes -- Repurchase at the Option of Holders."
FRAUDULENT CONVEYANCE STATUTES COULD BE USED BY A COURT TO SUBORDINATE OR AVOID
THE NOTES OR ANY GUARANTEE IN CERTAIN CIRCUMSTANCES
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court of competent jurisdiction to
subordinate or avoid the Exchange Notes or any Guarantee in favor of existing or
future creditors of the Company or a Guarantor.
The proceeds from the sale of the Senior Notes were used to refinance
outstanding intercompany indebtedness in order to allow the Company's ultimate
parent, Delta Woodside, to refinance outstanding indebtedness owed to third
parties. If a court in a lawsuit on behalf of an unpaid creditor of the Company
or a representative of the Company's creditors, such as a trustee in bankruptcy
of the Company as a debtor-in-possession, were to conclude that, at the time the
Company paid the net proceeds of the Senior Notes to the Company's direct or
indirect parent, the Company (x) intended to hinder, delay or defraud any
present or future creditor or contemplated insolvency with a design to prefer
one or more creditors to the exclusion in whole or in part of others or (y) did
not receive fair consideration or reasonably equivalent value for issuing the
Notes (for example, because the stockholders of the Company and not the Company
received the benefits of the issuance of the Notes) and the Company (i) was
insolvent, (ii) was rendered insolvent by reason of such distribution, (iii) was
engaged or about to engage in a business or transaction for which its remaining
assets constituted unreasonably small capital to carry on its business or (iv)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured, such court could void the Notes. Alternatively,
in such event, claims of the holders of the Notes could be subordinated to
claims of the other creditors of the Company. Because the existing indebtedness
that was refinanced was guaranteed by the Company, the benefit to the Company of
the issuance of the Notes may depend upon whether the Company's guarantee of the
existing indebtedness was itself a fraudulent conveyance or was otherwise
unenforceable.
The Company's obligations under the Notes are guaranteed by the
Guarantors. To the extent that a court were to conclude that (x) a Guarantee was
incurred by a Guarantor with intent to hinder, delay or defraud any present or
future creditor or the Guarantor contemplated insolvency with a design to prefer
one or more creditors to the exclusion in whole or in part of others or (y) such
Guarantor did not receive fair consideration or reasonably equivalent value for
issuing its Guarantee and such Guarantor (i) was insolvent, (ii) was rendered
insolvent by reason of the issuance of such Guarantee, (iii) was engaged or
about to engage in a business or transaction for which the remaining assets of
such Guarantor constituted unreasonably small capital to carry on its business
or (iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, the court could avoid or subordinate
such Guarantee in favor of the Guarantor's creditors. Among other things, a
legal challenge of a Guarantee on fraudulent conveyance grounds may focus on the
benefits, if any, realized by the Guarantor as a result of the issuance by the
Company of the Notes. The Guarantors did not receive any direct benefit from the
issuance of the Senior Notes and will not receive any direct benefit from the
issuance of the Exchange Notes. To the extent any Guarantee was avoided as a
fraudulent conveyance or held unenforceable for any other reason, the holders of
the Notes would cease to have any claim in respect of such Guarantor and would
be creditors solely of the Company and any Guarantor whose Guarantee was not
avoided or held unenforceable. In such event, the claims of the holders of the
Notes against the issuer of an invalid Guarantee would be subject to the prior
payment of all liabilities of such Guarantor. There can be no assurance that,
after providing for all prior claims, there would be sufficient assets to
satisfy the claims of the holders of the Notes relating to any avoided portions
of any of the Guarantees.
Based upon financial and other information currently available to it,
management of the Company and the Guarantor believe that the Notes and the
Guarantee were incurred for proper purposes and in good faith and that the
Company and each Subsidiary Guarantor are solvent and continued to be solvent
after issuing the Senior Notes, or its Guarantee, as the case may be, will
continue to be solvent after issuing the Exchange Notes, have sufficient capital
for carrying on its business after such issuance and are able to pay its debts
as they mature.
23
<PAGE>
LACK OF PUBLIC MARKET FOR THE NOTES
The Exchange Notes are a new issue of securities for which there is
currently no trading market. Prior to the Exchange Offer, there has been no
public market for the Senior Notes, and there can be no assurance that such a
market will develop or, if such a market develops, as to the liquidity of such
market. The Company does not intend to apply for listing or quotation of the
Exchange Notes on any securities exchange, nor does the Company intend to seek
admission of the Exchange Notes to trading on Nasdaq or any other automated
quotation system. The Senior Notes are neither listed on a securities exchange
nor traded on Nasdaq, but the Senior Notes are eligible for trading through the
NASD PORTAL market under the symbol "DeltaM." The Company has been advised by
the Initial Purchaser that it intends to make a market in the Notes, as
permitted by applicable laws and regulations. However, it is not obligated to do
so and any market-making activities with respect to the Notes may be
discontinued at any time without notice. In addition, such market-making
activities may be limited during the Exchange Offer and the pendency of any
Shelf Registration Statement (as defined herein). Therefore, there can be no
assurance that an active trading market for the Exchange Notes will develop, or,
if such a market develops, as to the liquidity of such market. If a market were
to exist, the Exchange Notes could trade at prices that may be lower than the
initial offering price of the Senior Notes depending on many factors, including
prevailing interest rates and the market for similar securities, general
economic conditions and the financial condition and performance of, and
prospects for, the Company. See "Plan of Distribution".
24
<PAGE>
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF THE COMPANY'S
MANAGEMENT AS WELL AS ON ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE
TO THE COMPANY AT THE TIME SUCH STATEMENTS WERE MADE. WHEN USED IN THIS
PROSPECTUS, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," "INTEND"
AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY, ARE INTENDED TO IDENTIFY
SUCH FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THESE STATEMENTS
ARE REASONABLE, PROSPECTIVE PURCHASERS SHOULD BE AWARE THAT ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE PROJECTED BY SUCH FORWARD-LOOKING STATEMENTS AS A
RESULT OF THE RISK FACTORS SET FORTH ABOVE OR OTHER FACTORS. PROSPECTIVE
PURCHASERS SHOULD CONSIDER CAREFULLY THESE FACTORS, AS WELL AS THE OTHER
INFORMATION AND DATA INCLUDED IN THIS PROSPECTUS. THE COMPANY CAUTIONS THE
READER, HOWEVER, THAT THIS LIST OF FACTORS MAY NOT BE EXHAUSTIVE AND THAT THESE
OR OTHER FACTORS, MANY OF WHICH ARE OUTSIDE OF THE COMPANY'S CONTROL, COULD HAVE
A MATERIAL ADVERSE EFFECT ON THE COMPANY AND ITS ABILITY TO SERVICE ITS
INDEBTEDNESS, INCLUDING PRINCIPAL OF AND INTEREST PAYMENTS ON AND LIQUIDATED
DAMAGES, IF ANY, WITH RESPECT TO THE NOTES. FURTHERMORE, THE COMPANY MAY NOT
UPDATE OR REVISE THE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS. PROSPECTIVE PURCHASERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON ANY OF THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN. ALL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS
BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS
SET FORTH ABOVE. THE SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS CONTAINED IN
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, WHICH
LIMITS THE LIABILITY OF CERTAIN PERSONS FOR FORWARD-LOOKING STATEMENTS, DOES NOT
APPLY TO INITIAL PUBLIC OFFERINGS SUCH AS THIS EXCHANGE OFFER.
25
<PAGE>
USE OF PROCEEDS
The Company will not receive proceeds from the Exchange Offer. The net
proceeds received by the Company from the sale of the Senior Notes was
approximately $145,688,000 after deducting the underwriting discounts. The net
proceeds from the sale of the Senior Notes, together with approximately $58.0
million of initial borrowings under the New Credit Facility, were paid to Delta
Woodside in satisfaction of certain intercompany indebtedness. $49,658,000 of
remaining intercompany indebtedness was contributed to the Company as a capital
contribution and thereby canceled.
<TABLE>
<CAPTION>
The following table sets forth the sources and uses of funds from the
Refinancing (in thousands):
Sources of Funds:
<S> <C>
Net Proceeds from Senior Notes less Underwriting Discount............... $145,688
Borrowing Under New Credit Facility..................................... 58,000
----------------
Total Sources........................................................ $203,688
================
Uses of Funds:
Repayment of indebtedness (1)............................................ $202,093
Up Front New Credit Facility Fees and Expenses........................... 1,566
Increase in Cash......................................................... 29
----------------
Total Uses.......................................................... $203,688
================
- ------------------------
</TABLE>
(1) $50.0 million of the net proceeds of the offering of Senior Notes and
initial borrowing under the New Credit Facility were applied to the
repayment in full of a term note dated November 11, 1993 in the
principal amount of $50.0 million, which was due at the end of fiscal
year 1998 and bore interest at the rate of 6% per annum. This term note
evidenced amounts that had been advanced by Delta Woodside to the
Company for working capital and capital expenditures. The remaining
$152.1 million of the net proceeds of the offering of Senior Notes and
initial borrowing under the New Credit Facility were applied to the
repayment of all advances from Delta Woodside to the Company that bore
interest ($28.7 million outstanding at June 28, 1997, bearing interest
at 8.5%) and all advances from Delta Woodside to the Company that did
not bear interest ($53.1 million outstanding at June 28, 1997), which
amounts were advanced for working capital and capital expenditures, and
the repayment of a portion of a term note dated August 27, 1993 in the
aggregate principal amount of $120.0 million, which was due on July 6,
1998 and bore interest at the rate of 6% per annum. This $120.0 million
note was issued by the Company as a dividend that was declared
effective August 27, 1993. See "Risk Factors -- Fraudulent Conveyance
Statutes, etc." Simultaneously with the closing of the Refinancing,
Delta Woodside caused to be contributed to the capital of the Company
the principal amount of this term note that remained outstanding after
the application of the net proceeds of the offering of the Senior Notes
and initial borrowing under the New Credit Facility.
Delta Woodside used the amounts paid to it by the Company from the net
proceeds from the issuance of the Senior Notes, together with $58.0 million of
initial borrowing under the New Credit Facility, $18.0 million of initial
borrowing under the Parent Credit Facility (see "Description of Other
Indebtedness") and certain available cash, to repay approximately $222.0 million
in aggregate principal amount of indebtedness outstanding under an Amended and
Restated Credit Agreement between Delta Woodside, as the borrower, and certain
lenders, dated as of March 15, 1996, as amended (the "Prior Credit Agreement").
<TABLE>
<CAPTION>
The following table sets forth the sources and uses of funds from or
simultaneously with the Refinancing for Delta Woodside (in thousands):
Sources of Funds:
<S> <C>
Payoff of Indebtedness with Proceeds from the Company.................... $202,093
Decrease in Cash......................................................... 1,992
Borrowing Under Parent Credit Facility................................... 18,000
----------------
Total Sources........................................................ $222,085
================
Uses of Funds:
Payoff Amounts Due Under Prior Credit Agreement.......................... 222,035
Up Front Parent Credit Facility Fee...................................... 50
----------------
Total Uses.......................................................... $222,085
================
</TABLE>
For further information regarding the New Credit Facility, the Parent
Credit Facility and the Prior Credit Agreement, see "Description of Other
Indebtedness."
26
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table presents selected historical and pro forma
consolidated financial information of the Company for each of the five fiscal
years in the period ended June 28, 1997 and the quarters ended September 28,
1996 and September 27, 1997. The historical consolidated financial information
for the fiscal years ended July 2, 1994, July 1, 1995, June 29, 1996 and June
28, 1997 has been derived from the consolidated financial statements of the
Company for such periods, which have been audited by KPMG Peat Marwick LLP. The
information for the fiscal year ended July 3, 1993 and the quarters ended
September 28, 1996 and September 27, 1997 is unaudited and is derived from
unaudited consolidated financial statements not included in this Prospectus. The
selected historical consolidated financial information should be read in
conjunction with, and is qualified in its entirety by reference to, the
information set forth under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the audited consolidated
financial statements of the Company as of June 29, 1996 and June 28, 1997, and
for each of the three fiscal years in the period ended June 28, 1997, and the
notes thereto, which appear elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR (1)
----------------------------------------------------------------------------
1993 (2) 1994 1995 1996 1997
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
STATEMENTS OF OPERATIONS DATA (3):
<S> <C> <C> <C> <C> <C>
Net sales........................ $457,249 $407,037 $413,927 $402,461 $464,548
Cost of goods sold............... 400,187 361,531 369,785 389,977 399,378
----------- ----------- ------------ ----------- -----------
Gross profit..................... 57,062 45,506 44,142 12,484 65,170
Selling, general and administrative
expenses (4)..................... 24,863 25,734 23,717 22,767 25,382
Impairment and restructuring charges -- 3,066 (290) 13,291 --
(credits) (5)....................
Other (income) expense........... (638) 122 272 921 (1,632)
----------- ----------- ------------ ----------- -----------
Earnings (loss) from operations.. 32,837 16,584 20,443 (24,495) 41,420
Interest expense................. 4,918 10,795 12,251 14,099 14,285
Interest (income)................ (259) (131) (39) (92) (73)
----------- ----------- ------------ ----------- -----------
Income (loss) before income taxes 28,178 5,920 8,231 (38,502) 27,208
Income taxes (benefit)........... 6,009 2,500 3,180 (13,703) 10,655
----------- ----------- ------------ ----------- -----------
Net income (loss)................ $22,169 $3,420 $5,051 $(24,799) $16,553
=========== =========== ============ =========== ===========
CASH FLOW DATA:
Cash Provided (Used) By
Operating Activities $18,532 $22,998 $19,181 $24,254 $34,764
Investing Activities (38,079) (18,317) (27,195) (46,120) (13,444)
Financing Activities 19,697 (3,941) 7,112 21,865 (20,269)
<CAPTION>
QUARTER ENDED
----------------------------
SEPT. 28 SEPT. 27,
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
STATEMENTS OF OPERATIONS DATA (3):
<S> <C> <C>
Net sales........................ $99,939 $119,931
Cost of goods sold............... 86,751 103,111
----------- -----------
Gross profit..................... 13,188 16,820
Selling, general and administrative 5,810 6,562
expenses (4).....................
Impairment and restructuring charges --- ---
(credits) (5)....................
Other (income) expense........... (27) (15)
----------- -----------
Earnings (loss) from operations.. 7,405 10,273
Interest expense................. 3,426 4,323
Interest (income)................ (15) (15)
----------- -----------
Income (loss) before income taxes 3,994 5,965
Income taxes (benefit)........... 1,482 2,299
----------- -----------
Net income (loss)................ $2,512 $3,666
=========== ===========
CASH FLOW DATA:
Cash Provided (Used) By
Operating Activities $6,895 ($6,498)
Investing Activities (5,509) (1,514)
Financing Activities (1,384) 3,495
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL PRO
FORMA (6)
------------------------------------------------------------------------ ------------
HISTORICAL
FISCAL YEAR (1)
----------------------------------------------------------------------------------------- ------------
SEPT. 27
1993 1994 1995 1996 1997 1997 1997
----------- ----------- ---------- ---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
BALANCE SHEET DATA (3):
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficit). $ 1,841 $ 59,320 $ 50,421 $ 16,010 $(7,525) $141,133 $139,841
Total assets.............. 328,155 318,468 336,672 333,577 345,010 351,010 353,472
Total debt and other long- 215,000
term obligations (7)...... 130,344 249,530 252,750 289,587 268,658 225,000
Shareholder's equity
(deficit)................. 127,552 11,122 16,090 (8,709) 7,844 57,502 61,168
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR (1)
----------------------------------------------------------------------------
1993 (2) 1994 1995 1996 1997
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Depreciation and amortization.... $13,087 $16,712 $16,997 $18,952 $19,323
Capital expenditures............. 34,446 18,334 35,182 42,128 13,719
EBITDA, As Adjusted (8).......... 46,183 36,493 37,189 7,840 60,816
Ratio of earnings to fixed charges 4.7x 1.5x 1.6x --(10) 2.3x
(9)..............................
Ratio of EBITDA to interest 9.4x 3.4x 3.0x --(10) 4.3x
expense (8).....................
PRO FORMA FINANCIAL DATA
(UNAUDITED) (9)
Ratio of earnings to fixed charges (9) 2.3x
Cash interest expense (11)....... $19,595
Ratio of EBITDA to cash interest 3.1x
expense (8)......................
Ratio of total debt to EBITDA (8) 3.7x
- ------------------
<CAPTION>
QUARTER ENDED
-------------------------------
SEPT. 28, SEPT. 27,
1996 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
OTHER DATA: $4,801 $5,188
<S> <C> <C>
Depreciation and amortization.... 13,978 1,086
Capital expenditures............. 12,221 15,461
EBITDA, As Adjusted (8).......... 1.8x 2.4x
Ratio of earnings to fixed charges
(9).............................. 3.6x 3.6x
Ratio of EBITDA to interest
expense (8).....................
PRO FORMA FINANCIAL DATA
(UNAUDITED) (9) 1.8x 2.1x
Ratio of earnings to fixed charges (9) $4,997 $5,024
Cash interest expense (11)....... 2.4x 3.1x
Ratio of EBITDA to cash interest
expense (8)...................... -- --
Ratio of total debt to EBITDA (8)
- ------------------
</TABLE>
(1) The Company's operations are based on a fifty-two or fifty-three week
fiscal year ending on the Saturday nearest June 30. Fiscal year 1993
was fifty-three weeks.
(2) During fiscal year 1993, two indirect subsidiaries of Delta Woodside
merged into Delta Holding, Inc. which was then renamed Delta Mills,
Inc. Amounts presented for fiscal year 1993 reflect the effect of this
merger as if the merger had occurred at the beginning of the fiscal
year 1993.
(3) The statements of operations data and balance sheet data include the
accounts of Delta Mills, Inc. and certain marketing divisions of Delta
Consolidated Corporation. These divisions of Delta Consolidated
Corporation were transferred in August 1997 to Delta Mills Marketing,
Inc., now a wholly-owned subsidiary of the Company. The combination of
these entities under common control was accounted for in a manner
similar to pooling-of-interest accounting for business combinations.
All prior periods have been restated.
(4) Delta Woodside provides various corporate services to the Company,
including payroll, accounting, internal audit, employee benefits and
corporate services. These services have been charged to the Company on
the basis of Delta Woodside's costs and allocated to the Company based
on employee head count, computer time, projected sales and other
criteria. During fiscal years 1993, 1994, 1995, 1996 and 1997, Delta
Woodside charged the Company $3,280, $3,083, $2,950, $3,123 and $3,302,
respectively, for these services. See Note F to the Consolidated
Financial Statements.
(5) Impairment and restructuring charges (credits) include principally
writedowns of property, plant and equipment. Also included are expenses
incurred in connection with plant closings.
(6) The pro forma financial data give effect to the Refinancing as if it
occurred on June 30, 1996. The pro forma balance sheet data give
effect to the Refinancing as if it occurred on June 28, 1997.
(7) Total debt and other long-term obligations, on an historical basis,
consist of the long-term debt due to affiliate, the current loan
payable to affiliate and the noninterest-bearing payable to affiliates.
See Notes C and F to the Consolidated Financial Statements.
(8) "EBITDA, as adjusted" is defined herein as income (loss) before income
taxes, plus depreciation and amortization expense and interest expense,
plus impairment and restructuring charges (credits). While EBITDA, as
adjusted, should not be construed as an alternative to operating
earnings (loss) or net income (loss), or as an indicator of operating
performance or liquidity, the Company believes that the ratio of
EBITDA, as adjusted, to interest expense is a measure that is commonly
used to evaluate a company's ability to service debt.
28
<PAGE>
(9) Earnings used in computing the ratio of earnings to fixed charges
consist of income (loss) before provision for income taxes plus fixed
charges. Fixed charges consist of interest expense on all indebtedness
(including amortization of deferred debt issuance costs) plus
capitalized interest, plus interest expense on the indebtedness of
Delta Woodside guaranteed by the Company (less interest paid by the
Company with respect to intercompany indebtedness).
(10) Fixed charges exceeded earnings in fiscal year 1996 by $38,502.
Interest expense exceeded EBITDA, as adjusted, in fiscal year 1996 by
$6,258.
(11) Pro forma cash interest expense excludes amortization of deferred debt
issuance costs.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW OF RESULTS OF OPERATIONS
The following table presents the Company's consolidated statements of
operations as a percentage of net sales for the periods shown. See "Selected
Historical and Pro Forma Consolidated Financial Data."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL QUARTER ENDED
---------------------------------------------------------- -------------------------------
JULY 2, JULY 1, JUNE 29, JUNE 28, SEPT. 28 SEPT. 27
1994 1995 1996 1997 1996 1997
---------- ----------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.................. 88.8 89.3 96.9 86.0 86.8 86.0
-------- ----------- ---------- ------------ ------------ -----------
Gross profit........................ 11.2 10.7 3.1 14.0 13.2 14.0
Selling, general and administrative
expenses............................ 6.3 5.7 5.7 5.5 5.8 5.4
Impairment and restructuring charges 0.8 (0.0) 3.3 -- -- --
(credits)...........................
Other (income) expense.............. 0.0 0.1 0.2 (0.4) -- --
--------- ---------- ------------ ------------ ------------ ----------
Earnings (loss) from operations.... 4.1 4.9 (6.1) 8.9 7.4 8.6
Interest expense.................... 2.6 2.9 3.5 3.0 3.4 3.6
----------- ---------- ------------ ------------ ------------ ----------
Income (loss) before income taxes 1.5 2.0 (9.6) 5.9 4.0 5.0
(benefit)...........................
------------ ----------
Income taxes (benefit).............. 0.7 0.8 (3.4) 2.3 1.5 1.9
----------- ---------- ------------ ------------ ------------ ----------
Net income (loss)................... 0.8% 1.2% (6.2)% 3.6% 2.5% 3.1%
=========== ========== ============= ============ ============ ==========
</TABLE>
Note: The Company has not yet adopted Statements of Financial
Accounting Standard ("SFAS") 128, 130 or 131. These statements
contain guidelines for reporting of earnings per share,
segments and comprehensive income, respectively. The Company
does not believe that the requirements of any of these
statements will impact the Company's results of operations;
however, additional disclosure may be necessary to comply with
these guidelines when adopted by the Company.
QUARTER ENDED SEPTEMBER 27, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 28, 1996
NET SALES. Consolidated net sales for the first quarter of fiscal year
1998 were $119.9 million, as compared to $99.9 million for the first quarter of
fiscal year 1997, an increase of 20.0%. Sales of the woven fabrics division were
$88.6 million in the first quarter of fiscal year 1998 as compared to $72.1
million in the first quarter of fiscal year 1997, an increase of 22.9% resulting
from an increase in unit sales and unit prices. Sales of woven fabrics to
commercial accounts increased due both to increased capacity resulting from
recent capital expenditures and to increased demand. Sales of woven government
fabrics increased due to increased procurement activity. Sales of the knitted
fabrics division were $31.3 million in the first quarter of fiscal year 1998 up
from $27.8 million in the first quarter of fiscal year 1997, an increase of
12.6%. In the knitted fabrics division unit sales and unit prices increased,
while yarn sales to related parties decreased.
GROSS PROFIT. Consolidated gross profit margin in the first quarter of
fiscal year 1998 was 14.0%, as compared to 13.2% in the first quarter of fiscal
year 1997, an improvement of 6.1 %. During the first quarter of fiscal year
1998, woven fabrics division gross profit totaled $17.0 million, as compared to
$13.3 million in the first quarter of fiscal year 1997, an increase of
30
<PAGE>
27.8%. This gross profit increase was due principally to an increase in demand
for both government and commercial fabrics supported by increased capacity in
cotton fabric production. Gross margins in the knitted fabrics division showed
small losses in both the most recent fiscal quarter and the same quarter a year
ago.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. During the first quarter
of fiscal year 1998, selling, general and administrative expenses were $6.6
million, as compared to $ 5.8 million during the first quarter of fiscal year
1997, an increase of 13.0 %. As in past years, the Company has been able to
control its selling, general and administrative expenses as a percentage of net
sales. Expenses in this category increased on an absolute basis; however, they
decreased to 5.5 % of net sales in the most recent fiscal quarter as compared to
5.8 % of net sales for the first fiscal quarter 1997.
OPERATING EARNINGS. Operating earnings for the first quarter of fiscal
year 1998 were $10.3 million, as compared to $7.4 million in the first quarter
of fiscal year 1997. Operating earnings in the woven fabrics division were $13.0
million in the first quarter of fiscal year 1998, an improvement of $3.2 million
as compared to the division's operating earnings in the first quarter of fiscal
year 1997. The knitted fabrics division showed an operating loss in the first
quarter of fiscal year 1998 of $2.7 million compared to an operating loss of
$2.4 million in the first quarter of fiscal year 1997.
NET INTEREST EXPENSE. During the first fiscal quarter 1998, net
interest expense was $4.3 million, as compared to $3.4 million in the first
quarter of fiscal year 1997. The increase in interest expense is primarily a
result of the higher interest rates on the senior notes (9.625%) as compared to
the lower average rate on intercompany debt (6.5%).
TAXES. The estimated effective tax rate for the first quarter of fiscal
year 1998 is 38.5 %, approximately the same as for the twelve months ended June
28, 1997.
NET INCOME. Net income for the first quarter of fiscal year 1998 was
$3.7 million, as compared to $1.9 million for the first fiscal quarter of 1997.
The improvement was due to the factors described above.
YEAR ENDED JUNE 28, 1997 COMPARED TO YEAR ENDED JUNE 29, 1996
NET SALES. Net sales for fiscal year 1997 totaled $464.5 million, as
compared to $402.5 million for fiscal year 1996, an increase of 15.4%. Sales of
the woven fabrics division were $336.2 million in fiscal year 1997 as compared
to $294.1 million in fiscal year 1996, an increase of 14.3%, resulting from an
increase in unit sales and unit prices. Sales of woven fabrics to commercial
accounts increased due both to increased demand and to additional finishing
capacity resulting from recent capital expenditures. This increase more than
offset a decrease in sales of woven government fabrics due to a slowdown in
procurement activity. Sales of the knitted fabrics division were $128.4 million
in fiscal year 1997, up from $108.4 million in fiscal year 1996, an increase of
18.4%. Sales of the knitted fabrics division increased principally as a result
of an increase in units sold due to improved demand for knitted products
generally.
GROSS PROFIT. Consolidated gross profit margin in fiscal year 1997 was
14.0%, as compared to 3.1% in fiscal year 1996, an increase of 351.6%. During
fiscal year 1997, woven fabrics division gross profit totaled $65.1 million, as
compared to $33.7 million in fiscal year 1996, an increase of 93.2%. This gross
profit improvement was due principally to higher sales, lower raw material costs
and improved efficiencies resulting from the modernization project at the
Beattie spinning and weaving plant. Knitted fabrics division gross profit
increased from a loss of $21.2 million in fiscal year 1996 to a gross profit of
$0.1 million in fiscal year 1997. Increased margins on sales of knitted fabrics
were due principally to lower raw material costs and improved absorption of
fixed costs resulting from higher manufacturing production levels.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. During fiscal year 1997,
selling, general and administrative expenses were $25.4 million, as compared to
$22.8 million during fiscal year 1996, an increase of 11.5%. Over the past
several years the Company has been able to effectively control its selling,
general and administrative expenses as a percentage of net sales as indicated in
the table above. Although expenses in this category increased on an absolute
basis, selling, general and administrative expenses for fiscal year 1997
decreased to 5.5% of net sales as compared to 5.7% of net sales for fiscal year
1996.
OPERATING EARNINGS. Operating earnings for fiscal year 1997 were $41.4
million, as compared to an operating loss of $24.5 million in fiscal year 1996.
Operating earnings in the woven fabrics division were $50.6 million in fiscal
year 1997, an improvement of $32.9 million as compared to the division's
operating earnings in fiscal year 1996. The knitted fabrics division showed an
operating loss in fiscal year 1997 of $9.2 million; however, this operating loss
was a $33.0 million improvement over fiscal year 1996. Expenses for fiscal year
1997 include certain unexpected costs associated with interruption of knitted
fabrics operations in Wallace, North Carolina, from Hurricane Fran in September
1996.
NET INTEREST EXPENSE. During fiscal year 1997, net interest expense was
$14.2 million, as compared to $14.0 million in fiscal year 1996, due principally
to higher rates of interest.
31
<PAGE>
TAXES. The estimated effective tax rate for fiscal year 1997 was 39.2%,
as compared to an effective tax benefit rate of 35.6% for fiscal year 1996. The
lower tax rate in fiscal year 1996 is primarily the result of the effect of
nondeductible permanent differences on pretax losses in fiscal year 1996
compared to pretax earnings in fiscal year 1997.
NET INCOME (LOSS). During fiscal year 1997, net income was $16.6
million, as compared to a net loss in fiscal year 1996 of $24.8 million. This
significant improvement is due to the factors described above.
YEAR ENDED JUNE 29, 1996 COMPARED TO YEAR ENDED JULY 1, 1995
NET SALES. The Company's net sales for fiscal year 1996 were $402.5
million, as compared to $413.9 million in fiscal year 1995, a decrease of 2.8%.
All of the decrease came in the knitted fabrics division, while net sales of the
woven fabrics division increased slightly. Sales of woven fabrics in fiscal year
1996 were $294.1 million, up from $290.8 million in fiscal year 1995, an
increase of 1.1%. Within the woven fabrics division, lower unit sales were more
than offset by higher prices in fiscal year 1996 as compared to fiscal year
1995, due principally to higher sales of military fabrics and proportionally
lower greige goods sales in fiscal year 1996. Sales of the knitted fabrics
division in fiscal year 1996 were $108.4 million, down from $123.1 million in
fiscal year 1995, a decrease of 12.0%. In the knitted fabrics division, unit
volume and average selling prices were lower in all product categories, due
principally to a general decline in demand for knitted fabrics during fiscal
year 1996.
GROSS PROFIT. The Company's gross profit margins in fiscal year 1996
were 3.1%, as compared to 10.7% in fiscal year 1995, a decline of 71.0%. The
decrease was nearly all attributable to the knitted fabrics division where lower
sales prices, lower number of units sold and reduced running schedules, in
conjunction with higher raw material prices, adversely affected margins in
fiscal year 1996 as compared to fiscal year 1995. During fiscal year 1996 the
knitted fabrics division gross loss was $21.2 million as compared to gross
profits of $8.0 million in fiscal year 1995. During fiscal year 1996 the woven
fabrics division gross profits were $33.7 million as compared to $36.1 million
in fiscal year 1995, a decrease of 6.8%. Gross margins for woven fabrics
declined from 12.4% in fiscal year 1995 to 11.4% in fiscal year 1996, being
adversely impacted by historically high raw material costs and by continuing
disruptions caused by the Company's plant modernization program. During fiscal
year 1996 cotton prices increased substantially over prevailing market prices
during fiscal year 1995. The Company did not have in place commitments during
fiscal year 1996 to provide for any substantial portion of the cotton needs of
its knitted fabrics division. During fiscal year 1996 the Company was not able
to fully pass along its increased raw materials costs to its customers.
Accordingly, its gross margins were adversely affected during this period. The
Company estimates that its gross margins were lower by approximately $9 million
in fiscal year 1996 as compared to fiscal year 1995 as a result of increases in
cotton prices.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal year 1996 totaled $22.8 million, as compared
with $23.7 million in fiscal year 1995, a decrease of 4.0%. As a percentage of
net sales, these expenses were 5.7% in each of fiscal year 1996 and fiscal year
1995.
RESTRUCTURING CHARGES. In fiscal year 1996, the Company incurred a
restructuring charge of $13.3 million. The history of operating losses at the
two plants that perform knitting and knit finishing operations caused the
Company to recognize a charge of $11.7 million to reduce the book value of the
fixed assets in this business to fair market value. The remaining $1.6 million
charge related to the closure of two weaving plants in the woven fabrics
division.
OPERATING EARNINGS (LOSS). Operating losses in fiscal year 1996 were
$24.5 million, as compared to operating earnings of $20.4 million in fiscal year
1995. Operating earnings in the woven fabrics division in fiscal year 1996 were
$17.7 million, down from $21.7 million in fiscal year 1995, a decrease of 18.6%.
In the knitted fabrics division, the operating loss in fiscal year 1996 was
$42.2 million, 32.8 times that of the loss of $1.3 million in fiscal year 1995
as a result of the factors discussed above, as well as the $11.7 million
restructuring charge.
NET INTEREST EXPENSE. Net interest expense totaled $14.0 million for
fiscal year 1996, as compared to $12.2 million in fiscal year 1995, an increase
of 14.7%, due to the combination of higher interest rates and higher average
debt levels. Because Delta Woodside's consolidated operating earnings to
interest ratios declined, Delta Woodside's cost of borrowings increased and the
rate of interest paid by the Company on its borrowings from Delta Woodside
increased. At June 29, 1996 the Company's interest rate on certain indebtedness
was LIBOR plus 2.5%, as compared to LIBOR plus .75% at July 1, 1995. The
Company's outstanding debt, including the loan payable to affiliate and current
amounts payable to affiliates, increased by $36.8 million during fiscal year
1996, primarily as a result of the plant modernization program in the woven
fabrics division.
TAXES. The effective income tax rates for fiscal years 1996 and 1995
were 35.6% and 38.6%, respectively. The lower tax rate for fiscal year 1996 was
primarily due to the effect of permanent nondeductible differences on the pretax
losses in fiscal year 1996, as compared to the pretax income in fiscal year
1995.
32
<PAGE>
NET INCOME (LOSS). During fiscal year 1996, net loss was $24.8 million
as compared to a net income in fiscal year 1995 of $5.1 million, due to the
factors described above.
YEAR ENDED JULY 1, 1995 COMPARED TO YEAR ENDED JULY 2, 1994
NET SALES. Net sales in fiscal year 1995 were $413.9 million, as
compared to $407.0 million in fiscal year 1994, an increase of 1.7%. Sales by
the woven fabrics division in fiscal year 1995 were $290.8 million, up from
$288.7 million in fiscal year 1994, an increase of 0.7%. Sales by the knitted
fabrics division were $123.1 million in fiscal year 1995, up from $118.4 million
in fiscal year 1994, an increase of 4.0%, due principally to higher sales of
yarn to an affiliated company and to higher prevailing market prices than in
fiscal year 1995. In the woven fabrics division, lower sales of unfinished
fabrics were offset by higher sales of finished cotton and blended fiber
fabrics.
GROSS PROFIT. Gross profit margins were 10.7% in fiscal year 1995, as
compared to 11.2% in fiscal year 1994, a decrease of 0.5%. Gross margins for
knitted fabrics improved from a loss of 0.8% in fiscal year 1994 to 6.5% in
fiscal year 1995, despite a dramatic slowdown beginning in March 1995 in demand
for fabrics knitted and prepared for printing. Gross margins for woven fabrics
declined from 16.1% in fiscal year 1994 to 12.4% in fiscal year 1995, being
adversely impacted by poor prices obtained in sales of unfinished fabrics,
higher raw material costs and certain manufacturing disruptions caused by the
Company's plant modernization program.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal year 1995 totaled $23.7 million, as compared
with $25.7 million in fiscal year 1994, a decrease of 7.8%. As a percentage of
net sales, these costs were 5.7% in fiscal year 1995 as compared to 6.3% in
fiscal year 1994. The decrease was principally attributable to a decrease in the
provision for bad debts accrued with respect to fiscal year 1995 in the knitted
fabrics division as compared to fiscal year 1994.
RESTRUCTURING CHARGES. In fiscal year 1994 the Company charged pretax
income $3.1 million for expenses related to restructuring decisions made during
that year. The restructuring charge consisted principally of expenses related to
the closure of a ring spinning plant in the knitted fabrics division.
OPERATING EARNINGS. Operating profits in fiscal year 1995 were $20.4
million, as compared to $16.6 million in fiscal year 1994, an increase of 23.3%.
Operating earnings in the woven fabrics division were $21.7 million in fiscal
year 1995, a decrease of 33.2% from operating earnings of $32.5 million in
fiscal year 1994. The knitted fabrics division's operating loss was $1.3 million
in fiscal year 1995, a $14.7 million improvement from an operating loss of $15.9
million incurred in fiscal year 1994. Operating profits in fiscal year 1994
included a $3.1 million charge for restructuring, related principally to a knit
yarn spinning plant that was closed. From fiscal year 1994 to fiscal year 1995,
gross profit margins declined slightly as noted above, and this decline was more
than offset by reduced selling, general and administrative costs.
NET INTEREST EXPENSE. Net interest expense totaled $12.2 million in
fiscal year 1995, as compared to $10.7 million in fiscal year 1994, due to the
combination of higher interest rates and higher average debt levels. Higher
inventories and capital expenditures accounted for the major part of the
Company's need for additional borrowed funds during fiscal year 1995.
TAXES. The effective income tax rates for fiscal years 1995 and 1994
were 38.6% and 42.2%, respectively. The higher tax rate for fiscal year 1994 was
primarily due to the different effects that permanent nondeductible tax items
had on the smaller pretax income in fiscal year 1994, as compared to the effect
on the higher pretax income in fiscal year 1995.
NET INCOME. Net income in fiscal year 1995 was $5.1 million, as
compared to a net income of $3.4 million in fiscal year 1994, an increase of
47.7%, due principally to the reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal years 1997 and 1996, the Company financed its operations
and capital expenditures primarily through cash generated from operations,
especially reductions in inventory. During the past three fiscal years, the
Company also significantly increased its debt to assist in financing the ongoing
capital expenditure projects. During fiscal years 1997 and 1996, the Company
increased its accounts receivable by $25.7 million and reduced its inventories
by $19.4 million from levels at the end of fiscal year 1995. As of June 28,
1997, current assets were $187.5 million as compared to $169.6 million at the
end of fiscal year 1996, an increase of 10.5%. The increase in current assets
during fiscal year 1997 is primarily due to the increase of accounts receivable
in the woven fabrics division. As of June 29, 1996, the Company had reduced
current assets by $10.9 million from the end of fiscal year 1995 as a result of
its reduction of inventory. The Company generated operating cash flows of $34.8
million, $24.3 million, $19.2 million and $21.3 million for fiscal years 1997,
1996, 1995 and 1994, respectively.
33
<PAGE>
During fiscal year 1997 the Company decreased its borrowings by $20.9
million and in fiscal year 1996 increased its borrowings by $36.8 million from
levels at the end of the previous fiscal year. Historically, the Company
borrowed primarily from Delta Woodside pursuant to intercompany loans and
advances. The terms of these borrowings are described under "Use of Proceeds."
All of these intercompany loans and advances were repaid or canceled in
connection with the Refinancing. See "Use of Proceeds." Funds advanced to the
Company by Delta Woodside were primarily borrowed by Delta Woodside under the
Prior Credit Agreement or predecessor credit facilities. For a description of
the Prior Credit Agreement, see "Description of Other Indebtedness." The Company
currently has a factoring arrangement with a financial institution pursuant to
which a substantial portion of the accounts receivable of the woven fabrics
division is assigned without credit recourse. The Company has experienced no
material losses as the result of factoring. The Company believes that cash flows
under the factoring arrangement are substantially the same as they would be if
the Company had not entered into the factoring arrangement. During fiscal year
1997 $338.9 million of accounts receivable were assigned pursuant to this
arrangement. See Note B to the Consolidated Financial Statements.
In connection with the Refinancing, the Company entered into the New
Credit Facility. The New Credit Facility provides for revolving credit
borrowings in an aggregate principal amount of up to $100.0 million of which, as
of September 27, 1997, approximately $65.7 million was advanced (including
contingent liability of approximately $0.7 million under letters of credit) and
up to approximately $34.3 million was available for future borrowings. The New
Credit Facility will terminate and all amounts borrowed thereunder will be due
August 25, 2002, five years from the date of initial funding. Loans under the
New Credit Facility bear interest at rates based upon a bank's prime rate or
Eurodollar rates plus an applicable margin. Loans under the New Credit Facility
are guaranteed by all subsidiaries of the Company (other than a Receivables
Subsidiary) and are secured by liens on the accounts receivable and inventory
(and related property) of the Company and its subsidiaries and the outstanding
capital stock of the Company and its subsidiaries. For a more complete
description of the New Credit Facility, see "Description of Other Indebtedness
- -- New Credit Facility."
The Company has recently completed a substantial modernization program,
spending over $277.1 million to modernize and maintain its plants and equipment
during the last decade. See "Business -- Business Strategy." During fiscal year
1996, the Company spent approximately $42.1 million for capital improvements,
with most of the expenditures relating to the long-term capital project for
modernizing the Company's woven fabrics production facilities. During fiscal
year 1997, the Company spent approximately $13.7 million for capital
improvements with most of the expenditures relating to completion of the
modernization project in the woven fabrics division. As a result of its
modernization program, the Company believes that its equipment and facilities
are generally adequate to allow it to remain competitive with its principal
competitors. The Company currently estimates that it will spend approximately
$15.0 million for capital improvements in fiscal year 1998.
The Company attempts to diminish its exposure to fluctuations in the
price of cotton by entering into contracts fixing the price of a portion of its
anticipated needs. As of September 27, 1997, the Company had contracted to
purchase about 71% of its expected cotton requirements for fiscal year 1998 and
about 18% of its expected cotton requirements for fiscal year 1999. The
percentage of the Company's cotton requirements that the Company fixes each year
varies depending upon the Company's forecast of future cotton prices. The
Company believes that recent cotton prices have enabled it to contract for
cotton at prices that will permit it to be competitive with other companies in
the United States textile industry when the cotton purchased for future use is
put into production. To the extent that cotton prices decrease before the
Company uses these future purchases, the Company could be materially and
adversely affected. In addition, to the extent that cotton prices increase, the
Company may be materially and adversely affected as there can be no assurance
that it would be able to pass along these increased costs to its customers. See
"Risk Factors -- Raw Materials, etc." and "Business -- Raw Materials."
The Company believes that cash flow generated by its operations and
funds available from the New Credit Facility will be sufficient to service the
Notes and its bank debt, to satisfy its day-to-day working capital needs and to
fund its planned capital expenditures. The Company's ability to make scheduled
payments of principal of and to pay interest or Liquidated Damages, if any, on
the Notes, and to satisfy its other debt obligations and fund planned capital
expenditures will depend upon its future operating performance, which will be
affected by, among other factors, prevailing economic conditions and financial,
business, regulatory, political and other factors, certain of which are beyond
its control, as well as the availability of borrowings under the New Credit
Facility or any successor credit facilities. The Company will require
substantial amounts of cash to fund scheduled payments of principal and interest
on its outstanding indebtedness as well as future capital expenditures and any
increased working capital requirements. If the Company is unable to meet its
cash requirements out of cash flow from operations and its available borrowings,
there can be no assurance that it will be able to obtain alternative financing
or that it will be permitted to do so under the terms of the Indenture or the
New Credit Facility. In the absence of such financing, the Company's ability to
respond to changing business and economic conditions, to absorb adverse
operating results, to fund capital expenditures or to make future acquisitions
may be adversely affected. It is anticipated that in order to pay the principal
balance of the Notes due at maturity, the Company will be required to obtain
alternative financing. There can be no assurance, however, that the Company will
be able to refinance the Notes at maturity at commercially reasonable terms, or
at all, and the inability to refinance the Notes would likely have a material
adverse effect on the Company. See "Risk Factors -- Significant Leverage and
Debt Service, etc."
34
<PAGE>
35
<PAGE>
BUSINESS
GENERAL
The Company is a leading manufacturer and marketer of woven and knitted
finished and unfinished (or greige) cotton, synthetic and blended fabrics, which
are sold for the ultimate production of apparel, home furnishings and other
products. The Company sells a broad range of fabrics primarily to branded
apparel manufacturers and resellers, including Levi Strauss, Haggar Corp., the
Wrangler(R) and Lee(R) divisions of V.F. Corporation, Farah Incorporated,
Kellwood Company and Liz Claiborne, Inc., and private label apparel
manufacturers for J.C. Penney Company, Inc., Sears, Roebuck & Co. and other
retailers. The Company believes that it is a leading producer of cotton
pants-weight woven fabric used in the manufacture of casual slacks such as Levi
Strauss' Dockers(R) and Haggar Corp.'s Wrinkle-Free(R). Other apparel items
manufactured with the Company's woven fabrics include women's chinos pants,
women's blazers, career apparel (uniforms) and battle dress camouflage military
uniforms. Apparel items manufactured with the Company's knitted fabrics include
polo-type or golf shirts, career apparel, children's apparel, specialty athletic
wear and ladies' tops. For the 1997 fiscal year, the Company generated net sales
and EBITDA of $464.5 million and $60.8 million, respectively.
<TABLE>
<CAPTION>
The following table sets forth for the periods indicated the dollar
amount and percentage of total net sales of the Company attributable to external
sales of woven fabrics, external sales of knitted fabrics and sales to other
divisions of the Delta Woodside Group:
FISCAL YEAR
------------------------------------------------------------------------------------
1994 1995 1996
------------------------ ---------------------- -----------------------
$ % $ % $ %
---------- -------- -------- -------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
External sales of woven fabrics.... 288.6 70.9 290.8 70.3 294.1 73.1
External sales of knitted fabrics.. 102.8 25.3 102.9 24.9 82.8 20.6
Sales to other divisions of the Delta 15.6 3.8 20.2 4.8 25.6 6.3
Woodside Group(1)...............
---------- -------- -------- -------- ----- ---------
Total........................ 407.0 100.0 413.9 100.0 402.5 100.0
========== ======== ======== ======== ===== =========
<CAPTION>
Fiscal Year
-------------------------
1997
----------------------
$ %
--------- --------
--------- --------
<S> <C> <C>
External sales of woven fabrics.... 336.2 72.4
External sales of knitted fabrics.. 98.5 21.2
Sales to other divisions of the Delta 29.8 6.4
Woodside Group(1)...............
--------- --------
Total........................ 464.5 100.0
========= ========
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
SEPT. 28, 1996 SEPT. 27, 1997
------------------------ ----------------------
$ % $ %
---------- -------- -------- --------
(DOLLARS IN MILLIONS)
-------- -------- --------
<S> <C> <C> <C> <C>
External sales of woven fabrics.... 72.1 72.2 88.6 73.9
External sales of knitted fabrics.. 21.8 21.8 26.3 21.9
Sales to other divisions of the Delta 6.0 6.8 5.0 4.2
Woodside Group(1)...............
---------- -------- -------- --------
Total........................ 99.9 100.0 119.9 100.0
========== ======== ======== ========
</TABLE>
- -------------------------
(1) Substantially all of these amounts consist of sales of yarn from the knitted
fabrics division.
The Company believes that its woven fabrics division is a leading
worldwide producer of cotton, cotton blend and spun synthetic pants-weight
fabric, and that it has a reputation for reliability and high quality in the
pants industry. The Company's relationship with its customers has been
strengthened by its ability to develop new products that meet customer
requirements, including the following product innovations: (i) a successful
manufacturing process for "wrinkle-free" cotton fabrics, (ii) "baby gabardine"
fabric (an all-spun polyester-rayon blend fabric that is a core product for
certain pants, skirts and jackets for women), (iii) "Suncatcher linen" (a
synthetic fabric made of polyester and rayon fibers spun to resemble a natural
linen product), and (iv) Operation Desert Storm camouflage fabric. In addition,
the division has repeatedly responded
36
<PAGE>
to customer needs in a timely manner, such as in its support of the growth of
Levi Strauss' Dockers(R) pants line and helping to launch Haggar Corp.'s
Wrinkle-Free(R) pants, for each of whom the Company continues to be a
significant supplier. In 1991, Operation Desert Storm provided the Company with
an opportunity to demonstrate its product innovation capabilities and quick
turnaround time. Within a period of less than ten weeks, the woven fabrics
division, in cooperation with the United States government, helped to develop,
tested and put into production a sand camouflage pattern that provided superior
protection to United States troops. The woven fabric division ultimately
supplied approximately 80% of the camouflage fabric used in United States
uniforms in Operation Desert Storm and continues to be a significant supplier of
a variety of camouflage fabric to military uniform contractors.
Following Delta Woodside's acquisition of the Company in 1986, the
Company has upgraded its facilities through an extensive series of capital
expenditure programs that have modernized and consolidated certain fabric
manufacturing processes. In addition to making significant improvements in the
Company's already high standards of quality, these modernization programs have
resulted in significant increases in operating efficiencies as measured by sales
per square foot of manufacturing space and sales per employee and have, in many
cases, resulted in substantial reductions in the cost per unit of production.
The Company is substantially vertically integrated and currently operates eight
production facilities in the woven fabrics division and four production
facilities in the knitted fabrics division. Each division has its own management
and employees and operates independently of the other division under the overall
direction of the Company's executive officers.
INDUSTRY TRENDS
The Company competes with other producers of woven and knitted fabrics
to supply the United States apparel market. In recent years, the fabric/apparel
industry has been undergoing significant changes both in the geographic
locations of production and in the type of garments produced. Specifically, two
trends have significantly impacted the industry: (i) the growth of a western
hemisphere fabric/apparel production chain, and (ii) the increased casualization
of the workplace. The Company believes that it is well-positioned to capitalize
on both of these trends.
GROWTH OF A WESTERN HEMISPHERE FABRIC/APPAREL PRODUCTION CHAIN
In recent years, the fabric/apparel industry has been marked by
fundamental changes in the sources of supply for apparel products. Specifically,
the Company believes that a western hemisphere fabric/apparel production chain
has been rapidly developing to compete with the Far Eastern supply chain, with
fabric manufacturing remaining in the United States and apparel manufacturing
moving to MCACI countries. The shift to this configuration, which began several
decades ago, has accelerated significantly in the past several years with the
passage of NAFTA and GATT. The western hemisphere fabric/apparel production
chain has also been strengthened by the requirements of United States retailers
for shorter delivery times and faster turnaround times, which can be more easily
met by suppliers in the western hemisphere.
Due to the relatively higher proportion of labor costs in apparel
manufacturing, much of the apparel production in the United States is shifting
to MCACI countries where labor costs are competitive on a world-wide basis. By
contrast, fabric production for apparel manufactured in MCACI countries has
largely remained in the United States for a number of reasons. First, because
the modern fabric manufacturing process includes relatively little manual labor,
United States wage rates no longer put domestic fabric manufacturers at a
competitive disadvantage. In addition, as fabric manufacturing today requires
substantial capital investment, the United States is a more attractive venue
than MCACI countries due to its political and economic stability and developed
infrastructure, including an abundant water supply and reliable, low-cost
electric power.
In addition, tariffs, quotas and other existing trade regulations
provide western hemisphere fabric/apparel production with a significant
competitive advantage in the United States market. Recent changes in trade
regulation, including NAFTA, have not only spurred growth among United States
fabric manufacturers and MCACI apparel manufacturers, but also have encouraged
the further development of a western hemisphere fabric/apparel production chain.
In the 1960s, Section 807 created a platform for this growth. Section 807
provides for duty-free treatment of United States origin components used in the
assembly of imported articles. The result is that duty is assessed only on the
value of any foreign components that may be present and the labor costs incurred
offshore in the assembly of apparel using United States origin fabric
components. In addition, under Section 807A, apparel articles assembled in a
Caribbean country, in which all fabric components have been wholly formed and
cut in the United States, are subject to preferential quotas with respect to
access into the United States. A similar program, enacted as a result of NAFTA
and referred to as the Special Regime Program, provides even greater benefits
for such apparel assembled in Mexico from fabric components formed and cut in
the United States. In contrast, apparel not meeting the criteria of such
programs is subject to quotas and/or relatively higher tariffs. See "--
Competition" and "Risk Factors -- Competition and Risks Associated with Changing
Industry and Regulation, etc."
37
<PAGE>
The shift to this western hemisphere fabric/apparel production chain
has occurred largely at the expense of the growth of Far Eastern fabric and
apparel production. Apparel retailers, many of which have in the past relied on
Hong Kong, China and other Far Eastern countries as their principal sources of
completed apparel products, are increasingly looking to the western hemisphere
fabric/apparel production chain. This is due in part to demands of United States
apparel retailers for shorter delivery times and quicker turnaround times.
Today, the working relationships between the fabric mills of the United States
and the apparel factories of MCACI countries are becoming more efficient and
well-developed, making western hemisphere fabric/apparel products competitive
with those imported from the Far East. From 1995 to 1996, apparel imports from
MCACI countries to the United States grew 18.7% from $8.3 billion to $9.8
billion, versus imports from all other countries of $28.5 billion in 1995 and
$28.8 billion in 1996, an increase of only 1.1%. In the first quarter of 1997,
imports from MCACI countries were $2.6 billion, an increase of 33.8% from $2.0
billion imported during the first quarter of 1996, while imports from all other
countries increased by 7.2% during the same period. The Company believes that
the majority of garments imported to the United States from MCACI countries
contain fabric from United States producers such as Delta Mills.
The Company believes that its relationship with United States apparel
marketers, its modern manufacturing facilities and its reputation for quality
position it to compete effectively in this evolving western hemisphere
fabric/apparel production chain.
INCREASED CASUAL WORKPLACE ENVIRONMENT
Trends in consumer preferences are also creating growth opportunities
for the Company. With the advent of "casual Fridays" and increasingly casual
dress workplaces in recent years, the demand for casual wear has increased. The
Company's principal product lines are made into garments of the type being worn
in this more casual workplace environment, such as all-cotton pants and knit
polo-type shirts. The Company's recently completed modernization program has
increased its capacity for all-cotton finished fabrics used in casual wear. As a
result, the Company believes that it is in a position to benefit from this
casualization trend.
BUSINESS STRATEGY
Within the framework of an evolving fabric/apparel industry, the
Company has developed and is implementing the following business strategy aimed
at growing revenues and EBITDA:
o LEVERAGE WOVEN FABRICS DIVISION RELATIONSHIPS WITH KEY APPAREL
MARKETERS. The woven fabrics division has focused its marketing efforts
on building close relationships with major apparel companies that have
broad distribution channels and that the Company believes have
positioned themselves for long-term growth. The division has fostered
relationships for over 30 years with, and has become an integral part
of the supply chain for certain product lines of, several strong United
States branded apparel merchandisers, including Levi Strauss, Haggar
Corp., the Wrangler(R) and Lee(R) divisions of V.F. Corporation and
Farah Incorporated. In addition, the division is a significant supplier
to certain product lines of Liz Claiborne, Inc. and Kellwood Company,
with each of whom it has had a relationship for more than five years.
Sales to these six core customers grew 46.6% from fiscal year 1996 to
fiscal year 1997.
In building these relationships, the Company seeks to be a
significant supplier for the major product lines of its customers which
the Company expects to provide a steady base of recurring revenues. To
manufacture goods for the United States apparel market, these apparel
producers create preferred supplier relationships with a limited number
of fabric manufacturers, like the division, that satisfy on-time
delivery, reliability, lead time consistency, cost and quality
criteria. The woven fabrics division also maintains strong working
relationships with major retailers, such as J.C. Penney Company, Inc.,
Kmart Corporation, Sears, Roebuck & Co. and Wal-Mart Stores, Inc., that
specify or recommend the purchase of fabric to contract manufacturers
that produce their apparel product lines.
These efforts have produced a substantial order backlog in the
woven fabrics division, which at June 28, 1997 stood at $119.9 million,
a 60.0% increase over the prior fiscal year end.
o FOCUS ON THE GROWTH SEGMENTS OF THE KNITTED FABRICS INDUSTRY. The
knitted fabric division's marketing resources are focused on the
following segments: (i) major apparel companies that market casual wear
such as knit polo-type shirts, (ii) children's wear manufacturers and
(iii) career apparel.
As a result of the growth in knit polo-type shirts, many major
branded apparel companies, such as Levi Strauss, NIKE, Inc. and the
Lee(R) and Wrangler(R) divisions of V.F. Corporation, as well as
private label companies, are expected to increase their demand for
knitted fabrics. The knitted fabrics division also plans to expand its
38
<PAGE>
children's wear business by targeting large manufacturers of children's
wear, such as Garan, Incorporated and Gerber Products Company, that
have successfully maintained and expanded their market shares in a
segment which the Company believes has experienced significant
concentration in recent years.
In addition, although the career apparel segment has
traditionally been a blue collar, woven fabrics business where
durability of the garment was the chief criterion, delivery, fast food
and other service companies such as United Parcel Service of America,
Inc., Taco Bell North America and Kinko's, Inc. are requiring uniforms
that are not only durable, but fashionable and comfortable as well. The
Company believes that this trend is providing a rapidly growing career
apparel market for knit polo-type shirts. This market is attractive to
the Company because demand in this market is generally more consistent
and less price-sensitive than the retail market generally, and the
customer relationships tend to be service-oriented and longstanding.
The market for knit career apparel shirts in 1995 was approximately 25
million pounds, up from approximately 18 million pounds in 1990.
o CAPITALIZE ON IMPROVED OPERATING EFFICIENCIES AND REDUCED COST
STRUCTURE. The Company has recognized that a critical element of being
competitive in the global textile industry is the ability to minimize
manufacturing costs. In an effort to become a low-cost, world
competitive producer, the Company has invested approximately $277.1
million during the last decade to modernize and maintain its plants and
equipment, including more than $143.8 million over the past five fiscal
years. As a result of its extensive capital expenditure campaign in
recent years, the Company believes that it is in a position to return
to substantially reduced levels of capital expenditures, with an
average of approximately $15.0 million per year expected to be required
for the next three fiscal years.
The woven fabrics division began a capital improvement program
during fiscal year 1992 that was designed to modernize certain fiber
opening, carding, spinning, weaving and fabric finishing processes to
focus on the production of heavier-weight, higher-margin goods. By the
end of fiscal year 1997, expenditures for this six-year program totaled
$112.8 million. As a result, the division has reduced its manufacturing
square footage by approximately 18% and the number of employees by 26%.
In the modernization program, the woven fabrics division reduced its
capacity to produce lower price greige goods but increased its capacity
to finish fabrics. As a consequence, the woven fabrics division has
increased its outside purchases of greige goods. The Company believes
that these changes provide it with the opportunity to increase its
overall sales levels and to expand its operating margins.
The knitted fabrics division began a consolidation and
modernization project in fiscal year 1992 to consolidate the number of
its manufacturing facilities from four spinning, two knitting and two
finishing plants to two spinning, one knitting and one finishing plant.
During the past five fiscal years, capital expenditures for the program
totaled $42.1 million. Simultaneously, certain knitting, dyeing and
finishing processes were modernized. With the successful completion of
this project, manufacturing square footage was reduced by 37% and the
number of employees was reduced by 26%, with no material change in
total knitted fabric capacity.
These initiatives have resulted in a significant reduction in
the Company's manufacturing costs. Comparing the most recent fiscal
year with fiscal year 1992, sales generated per square foot of
manufacturing space have increased approximately 29.3%, and sales
generated per employee have increased approximately 29.4%.
o CONTINUE TO FOCUS ON QUALITY. Coupled with the modernization projects
described above, the Company's pursuit of quality improvements has
resulted in its reputation as a high quality producer of textile
fabrics. For example, the Company's Beattie plant (spinning and weaving
of pants-weight twill, located in Fountain Inn, South Carolina)
recently won the 1997 South Carolina Governor's Quality Achiever Award
which is modeled upon criteria used for the Malcolm Baldridge National
Quality Award. In addition, the woven fabrics division is a certified
supplier to Levi Strauss and Liz Claiborne because of its consistently
meeting their high quality and delivery standards. Other apparel
manufacturers are following this trend toward certifying key suppliers.
As a consequence of the high quality of the woven fabrics produced by
the Company, some of the Company's largest customers, such as Levi
Strauss, do not find it necessary to inspect all of the Company's goods
upon receipt. As a result of the modernization program in the woven
fabrics division, including the Beattie plant project completed earlier
in fiscal year 1997, fabric defect points per 100 square yards in
finished cotton woven fabrics shipped to customers declined from an
average of 13.6 points in fiscal year 1992 to an average of 4.2 points
in fiscal year 1997, significantly better than the industry standard
for "first quality." The Company believes that its product quality is a
significant competitive advantage in the sale of its higher margin
woven products.
MANUFACTURING
39
<PAGE>
Fabrics produced by the Company are either woven or knitted and are
manufactured from cotton, wool or synthetic fibers or from synthetic filament
yarns. Cotton and wool are purchased from numerous suppliers. Synthetic fibers
and synthetic filament yarns are purchased from a smaller number of competitive
suppliers. The Company spins the major portion of the yarns used in its weaving
and knitting operations. In manufacturing these yarns, the cotton and synthetic
fiber, either separately or in blends, are carded (fibers straightened and
oriented) and then spun into yarn. The Company combs (removing short fibers)
some cotton fiber to make higher quality yarns. In other fabrics, filament yarns
are used. The spun or filament yarn is then woven into fabric on looms or
knitted into fabric on knitting machines. The unfinished fabric at this stage is
referred to as greige goods. Finished fabric refers to fabric that has been
treated by washing, bleaching, dyeing and applying certain chemical finishes.
Finished fabrics generally have significantly higher margins than greige goods.
WOVEN FABRICS
Approximately 70% of the division's finished woven fabric sales are of
fabrics made from cotton or cotton/synthetic blends, while approximately 30% of
such sales are of fabrics made from spun synthetics and other natural fibers,
including various blends of rayon, polyester and wool. During fiscal year 1997,
the woven fabrics division sold, at a cost of sales, $239.6 million of finished
fabrics and $31.6 million of unfinished fabric. Woven fabrics are generally
produced and shipped pursuant to specific purchase orders, which minimizes the
Company's uncommitted inventory levels. The division's production of cotton and
cotton/synthetic blend finished woven fabrics is largely vertically integrated,
with the division performing most of its own spinning, weaving and finishing.
The production of spun synthetic finished woven fabrics is fully vertically
integrated, with various plants in the division performing spinning, weaving and
finishing operations. In the production of military fabrics, the Company
purchases a portion of its greige goods needs and finishes this fabric to
specifications. The woven fabrics division is currently operating its
manufacturing facilities at near full capacity.
The division also produces a variety of unfinished light-weight woven
fabrics that are ultimately used in the manufacture of apparel (including
blouses, dresses and suit linings), home furnishings (including shower curtains)
and medical tape. Fabrics include filament acetate, textured polyester and other
"semi-fancy" fabrics of more complicated construction.
KNITTED FABRICS
The operations within the knitted fabrics division are largely
vertically integrated. Various plants are equipped to perform all stages of the
manufacturing process, from carding and spinning the raw fiber stock to
knitting, dyeing and finishing the final fabric product. The fabrics produced by
this segment are manufactured primarily by using 100% cotton and
polyester/cotton blends. Knitting and finishing of the fabrics are performed to
specific customer orders in the case of orders representing the majority of the
dollar volume of this division. The knitted fabrics division is currently
operating its manufacturing facilities at near full capacity.
PRODUCTS AND MARKETING
WOVEN FABRICS
The woven fabrics division produces finished and unfinished woven
fabrics used in the production of apparel, home furnishings and other products.
Finished apparel fabric is ready to be cut and sewn into garments. Greige goods
are typically sold to converters who enhance the fabric through finishing
techniques and sell it to manufacturers of apparel, home furnishings and other
products.
Finished woven fabrics produced by the division are primarily sold
directly to major apparel manufacturers. The division's marketing efforts focus
on four primary apparel manufacturing groups: women's apparel, including fashion
apparel; men's apparel; career apparel and uniforms; and military and other
government uniforms and apparel. The woven fabrics division sells and
distributes its fabrics through a marketing office based in New York City (which
serves the United States, Canadian and Mexican markets), with sales agents also
operating from Atlanta, Chicago, Dallas, Los Angeles and San Francisco. The
division also has international sales agents in the United Kingdom and Hong
Kong.
For fiscal year 1997, sales to Levi Strauss and sales to the Company's
top five non-affiliated customers accounted for 17.1% and 37.8%, respectively,
of total sales. In fiscal year 1996, sales to Levi Strauss and sales to the
Company's top five non-affiliated customers accounted for 12.9% and 30.7%,
respectively, of the Company's total sales. Consistent with industry practice,
the Company does not operate under a supply contract with Levi Strauss or any of
its other major customers. In addition, during fiscal years 1997, 1996 and 1995,
sales of camouflage military fabrics accounted for 8.4%, 12.8% and 3.1%,
respectively, of the Company's total sales. The loss of Levi Strauss or other
major customers could have
40
<PAGE>
a material adverse effect upon the Company. See "Risk Factors -- Risk of Loss of
Material Customers or Broker" and "-- Retail Industry and Cyclicality."
KNITTED FABRICS
The knitted fabrics division spins yarn and knits and finishes a wide
range of circular knit fabrics for use in the manufacture of knit apparel. The
division also provides yarn to the Delta Woodside Group's apparel segment. See
"Certain Transactions."
The knitted fabric division's products are marketed to numerous apparel
manufacturers through marketing staffs employed by the Company in New York City
and Los Angeles, with sales personnel also located in North Carolina, Georgia
and Texas. To promote further the sales of the knitted fabrics division's
fabrics to apparel manufacturers, the marketing staff of the division also
contacts major retailers of products manufactured from the division's knitted
fabrics. Discussions with these retailers provide information relating to fabric
quality and trends in style and color. In addition to its sales to apparel
manufacturers, the division also sells prepared for print fabrics to converters
and printers principally through a single broker. During fiscal year 1997, sales
through this broker were approximately $44.0 million, approximately 9.5% of the
Company's total sales. The Company believes that, because of the competitive
brokerage environment, the loss of this broker would not have a material adverse
effect on the Company. There can be no assurance, however, that this would be
the case. See "Risk Factors -- Risk of Loss of Material Customers or Broker."
RAW MATERIALS
The Company's principal raw material is cotton, although it also spins
polyester, wool, linen fiber, acrylic, nylon and rayon fibers and weaves
filament acetate and textured polyester. Polyester is obtained primarily from
three major suppliers, all of whom provide competitive prices. Polyester and
rayon are currently at the lowest prices the Company has paid since fiscal year
1993. There can be no assurance, however, that this trend will continue. During
fiscal year 1997, the Company's average delivered price per pound of cotton
purchased and consumed (including freight, carrying costs and costs for the
relatively high amount of premium cotton that the Company uses) was $.833, as
compared to $.944 in fiscal year 1996 and $.817 in fiscal year 1995. In fiscal
year 1998, the Company expects to use approximately 92 million pounds of cotton
(including approximately 17 million pounds of premium cotton) and 23 million
pounds of polyester in its manufacture of yarn for woven and knitted textiles.
As of September 27, 1997, the Company had contracted to purchase, at average
delivered prices lower than in the preceding fiscal year, about 71% of its
expected cotton requirements for fiscal year 1998 and 18% of its expected cotton
requirements for fiscal year 1999. The percentage of the Company's cotton
requirements that the Company fixes each year varies depending upon the
Company's forecast of future cotton prices. The Company believes that recent
cotton prices have enabled it to contract for cotton at prices that will permit
it to be competitive with other companies in the United States textile industry
when the cotton purchased for future use is put into production. To the extent
that cotton prices decrease before the Company uses these future purchases, the
Company could be materially and adversely affected. In addition, to the extent
that cotton prices increase, the Company may be materially and adversely
affected as there can be no assurance that it would be able to pass along these
increased costs to its customers. For example, this factor contributed
significantly to the Company's operating losses during fiscal year 1996. See
"Risk Factors -- Raw Materials, etc." and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
COMPETITION
The Company sells primarily to domestic apparel manufacturers, many of
which operate offshore sewing operations. The Company competes with numerous
domestic and foreign fabric manufacturers, including companies larger in size
and having greater financial resources than the Company. The principal
competitive factors in both the woven and knitted fabrics markets are price,
service, delivery time, quality and flexibility, with the relative importance of
each factor depending upon the needs of particular customers and the specific
product offering. Management believes that the Company maintains its ability to
compete effectively by providing its customers with a broad array of
high-quality fabrics at competitive prices on a timely basis.
The woven fabrics division's competitive position varies by product
line. There are several major domestic competitors in the finished cotton and
cotton/polyester blend woven fabrics business, none of which dominates the
market. The Company believes, however, that it has a strong competitive position
in the all cotton pants-weight fabrics business, as well as the spun synthetic
slack-weight and skirt-weight woven fabrics businesses. In addition, the Company
is one of several major domestic suppliers of acetate unfinished fabric used in
apparel linings and surgical tapes. Additional competitive strengths of the
woven fabrics division include: knowledge of its customers' business needs; its
ability to produce special fabrics such as textured blends; state-of-the-art
spinning, weaving and fabric finishing equipment at most of its facilities;
substantial vertical integration; and its ability to communicate electronically
with its customers.
41
<PAGE>
The United States knitted fabrics industry is highly decentralized and
is characterized by fierce competition among many companies. However, Dyersburg
Corporation and West Point-Stevens, Inc. recently announced the acquisition by
Dyersburg Corporation of the Alamac (knitted fabrics) division of West
Point-Stevens, Inc. The Company believes that the combined entity is the largest
circular knitted fabrics manufacturer in the United States with substantially
greater resources than the Company's knitted fabrics division. This
consolidation may have a material adverse effect upon the Company. There can be
no assurance that there will not be further consolidation in this industry. The
significant vertical integration of the knitted fabrics division's manufacturing
operations, its modern production facilities and its experience in performing
the more complicated manufacturing techniques required in the production of 100%
cotton fabrics enable the Company to compete in the knitted fabrics market.
Foreign competition is a significant factor in the United States fabric
market. The Company believes that its relatively small manual labor component,
highly-automated manufacturing processes and domestic manufacturing base allow
the Company to compete on a price basis and to respond more quickly than foreign
producers to changing fashion trends and to its domestic customers' delivery
schedules. See "-- Industry Trends -- Growth of a Western Hemisphere
Fabric/Apparel Production Chain." In addition, the Company benefits from
protections afforded to apparel manufacturers based in certain Latin American
and Caribbean countries that ship finished garments into the United States.
NAFTA has effectively eliminated or substantially reduced tariffs on goods
imported from Mexico if such goods are made from fabric originating in Canada,
Mexico or the United States. Section 807 provides for the duty-free treatment of
United States origin components used in the assembly of imported articles. The
result is that duty is assessed only on the value of any foreign components that
may be present and the labor costs incurred offshore in the assembly of apparel
using United States origin fabric components. Because Section 807 creates an
incentive to use fabric manufactured in the United States, it is beneficial to
the Company and other domestic producers of apparel fabrics. In addition,
pursuant to Section 807A, apparel articles assembled in a Caribbean country, in
which all fabric components have been wholly formed and cut in the United
States, are subject to preferential quotas with respect to access into the
United States for such qualifying apparel, in addition to the significant tariff
reduction pursuant to Section 807. A similar program, enacted as a result of
NAFTA and referred to as the Special Regime Program, provides even greater
benefits (complete duty-free, quota-free treatment) for apparel assembled in
Mexico from fabric components formed and cut in the United States. In contrast,
apparel not meeting the criteria of Section 807, Section 807A, or the Special
Regime Program is subject to quotas and/or relatively higher tariffs. If Section
807, Section 807A or the Special Regime Program were repealed or altered in
whole or in part, the Company believes that it could be at a serious competitive
disadvantage relative to textile manufacturers in other parts of the world
seeking to enter the United States market, which would have a material adverse
effect on the Company. Moreover, there can be no assurance that the current
favorable regulatory environment will continue or that other geographic areas
will not be afforded similar regulatory advantages. See "Risk Factors --
Competition and Risks Associated with Changing Industry and Regulation, etc."
ENVIRONMENTAL AND REGULATORY MATTERS
The Company is subject to various federal, state and local
environmental laws and regulations concerning, among other things, wastewater
discharges, storm water flows, air emissions, ozone depletion and solid waste
disposal. The Company's plants generate very small quantities of hazardous waste
that are either recycled or disposed of off-site. Most of its plants are
required to possess one or more discharge permits.
The Company is subject to a consent order that it entered into with the
South Carolina Department of Health and Environmental Control on September 26,
1985 (the "Consent Order"), prior to Delta Woodside's acquisition of the
business. The Consent Order arose from a determination that several private
drinking wells in the area of two of the Company's plants had been contaminated.
Pursuant to the Consent Order, the Company discontinued the operation of a large
spray field near these plants into which waste water sludge had been disposed
and placed into operation for such purpose a new and larger adjacent spray
field. A spray field is a method for disposing of excess biosolids generated in
the wastewater treatment process. The method of disposal at Delta 2 and 3 is to
spray the biosolids onto cleared acreage on which a cover crop has been planted.
Most of the solids decompose on the soil surface and become available for plant
growth. Groundwater monitoring wells are periodically sampled and analyzed to
determine whether the operation has adversely affected groundwater. The Company
expects that any continuing expenditures to comply with the Consent Order will
be immaterial.
Some of the Company's plants have been unable to comply with the acute
toxicity and other permit-related limits contained in the National Pollutant
Discharge Elimination System ("NPDES") permits held by the Company. With respect
to certain such plants in North Carolina, the Company signed a Special Order by
Consent with the North Carolina Department of Environmental Health and Natural
Resources ("DEHNR") which required the plants to achieve compliance with the
acute toxicity limits (the "Special Order by Consent"). The Special Order by
Consent was amended to require the plants to achieve compliance by October 1,
1997. The Company is not yet in compliance. The Company is actively
investigating several alternative courses of action, including extending a
discharge pipe one-half mile to a larger stream, in an effort to achieve
compliance with the Special Order by Consent. The estimated cost of extending
the discharge pipe is $800,000. It is likely that the Company will incur
penalties
42
<PAGE>
for violations of the Special Order by Consent until such time as the extended
pipe or other acceptable alternative is in operation. The Company intends to
apply for an extension of the compliance deadline in the Special Order by
Consent to December 31, 1998. The Company is currently also investigating
certain wastewater treatment system basins to improve their condition and thus
eliminate a likely source of groundwater contamination.
With respect to certain South Carolina plants, the Company is working
with the appropriate state agency in developing a corrective action plan for
addressing the toxicity and other permit-related issues. The Company has
implemented, or plans to implement, several courses of action in an effort to
achieve compliance with its NPDES permits, including upgrades at the Delta 2 and
3 plants with cost estimates ranging from $2.0 million to $2.5 million. The
Company has until November 1, 1998 to complete these upgrades. The Company
believes that the required equipment upgrades will be completed within the
extended time and any related penalties will not be material.
Environmental regulation applicable to the Company's operations is
becoming increasingly stringent. The Company continues to incur capital and
other expenditures each year in order to comply with current and future
regulatory standards. The Company estimates that during the remainder of fiscal
year 1998 and fiscal year 1999 it will incur capitalized expenses in order to
comply with regulatory standards and will likely incur some penalties. Although
such expenses and penalties cannot be predicted with certainty, the Company
currently believes that expenditures and penalties for environmental and
regulatory matters (including the ones described in the preceeding three
paragraphs) will be in the range of $4.4 to $5.2 million for this period. The
Company does not expect that the amount of such expenditures and penalties in
the future will have a material adverse effect on its financial condition,
results of operations or competitive position. There can be no assurance,
however, that future changes in federal, state or local regulations,
interpretations of existing regulations, enforcement actions or the discovery of
currently unknown problems or conditions will not require substantial additional
expenditures or result in substantial penalties. Similarly, the extent of the
Company's liability, if any, for past failures to comply with laws, regulations
and permits applicable to its operations cannot be determined. See "Risk Factors
- -- Environmental Laws and Regulations, etc."
ORDER BACKLOGS
The Company's order backlog at September 27, 1997 was $131.5 million, a
40% increase over the $94.0 million order backlog at September 28, 1996. Most of
this increase was attributable to the woven fabrics division. The Company
believes that backlog orders are generally indicative of future sales.
43
<PAGE>
<TABLE>
<CAPTION>
PROPERTIES
The following table provides a description of the Company's principal
administrative, sales, production and warehouse facilities.
Approximate
Location Principal Use Square Footage Owned/Leased
- ------------------------------------------------- ------------------------ ----------------- -----------------
WOVEN FABRICS DIVISION
<S> <C> <C>
Greenville, SC .................................. Administrative offices 17,400 Leased(1)
New York, NY..................................... Sales offices 12,500 Leased(2)
Dallas, TX vicinity (4).......................... Sales offices 350 Leased(2)
Los Angeles, CA vicinity......................... Sales offices 2,200 Leased(2)
Beattie Plant, Fountain Inn, SC ................. Spin/Weave 390,000 (3)
Furman Plant, Fountain Inn, SC................... Weave 116,000 (3)
Estes Plant, Piedmont, SC ....................... Spin/Weave 332,000 (3)
Delta 3 Plant, Wallace, SC....................... Dye/Finish 555,000 (3)
Cypress Plant, Pamplico, SC ..................... Spin 144,000 (3)
Pamplico Plant, Pamplico, SC .................... Spin/Weave 275,000 (3)
Delta 2 Plant, Wallace, SC ...................... Dye/Finish 347,000 (3)
Catawba Plant, Maiden, NC........................ Spin 115,000 Owned
KNITTED FABRICS DIVISION
Greer, SC........................................ Administrative offices 12,000 Owned
New York, NY..................................... Sales offices 6,300 Leased(2)
Dallas, TX vicinity (4).......................... Sales offices 350 Leased(2)
Carter Plant, Wallace, NC........................ Dye/Finish 485,000 Owned
Holly Plant, Wallace, NC......................... Knit 224,000 Owned
Rainsford Plant, Edgefield, SC................... Spin 296,000 Owned
Mickel Plant, Spartanburg, SC.................... Spin 207,000 Owned
</TABLE>
- --------------------
(1) Lease expires in 1998 with the right to renew for two additional
five-year periods.
(2) Leases expire on varying dates from September 1997 through December
2004.
(3) Titles to these facilities and substantially all of the equipment
located in such facilities are held by three South Carolina counties
under a fee-in-lieu-of-taxes arrangement, which has the effect of
substantially reducing the Company's property taxes in South Carolina.
Although the Company can reacquire such property at a nominal price,
this would currently cause a significant increase in the amount of
property taxes paid by the Company.
(4) This facility is shared by the woven fabrics and knitted fabrics
divisions and the approximate square footage shown represents each
division's approximate usage.
The Company believes that its manufacturing facilities are suitable and
adequate to permit it to be competitive in the markets in which it primarily
competes. The Company strives to operate at or near full capacity.
EMPLOYEES
As of November 30, 1997, the Company had approximately 3,750 employees,
of which 85.1% were paid on an hourly basis. The Company's employees are not
represented by unions. The Company believes that its relations with its
employees are good.
LEGAL PROCEEDINGS
From time to time the Company is a defendant in legal actions involving
claims arising in the normal course of its business, including product liability
claims. The Company believes that, as a result of its legal defenses, insurance
arrangements and indemnification provisions with financially capable parties,
none of these actions is reasonably likely to have a material adverse effect on
the financial condition or results of operations of the Company.
44
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
directors and executive officers of the Company. Except as otherwise noted
below, the business address of each director and officer is Delta Woodside
Industries, Inc., 233 North Main Street, Hammond Square, Suite 200, Greenville,
South Carolina 29601. Each such person is a citizen of the United States. There
are no family relationships among the directors and the executive officers of
the Company or Delta Woodside, except that Buck Mickel (a director of Delta
Woodside) is the father of Buck A. Mickel (a director of the Company and Delta
Woodside).
<TABLE>
<CAPTION>
Director
Name Age Position with the Company Since (1)
- ----------------------------------------- ------- ----------------------------------------------- -----------
<S> <C> <C>
E. Erwin Maddrey, II..................... 56 Director, President and Chief Executive Officer of the 1984
Company and Delta Woodside
Bettis C. Rainsford...................... 46 Director, Executive Vice President, Chief Financial 1984
Officer and Treasurer of the Company and Delta
Woodside
Jane H. Greer............................ 59 Vice President and Secretary of the Company and Delta --
Woodside
Douglas J. Stevens....................... 64 Controller and Assistant Secretary of the Company and --
Delta Woodside
Brenda L. Jones.......................... 52 Assistant Secretary of the Company and Delta --
Woodside
C.C. Guy................................. 64 Director 1984
Buck A. Mickel........................... 41 Director 1984
</TABLE>
- -----------------------
(1) Includes service as a director of Delta Woodside, Delta Woodside's
predecessor by merger, Delta Woodside Industries, Inc., a Delaware
corporation ("Old Delta Woodside"), or any predecessor to Old Delta
Woodside.
E. ERWIN MADDREY, II was President and Chief Executive Officer of Old
Delta Woodside or its predecessors from the founding of Old Delta Woodside's
predecessors in 1984 until the November 15, 1989 merger of Old Delta Woodside
into RSI Corporation, a South Carolina corporation, which changed its name to
Delta Woodside Industries, Inc. and is now Delta Woodside (the "RSI Merger"),
and he has served in such positions with Delta Woodside since the RSI Merger. He
also serves as a director of Kemet Corporation and Delta Woodside.
BETTIS C. RAINSFORD was Executive Vice President and Chief Financial
Officer of Old Delta Woodside or its predecessors from the founding of Old Delta
Woodside's predecessors in 1984 until the RSI Merger and has served in such
positions with Delta Woodside since the RSI Merger. Mr. Rainsford has served as
Treasurer of Old Delta Woodside or its predecessors or Delta Woodside from 1984
to 1986, from August 1988 to November 1988 and from 1990 to the present. He is
also President of The Rainsford Development Corporation which is engaged in
general business development activities in Edgefield, South Carolina. Mr.
Rainsford also serves as a director of Martin Color-Fi, Inc. and Delta Woodside.
JANE H. GREER became associated with Old Delta Woodside's predecessors
in July 1986, and was elected a Vice President of Old Delta Woodside in November
1986, in charge of human resources and other related areas, Assistant Secretary
of Old Delta Woodside in 1987 and Secretary of Old Delta Woodside in August
1988. She became Vice President and Secretary of Delta Woodside in 1989.
DOUGLAS J. STEVENS was elected Controller and Assistant Secretary of
Delta Woodside in 1992. From 1991 to 1992, Mr. Stevens was Vice President of
Finance and Administration for Duck Head Apparel Company, a division of a
subsidiary of Delta Woodside. From 1972 to 1986, he was a Corporate Vice
President of Riegel Textile Corporation (engaged in the manufacture and sale of
textiles). From 1987 to 1988, he was Chairman of Eagle Mills, Inc. (a converter
of textile fabrics). From 1989 to 1991, Mr. Stevens was Operations Director of
Blue Ridge Care, Ltd. (engaged in the manufacture and sale of disposable diapers
in England).
BRENDA L. JONES was elected Assistant Secretary of Old Delta Woodside
in 1988. She became Assistant Secretary of Delta Woodside in 1989. Since 1987,
she has been Vice President and Chief Financial Officer of The Rainsford
Development Corporation, a corporation wholly-owned by Bettis C. Rainsford which
is engaged in general business development activities.
45
<PAGE>
C.C. GUY is a retired businessman. He served as Chairman of the Board
of Old Delta Woodside or its predecessors from the founding of Old Delta
Woodside's predecessors in 1984 until November 1989. Since before the RSI
Merger, he has been a director of RSI Holdings, Inc., and he also served as
President of RSI Holdings, Inc. from before the RSI Merger until January 1995.
RSI Holdings, Inc. until 1992 was engaged in the sale of outdoor power
equipment, until 1994 was engaged in the sale of turf care products and
currently is engaged in the consumer finance business. Prior to November 15,
1989, RSI Holdings, Inc. was a subsidiary of RSI Corporation. Mr. Guy served
from 1979 until November 1989 as President, Treasurer and a director of RSI
Corporation. Prior to the RSI Merger, RSI Corporation owned approximately 40% of
the outstanding shares of common stock of Old Delta Woodside and, among other
matters, was engaged in the office supply business, as well as the businesses of
selling outdoor power equipment and turf care products. Mr. Guy also serves as a
director of Delta Woodside.
BUCK A. MICKEL is Vice President of RSI Holdings, Inc. He served as a
Vice President of Old Delta Woodside or its predecessors from the founding of
Old Delta Woodside's predecessors until November 1989, Secretary of Old Delta
Woodside from November 1986 to March 1987, and Assistant Secretary of Old Delta
Woodside from March 1987 to November 1988. He served as Vice President and a
director of RSI Holdings, Inc. from before the RSI Merger until January 1995 and
served as Vice President of RSI Corporation from 1983 until November 1989. Mr.
Mickel was re-elected Vice President of RSI Holdings, Inc. in September 1996. He
also serves as a director of Delta Woodside and RSI Holdings, Inc.
The Company's directors hold office until the next annual meeting of
the Company's shareholder or until their successors are duly elected and
qualified. The Company's executive officers are appointed by the Board of
Directors and serve at the pleasure of the Board.
MANAGEMENT COMPENSATION
Each of the executive officers of the Company serves in the same
position for Delta Woodside and various of Delta Woodside's direct and indirect
subsidiaries and is compensated by Delta Woodside. On an ongoing basis the
Company reimburses Delta Woodside for services provided to it by its executive
officers. This arrangement was formalized in a management services agreement in
August 1997. See "Certain Transactions." The following provides information
respecting the compensation received by the Company's executive officers in all
capacities for Delta Woodside and its direct and indirect subsidiaries
(including the Company) in fiscal years 1995, 1996 and 1997. A portion of these
amounts was borne by the Company. See "Certain Transactions."
SUMMARY COMPENSATION TABLE
The table below sets forth certain information respecting the
compensation earned during the fiscal years ended June 28, 1997, June 29, 1996
and July 1, 1995 by the Chief Executive Officer, the Chief Financial Officer,
and the other two executive officers who earned salary and bonus in fiscal year
1997 in excess of $100,000 (the "Named Executives").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
---------------
Annual Compensation Awards
----------------------------------------------- ---------------
Securities
Other Annual Underlying
Name and Salary(1) Bonus (1)(2) Compensation (3) Options (4) All Other
Principal Position Year ($) ($) ($) (#) Compensation ($)
- ---------------------- -------- ------------- ------------- ------------------ --------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E. Erwin Maddrey, II, 1997 500,000 0 0 0 36,905 (8)(12)(13)
President and Chief 1996 500,000 0 0 0 47,571 (8)(12)(13)
Executive Officer 1995 492,311 0 0 0 34,678 (8)(12)(13)
Bettis C. Rainsford, 1997 450,000 (5) 0 0 0 15,621 (9)(12)(13)
Executive VP, CFO, 1996 450,000 (5) 0 0 0 15,074 (9)(12)(13)
and Treasurer 1995 442,308 (5) 0 0 0 14,450 (9)(12)
Jane H. Greer, 1997 144,308 63,000 11,080 15,000 (6) 1,313 (10)(13)
Vice President 1996 138,769 18,000 7,567 22,500 (6) 878 (10)(13)
and Secretary 1995 131,077 22,000 12,587 0 864 (10)(13)
Douglas J. Stevens, 1997 134,000 63,000 11,080 19,000 (7) 1,008 (11)(13)
Controller and Asst. 1996 126,923 18,000 6,229 7,500 (7) 1,723 (11)(13)
Secretary 1995 106,539 20,000 9,350 0 837 (11)(13)
</TABLE>
- ----------------------
46
<PAGE>
(1) Includes sums the receipt of which has been deferred pursuant to Delta
Woodside's 401(k) plan (the "401(k) Plan") or Delta Woodside's deferred
compensation plan.
(2) Cash bonuses paid to reward performance.
(3) Amounts paid by Delta Woodside in connection with the vesting of awards
under Delta Woodside's Incentive Stock Award Plan. These amounts were
in each case approximately sufficient, after the payment of all
applicable income taxes, to pay the participant's federal and state
income taxes attributable to the vesting of the award. The amounts
shown in the table above do not include reimbursement by Delta Woodside
or its subsidiaries for certain automobile expenses, club memberships
and other items. The non-business personal benefit to any Named
Executive of these amounts does not exceed 10% of the Named Executive's
total salary and bonus.
(4) For purposes of this table, awards under Delta Woodside's Incentive
Stock Award Plan are treated as options.
(5) Of this amount $150,000 was paid in each fiscal year to The Rainsford
Development Corporation, a company wholly owned by Mr. Rainsford
(6) During fiscal year 1997, Ms. Greer was granted an award covering 15,000
shares under Delta Woodside's Incentive Stock Award Plan. During fiscal
year 1996, Ms. Greer was granted an option covering 22,500 shares of
Delta Woodside common stock under Delta Woodside's Stock Option Plan.
(7) During fiscal year 1997, Mr. Stevens was granted an award covering
15,000 shares of Delta Woodside common stock under Delta Woodside's
Incentive Stock Award Plan and was granted an option covering 4,000
shares of Delta Woodside common stock under Delta Woodside's Stock
Option Plan. During fiscal year 1996, Mr. Stevens was granted an option
covering 7,500 shares of Delta Woodside common stock under Delta
Woodside's Stock Option Plan.
(8) The fiscal year 1997 amount represents a $33,825 premium paid by Delta
Woodside for $10 million of life insurance on the life of Mr. Maddrey,
$548 allocated to Mr. Maddrey's account under Delta Woodside's Employee
Retirement Plan (the "Retirement Plan"), and $2,532 contributed by
Delta Woodside to Delta Woodside's deferred compensation plan as
payment for the amount of Delta Woodside contributions to the
Retirement Plan for fiscal years 1995 and 1996 that were not made for
Mr. Maddrey because of Internal Revenue Code contribution limitations.
(9) The fiscal year 1997 amount represents a $14,525 premium paid by Delta
Woodside for $10 million of life insurance on the life of Mr.
Rainsford, $548 allocated to Mr. Rainsford's account under the
Retirement Plan and $548 contributed by Delta Woodside to Delta
Woodside's deferred compensation plan as payment for the amount of
Delta Woodside contributions to the Retirement Plan for fiscal years
1995 and 1996 that were not made for Mr. Rainsford because of Internal
Revenue Code contribution limitations. The fiscal year 1996 amount
represents a $14,525 premium paid by Delta Woodside for such life
insurance and $549 allocated to Mr. Rainsford's account under the
Retirement Plan. The fiscal year 1995 amount represents premiums paid
for such life insurance. Fiscal year 1995 was the first year in which
Mr. Rainsford participated in the Retirement Plan.
(10) Of the fiscal year 1997 amount, $548 was allocated to Ms. Greer's
account under the Retirement Plan, $46 was contributed by Delta
Woodside to Delta Woodside's deferred compensation plan as payment for
the amount of Delta Woodside contributions to the Retirement Plan for
fiscal years 1995 and 1996 that were not made for Ms. Greer because of
Internal Revenue Code contribution limitations and $719 was contributed
by Delta Woodside to the 401(k) Plan for Ms. Greer with respect to her
compensation deferred under the 401(k) Plan. Of the fiscal year 1996
amount, $537 was allocated to Ms. Greer's account under the Retirement
Plan, $309 was contributed by Delta Woodside to Delta Woodside's
deferred compensation plan to equal the amount Delta Woodside would
have contributed to the 401(k) Plan for Ms. Greer with respect to her
compensation deferred under the deferred compensation plan, and $32 was
received for a safety award. Of the fiscal year 1995 amount, $590 was
allocated to Ms. Greer's account under the Retirement Plan, and $274
was contributed by Delta Woodside to Delta Woodside's deferred
compensation plan to equal the amount that Delta Woodside would have
contributed to the 401(k) Plan for Ms. Greer with respect to her
compensation deferred under the deferred compensation plan.
(11) Of the fiscal year 1997 amount, $445 was allocated to Mr. Stevens'
account under the Retirement Plan, $168 was contributed by Delta
Woodside to Delta Woodside's deferred compensation plan as payment for
the amount of Delta Woodside contributions to the Retirement Plan for
fiscal years 1995 and 1996 that were not made for Mr. Stevens because
of Internal Revenue Code contribution limitations and $395 was
contributed by Delta Woodside to Delta Woodside's deferred compensation
plan to equal the amount Delta Woodside would have contributed to the
401(k) Plan for Mr. Stevens with respect to his compensation deferred
under the deferred compensation plan. The fiscal year 1996 amount
represents $357 allocated to Mr. Stevens' account under the Retirement
Plan, and $762 and $604 contributed by Delta Woodside to Delta
Woodside's deferred compensation plan to equal the amount Delta
Woodside would have contributed to the 401(k) Plan and Retirement Plan,
respectively, for Mr. Stevens with respect to his compensation deferred
under the deferred compensation plan. Of the fiscal year 1995 amount,
$352 was allocated to Mr. Stevens' account under the Retirement Plan,
$324 was contributed by Delta Woodside to Delta Woodside's deferred
compensation plan to equal the amount Delta Woodside would have
contributed to the 401(k) Plan for Mr. Stevens with respect to his
compensation deferred under the deferred compensation plan, and $161
was earned on Mr. Stevens' deferred compensation at a rate in excess of
120% of the Federal mid-term rate.
(12) Delta Woodside pays the premiums due for life insurance policies that
total $10 million on each of the life of Mr. Maddrey and the life of
Mr. Rainsford. The proceeds of these policies are payable to the
beneficiary or beneficiaries chosen by Mr. Maddrey or Mr. Rainsford, as
the case may be.
(13) The Retirement Plan allocation shown for a fiscal year was allocated to
the participant's account during that fiscal year, although the amount
of the allocation may have been determined in whole or in part on the
basis of the participant's compensation during the prior fiscal year. A
participant could withdraw amounts or shares from the Retirement Plan
only upon retirement, death, disability or other termination of
employment. Amounts allocated to a participant's account under the
Retirement Plan generally did not vest until expiration of a five-year
service period at which time the amounts became fully vested. Immediate
vesting would occur upon a participant's reaching normal retirement
age, death or disability. At the end of fiscal year 1997, Mr. Maddrey,
Ms. Greer and Mr. Stevens were vested in the amounts allocated to their
accounts, but Mr. Rainsford was not vested in the amount allocated to
his account, under the Retirement Plan. Mr. Rainsford became vested in
the amount allocated to his account in connection with the September
27, 1997 merger of the Retirement Plan into the 401(k) Plan.
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
The following table provides certain information respecting the grant
to any Named Executive during fiscal year 1997 of awards under Delta Woodside's
Incentive Stock Award Plan or options under Delta Woodside's Stock Option Plan.
For purposes of this table, awards under Delta Woodside's Incentive Stock Award
Plan are treated as options.
47
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1997
Potential Realizable Value at Assumed
Annual Rates of Stock Price Appreciation
Individual Grants for Option Term (3)
- ----------------- --- ------------------------------------------------------- -- --------- -------------------------------------
Number of
Securities Market
Underlying % of Total Exercise Price on
Options Options Granted or Base Date of
Granted to Employees in Price Grant Expiration 0% 5% 10%
Name (#) Fiscal Year ($/Sh) ($/Sh) Date ($) ($) ($)
- ----------------- ---------------------------- --------- -------- --------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jane H. Greer 15,000(1) 19.32 0.01 5.25 9/30/99(1) 78,600 91,013 104,666
Douglas J. Stevens 15,000(1) 19.32 0.01 5.25 9/30/99(1) 78,600 91,013 104,666
4,000(2) 12.25 3.25 6.50 12/02/01(2) 13,000 20,183 28,873
</TABLE>
- ----------------------
(1) These represent shares covered by an award granted during fiscal year
1997 under Delta Woodside's Incentive Stock Award Plan, pursuant to
which a participant can acquire shares of Delta Woodside's common stock
for $0.01 cash per share upon the vesting of the award respecting such
shares. Each grant of an award under the plan sets forth the
circumstances under which all or part of the award will vest. These
circumstances may include (i) the participant being an employee of
Delta Woodside or any subsidiary on one or more specified dates and
(ii) such additional circumstances (which may include, in the case of
certain shares covered by an award, Delta Woodside or a division of
Delta Woodside having met certain performance criteria) as may be set
forth in the award. The vesting circumstances may vary among the shares
covered by an award. The part, if any, of an award that does not vest
is forfeited. In connection with the vesting of any award, Delta
Woodside pays the participant cash in an amount approximately
sufficient, after the payment of all applicable income taxes, to pay
the participant's federal and state income taxes attributable to the
vesting of the award. The expiration date set forth in the table is the
last award vesting date for any portion of the award, because in
certain circumstances all or part of the award, if not vested, would
have been forfeited by or on that date. As to any vested portion, the
award does not technically have any expiration date. On June 28, 1997,
a portion of the awards covering 3,000 shares each to Ms. Greer and Mr.
Stevens vested by reason of each participant being in Delta Woodside's
employ at that date. Each award provides that a portion of the award
covering 3,000 shares will vest on each of June 27, 1998 and July 3,
1999, if the participant is an employee of Delta Woodside on the
relevant date. The portion of each award covering the remaining 6,000
shares will vest on September 30, 1999, if the participant is an
employee of Delta Woodside on that date and Delta Woodside has achieved
a specified level of cumulative operating earnings through July 3,
1999. A portion of these awards will vest if the participant's
employment terminates early by reason of death, retirement or permanent
disability.
(2) These represent shares covered by an option granted during fiscal year
1997 under Delta Woodside's Stock Option Plan, pursuant to which a
participant is granted the right to acquire shares of Delta Woodside's
common stock for an exercise price per share which will be not less
than one-half of the fair market value on the date of the grant. Each
option granted under the plan sets forth the circumstances under which
all or part of the option can be exercised. The expiration date set
forth in the table is the termination date for the option. The option
granted to Mr. Stevens became excercisable with respect to 25% of the
shares covered by the option on December 2, 1997, and will become
exercisable with respect to an additional 25% of the shares covered by
the option on each anniversary of December 2, 1997, if he is an
employee of Delta Woodside on the relevant dates. Additional terms and
conditions are set forth in the option relating to the exercise of
options if Mr. Stevens' employment terminates early by reason of death,
retirement or permanent disability.
(3) Based on annual compounding of assumed appreciation rate until
termination date.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND 1997 FISCAL YEAR-END OPTION
VALUES
The following table provides certain information respecting the
exercise by any Named Executive during fiscal year 1997 of awards granted under
Delta Woodside's Incentive Stock Award Plan and options granted under Delta
Woodside's Stock Option Plan. For purposes of this table, awards under Delta
Woodside's Incentive Stock Award Plan are treated as options.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1997 AND 1997 FY-END OPTION VALUES
Number of Securities Underlying
Unexercised Options at FY-End Value of Unexercised In-the-
(#) Money Options at FY-End ($)(1)
----------------------------- -----------------------------
Shares Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------- ------------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jane H. Greer 3,000 15,345 5,625 28,875 18,984 137,833
Douglas J. Stevens 3,000 15,345 12,875 21,625 6,328 113,864
</TABLE>
- ------------------------
(1) Based on the closing sales price of $6.75 per share on June 30, 1997.
DIRECTOR COMPENSATION
Delta Woodside pays each director of Delta Woodside (for that
director's service as a director of Delta Woodside or any of its subsidiaries,
including the Company) who is not an officer of Delta Woodside a fee of $20,000
per year, plus provides approximately $10,000 annually for each such director
with which shares of Delta Woodside's common stock are purchased. These shares
may be newly issued or acquired in the open market for such purpose. Each
director is also reimbursed for his reasonable travel expenses in attending each
meeting. Commencing in October 1997, each non-officer
48
<PAGE>
director will be paid $500 ($750 for the committee chair) for each committee
meeting attended and $250 for each telephonic committee meeting in which the
director participates.
Delta Woodside has established the Directors' Charitable Giving Program
covering each director of Delta Woodside (some of whom also serve as a Director
of the Company). Under the program, after the death of a director, Delta
Woodside will make an aggregate donation of $500,000, to be paid in 10 annual
installments commencing no later than six months after the director's death, to
one or more charitable organizations selected by such director. With respect to
E. Erwin Maddrey, II and Bettis C. Rainsford, the program will be fully or
partly funded by life insurance policies owned and to be paid for by Delta
Woodside on the lives of such Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
C.C. Guy and Buck A. Mickel served on the Compensation Committee of
Delta Woodside's Board of Directors during fiscal year 1997. C.C. Guy served as
Chairman of the Board of Old Delta Woodside or its predecessors from the
founding of Old Delta Woodside's predecessors in 1984 until November 1989. Buck
A. Mickel was a Vice President of Old Delta Woodside or its predecessors from
the founding of Old Delta Woodside's predecessors until November 1989, Secretary
of Old Delta Woodside from November 1986 to March 1987, and Assistant Secretary
of Old Delta Woodside from March 1987 to November 1988.
49
<PAGE>
STOCK OWNERSHIP
The following table sets forth certain information as of December 5,
1997, regarding the beneficial ownership of Delta Woodside's common stock by (i)
persons beneficially owning in any case more than five percent of such common
stock, (ii) the directors of the Company, (iii) the executive officers of the
Company, and (iv) all directors and executive officers of the Company as a
group. As discussed above, the Company is a wholly-owned indirect subsidiary of
Delta Woodside. Except as otherwise indicated, the Company believes that the
persons named in the table have sole voting and investment power with respect to
all shares of common stock of Delta Woodside shown as beneficially owned by
them.
Shares
Beneficially
Name of Beneficial Owner Owned Percentage
- -------------------------------------- ----------------- -------------
E. Erwin Maddrey, II (1) 3,240,269 13.2%
233 North Main Street
Hammond Square, Suite 200
Greenville, SC 29601
Bettis C. Rainsford (2) 3,181,007 12.9%
108-1/2 Courthouse Square
Post Office Box 388
Edgefield, SC 29824
Buck A. Mickel (3)(4) 1,570,614 6.4%
Post Office Box 67
Greenville, SC 29606
Micco Corporation (4) 1,240,634 5.0%
Post Office Box 795
Greenville, SC 29602
Buck Mickel and 1,565,238 6.4%
Minor H. Mickel (4)(5)
415 Crescent Avenue
Greenville, SC 29605
Minor M. Shaw (4)(6) 1,520,255 6.2%
Post Office Box 795
Greenville, SC 29602
Charles C. Mickel (4)(7) 1,496,434 6.1%
Post Office Box 6721
Greenville, SC 29606
C.C. Guy (8) 25,895 *
Jane H. Greer (9) 35,757 *
Douglas J. Stevens (10) 24,247 *
Brenda L. Jones (11) 1,063 *
All directors and executive officers 8,078,852 32.9%
as a group (7 Persons) (12)
- ------------------------
* Less than 1%
(1) Mr. Maddrey is the President and Chief Executive Officer and a director
of the Company and Delta Woodside. The number of shares shown as
beneficially owned by Mr. Maddrey includes approximately 19,961 shares
allocated to Mr. Maddrey's account in Delta Woodside's Employee Stock
Purchase Plan, 431,470 shares held by the E. Erwin and Nancy B.
Maddrey, II Foundation, a charitable trust, as to which shares Mr.
Maddrey holds sole voting and investment power but disclaims beneficial
ownership, and approximately 983 shares allocated to the account of Mr.
Maddrey per the most recent report of the 401(k) Plan for fiscal year
1996.
(2) Mr. Rainsford is the Executive Vice President, Treasurer and Chief
Financial Officer and a director of the Company and Delta Woodside. The
number of shares shown as beneficially owned by Mr. Rainsford includes
47,945 shares held by The Edgefield County Foundation, a charitable
trust, as to which shares Mr. Rainsford holds sole voting and
investment power but disclaims beneficial ownership, and approximately
76 shares allocated to the account of Mr. Rainsford per the latest
report of the 401(k) Plan for fiscal year 1996.
(3) Buck A. Mickel is a director of the Company and Delta Woodside. The
number of shares shown as beneficially owned by Buck A. Mickel includes
329,980 shares directly owned by him and all of the 1,240,634 shares
owned by Micco Corporation. See Note (4) below.
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(4) The shares of common stock of Micco Corporation are owned in equal
parts by Minor H. Mickel, the wife of Buck Mickel (a director of Delta
Woodside), Buck A. Mickel (a director of the Company and Delta
Woodside), Minor M. Shaw and Charles C. Mickel. Buck A. Mickel, Minor
M. Shaw and Charles C. Mickel are the children of Buck and Minor H.
Mickel. Minor H. Mickel, Buck A. Mickel, Minor M. Shaw and Charles C.
Mickel are officers and directors of Micco Corporation. Each of Minor
H. Mickel, Buck A. Mickel, Minor M. Shaw and Charles C. Mickel
disclaims beneficial ownership of three quarters of the shares of Delta
Woodside's common stock owned by Micco Corporation. Minor H. Mickel and
Buck A. Mickel directly own 116,854 shares and 329,980 shares,
respectively, of Delta Woodside's common stock. Charles C. Mickel,
directly or as custodian for his son, owns 255,700 shares of Delta
Woodside's common stock. Minor M. Shaw, directly or as custodian for
her children, owns 264,978 shares of Delta Woodside's common stock. In
addition, Buck Mickel directly owns 207,750 shares of Delta Woodside's
common stock, as to which shares Minor H. Mickel may also be deemed a
beneficial owner. Minor H. Mickel disclaims beneficial ownership with
respect to these shares. Buck Mickel disclaims beneficial ownership of
the shares directly owned by Minor H. Mickel and the shares owned by
Micco Corporation. Minor M. Shaw's husband, through an individual
retirement account and as custodian for her children, beneficially owns
approximately 14,643 shares of Delta Woodside's common stock, as to
which shares Minor M. Shaw may also be deemed a beneficial owner. Minor
M. Shaw disclaims beneficial ownership with respect to these shares and
with respect to the 2,748 shares of Delta Woodside's common stock held
by her as custodian for her children. The spouse of Charles C. Mickel
owns 100 shares of Delta Woodside's common stock, as to which shares
Charles C. Mickel may also be deemed a beneficial owner. Charles C.
Mickel disclaims beneficial ownership with respect to these shares and
with respect to the 3,000 shares of Delta Woodside's common stock held
by him as custodian for his son. Micco Corporation owns 1,240,634
shares of Delta Woodside's common stock.
(5) Buck Mickel is a director of Delta Woodside. The number of shares shown
as beneficially owned by Buck Mickel and Minor H. Mickel includes
207,750 shares directly owned by Buck Mickel, 116,854 shares directly
owned by Minor H. Mickel and all of the 1,240,634 shares owned by Micco
Corporation. See Note (4) above.
(6) The number of shares shown as beneficially owned by Minor M. Shaw
includes 264,978 shares owned by her directly or as custodian for her
children, approximately 14,643 shares beneficially owned by her husband
through an individual retirement account or as custodian for her
children, and all of the 1,240,634 shares owned by Micco Corporation.
See Note (4) above.
(7) The number of shares shown as beneficially owned by Charles C. Mickel
includes 255,700 shares owned by him directly or as custodian for his
son, 100 shares owned by his wife and all of the 1,240,634 shares owned
by Micco Corporation. See Note (4).
(8) C.C. Guy is a director of the Company and Delta Woodside. The number of
shares shown as beneficially owned by C.C. Guy includes 18,968 shares
owned by his wife, as to which shares Mr. Guy disclaims beneficial
ownership.
(9) Ms. Greer is Vice President and Secretary of the Company and Delta
Woodside. The number of shares shown as beneficially owned by Ms. Greer
includes approximately 1,124 shares allocated to her account per the
latest report of the 401(k) Plan for fiscal year 1996. Also included
are 5,625 unissued shares which can be acquired by the exercise of
options and incentive awards exercisable within 60 days of December 5,
1997. Excluded from the table are 28,875 unissued shares covered by
stock options and incentive awards which are not exercisable within 60
days after December 5, 1997.
(10) Mr. Stevens is Controller and Assistant Secretary of the Company and
Delta Woodside. The number of shares shown as beneficially owned by Mr.
Stevens includes approximately 247 shares allocated to his account per
the latest report of the 401(k) Plan for fiscal year 1996. Also
included are 13,875 unissued shares which can be acquired by the
exercise of options and incentive awards exercisable within 60 days of
December 5, 1997, but excluded are 20,625 unissued shares covered by
options and incentive awards which are not exercisable within 60 days
after December 5, 1997.
(11) Ms. Jones is Assistant Secretary of the Company and Delta Woodside. The
number of shares shown as beneficially owned by Ms. Jones includes
approximately 163 shares allocated to her account per the latest report
of the 401(k) Plan for fiscal year 1996. Also included are 500 unissued
shares which can be acquired by the exercise of options and incentive
awards exercisable within 60 days of December 5, 1997. Excluded from
the table are 2,300 unissued shares covered by options and incentive
awards which are not exercisable within 60 days after December 5, 1997.
(12) Includes all shares deemed to be beneficially owned by any director or
executive officer. Excludes 548,156 shares of Delta Woodside's common
stock held by the 401(k) Plan, which on September 27, 1997 became part
of the 401(k) Plan (except to the extent such shares are allocated to
the account of an executive officer). Each participant in the 401(k)
Plan has the right to direct the manner in which the trustee of the
Plan votes the shares held by the Plan that are allocated to such
participant's account. Except for shares as to which such a direction
is made, the shares held by the Plan will not be voted. The number of
shares shown in the table includes an aggregate of 18,625 non-issued
shares subject to employee stock options held by executive officers
that are exercisable within 60 days or less, but excludes 53,175
non-issued shares subject to employee stock options and incentive
awards held by executive officers that are not exercisable within 60
days.
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CERTAIN TRANSACTIONS
The knitted fabrics division of the Company sells yarn and fabric to
the subsidiary of Delta Woodside that manufactures and sells apparel. During
fiscal years 1994, 1995, 1996 and 1997, these sales of yarn aggregated
$14,568,000, $17,699,000, $23,363,000 and $22,015,000, respectively, and these
sales of fabric aggregated $1,066,000, $2,493,000, $2,237,000 and $7,855,000,
respectively. During these periods until the end of March 1997, all such yarn
sales were at a price equal to cost plus $0.01 per pound. All such fabric sales,
and all yarn sales made since March 1997, were and have been made at prices
deemed by the Company and Delta Woodside to approximate market value. In
connection with the foregoing pricing policies on the yarn sales, through March
1997 the apparel manufacturing subsidiary of Delta Woodside also maintained with
the knitted fabrics division a non-interest bearing deposit, which aggregated
$7.5 million and $11.2 million at June 29, 1996 and July 1, 1995, respectively.
Effective May 7, 1997, Delta Woodside adopted a written policy statement
governing the pricing of intercompany transactions. Among other things, such
policy statement provides that all intercompany sales and purchases will be
settled at market value and terms.
Delta Woodside provides various services to the Company, including
payroll, accounting, internal audit, employee benefits and corporate services.
These services have been charged on the basis of Delta Woodside's costs and
allocated to the Company based on employee head count, computer time, projected
sales and other criteria. During fiscal years 1994, 1995, 1996 and 1997, Delta
Woodside charged the Company $3,083,000, $2,950,000, $3,123,000 and $3,302,000,
respectively, for these services. Effective as of August 1, 1997, the Company
and Delta Woodside entered into a management services agreement that governs the
use by the Company of and the method of charging the Company for the services to
be provided by Delta Woodside to the Company on an ongoing basis. Such
management services agreement provides, among other things, that the Company may
request that Delta Woodside provide such executive, administrative, accounting
and similar services as may be necessary and appropriate for the operation of
the Company. The management services agreement further provides that Delta
Woodside shall provide such services for a fee no greater than the lesser of:
(a) the cost to the Company of obtaining such services from an unaffiliated
third party in an arm's length transaction or (b) the Company's pro rata share
of Delta Woodside's actual cost or expense incurred in connection with providing
such services (including a reasonable allocation of overhead and other
unallocated corporate costs) with such pro rata share to be determined
reasonably and in good faith by Delta Woodside in accordance with the following
formulas: in the case of benefits, administration and payroll costs and expenses
based upon the average number of employees of the Company during the immediately
preceding four full fiscal quarters for which internal statements are available
(the "Statement Period") as compared to the average number of employees of the
Delta Woodside Group during the Statement Period; in the case of computer
services based upon the number of computer processing units attributable to the
Company during the Statement Period as compared to the total number of computer
processing units of the Delta Woodside Group during the Statement Period; in the
case of purchasing costs and expenses based upon the number of purchase orders
attributable to the Company during the Statement Period as compared to the total
number of purchase orders of the Delta Woodside Group during the Statement
Period; in the case of expenses related to cotton buying services based upon the
number of cotton orders entered into by or on behalf of the Company for the
Statement Period as compared to the total number of cotton orders of the Delta
Woodside Group for the Statement Period; in the case of accounting, tax and
internal audit costs and expenses based upon the amount of the bill of Delta
Woodside's external auditors for the Statement Period attributable to work
related to the Company, as compared to the total bill of Delta Woodside's
external auditors for the Statement Period; and in the case of costs and
expenses for all other services based upon the total of the Company's revenues
for the Statement Period as compared to revenues of the consolidated Delta
Woodside Group for the Statement Period. The management services agreement
further provides that letter of credit or surety bond issuer fees and expenses
incurred in connection with workers compensation requirements will be borne by
the Company in accordance with its pro rata share of applicable payroll
expenses. Such management services agreement may be terminated at any time by
any party thereto without liability, except that the Company shall pay for all
services provided up to and including the date such agreement is terminated and
all other amounts attributable to the period prior to such termination.
Effective as of August 1, 1997 the Company and Delta Woodside entered
into an income tax sharing agreement. Such income tax sharing agreement provides
that Delta Woodside will file consolidated federal, and may file consolidated
state, local or foreign, income tax returns covering the Company and the other
members of the Delta Woodside Group. Such income tax sharing agreement further
provides that the Company will pay to Delta Woodside an amount on each tax due
date equal to the lesser of (a) the Company's income tax liability had the
Company filed a separate tax return for the affiliate group (the "Subsidiary
Group") consisting of the Company and the Company's subsidiaries or (b) the
Subsidiary Group's pro rata share of the Delta Woodside Group's aggregate income
tax liability, calculating such pro rata share as if the members of the Delta
Woodside Group had filed separate tax returns. However, any reduction in amount
payable by the Company resulting from net operating losses ("NOL") generated by
another subsidiary of Delta Woodside shall be paid to Delta Woodside when such
other subsidiary would have otherwise benefitted from such NOL if it were filing
separate tax returns. The income tax sharing agreement also provides that Delta
Woodside will credit the Company for any net loss, tax credit or refund of the
Subsidiary Group that reduces the tax liability of the Delta Woodside Group.
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For a description of indebtedness owed by the Company to the Delta
Woodside Group prior to the Refinancing, see "Use of Proceeds." For further
information on transactions with affiliates by the Company, see Note F to the
Consolidated Financial Statements, which information is incorporated herein by
reference.
Any transaction to be entered into between the Company, on the one
hand, and Delta Woodside or any of Delta Woodside's other subsidiaries, on the
other hand, will be on terms that the Company then believes comparable to those
that would be available to the Company at such time from non-affiliated persons.
In addition, pursuant to the terms of the Indenture, certain affiliate
transactions (excluding sales of goods and manufacturing services in the
ordinary course of business) in excess of $1.0 million are subject to approval
at the time of the Company's Board of Directors and certain affiliate
transactions (excluding sales of goods and manufacturing services in the
ordinary course of business) in excess of $5.0 million are subject to a fairness
opinion by an investment banking firm of national standing. See "Description of
Exchange Notes -- Certain Covenants -- Transactions with Affiliates."
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THE EXCHANGE OFFER
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill certain
obligations of the Company with respect to the Registration Rights Agreement
dated August 25, 1997 between the Company and the Initial Purchaser of the
Senior Notes (the "Registration Rights Agreement").
The Senior Notes were originally issued and sold on August 25, 1997
(the "Issue Date") to the Initial Purchaser pursuant to the Purchase Agreement.
Such sale and the initial sales by the Initial Purchaser were not registered
under the Securities Act in reliance upon the exemption provided by Section 4(2)
of the Securities Act and Rule 144A of the Securities Act. Pursuant to the
Registration Rights Agreement, the Company agreed to file with the Commission a
registration statement relating to an exchange offer (the "Exchange Offer
Registration Statement") pursuant to which another series of notes of the
Company covered by such registration statement and containing the same terms as
the Senior Notes, except as set forth in this Prospectus, would be offered in
exchange for Senior Notes tendered at the option of the holders thereof. A copy
of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement.
Under the Registration Rights Agreement, the Company agreed to (i)
cause to be filed with the Commission no later than October 9, 1997, the
Exchange Offer Registration Statement (which is the Registration Statement of
which this Prospectus forms a part) under the Securities Act relating to the
Exchange Notes and the Exchange Offer, (ii) use its best efforts to cause such
Registration Statement to become effective at the earliest possible time, but in
no event later than January 7, 1998, (iii) in connection with the foregoing, (A)
file all pre-effective amendments to such Registration Statement as may be
necessary in order to cause such Registration Statement to become effective, (B)
if applicable, file a post-effective amendment to such Registration Statement
pursuant to Rule 430A under the Securities Act, and (C) cause all necessary
filings in connection with the registration and qualification of the Exchange
Notes to be made under the Blue Sky laws of such jurisdictions as are necessary
to permit the Exchange Offer to be consummated, and (iv) upon the effectiveness
of such Registration Statement, commence the Exchange Offer. The Company shall
cause the Exchange Offer Registration Statement to be effective continuously and
shall keep the Exchange Offer open for a period of not less than the minimum
period required under applicable federal and state securities laws to consummate
the Exchange Offer; PROVIDED, HOWEVER, that in no event shall such period be
less than 20 business days. The Company has agreed to cause the Exchange Offer
to comply with all applicable federal and state securities laws. No securities
other than the Exchange Notes are to be included in the Exchange Offer
Registration Statement. The Company has agreed to use its best efforts to cause
the Exchange Offer to be consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 business days thereafter. The Company has agreed to use its best
efforts to keep the Exchange Offer Registration Statement continuously
effective, supplemented and amended as required by the provisions of the
Registration Rights Agreement to the extent necessary to ensure that it is
available for resales of Senior Notes acquired by broker-dealers for their own
accounts as a result of market-making activities or other trading activities,
and to ensure that it conforms with the requirements of the Registration Rights
Agreement, the Securities Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of one year from the
date on which the Exchange Offer Registration Statement is declared effective.
The Company shall provide sufficient copies of the latest version of this
Prospectus to broker-dealers promptly upon request at any time during such
one-year period in order to facilitate such resales.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases Notes directly from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who exchanges Senior Notes for Exchange Notes in the ordinary
course of business and who is not participating, does not intend to participate,
and has no arrangement with any person to participate, in a distribution of the
Exchange Notes, will be allowed to resell Exchange Notes to the public without
further registration under the Securities Act and (except as set forth below)
without delivering to the purchasers of the Exchange Notes a prospectus that
satisfies the requirements of Section 10 of the Securities Act. See the
No-Action Letters. However, if any holder acquires Exchange Notes in the
Exchange Offer for the purpose of distributing or participating in the
distribution of the Exchange Notes or is a broker-dealer, such holder cannot
rely on the position of the staff of the Commission enumerated in the No-Action
Letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Senior Notes,
where such Senior Notes were acquired by such broker-dealer as a result of
market making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not
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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 Exchange
Notes received in exchange for Senior Notes where such Senior Notes were
acquired by such broker-dealer as a result of market-making or other trading
activities. Pursuant to the Registration Rights Agreement, the Company has
agreed to make this Prospectus, as it may be amended or supplemented from time
to time, available to broker-dealers for use in connection with any resale for a
period of up to one year after the date of this Prospectus. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept any and all
Senior Notes validly tendered and not withdrawn prior to the Expiration Date.
The Company will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Senior Notes surrendered pursuant to
the Exchange Offer. Senior Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and
terms of the Senior Notes except that (i) the Exchange Offer will be registered
under the Securities Act and, therefore, the Exchange Notes will not bear
legends restricting the transfer thereof and (ii) holders of the Exchange Notes
will not be entitled to any of the rights of holders of Senior Notes under the
Registration Rights Agreement, which rights will generally terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Senior Notes (which they replace) and will be issued under,
and be entitled to the benefits of, the Indenture, which also authorized the
issuance of the Senior Notes, such that both series of Notes will be treated as
a single class of debt securities under the Indenture.
As of the date of this Prospectus, $150 million in aggregate principal
amount of the Senior Notes are outstanding and registered in the name of Cede &
Co., as nominee for the Depositary. Only a registered holder of the Senior Notes
(or such holder's legal representative or attorney-in-fact) as reflected on the
records of the Trustee under the Indenture may participate in the Exchange
Offer. There will be no fixed record date for determining registered holders of
the Senior Notes entitled to participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with
the provisions of the Registration Rights Agreement and the applicable
requirements of the Securities Act, the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Senior
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 Senior Notes for the purposes of receiving the Exchange Notes from
the Company.
Holders who tender Senior Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Senior
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Offer will expire on the Expiration Date. The term
"Expiration Date" shall mean 5:00 p.m., New York City time on [25 business days
after effectiveness], 1998, unless the Company, in its sole discretion, extends
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended. The Company will
extend the Expiration Date beyond [30 business days after effectiveness] only in
the event that unforeseen circumstances arise.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Senior Notes deposited to date, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
Without limiting the manner in which the Company may choose to make a public
announcement of any delay, 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 an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Senior Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent. Any such
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delay in acceptance, extension, or termination will be followed as promptly as
practicable by oral or written notice thereof to the registered holders. 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 by means of a
prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 9-5/8% per
annum. Interest on the Exchange Notes will be payable semi-annually in arrears
on each March 1 and September 1, commencing March 1, 1998. Holders of Exchange
Notes will receive interest on March 1, 1998 from the date of initial issuance
of the Exchange Notes, plus an amount equal to the accrued interest on the
Senior Notes from the date of initial delivery to the date of exchange thereof
for Exchange Notes. Holders of Senior Notes that are accepted for exchange will
be deemed to have waived the right, as holders of Senior Notes, to receive any
interest accrued on the Senior Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Senior Notes may tender such Senior Notes
in the Exchange Offer. To tender in the Exchange Offer, a holder of Senior Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "--Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Senior Notes must be received by the Exchange Agent along with the Letter
of Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Senior Notes, if such procedure is available,
into the Exchange Agent's account at the Depositary pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date or (iii) the holder must comply with the guaranteed
delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration
Date will constitute an agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF SENIOR NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND
RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR SENIOR NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Senior Notes whose Senior Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. 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 such owner's Senior Notes, either make appropriate
arrangements to register ownership of the Senior Notes in such owner's name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal
described below (see "--Withdrawal of Tenders"), as the case may be, must be
guaranteed by an Eligible Institution (as defined below) unless the Senior Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box titled "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be made by 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 "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act which is
a member of one of the recognized signature guarantee programs identified in the
Letter of Transmittal (an "Eligible Institution").
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If the Letter of Transmittal is signed by a person other than the
registered holder of any Senior Notes listed therein, such Senior Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Senior Notes.
If the Letter of Transmittal or any Senior 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.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Senior Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Senior Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Senior
Notes not properly tendered or any Senior Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Senior 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 Senior Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Senior Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Senior Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
While the Company has no present plan to acquire any Senior Notes that
are not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Senior Notes that are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Senior Notes that remain outstanding subsequent
to the Expiration Date or, as set forth below under "--Conditions," to terminate
the Exchange Offer and, to the extent permitted by applicable law, purchase
Senior Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the terms
of the Exchange Offer.
By tendering, each holder of Senior Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Senior Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder is
not participating in and does not intend to participate in and has no
arrangement or understanding with any person to participate in the distribution
of the Exchange Notes, (iii) such holder acknowledges and agrees that any person
who is a broker-dealer registered under the Exchange Act or is participating in
the Exchange Offer for the purposes of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the Exchange
Notes acquired by such person and cannot rely on the position of the staff of
the Commission set forth in certain no-action letters, (iv) such holder
understands that a secondary resale transaction described in clause (iii) above
(except as set forth below) and any resales of Exchange Notes obtained by such
holder in exchange for Senior Notes acquired by such holder directly from the
Company should be covered by an effective registration statement containing the
selling security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission and (v) such holder is not an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company. If
the holder is a broker-dealer that will receive Exchange Notes for such holder's
own account in exchange for Senior Notes that were acquired as a result of
market-making activities or other trading activities, such holder will be
required to acknowledge in the Letter of Transmittal that such holder will
deliver a prospectus (which may be this Prospectus, as it may be amended or
supplemented from time to time) in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, such holder
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 the
Exchange Notes received in exchange for Senior Notes where such Senior Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities.
RETURN OF SENIOR NOTES
If any tendered Senior Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Senior Notes are
withdrawn or are submitted for a greater principal amount than the holder
desires to exchange, such unaccepted, withdrawn or non-exchanged Senior Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Senior Notes tendered by book-entry transfer into the Exchange Agent's
account at the Depositary pursuant to the book-entry transfer procedures
described below, such Senior Notes will be credited to an account maintained
with the Depositary) as promptly as practicable.
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BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the Senior Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make
book-entry delivery of Senior Notes by causing the Depositary to transfer such
Senior Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Senior Notes may be effected through book-entry transfer at the Depositary, 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 by the Exchange Agent at the address set forth below under
"-Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Senior Notes and (i) whose Senior
Notes are not immediately available or (ii) who cannot deliver their Senior
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery substantially in the
form provided by the Company (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the
holder, the certificate number(s) of such Senior Notes and the
principal amount of Senior Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within
five New York Stock Exchange trading days after the Expiration
Date, the Letter of Transmittal (or a facsimile thereof),
together with the certificate(s) representing the Senior Notes
in proper form for transfer or a Book-Entry Confirmation, as
the case may be, 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 executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all
tendered Senior Notes in proper form for transfer and all
other documents required by the Letter of Transmittal are
received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to holders who wish to tender their Senior Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Senior Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Senior 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 the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Senior Notes to be withdrawn (the "Depositor"), (ii) identify the Senior
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Senior Notes) and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Senior Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, whose
determination shall be final and binding on all parties. Any Senior Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Senior Notes so withdrawn are validly retendered. Properly withdrawn Senior
Notes may be retendered by following one of the procedures described above under
"The Exchange Offer--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall
not be required to accept for exchange, or exchange the Exchange Notes for, any
Senior Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Senior Notes, if the Exchange Offer violates applicable law,
rules or regulations or an applicable interpretation of the staff of the
Commission.
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If the Company determines in its sole discretion that any of these
circumstances exist, the Company may (i) refuse to accept any Senior Notes and
return all tendered Senior Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Senior Notes tendered prior to the expiration of
the Exchange Offer, subject, however, to the rights of holders to withdraw such
Senior Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Senior Notes that have not been withdrawn. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the registered
holders of the Senior Notes, and the Company will extend the Exchange Offer for
a period of five to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders, if the Exchange
Offer would otherwise expire during such five to ten business day period.
SENIOR NOTES REGISTRATION RIGHTS
Under the Registration Rights Agreement, the Company agreed to (i)
cause to be filed with the Commission no later than October 9, 1997, the
Exchange Offer Registration Statement (which is the Registration Statement of
which this Prospectus forms a part) under the Securities Act relating to the
Exchange Notes and the Exchange Offer, (ii) use its best efforts to cause such
Registration Statement to become effective at the earliest possible time, but in
no event later than January 7, 1998, (iii) in connection with the foregoing,
file (A) all pre-effective amendments to such Registration Statement as may be
necessary in order to cause such Registration Statement to become effective, (B)
if applicable, a post-effective amendment to such Registration Statement
pursuant to Rule 430A under the Securities Act, and cause all necessary filings
in connection with the registration and qualification of the Exchange Notes to
be made under the Blue Sky laws of such jurisdictions as are necessary to permit
the Exchange Offer to be consummated, and (iv) upon the effectiveness of such
Registration Statement, commence the Exchange Offer. The Company shall cause the
Exchange Offer Registration Statement to be effective continuously and shall
keep the Exchange Offer open for a period of not less than the minimum period
required under applicable federal and state securities laws to consummate the
Exchange Offer; PROVIDED, HOWEVER, that in no event shall such period be less
than 20 business days. The Company has agreed to cause the Exchange Offer to
comply with all applicable federal and state securities laws. No securities
other than the Exchange Notes are to be included in the Exchange Offer
Registration Statement. The Company has agreed to use its best efforts to cause
the Exchange Offer to be consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 business days thereafter. The Company has agreed to use its best
efforts to keep the Exchange Offer Registration Statement continuously
effective, supplemented and amended as required by the provisions of the
Registration Rights Agreement to the extent necessary to ensure that it is
available for resales of Senior Notes acquired by broker-dealers for their own
accounts as a result of market-making activities or other trading activities,
and to ensure that it conforms with the requirements of the Registration Rights
Agreement, the Securities Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of one year from the
date on which the Exchange Offer Registration Statement is declared effective.
The Company shall provide sufficient copies of the latest version of this
Prospectus to broker-dealers promptly upon request at any time during such
one-year period in order to facilitate such resales.
If (i) the Company is not required to file an Exchange Offer
Registration Statement or to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy (after the
procedures set forth in the Registration Rights Agreement have been complied
with) or (ii) if any holder of Transfer Restricted Securities (as defined in the
Registration Rights Agreement) shall notify the Company within 20 business days
after the Exchange Offer shall have been consummated (A) that such holder is
prohibited by applicable law or Commission policy from participating in the
Exchange Offer, or (B) that such holder may not resell the Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and that the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such holder, or
(C) that such holder is a broker-dealer and holds Senior Notes acquired directly
from the Company or one of its affiliates, then the Company shall (x) cause to
be filed a Shelf Registration Statement on or prior to the Shelf Filing
Deadline, which Shelf Registration Statement shall provide for resales of all
Transfer Restricted Securities the holders of which shall have provided certain
information required pursuant to the Registration Rights Agreement; and (y) use
its best efforts to cause such Shelf Registration Statement to be declared
effective by the Commission on or before the 135th day after the obligation to
file the Shelf Registration Statement arises. The Company shall use its best
efforts to keep such Shelf Registration Statement continuously effective,
supplemented and amended as required by certain provisions of the Registration
Rights Agreement to the extent necessary to ensure that it is available for
resales of Notes by the holders of Transfer Restricted Securities entitled to
the benefit of the Shelf Registration, and to ensure that it conforms with the
requirements of the Registration Rights Agreement, the Securities Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of at least two years after August 25, 1997.
The Registration Rights Agreement provides that a registration default
will occur if (i) any of the registration statements required by the
Registration Rights Agreement is not filed with the Commission on or prior to
the date specified for such filing in the Registration Rights Agreement, (ii)
any of such Registration Statements has not been declared effective by the
Commission on or prior to the date specified for such effectiveness in the
Registration Rights Agreement (the "Effectiveness Target Date"), (iii) the
Exchange Offer has not been consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) any registration statement
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required by the Registration Rights Agreement is filed and declared effective
but shall thereafter cease to be effective or fail to be usable in connection
with resales of Transfer Restricted Securities during the time period specified
by the Registration Rights Agreement without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself immediately declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default").
The Registration Rights Agreement provides that in the event of a
Registration Default, the Company is required to pay as liquidated damages
("Liquidated Damages") to each holder of Transfer Restricted Securities (as
defined in the Registration Rights Agreement), with respect to the first 90-day
period immediately following the occurrence of such Registration Default, an
amount equal to $.05 per week per $1,000 principal amount of Transfer Restricted
Securities held by such holder for each week or portion thereof that the
Registration Default continues. The amount of the liquidated damages shall
increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.30 per week per $1,000 principal amount of Transfer
Restricted Securities. All accrued Liquidated Damages shall be paid to record
holders by the Company by wire transfer of immediately available funds or by
federal funds check on each damages payment date, as provided in the Indenture.
Following the cure of all Registration Defaults relating to any particular
Transfer Restricted Securities, the accrual of Liquidated Damages with respect
to such Transfer Restricted Securities will cease. All obligations of the
Company set forth in this paragraph that are outstanding with respect to any
Transfer Restricted Security at the time such security ceases to be a Transfer
Restricted Security shall survive until such time as all such obligations with
respect to such security shall have been satisfied in full. The filing and
effectiveness of the Registration Statement of which this Prospectus is a part
and the consummation of the Exchange Offer will eliminate all rights of the
holders of Senior Notes eligible to participate in the Exchange Offer to receive
damages that would have been payable if such actions had not occurred.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including
registration rights) of holders of the Senior Notes eligible to participate in
the Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify such
holders (including any broker-dealers) and certain parties related to such
holders against certain liabilities (including liabilities under the Securities
Act), (ii) to provide, upon the request of any holder of a transfer-restricted
Senior Note, the information required by Rule 144A(d)(4) under the Securities
Act in order to permit resales of such Senior Notes pursuant to Rule 144A, (iii)
to use its best efforts to keep the Registration Statement effective to the
extent necessary to ensure that it is available for resales of
transfer-restricted Senior Notes by broker-dealers for a period of up to one
year from the date of this Prospectus, (iv) to provide copies of the latest
version of this Prospectus to broker-dealers upon their request for a period of
up to one year from the date of this Prospectus and (v) to pay Liquidated
Damages pursuant to the Registration Rights Agreement accruing prior to the
effectiveness of the Exchange Offer Registration Statement.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent of the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT DELIVERY:
Bank of New York Bank of New York
101 Barclay Street, 7th Floor 101 Barclay Street
New York, New York 10286 Attn: 7th Floor
Attn: Reorganization Section Corporate Trust & Agencies
Service Window
New York, New York 10286
Attn: Reorganization Section
BY HAND DELIVERY: BY FACSIMILE:
Bank of New York (212) 815-6339
101 Barclay Street
Attn: 7th Floor CONFIRM BY TELEPHONE:
Corporate Trust & Agencies Service Window
New York, New York 10286 (212) 815-2742
Attn: Reorganization Section
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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 has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company and are estimated in the aggregate to be
approximately $209,000.00. Such expenses include registration fees, fees and
expenses of the Exchange Agent and the Trustee, accounting and legal fees and
printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Senior Notes pursuant to the Exchange Offer. If, however, a transfer
tax is imposed for any reason other than the exchange of the Senior Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Senior
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Senior Notes that are not exchanged for the Exchange Notes
pursuant to the Exchange Offer will remain restricted securities. Accordingly,
such Senior Notes may be resold only (i) to a person whom the seller reasonably
believes is a qualified institutional buyer as defined in Rule 144A of the
Securities Act in a transaction meeting the requirements of Rule 144A of the
Securities Act, (ii) in a transaction meeting the requirements of Rule 144 under
the Securities Act, (iii) outside the United States to a foreign person in a
transaction meeting the requirements of Rule 904 under the Securities Act, (iv)
in accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel if the Company so
requests), (v) to the Company or (vi) pursuant to an effective registration
statement and, in each case, in accordance with any applicable securities laws
of any state of the United States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as
a result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
APPRAISAL RIGHTS
HOLDERS OF NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS
IN CONNECTION WITH THE EXCHANGE OFFER.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes, formally titled 9-5/8% Senior Notes due 2007,
Series B, will be issued pursuant to the Indenture by and among the Company, the
Guarantor and The Bank of New York, as Trustee. The terms of the Exchange Notes
are identical in all respects to the terms of the Senior Notes for which they
may be exchanged pursuant to this Exchange Offer, except that (i) the Exchange
Offer will have been registered under the Securities Act, and, therefore, the
Exchange Notes will not bear legends restricting the transfer thereof and (ii)
the holders of the Exchange Notes will generally not be entitled to registration
rights under the Registration Rights Agreement. The Exchange Notes will evidence
the same debt as the Senior Notes. The terms of the Exchange Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
Exchange Notes are subject to all such terms, and holders of Exchange 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 therein of certain terms used below. A copy of the
Indenture is available as set forth above under "-- Additional Information." The
definitions of certain terms used in the following Description of Exchange Notes
are set forth below under "-- Certain Definitions." For purposes of this
Description of Exchange Notes, the term "Company" refers only to Delta Mills,
Inc. and not to any of its Subsidiaries.
The Exchange Notes will be general unsecured obligations of the Company
and will rank PARI PASSU in right of payment with all current and future
unsecured unsubordinated Indebtedness of the Company. The Exchange Notes will be
effectively subordinated to secured Indebtedness of the Company and all of the
Indebtedness of the Company's Subsidiaries. The Company has no current or
pending arrangements or agreements to incur any additional significant
indebtedness to which the Notes would be subordinate or rank pari passu in right
of payment. The Company is the borrower and Delta Mills Marketing, Inc., the
Company's only existing Subsidiary, is a guarantor, under the New Credit
Facility and all borrowings under the New Credit Facility are secured by a first
priority Lien on the accounts receivable and inventory (and related property)
(together with the proceeds thereof) of the Company and its Subsidiary and on
the capital stock of the Company and its Subsidiaries. At September 27, 1997
approximately $65.7 million (including contingent liability of approximately
$0.7 million under letters of credit) was outstanding under the New Credit
Facility, and an additional amount of up to approximately $34.3 million was
available for borrowing thereunder. See "Description of Other Indebtedness." The
Indenture permits additional borrowings by the Company and its Subsidiaries
under the New Credit Facility and other credit facilities in the future, subject
to certain restrictions.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $150.0 million
and will mature on September 1, 2007. Interest on the Notes will accrue at the
rate of 9 5/8% per annum and will be payable semi-annually in arrears on March 1
and September 1, commencing on March 1, 1998, to holders of record on the
immediately preceding February 15 and August 15. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of and premium, if any, interest and Liquidated Damages, if any, on
the Notes will be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the option of the
Company, payment of interest and Liquidated Damages, if any, may be made by
check mailed to the holders of the Notes at their respective addresses set forth
in the register of holders of Notes; provided that all payments with respect to
Notes the holders of which have given wire transfer instructions to the Company
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Exchange Notes will be issued in
denominations of $1,000 and integral multiples thereof.
GUARANTEES
The Company's payment obligations under the Notes are jointly and
severally guaranteed (the "Guarantees") by the Guarantors on a senior unsecured
basis. The obligations of each Guarantor under its Guarantee are limited so as
not to constitute a fraudulent conveyance under applicable law. See "Risk
Factors -- Fraudulent Conveyance Statutes, etc."
The Indenture provides that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person) another
corporation, Person or entity whether or not affiliated with such 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
Guarantor) assumes all the obligations of such Guarantor, pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes and the Indenture, and (ii) immediately after giving
effect to such transaction, no Default or Event of Default exists.
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The Indenture provides that in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the Capital Stock of any
Guarantor, then such 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 Guarantor) or the Person acquiring the property (in the event of a sale or
other disposition of all of the assets of such Guarantor) will be released and
relieved of any obligations under its Guarantee; provided that the Net Proceeds
of such sale or other disposition are applied in accordance with the applicable
provisions of the Indenture. See "-- Repurchase at the Option of Holders --
Asset Sales."
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to September
1, 2002. Thereafter, the Notes will be subject to redemption at the option of
the Company, in whole or in part, 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 Liquidated Damages, if
any, thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on September 1 of the years indicated below:
Year Percentage
- --------------------------- ---------------
2002....................... 104.8125%
2003....................... 103.2083%
2004....................... 101.6041%
2005 and thereafter........ 100.0000%
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection
of Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on Notes or portions thereof called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of
Holders," the Company is not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase (the
"Change of Control Payment"). Within ten days following any Change of Control,
the Company will mail a notice to each holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to
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be delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent will promptly mail to each
holder of Notes so tendered the Change of Control Payment for such Notes, and
the Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date. The
Change of Control provisions described above will be applicable whether or not
any other provisions of the Indenture are applicable.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction. The Indenture does have a
provision restricting the Company and its subsidiaries from consummating an
asset sale unless the selling party receives consideration equal to or exceeding
the fair market value of the assets sold as determined by the Board and at least
75% of such consideration is received in the form of cash or cash equivalents as
defined in the Indenture. See "-- Asset Sales." The Indenture also has
provisions limiting the conditions under which the Company or any of its
subsidiaries can consolidate or merge with or into, or sell, assign, transfer,
lease, convey, or otherwise dispose of all or substantially all of its
properties or assets. Related provisions require the successor company(ies)
resulting from a transaction described in the preceding sentence to succeed to
and be substituted for the Company under the Indenture. See "-- Certain
Covenants -- Merger, Consolidation, or Sale of Assets." The Indenture similarly
contains covenants governing restricted payments such as dividends and covenants
governing the incurrence of indebtedness and the issuance of preferred stock by
the Company. See "-- Certain Covenants --Restricted Payments" and "-- Incurrence
of Indebtedness and Issuance of Preferred Stock." To the extent that a highly
leveraged or other transaction does not trigger one of these provisions, the
Company's ability to fulfill its obligations under the Notes could be impaired
in a manner that does not create a default under the Indenture.
The New Credit Facility provides that (i) the occurrence of a Change of
Control (as defined in the Indenture) or (ii) Delta Woodside ceasing to own,
directly or indirectly, 100% of the Capital Stock (as defined in the New Credit
Facility) of the Company would constitute a default thereunder. The New Credit
Facility ranks PARI PASSU with the Notes in right of payment, but, unlike the
Notes, is secured by the accounts receivable and inventory (and related
property) of the Company and it subsidiaries, as well as all of the outstanding
capital stock of the Company and its subsidiaries. Accordingly, such
indebtedness effectively ranks senior in right of payment to the Notes to the
extent of such assets. As of September 27, 1997, approximately $65.7 million
(including contingent liability of approximately $0.7 million under letters of
credit) was outstanding under the New Credit Facility, and an additional amount
of up to approximately $34.3 million was available for borrowing thereunder. Any
future credit agreements or other agreements relating to Indebtedness to which
the Company becomes a party may contain similar restrictions and provisions.
There can be no assurance that the Company would have sufficient funds to
repurchase the Exchange Notes upon a Change of Control, particularly since a
Change of Control would constitute a default under the New Credit Facility, the
occurrence of a Change of Control constitutes an event of default under the
New Credit Facility and the use of funds to prepay the Notes could cause the
Company to breach one or more of the financial covenants in the New Credit
Facility and the New Credit Facility prohibits the incurrence of material new
indebtedness. There can be no assurance that, in the event of a Change of
Control, the Company would be able to obtain a waiver of the default under the
New Credit Facility or any successor facility or obtain the consent of its
lenders to purchase the Notes or have sufficient funds available to finance such
purchase of the Notes. In such case, the Company's failure to purchase tendered
Notes would constitute an Event of Default under the Indenture which would, in
turn, constitute a default under the New Credit Facility. See "Risk Factors --
Repurchase of Notes upon a Change of Control, etc." The Company, at this time,
has no other material outstanding securities or liabilities that rank PARI PASSU
with the Notes and also contain Change of Control repayment provisions.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company and its Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
The Company will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company and the Trustee may amend, supplement or waive any or all
of the Change of Control provisions contained in the Indenture with the consent
of holders of at least a majority in principal amount of the Notes then
outstanding. The Indenture does not require that the consents of holders to be
in writing.
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ASSET SALES
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or
the Subsidiary, as the case may be) receives consideration at the time of such
Asset Sale at least equal to the fair market value (evidenced by a resolution of
the Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets sold or otherwise disposed of and (ii) at least 75% (100%
in the case of lease payments) of the consideration therefor received by the
Company or such Subsidiary is in the form of cash or Cash Equivalents; provided
that the amount of (a) any liabilities (as shown on the Company's, or such
Subsidiary's, most recent balance sheet) of the Company or any Subsidiary (other
than contingent liabilities and liabilities that are by their terms subordinated
to the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Subsidiary from further liability and (b) any notes or other obligations
received by the Company or any such Subsidiary from such transferee that are
immediately converted by the Company or such Subsidiary into cash (to the extent
of the cash received), shall be deemed to be cash for purposes of this
provision.
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, to (i) permanently
reduce Indebtedness under the New Credit Facility; provided that such permanent
reduction is accompanied by a corresponding reduction in the lending commitments
under the New Credit Facility, (ii) acquire another business or other long-term
assets, in each case, in, or used or useful in, the same or a similar line of
business as the Company or any of its Subsidiaries was engaged in on the date of
the Indenture or any reasonable extension or expansion thereof (including the
Capital Stock of another Person engaged in such business; provided such other
Person is, or immediately after and giving effect to such acquisition shall
become, a Wholly-Owned Subsidiary of the Company (other than a Receivables
Subsidiary)), or (iii) reimburse the Company or any of its Subsidiaries for
expenditures made, and costs incurred, to repair, rebuild, replace or restore
property subject to loss, damage or taking to the extent that the Net Proceeds
consist of insurance or condemnation or similar proceeds received on account of
such loss, damage or taking. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce revolving Indebtedness under the
New Credit Facility or otherwise invest such Net Proceeds in cash or Cash
Equivalents. Any Net Proceeds from Asset Sales that are not applied as provided
in the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company will be required to make an offer to all holders of Notes (an "Asset
Sale Offer") to purchase the maximum principal amount (that is an integral
multiple of $1,000) of Notes that may be purchased out of the Excess Proceeds,
at an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the date of purchase, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company or such
Subsidiary may use any remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount of Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased). Upon completion of such offer
to purchase, the amount of Excess Proceeds shall be reset at zero. A holder
electing to have its Note purchased pursuant to an Asset Sale Offer may only
elect to have all, and not only a portion, of such Note purchased.
Notwithstanding the foregoing, the Company and its Subsidiaries will be
permitted to consummate one or more Asset Sales with respect to assets or
properties with an aggregate fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) not in excess of $5.0 million with respect to all such Asset Sales made
subsequent to the date of the Indenture without complying with the provisions of
the preceding paragraphs.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution of any kind or character on
account of the Equity Interests of the Company or any of its Subsidiaries
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company or any of its Subsidiaries) or to the direct
or indirect holders of the Equity Interests of the Company or any of its
Subsidiaries in their capacity as such, except (a) dividends or distributions
payable solely in Equity Interests (other than Disqualified Stock) of the
Company or (b) dividends or distributions payable to the Company or any
Wholly-Owned Subsidiary of the Company; (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company, any Subsidiary
of the Company or any direct or indirect parent of the Company, except any such
Equity Interests owned by the Company or any Wholly-Owned Subsidiary of the
Company; (iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value, any Indebtedness that is subordinated to
the Notes prior to the Stated Maturity of such Indebtedness; or (iv) make any
Restricted Investment (all such payments and
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other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate of
all other Restricted Payments declared or made by the Company and its
Subsidiaries after the date of the Indenture (excluding Restricted
Payments permitted by clauses (ii), (iii), (iv) and (v) of the next
succeeding paragraph), is less than the sum of (1) $12.5 million, plus
(2) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the fiscal
quarter commencing June 29, 1997 to the end of the Company's most
recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (3) 100% of the aggregate cash portion of the Net
Proceeds received by the Company from a contribution to its common
equity capital or the issue or sale since the date of the Indenture of
Equity Interests of the Company or of debt securities of the Company
that have been converted into such Equity Interests (other than Equity
Interests (or convertible debt securities) sold to a Subsidiary of the
Company and other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock), plus (4) to the extent that
any Restricted Investment that was made after the date of the Indenture
is sold for cash or otherwise liquidated or repaid for cash, the lesser
of (A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the initial
amount of such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (ii) the making of any Restricted Investment in exchange for, or out
of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds that
are utilized for any such Restricted Investment, redemption, repurchase,
retirement or other acquisition shall be excluded from clause (3) of the
preceding paragraph (c); (iii) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company) of other Equity Interests of the Company (other than
Disqualified Stock); provided that any net cash proceeds that are utilized for
such redemption, repurchase, retirement or other acquisition, and any Net Income
resulting therefrom, shall be excluded from clauses (3) and (2) of the preceding
paragraph (c) respectively; (iv) the defeasance, redemption, repayment or
repurchase of subordinated Indebtedness in exchange for, or out of the net cash
proceeds from, an incurrence of Permitted Refinancing Debt or the substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
of the Company (other than Disqualified Stock); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repayment,
repurchase, retirement or other acquisition shall be excluded from clause (3) of
the preceding paragraph (c); and (v) the repayment by the Company on the Issue
Date of up to $219.0 million in aggregate principal amount of Indebtedness owed
by the Company to Delta Woodside or any Subsidiary thereof; provided, that upon
such repayment, all remaining Indebtedness owed by the Company to Delta Woodside
or any Subsidiary thereof shall be contributed to the Company's capital and
thereby cancelled (for a description of the transaction described in this
clause, see "Use of Proceeds").
The amount of all Restricted Payments (other than cash) shall be the
fair market value (evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company or
such Subsidiary, as the case may be, pursuant to the Restricted Payment. Not
later than the date of making any Restricted Payment, the Company shall deliver
to the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
this "-- Restricted Payments" covenant were computed, which calculations may be
based upon the Company's latest available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock and
a Guarantor may
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incur Acquired Debt, in each case if (i) the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters (taken as one accounting
period) for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred or such
Disqualified Stock is issued would have been at least 2.0 to 1, determined on a
pro forma basis (including a pro forma application of the Net Proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period and (ii) no Default or Event of Default has occurred and is
continuing or would occur as a consequence thereof;
The foregoing provisions will not apply to:
(i) the incurrence by the Company and/or its Subsidiaries of
Indebtedness under the New Credit Facility in an aggregate principal
amount at any time outstanding (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the
Company and its Subsidiaries thereunder) not to exceed the greater of
(x) $100.0 million and (y) the sum of 85% of Eligible Receivables and
60% of Eligible Inventory, less in each case the aggregate amount of
all Net Proceeds of Asset Sales applied to permanently reduce the
outstanding amount of such Indebtedness and the lending commitments
with respect thereto pursuant to the covenant described above under the
caption "-- Repurchase at the Option of Holders -- Asset Sales;"
(ii) the incurrence by the Company of Indebtedness represented
by the Notes and the incurrence by the Guarantors of Indebtedness
represented by the Guarantees;
(iii) the incurrence by the Company or any of its Subsidiaries
of Indebtedness represented by Capital Lease Obligations (whether or
not incurred pursuant to sale and leaseback transactions), mortgage
financing or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Subsidiary, in an aggregate principal
amount not to exceed $5.0 million at any time outstanding;
(iv) the incurrence by the Company or any of its Subsidiaries
of Permitted Refinancing Debt;
(v) the incurrence by the Company or any of its Wholly-Owned
Subsidiaries (other than a Receivables Subsidiary) of intercompany
Indebtedness between or among the Company and any of its Wholly-Owned
Subsidiaries (other than a Receivables Subsidiary) or between or among
any of the Company's Wholly-Owned Subsidiaries (other than a
Receivables Subsidiary); provided, however, that (a) if the Company is
the obligor on such Indebtedness, such Indebtedness is unsecured and
expressly subordinate to the payment in full of all Obligations with
respect to the Notes and (b)(1) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Wholly-Owned Subsidiary (other than
a Receivables Subsidiary) and (2) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a
Wholly-Owned Subsidiary (other than a Receivables Subsidiary) shall be
deemed, in each case, to constitute an incurrence of such Indebtedness
by the Company or such Subsidiary, as the case may be;
(vi) the incurrence by the Company of Hedging Obligations that
are incurred for the purpose of fixing or hedging interest rate risk
with respect to any floating rate Indebtedness that is permitted by the
terms of the Indenture to be incurred;
(vii) Indebtedness of a Receivables Subsidiary that is not
recourse to the Company or any other Subsidiary of the Company (other
than Standard Securitization Undertakings) incurred in connection with
a Qualified Receivables Transaction; and
(viii) the incurrence by the Company and its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause
of this paragraph) in an aggregate principal amount (or accreted value,
as applicable) at any time outstanding not to exceed $10.0 million.
LIENS
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien securing Indebtedness on any asset (including Capital
Stock of any Subsidiary of the Company) now owned or hereafter acquired, or any
income or profits therefrom, or assign or convey any right to receive income
therefrom, except Permitted Liens unless all payments due under the Indenture
and the Notes are secured on an equal and ratable basis with the Indebtedness so
secured until such time as such is no longer secured by a Lien; provided that if
such Indebtedness is by its terms expressly subordinated to the Notes or any
Guarantee the Lien securing such Indebtedness shall be subordinate and junior to
the Lien securing the Notes and the Guarantees with the same relative priority
as such subordinate or junior Indebtedness shall have with respect to the Notes
and the Guarantees.
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DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction of any kind
on the ability of any Subsidiary to (i) pay dividends or make any other
distributions to the Company or any of its Subsidiaries on its Capital Stock or
with respect to any other interest or participation in, or measured by, its
profits; (ii) pay any Indebtedness or other obligation owed to the Company or
any of its Subsidiaries; (iii) make loans or advances to the Company or any of
its Subsidiaries; (iv) sell, lease or transfer any of its properties or assets
to the Company or any of its Subsidiaries; or (v) guarantee the obligations of
the Company evidenced by the Notes or any renewals, refinancings, exchanges,
refundings or extensions thereof, except for such encumbrances or restrictions
existing under or by reason of (a) applicable law, (b) any instrument governing
Indebtedness or Capital Stock of a Person or any property or other asset
acquired by the Company or any of its Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, (c) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (d) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iv) above on the property
so acquired, (e) Permitted Refinancing Debt; provided that the restrictions
contained in the agreements governing such Permitted Refinancing Debt are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, or (f) any Purchase Money Note, or other
Indebtedness or contractual requirements incurred with respect to a Qualified
Receivables Transaction relating to a Receivables Subsidiary.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, consolidate or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company and its Subsidiaries (determined on a
consolidated basis for the Company and its Subsidiaries taken as a whole) in one
or more related transactions, to another Person unless: (i) either (a) the
Company, in the case of a transaction involving the Company, or a Subsidiary
which is a party to the transaction, in the case of a transaction involving a
Subsidiary of the Company, is the surviving corporation or (b) in the case of a
transaction involving the Company, the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia and expressly assumes all of the
obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (ii)
immediately after such transaction no Default or Event of Default exists; (iii)
in the case of a transaction involving the Company (except in the case of a
merger of the Company with or into a Wholly-Owned Subsidiary of the Company
(other than a Receivables Subsidiary)), the Person formed by or surviving any
such consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made, (a) will have a Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (b) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock;" (iv)
if, as a result of any such transaction, property or assets of the Company or
any Subsidiary of the Company would become subject to a Lien securing
Indebtedness not excepted from the covenant described above under "-- Liens,"
the Company or its successor, as the case may be, shall have otherwise complied
with such covenant described above under "-Liens;" and (v) the Company shall
have delivered to the Trustee an Officers' Certificate and, except in the case
of a merger of a Subsidiary of the Company into the Company or into a
Wholly-Owned Subsidiary of the Company, an opinion of counsel, each stating that
such consolidation, merger, conveyance, lease or disposition and any
supplemental indenture with respect thereto, comply with all of the terms of
this covenant and that all conditions precedent provided for in this covenant
relating to such transaction, or series of transactions, have been complied
with.
For the purposes of the foregoing, the transfer (by sale, lease,
assignment or otherwise, in a single transaction or series of transactions) of
all or substantially all of the properties or assets of one or more Subsidiaries
of the Company, the Capital Stock of which constitutes all or substantially all
of the properties or assets of the Company, shall be deemed to be the transfer
of all or substantially all of the properties and assets of the Company.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are
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no less favorable to the Company or the relevant Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated Person and (ii)(a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million the Company delivers to the Trustee a
resolution of the Board of Directors (including a majority of the disinterested
directors, if any) set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members, if
any, of the Board of Directors or (b) with respect to any Affiliate Transaction
or series of related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million the Company delivers to the Trustee an opinion as to the
fairness to the Note holders of such Affiliate Transaction from a financial
point of view issued by an investment banking firm of national standing;
provided that (1) any employment agreement entered into by the Company or any of
its Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Subsidiary, (2) transactions between or among
the Company and/or its Wholly-Owned Subsidiaries (other than a Receivables
Subsidiary), (3) Restricted Payments (other than Investments) that are permitted
by the provisions of the Indenture described above under the caption "--
Restricted Payments," (4) any payment by the Company for management services
pursuant to the Management Services Agreement, dated as of August 1, 1997, by
and among Delta Woodside and the Company as such Management Services Agreement
is in effect on the Issue Date, (5) any payment by the Company pursuant to the
Tax Sharing Agreement, dated as of August 1, 1997, by and among Delta Woodside
and the Company as such Tax Sharing Agreement is in effect on the Issue Date,
(6) sales of goods and manufacturing services in the ordinary course of business
and otherwise in compliance with the terms of the Indenture which are, in the
reasonable determination of the Board of Directors of the Company, for fair
market value and on terms at least as favorable to the Company and its
Subsidiaries as might have been obtained at such time from an unaffiliated
party, and (7) sales of accounts receivable and other related assets customarily
transferred in an asset securitization transaction involving accounts receivable
to a Receivables Subsidiary, and any agreement related thereto, in a Qualified
Receivables Transaction, in each case shall not be deemed Affiliate
Transactions.
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company or any Subsidiary may enter into a sale and leaseback
transaction if (i) the Company or such Subsidiary could have (a) incurred
Indebtedness in an amount equal to the Attributable Debt relating to such sale
and leaseback transaction pursuant to the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock" and (b)
incurred a Lien to secure such Indebtedness pursuant to the covenant described
above under the caption "-- Liens," (ii) the Net Proceeds of such sale and
leaseback transaction are at least equal to the fair market value (as determined
in good faith by the Board of Directors and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and the Company or the
Subsidiary, as the case may be, applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "-- Repurchase
at the Option of Holders -- Asset Sales."
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not
permit any Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Subsidiary of the Company to any
Person (other than the Company or a Wholly-Owned Subsidiary of the Company
(other than a Receivables Subsidiary)), unless (a) such transfer, conveyance,
sale, lease or other disposition is of all the Capital Stock of such Subsidiary
and (b) the aggregate cash portion of the Net Proceeds from such transfer,
conveyance, sale, lease or other disposition is applied in accordance with the
covenant described above under the caption "Repurchase at the Option of Holders
- -- Asset Sales," and (ii) will not permit any Subsidiary of the Company to issue
any of its Equity Interests (other than (1), if necessary, shares of its Capital
Stock constituting directors' qualifying shares or (2) shares of Capital Stock
issued prior to the time such Person became a Subsidiary of the Company;
provided that such Capital Stock was not issued in anticipation of such
transaction) to any Person other than to the Company or a Wholly-Owned
Subsidiary of the Company (other than a Receivables Subsidiary).
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Notes for or as an inducement to any consent, waiver or amendment of any of
the terms or provisions of the Indenture or the Notes unless such consideration
is offered to be paid or is paid to all holders of the Notes that consent, waive
or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the holders of
Notes
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(i) all quarterly and annual financial information (excluding schedules) that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K (excluding exhibits) if the Company were required to file such forms,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's independent certified public accountants, (ii)
all current reports that would be required to be filed with the Commission on
Form 8-K if the Company were required to file such reports (excluding exhibits)
and (iii) any other reports (excluding exhibits) that may by specified in
Sections 13 and 15(d) of the Exchange Act that would be required to be filed
with the Commission, if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information (including
exhibits) and reports (including exhibits) with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company has agreed, for so long as any Notes remain
outstanding, to furnish to the Note holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
ADDITIONAL GUARANTEES
The Indenture provides that if the Company or any of its Subsidiaries
shall acquire or create another Subsidiary after the date of the Indenture
(other than a Receivables Subsidiary that does not guarantee or otherwise
provide credit support (pursuant to a security interest or otherwise) in respect
of any Indebtedness of the Company or any Subsidiary Guarantor), then such newly
acquired or created Subsidiary shall execute a Guarantee and deliver an opinion
of counsel, in accordance with the terms of the Indenture.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (ii) default in payment when due
of the principal of or premium, if any, on the Notes; (iii) failure by the
Company to comply with the provisions described under the captions "--
Repurchase at the Option of Holders -- Change of Control," "-- Repurchase at the
Option of Holders -- Asset Sales," "-- Certain Covenants -- Restricted
Payments," "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock," "-- Certain Covenants -- Merger, Consolidation or Sale of
Assets," or "-- Certain Covenants -- Limitation on Issuances and Sales of
Capital Stock of Subsidiaries;" (iv) failure by the Company for 30 days after
notice to comply with any of its other agreements in the Indenture or the Notes;
(v) default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness
or guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness at its final Stated Maturity (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of which Indebtedness, together
with the principal amount of any other unpaid Indebtedness under which there has
been a Payment Default or the express maturity of which has been so accelerated,
aggregates $5.0 million or more; (vi) failure by the Company or any of its
Subsidiaries to pay final judgments (other than judgments fully covered by
insurance) aggregating in excess of $5.0 million, which judgments are not paid,
discharged or stayed for a period of 45 days; (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its Subsidiaries; or (viii)
the Guarantee of any Guarantor is held in judicial proceedings to be
unenforceable or invalid or ceases for any reason to be in full force and effect
(other than in accordance with the terms of the Indenture) or any Guarantor or
any Person acting on behalf of any Guarantor denies or disaffirms such
Guarantor's obligations under its Guarantee (other than by reason of a release
of such Guarantor from its Guarantee in accordance with the terms of the
Indenture).
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Subsidiary, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or premium, if any, or
interest or Liquidated Damages, if any) if it determines that withholding notice
is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
September 1, 2002, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption
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of the Notes prior to September 1, 2002, then the premium specified in the
Indenture for such event shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the Notes.
The holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes. The Trustee is under no
obligation to exercise any of the rights or powers vested in it by the Indenture
at the request or direction of any of the holders unless such holders shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expenses that might be incurred by it in compliance with such
request or direction.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES OR STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Company or any Guarantor, as such, shall have any liability for any obligations
of the Company or any Guarantor under the Notes, the Guarantees, the Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each holder of Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of
the obligations of the Company and the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance") except for (i) the rights of holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the 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 Notes, cash in U.S. dollars, non-callable
Government Securities, 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 and premium, if any, and interest and
Liquidated Damages, if any, on the outstanding Notes on the stated maturity or
on the applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such Legal 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 had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit) or insofar
as Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance will not result in a breach or violation
of, or constitute a default under, any material agreement or instrument (other
than the Indenture) to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries is
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bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that on 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 must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the holders of
Notes over any other creditors of the Company or any Guarantor or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
any Guarantor or the Company; and (viii) the Company must deliver to the Trustee
an Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer
or exchange any Note for a period of 15 days before a selection of Notes to be
redeemed. The registered holder of a Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraphs, the Indenture,
the Guarantees or the Notes may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, Notes), and, subject to
certain provisions of the Indenture, any existing Default or Event of Default or
compliance with any provision of the Indenture, the Guarantees or the Notes may
be waived with the consent of the holders of a majority in principal amount of
the then outstanding Notes (including consents obtained in connection with a
purchase of, or a tender offer or exchange offer for, Notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Notes held by a non-consenting holder): (i) reduce the
principal amount of Notes whose holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter or waive the provisions with respect to the redemption or repurchase of
the Notes (other than provisions relating to the covenant described above under
the caption "-- Repurchase at the Option of Holders"), (iii) reduce the rate of
or change the time for payment of premium, if any, or interest (including
default interest) on any Note, (iv) waive a Default or Event of Default in the
payment of principal of or interest on the Notes (except a rescission of
acceleration of the Notes by the holders of at least a majority in aggregate
principal amount of the then outstanding Notes and a waiver of the payment
default that resulted from such acceleration), (v) make any Note payable in
money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (viii) release any Guarantor
from any of its obligations under its Guarantee or the Indenture, except in
accordance with the terms of the Indenture, or (ix) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Notes, the Company, the Guarantors and the Trustee may amend or supplement the
Indenture, the Guarantees or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or a
Guarantor's obligations to holders of Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such holder, or to comply with requirements of
the Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it, subject to certain exceptions. The Indenture
provides that in case an Event of Default shall occur
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(which shall not be cured), the Trustee will be required, in the exercise of its
power, to use the degree of care and skill of a prudent person in the conduct of
his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of Notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
An affiliate of the Trustee will serve as a Lender and as the
Collateral Agent under the New Credit Facility and as a factor for the Company.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
and Registration Rights Agreement without charge by writing to the Company, 233
North Main Street, Hammond Square, Suite 200, Greenville, South Carolina 29601,
Attention: Secretary.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes will
initially be issued in the form of one Global Note (the "Global Note"). The
Global Note will be deposited on the date of the consummation of the Exchange
Offer (the "Closing Date") with, or on behalf of, The Depository Trust Company
(the "Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note Holder").
Exchange Notes that are issued as described below under "--
Certificated Securities" will be issued in the form of registered definitive
certificates (the "Certificated Securities"). Upon the transfer of Certificated
Securities, such Certificated Securities may, unless the Global Note has
previously been exchanged for Certificated Securities, be exchanged for an
interest in the Global Note representing the principal amount of Notes being
transferred.
The Depositary is a limited-purpose trust company that was created to
hold securities for its participating organizations (collectively, the
"Participants" or the "Depositary's 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. The
Depositary's Participants include securities brokers and dealers (including the
Initial Purchaser), banks and trust companies, clearing corporations and certain
other organizations. Access to the Depositary's system is also available to
other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "Depositary's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
the Depositary's Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary ownership of the Exchange Notes evidenced by the Global Note will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Exchange Notes
evidenced by the Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes,
the Global Note Holder will be considered the sole holder under the Indenture of
any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by
the Global Note will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of and premium, if any, interest
and Liquidated Damages, if any, on any Notes registered in the name of the
Global Note Holder on the applicable record date will be payable by the Trustee
to or at the direction of the Global Note Holder in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names Notes, including
the Global Note, are registered as the owners thereof for the purpose of
receiving such payments. Consequently, neither the Company nor the Trustee has
or will have any responsibility or liability for the payment of such amounts to
beneficial owners of Notes. The Company believes, however, that it is currently
the policy of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED SECURITIES
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Subject to certain conditions, any person having a beneficial interest
in the Global Note may, upon request to the Trustee, exchange such beneficial
interest for 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, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as a
depositary and the Company has not located a qualified successor within 90 days
after delivery of notice from the Depositary of such resignation or (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of Notes in the form of Certificated Securities under the
Indenture, then, upon surrender by the Global Note Holder of its Global Note,
Notes in such form will be issued to each person that the Global Note Holder and
the Depositary identify as being the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Note Holder. With
respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. Secondary trading in long-term notes and debentures
of corporate issuers is generally settled in clearing-house or next-day funds.
In contrast, the Notes represented by the Global Note are expected to trade in
the Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Securities will also be settled in
immediately available funds. The Senior Notes represented by their Global Note
are eligible to trade in the PORTAL market.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person which was
not incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Subsidiary of such specified Person, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that, for
purposes of the covenant described above under "Certain Covenants --
Transactions with Affiliates," beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"APPROVED LENDER" means (i) any domestic commercial bank having capital
and surplus in excess of $100.0 million and a Keefe Bank Watch Rating of "B" or
better and (ii) any bank whose short-term commercial paper rating by Standard &
Poor's Ratings Services is A-1 or better or whose short-term commercial paper
rating by Moody's Investors Service is P-1 or better.
"ASSET SALE" means the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback and
the receipt of proceeds of insurance (excluding business interruption insurance)
paid on account of the loss of or damage to any asset and awards of compensation
for any asset taken by condemnation, eminent domain or similar proceeding, but
excluding the granting of any Lien), in each case, in one or a series of related
transactions (a) that have a fair market value in excess of $1,000,000 or (b)
yield Net Proceeds in excess of $1,000,000. Notwithstanding the foregoing, the
term "Asset Sale" shall not include (i) any sale, lease, conveyance or other
disposition that constitutes a Restricted Payment or an Investment permitted to
be made under the Indenture, (ii) any transaction governed by the covenant
described in "Certain Covenants -- Merger, Consolidation, or Sale of Assets,"
(iii) the sale or lease of equipment, inventory, accounts receivable or other
assets in the ordinary course of business, (iv) the transfer of assets by the
Company to a Wholly-Owned Subsidiary of the Company (other than a Receivables
Subsidiary) or by a Wholly-Owned Subsidiary of the Company (other than a
Receivables Subsidiary) to the Company or another Wholly- Owned Subsidiary of
the Company (other than a Receivables Subsidiary), (v) the sale or other
disposition of cash or Cash Equivalents, or (vi) the sale of accounts
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receivables and related assets customarily transferred in an asset
securitization transaction involving accounts receivable to a Receivables
Subsidiary or by a Receivables Subsidiary, in each case, in connection with a
Qualified Receivables Transaction.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (provided, that the full
faith and credit of the United States is pledged in support thereof) having
maturities of not more than twelve months from the date of acquisition, (iii)
time deposits and certificates of deposit (United States dollars, Eurodollar or
fully hedged into United States dollars if denominated in a currency other than
United States dollars) with maturities of twelve months or less from the date of
acquisition, in each case with an Approved Lender, and (iv) commercial paper
issued by any Approved Lender (or by the corporate parent of such Approved
Lender) or any variable rate note issued or guaranteed by a corporation
organized under the laws of the United States, any state thereof, the District
of Columbia or any territory thereof and rated A-2 or better by Standard &
Poor's Investors Services or P-2 or better by Moody's Investor Services, in each
case maturing within six months after the date of acquisition.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals, (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company or Delta Woodside Industries, Inc.,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), other than the Principals, becomes the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the voting stock of Delta Woodside Industries,
Inc., (iv) the first day on which a majority of the members of the Board of
Directors of the Company or Delta Woodside Industries, Inc. are not Continuing
Directors or (v) the first day on which the Company ceases to be a Subsidiary of
Delta Woodside Industries, Inc. For purposes of this definition, any transfer of
an equity interest of an entity that was formed for the purpose of acquiring
Voting Stock of the Company will be deemed to be a transfer of such portion of
such Voting Stock as corresponds to the portion of the equity of such entity
that has been so transferred.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing such
Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
charges (excluding any such non-cash charge to the extent that it represents an
accrual of or reserve for cash charges in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and its
Subsidiaries for such period to the extent that such depreciation, amortization
and other non-cash charges were deducted in computing such Consolidated Net
Income minus (v) non-cash items of such Person and its Subsidiaries increasing
Consolidated Net Income for such period, in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Subsidiary of the referent Person
shall be added to Consolidated Net Income to compute Consolidated Cash Flow only
to the extent (and in the same proportion) that the Net Income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date
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of determination to be dividended to the Company by such Subsidiary without
prior governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly-Owned Subsidiary thereof that is a
Guarantor, (ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
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 Subsidiary or its stockholders, shall be excluded,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings, but only to the extent of any
cash received by such Person upon issuance of such preferred stock, less (a) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the date of the Indenture
in the book value of any asset owned by such Person or a consolidated Subsidiary
of such Person, (b) all investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries (except, in each case,
Permitted Investments), and (c) all unamortized debt discount and expense and
unamortized deferred charges as of such date, all of the foregoing determined in
accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors who (i) was a member of such Board of Directors
on the date of the Indenture or (ii) was nominated for election or elected to
such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board at the time of such nomination or
election.
"DEFAULT" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"ELIGIBLE INVENTORY" means, as of any date of determination, all
inventory of the Company and its Subsidiaries, wherever located, valued in
accordance with GAAP and reflected on the most recent balance sheet of the
Company prior to such date of determination for which financial statements of
the Company are available.
"ELIGIBLE RECEIVABLES" means, as of any date of determination, all
accounts receivable of the Company and its Subsidiaries (including amounts
denominated as due from factor) arising out of the sale of inventory or
manufacturing services in the ordinary course of business, valued in accordance
with GAAP and reflected on the most recent balance sheet of the Company prior to
such date of determination for which financial statements of the Company are
available.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"FIXED CHARGES" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense of such Person and its Subsidiaries
for such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations, but excluding
amortization of deferred financing charges incurred in connection with the
Refinancing) and (ii) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period, and (iii) any interest
expense on Indebtedness of another Person that is guaranteed by such Person or
one of its Subsidiaries or secured by a Lien on assets of such Person or one of
its Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv)
the product of (a) all cash dividend payments (and non-cash dividend payments
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in the case of a Person that is a Subsidiary), other than dividends paid to such
Person or a Wholly-Owned Subsidiary of such Person, on any series of preferred
stock of such Person, times (b) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees or redeems or
otherwise repays any Indebtedness (other than revolving credit borrowings) or
issues or redeems preferred stock subsequent to the commencement of the period
for which the Fixed Charge Coverage Ratio is being calculated but prior to the
date on which the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
guarantee, redemption or repayment of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period, and Consolidated Cash Flow for such
reference period shall be calculated on such pro forma basis without giving
effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles 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 have been approved by a significant segment of the accounting
profession which are in effect on the date of the Indenture.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"GUARANTOR" means each of (i) Delta Mills Marketing, Inc. and (ii) any
other subsidiary that executes a Guarantee in accordance with the provisions of
the Indenture, and their respective successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates, the value of foreign currencies and the value of commodities
purchased by the Company or any of its Subsidiaries in the ordinary course of
business.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the guarantee by such Person of any Indebtedness of any other Person
and the Attributable Debt of such Person relating to any sale and leaseback
transaction.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business), or
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company or a Subsidiary of the Company for consideration consisting of
common equity securities or preferred stock (not constituting Disqualified
Stock) of the Company shall not be deemed to be an Investment.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any
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conditional sale or other title retention agreement, any capital lease and any
other preferential arrangement that has substantially the same practical effect
as a security interest in any asset).
"NET INCOME" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions), any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"NEW CREDIT FACILITY" means that certain Credit Agreement, dated as of
August 25, 1997, by and among the Company and NationsBank, N.A., as
administrative agent, and BNY Financial Corporation, as collateral agent,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED INVESTMENTS" means any Investments (i) made in the Company,
a Wholly-Owned Subsidiary of the Company (other than a Receivables Subsidiary)
or any other entity that (a) is engaged in the same or a similar line of
business as the Company or any of its Subsidiaries was engaged in as of the date
of the Indenture or any reasonable extensions or expansions thereof and (b) as a
result of such Investment becomes a Wholly-Owned Subsidiary of the Company
(other than a Receivables Subsidiary); (ii) made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "-- Repurchase at
the Option of Holders -- Asset Sales;" (iii) outstanding as of the date of the
Indenture; (iv) made in cash or Cash Equivalents; or (v) by the Company or a
Wholly-Owned Subsidiary of the Company in a Receivables Subsidiary or any
Investment by a Receivables Subsidiary in any other Person or assets, in each
case, in connection with a Qualified Receivables Transaction; provided that any
Investment in any such Person is in the form of a Purchase Money Note, any
equity interest or interests in accounts receivable generated by the Company or
a Subsidiary of the Company and transferred to any Person in connection with a
Qualified Receivables Transaction or any such Person owning such accounts
receivable.
"PERMITTED LIENS" means (i) Liens existing on the date of the
Indenture; (ii) Liens to secure the performance of the Notes and the Guarantees;
(iii) Liens in favor of the Company; (iv) Liens to secure Indebtedness
(including Capital Lease Obligations) permitted by clause (iii) of the second
paragraph of the covenant described under the caption entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock" covering only those assets
acquired, constructed or improved with such Indebtedness; provided that such
Liens do not extend to any assets of the Company or its Subsidiaries other than
such acquired, constructed or improved assets; (v) Liens on property securing
Acquired Debt existing at the time of acquisition of such property by the
Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition and do not extend to
any assets of the Company or its Subsidiaries other than the acquired property;
(vi) Liens on property of a Person securing Acquired Debt existing at the time
such Person is merged into or consolidated with the Company or any Subsidiary of
the Company or otherwise becomes a Subsidiary of the Company; provided that such
Liens were in existence prior to the contemplation of such merger or
consolidation or acquisition and do not extend to any assets other than those of
the Person merged into, consolidated or otherwise acquired; (vii) Liens on the
accounts receivable and inventory and related property (and proceeds thereof) of
the Company or any Subsidiary of the Company and Capital Stock of the Company's
Subsidiaries, in each case, to secure Indebtedness incurred under the New Credit
Facility; (viii) Liens on assets of a Receivables Subsidiary securing
Indebtedness incurred in connection with a Qualified Receivables Transaction,
provided that such Indebtedness was incurred in connection with such Qualified
Receivables Transaction; (ix) Liens to secure Permitted Refinancing Debt
incurred to refinance the Indebtedness referred to in the preceding clauses (i),
(iv), (v), (vi) and (vii); provided that such Liens do not extend to any assets
other than those specified in clauses (i), (iv), (v), (vi) and (vii); (x) Liens
to secure the performance of statutory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business; (xi) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; provided,
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (xii) Liens incurred or
deposits made
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to secure the performance of tenders, bids, leases, statutory obligations,
surety and appeal bonds, government contracts, performance and return of money
bonds and other obligations of a like nature, in each case incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (xiii) Liens encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary course of business that are
within the general parameters customary in the industry, in each case securing
Indebtedness under Hedging Obligations; and (xiv) easements, right-of-ways,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of the Company and its Subsidiaries.
"PERMITTED REFINANCING DEBT" means any Indebtedness of the Company or
any of its Subsidiaries issued in exchange for, or the Net Proceeds of which are
used to extend, refinance, renew, replace, defease or refund, other Indebtedness
of the Company or any of its Subsidiaries (other than Indebtedness described in
clauses (i), (v), (vi), (vii) and (viii) of the second paragraph under the
heading "Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock"); provided that: (i) the principal amount (or accreted value,
if applicable) of such Permitted Refinancing Debt does not exceed the principal
amount (or accreted value, if applicable) of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Debt has a final maturity date not earlier than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing Debt
has a final maturity date later than the final maturity date of, and is
subordinated in right of payment to, the Notes on terms at least as favorable to
the holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by the
Subsidiary who is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"PERSON" means an individual, partnership, corporation, limited
liability company, limited liability partnership, unincorporated organization,
trust, joint venture, or a governmental agency or political subdivision thereof.
"PRINCIPALS" means E. Erwin Maddrey, II, Bettis C. Rainsford, any
spouse or lineal descendant of either of them, and any Related Party of any such
Person.
"PURCHASE MONEY NOTE" means a promissory note evidencing a line of
credit, which may be irrevocable, from, or evidencing other Indebtedness owed
to, the Company or any Subsidiary of the Company in connection with a Qualified
Receivables Transaction, which note shall be repaid from cash available to the
maker of such note, other than amounts required to be established as reserves
pursuant to agreements, amounts paid to investors in respect of interest,
principal and other amounts owing to such investors and amounts paid in
connection with the purchase of newly generated receivables.
"QUALIFIED RECEIVABLES TRANSACTION" means any transaction or series of
transactions that may be entered into by the Company or any Subsidiary of the
Company pursuant to which the Company or any Subsidiary of the Company may sell,
convey or otherwise transfer to (a) a Receivables Subsidiary (in the case of a
transfer by the Company or any Subsidiary of the Company) and (b) any other
Person (in the case of a transfer by a Receivables Subsidiary), or may grant a
security interest in, any accounts receivable (whether now existing or arising
in the future) of the Company or any Subsidiary of the Company, and any asset
related thereto including, without limitation, all collateral securing such
accounts receivable, all contracts and all guarantees or other obligations in
respect of such accounts receivable, proceeds of such accounts receivable and
other assets which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable.
"RECEIVABLES SUBSIDIARY" means a Wholly-Owned Subsidiary of the Company
(other than a Subsidiary Guarantor) which engages in no activities other than in
connection with the financing of accounts receivable and which is designated by
the Board of Directors of the Company (as provided below) as a Receivables
Subsidiary (a) no portion of the Indebtedness or any other Obligations
(contingent or otherwise) of which (i) is guaranteed by the Company or any other
Subsidiary of the Company (excluding guarantees of Obligations (other than the
principal of, and interest on, Indebtedness)) pursuant to Standard
Securitization Undertakings, (ii) is recourse to or obligates the Company or any
other Subsidiary of the Company in any way other than pursuant to Standard
Securitization Undertakings or (iii) subjects any property or asset of the
Company or any other Subsidiary of the Company, directly or indirectly,
contingently or otherwise, to the satisfaction thereof, other than pursuant to
Standard Securitization Undertakings, (b) with which neither the Company nor any
other Subsidiary of the Company has any material contract, agreement,
arrangement or understanding (except in connection with a Purchase Money Note or
Qualified Receivables Transaction) other than on terms no less favorable to the
Company or such other Subsidiary of the Company than those that might be
obtained at the time from persons that are not Affiliates of the Company, other
than fees payable in the ordinary course of business in connection with
servicing accounts receivable, and (c) to which neither the Company nor any
other Subsidiary of the Company has any obligation to maintain or preserve such
entity's financial condition or cause such entity to achieve certain levels of
operating results. Any such designation by the Board of Directors of the Company
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the resolution of the Board
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of Directors of the Company giving effect to such designation and an Officers'
Certificate certifying, to the best of such officer's knowledge and belief after
consulting with counsel, that such designation complied with the foregoing
conditions.
"RELATED PARTY" with respect to any Principal means (A) any controlling
stockholder or majority owned Subsidiary of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding a 51% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations,
warranties, covenants and indemnities entered into by the Company or any
Subsidiary of the Company which are reasonably customary in an accounts
receivable transaction.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person and/or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person and/or one or
more Subsidiaries of such Person (or any combination thereof).
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY-OWNED SUBSIDIARY" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly-Owned Subsidiaries of such Person or by
such Person and one or more Wholly-Owned Subsidiaries of such Person.
80
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT FACILITY
The New Credit Facility has been provided by a group of banks and other
financial institutions syndicated by NationsBanc Capital Markets, Inc., as
arranger and syndication agent. The New Credit Facility provides for $100.0
million in revolving credit loans ("Revolving Credit Loans") and commercial
letters of credit. Availability of borrowings is subject to a borrowing base
equal to 85% of the Company's and its subsidiaries' eligible accounts receivable
and 60% of their eligible inventory. Borrowings under the New Credit Facility
are secured by a first priority lien on the outstanding capital stock of the
Company and its subsidiaries and all present and future accounts receivable and
inventory (and related property) of the Company and its domestic subsidiaries.
The New Credit Facility terminates on August 25, 2002, five years after the
initial funding. On August 25, 1997, the Company borrowed an aggregate of $58.0
million under the New Credit Facility. As of September 27, 1997 approximately
$65.7 million (including contingent liability of approximately $0.7 million
under letters of credit) was outstanding under the New Credit Facility.
All Revolving Credit Loans bear interest, at the Company's option
(subject to a performance based pricing grid), at either: (i) the London
Interbank Offered Rate ("LIBOR"), as adjusted, plus up to 1.75% or (ii) a base
rate (the higher of the NationsBank, N.A. prime rate or the Federal Funds rate
plus 0.50%) plus up to 1.00%.
The Company is obligated to pay a commitment fee of up to 0.50% per
annum of the unused commitment under the New Credit Facility. Such fee is
payable quarterly in arrears.
The Company is obligated to pay a letter of credit fee equal to the
interest rate spread on LIBOR loans on the outstanding amount of all letters of
credit and a fronting and negotiation fee of 0.125% per annum of the outstanding
amount of each letter of credit. Such fees are payable quarterly in arrears. In
addition, the Company will pay customary transaction charges in connection with
any letters of credit.
The New Credit Facility contains customary covenants and restrictions
on the Company's ability to engage in certain activities. In addition, the New
Credit Facility provides that the Company must meet certain financial conditions
including (i) a minimum consolidated tangible net worth, (ii) a maximum leverage
ratio, (iii) a minimum consolidated current ratio and (iv) a minimum interest
coverage ratio.
The New Credit Facility includes customary events of default.
DESCRIPTION OF DELTA WOODSIDE INDEBTEDNESS
PRIOR CREDIT FACILITY. On August 25, 1997, Delta Woodside used the
amounts paid to it by the Company from the net proceeds from the issuance of the
Senior Notes, together with approximately $58.0 million of initial borrowing
under the New Credit Facility and other sources including borrowings of $18.0
million under the Parent Credit Facility described below, to repay approximately
$222.0 million in aggregate principal amount of indebtedness outstanding under
the Prior Credit Agreement. The Prior Credit Agreement was scheduled to
terminate September 30, 1997. See "Use of Proceeds." Borrowings under the Prior
Credit Facility were guaranteed by the Company and various other subsidiaries of
Delta Woodside and bore interest at a variable rate which, for any day, was
equal to the higher of (i) the rate of interest announced from time to time by
NationsBank, N.A. as its "prime" rate as in effect at such time or (ii) the
weighted average of the rates on overnight Federal Funds transactions, as
published by the Federal Reserve Bank of New York. Amounts borrowed under the
Prior Credit Facility and its predecessor credit facilities were used to acquire
businesses, to make capital expenditures and for general working capital
purposes. Borrowings under the Prior Credit Facility were fully secured by liens
on substantially all of the assets of the Delta Woodside Group and, prior to the
Refinancing, were guaranteed by the Company and most of the other subsidiaries
of Delta Woodside.
PARENT CREDIT FACILITY. Concurrently with the closing of the Offering
of the Senior Notes, Delta Woodside entered into the Parent Credit Facility
which provided Delta Woodside with available borrowings of up to $20.0 million
(subject to borrowing base limitations). All borrowings under the Parent Credit
Facility are secured by the current and intangible assets of the Delta Woodside
Group (other than the Company and its subsidiaries) and the stock of most
subsidiaries of Delta Woodside (other than the Company and its subsidiaries) and
guaranteed by most subsidiaries of Delta Woodside (other than the Company and
its subsidiaries). All borrowings under the Parent Credit Facility will be due
on October 31, 1998. On August 25, 1997, Delta Woodside borrowed an aggregate of
$18.0 million under the Parent Credit Facility.
81
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Wyche, Burgess, Freeman & Parham, P.A., counsel to
the Company, the following discussion describes the material federal income tax
consequences expected to result to holders whose Senior Notes are exchanged for
Exchange Notes in the Exchange Offer. Such opinion is based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations, judicial authority and administrative rulings
and practice. There can be no assurance that the Internal Revenue Service (the
"Service") will not take a contrary view, and no ruling from the Service has
been or will be sought with respect to the Exchange Offer. Legislative, judicial
or administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including, but not limited to,
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. EACH HOLDER OF SENIOR NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING SENIOR NOTES FOR EXCHANGE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
The exchange of Senior Notes for Exchange Notes will be treated as a
"non-event" for federal income tax purposes because the Exchange Notes will not
be considered to differ materially in kind or extent from the Senior Notes. As a
result, no material federal income tax consequences will result to holders
exchanging Senior Notes for Exchange Notes.
82
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resales of Exchange Notes received in
exchange for Senior Notes where such Senior Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of up to one year after the date of this Prospectus, it will
make this Prospectus, as amended or supplemented, available to any broker-dealer
that requests such document in the Letter of Transmittal for use in connection
with any such resale.
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers or any other persons. Exchange 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 Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Senior Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities, including
liabilities under the Securities Act. The Company has agreed to reimburse the
Initial Purchaser and holders of Transfer Restricted Securities being tendered
in the Exchange Offer and/or resold pursuant to this Plan of Distribution or
registered pursuant to a Shelf Registration Statement, as applicable, for
reasonable attorneys' fees incurred in relation to any registration statement
required by the Registration Rights Agreement.
Each holder of the Senior Notes who wishes to exchange its Senior Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer -- Terms of
the Exchange Offer."
The Initial Purchaser and certain of its affiliates have engaged in and
may in the future engage in investment banking and commercial banking
transactions with the Company or Delta Woodside in the ordinary course of
business. The Initial Purchaser also was the arranger and syndication agent
under the New Credit Facility. NationsBank, N.A., an affiliate of the Initial
Purchaser, is a lender and the administrative agent under the New Credit
Facility and the lender under the Parent Credit Facility, in respect of which it
receives customary fees. NationsBank, N.A. was a lender and the agent under the
Prior Credit Agreement, for which it received customary fees.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Senior Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may at its
discretion take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Senior
Notes in such jurisdiction.
83
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Exchange Offer will be
passed upon for the Company by Wyche, Burgess, Freeman & Parham, P.A.,
Greenville, South Carolina. As of December 4, 1997, members of the law firm of
Wyche, Burgess, Freeman & Parham, P.A. beneficially owned in the aggregate
211,550 shares of common stock of Delta Woodside.
EXPERTS
The consolidated financial statements of the Company as of June 29,
1996 and June 28, 1997, and for each of the years in the three-year period ended
June 28, 1997, have been included herein in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon authority of said firm as experts in accounting and auditing.
As discussed in Notes A and H to the consolidated financial statements, in 1996
the Company adopted the method of assessing impairment of long-lived assets as
prescribed by Statement of Financial Accounting Standards No. 121.
INDEMNIFICATION OF MANAGEMENT
The Company's restated and amended Certificate of Incorporation
requires the Company to indemnify to the fullest extent permitted by Section 145
of the Delaware General Corporate Law ("DGCL") all persons whom it may indemnify
pursuant thereto. Section 145 of the DGCL is set out in full as Exhibit 99.6 to
the Registration Statement.
The Guarantor's by-laws require the Guarantor to indemnify its
officers, directors, employees and agents to the fullest extent permitted by the
DGCL.
The Registration Rights Agreement provides that each holder of Senior
Notes agrees severally and not jointly to indemnify and hold harmless the
Company and the Guarantor, and their respective directors, officers, employees
and agents (including, without limitation, attorneys) and any person controlling
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act) the Company and the Guarantor, and the respective officers,
directors, partners, employees, representatives and agents (including, without
limitation, attorneys) of each such person, with respect to claims and actions
based on information relating to each such holder furnished in writing by or on
behalf of such holder expressly for use in any registration statement. The
extent of holders' obligation to indemnify the Company and the Guarantor is set
out in full in Section 8 of the Registration Rights Agreement filed as Exhibit
1.2 to the Registration Statement, to which reference is hereby made.
The Registration Rights Agreement provides that the Company and the
Guarantor jointly and severally agree to indemnify and hold harmless each holder
of Senior Notes, each person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) any holder, and the
respective officers, directors, partners, employees, representatives and agents
(including without limitation, attorneys) of any holder or any controlling
person, to the fullest extent lawful, from and against any and all losses,
claims, damages, liabilities, judgments, actions and reasonable expenses
directly or indirectly caused by, related to, based upon, arising out of or in
connection with any untrue statement or alleged untrue statement of a material
fact contained in any registration statement or prospectus, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading unless such untrue
statement or omission or alleged untrue statement or omission is made in
reliance upon and in conformity with information relating to any of the holders
furnished in writing to the Company by any of the holders expressly for use
therein. The extent of the obligation of the Company and the Guarantor to
indemnify holders is set out in full in Section 8 of the Registration Rights
Agreement filed as Exhibit 1.2 to the Registration Statement, to which reference
is hereby made.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on
Form S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, as permitted by
the rules and regulations of the Commission. For further information with
respect to the Company,
84
<PAGE>
the Senior Notes and the Exchange Notes, reference is hereby made to the
Registration Statement, including the exhibits and schedules filed or
incorporated as a part thereof. Statements contained herein concerning the
provisions of any document are not necessarily complete and in each instance
reference is made to the copy of the document filed as an exhibit or schedule to
the Registration Statement. Each such statement is qualified in its entirety by
reference to the copy of the applicable documents filed with the Commission. In
addition, after effectiveness of the Registration Statement, the Company will
file periodic reports and other information with the Commission under the
Exchange Act. The Registration Statement, including the exhibits and schedules
thereto, and the periodic reports and other information filed in connection
therewith, may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following Regional Offices of the Commission: Seven World Trade
Center, Suite 1300, New York, New York 10048 and Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Such reports, proxy and information statements and other
information may be found at the Commission's site address, http://www.sec.gov.
Copies of such material also can be obtained from the Company upon request by
writing to Delta Mills, Inc., 233 North Main Street, Suite 200, Greenville,
South Carolina 29601, Attn: Secretary.
In addition, the Company has agreed that, whether or not it is required
to do so by the rules and regulations of the Commission, for so long as any of
the Senior Notes or Exchange Notes remain outstanding, it will furnish
(excluding exhibits and schedules) to the holders of the Senior Notes and
Exchange Notes and file with the Commission (unless the Commission will not
accept such a filing) as specified in the Commission's rules and regulations:
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual consolidated financial statements only, a report thereon, on which an
opinion is expressed, by the Company's independent certified public accountants
and (ii) all reports that would be required to be filed with the Commission on
Form 8-K if the Company were required to file such reports. In addition, for so
long as any of the Senior Notes or Exchange Notes remain outstanding, the
Company has agreed to make available to any prospective purchaser of the Senior
Notes or Exchange Notes or beneficial owner of the Senior Notes or Exchange
Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act.
85
<PAGE>
DELTA MILLS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of KPMG Peat Marwick LLP........................................F-2
Consolidated Balance Sheets as of
June 29, 1996, June 28, 1997 and September 27, 1997 (unaudited) .......F-3
Consolidated Statements of
Operations for the fiscal years ended
July 1, 1995, June 29, 1996 and June 28, 1997 and
the quarters ended September 28, 1996 and
September 27, 1997 (unaudited)..........................................F-5
Consolidated Statements of Shareholder's
Equity (Deficit) for the fiscal years ended
July 1, 1995, June 29, 1996 and June 28, 1997
and quarter ended September 27, 1997 (unaudited)........................F-6
Consolidated Statements of Cash Flows for the
fiscal years ended July 1, 1995, June 29, 1996
and June 28, 1997 and the quarters
ended September 28 , 1996 and September 27, 1997 (unaudited)............F-7
Notes to Consolidated Financial Statements..............................F-8
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Delta Mills, Inc.
We have audited the accompanying consolidated balance sheets of Delta
Mills, Inc. and subsidiary as of June 29, 1996 and June 28, 1997, and the
related consolidated statements of operations, shareholder's equity (deficit),
and cash flows for each of the years in the three-year period ended June 28,
1997. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Delta
Mills, Inc. and subsidiary at June 29, 1996 and June 28, 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended June 28, 1997, in conformity with generally accepted accounting
principles.
As discussed in notes A and H to the consolidated financial statements,
in 1996 the Company adopted the method of assessing impairment of long-lived
assets as prescribed by Statement of Financial Accounting Standards No. 121.
/s/ KPMG Peat Marwick LLP
Greenville, South Carolina
August 15, 1997, except for Note C
as to which the date is
August 25, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Delta Mills, Inc.
June 29, 1996 June 28, 1997 Sept. 27, 1997
------------- ------------- --------------
(unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 44 $ 1,095 $ 578
Accounts receivable:
Factor 63,194 83,676 81,580
Customers 20,759 19,989 (21,713)
Affiliates 8,589 (2,953) 4,355
------------ ----------- -----------
92,542 106,618 107,648
Less allowances for doubtful accounts and returns 1,064 1,003 706
------------ ----------- ------------
Accounts receivable, net 91,478 105,615 106,942
Inventories
Finished goods 19,313 13,160 17,151
Work in process 46,044 52,283 54,224
Raw materials and supplies 9,276 11,752 12,262
------------ ---------- ----------
Total inventories 74,633 77,195 83,637
Deferred income taxes and other current assets 3,426 3,553 3,460
------------ ----------- -----------
TOTAL CURRENT ASSETS 169,581 187,458 194,617
---------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and land improvements 3,656 3,647 3,647
Buildings 53,896 58,374 58,374
Machinery and equipment 194,366 207,548 207,592
Furniture and fixtures 4,020 3,944 3,944
Leasehold improvements 700 700 700
Construction in progress 9,655 1,980 3,022
----------- ----------- -----------
266,293 276,193 277,279
Less accumulated depreciation 102,297 118,641 123,773
---------- ---------- ----------
Property, plant and equipment, net 163,996 157,552 153,506
Deferred financing costs -- -- 5,349
$ 333,577 $ 345,010 $ 353,472
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Delta Mills, Inc.
June 29, 1996 June 28, 1997 Sept. 27, 1997
------------- ------------- --------------
(unaudited)
(In thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
<S> <C> <C> <C>
Trade accounts payable $ 22,022 $ 31,597 $ 32,615
Accrued employee compensation 2,934 5,932 3,926
Accrued and sundry liabilities 9,028 8,796 12,607
Payable to affiliates 59,129 58,469 5,628
Loan payable to affiliate 60,458 -- --
---------- ------------- -------------
TOTAL CURRENT LIABILITIES 153,571 104,794 $ 54,776
LONG-TERM DEBT DUE TO AFFILIATE,
less current portion 170,000 210,189 --
LONG-TERM DEBT -- -- 215,000
DEFERRED INCOME TAXES 13,614 16,547 16,547
OTHER LIABILITIES AND DEFERRED CREDITS 5,101 5,636 5,981
SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock--par value $.01 a share -- authorized
3,000 shares, issued and outstanding 100 shares -- -- --
Additional paid-in capital 2,134 2,134 51,792
Retained earnings (deficit) (10,843) 5,710 9,376
----------- --------- ----------
TOTAL SHAREHOLDER'S EQUITY (DEFICIT) (8,709) 7,844 61,168
COMMITMENTS AND CONTINGENCIES
$333,577 $345,010 $353,472
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Delta Mills, Inc.
Year Ended Quarter Ended
----------------------------------------------------------------------------------
July 1, June 29, June 28, September 28, September 27,
1995 1996 1997 1996 1997
--------------------------------------------------------------------------------
(Unaudited) (Unaudited)
(In thousands, except shares and per share data)
<S> <C> <C> <C> <C> <C>
Net sales to non-affiliates $ 393,735 $ 376,861 $ 434,678 $ 93,864 $ 114,909
Net sales to affiliated parties 20,192 25,600 29,870 6,075 5,022
--------- ---------- --------- ---------- -----------
Total net sales 413,927 402,461 464,548 99,939 119,931
Cost of goods sold 369,785 389,977 399,378 86,751 103,111
-------- --------- --------- --------- ---------
Gross profit 44,142 12,484 65,170 13,188 16,820
Selling, general and
administrative expenses 23,717 22,767 25,382 5,810 6,562
Impairment and restructuring
charge (credit) (290) 13,291 -- -- --
Other expense (income) 272 921 (1,632) (27) (15)
------------ ------------ ----------- ----------- -----------
Operating Profit (Loss) 20,443 (24,495) 41,420 7,405 10,273
Other expense (income):
Interest expense 12,251 14,099 14,285 3,426 4,323
Interest (income) (39) (92) (73) (15) (15)
----------- ------------- ---------- ----------- ----------
12,212 14,007 14,212 3,411 4,308
INCOME (LOSS) BEFORE
INCOME TAXES 8,231 (38,502) 27,208 3,994 5,965
Income tax expense (benefit) 3,180 (13,703) 10,655 1,482 2,299
---------- ---------- ----------- ---------- ---------
NET INCOME (LOSS) $ 5,051 $ (24,799) $ 16,553 $ 2,512 $ 3,666
========= ========= ========== ========= =========
Earnings (loss) per share of
Common Stock $ 50,510 $ (247,990) $ 165,530 $ 25,110 $ 36,660
======== =========== ========= ======== =========
Number of shares outstanding 100 100 100 100 100
========== ============== ============= =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
Delta Mills, Inc.
Additional Total
Paid-In Shareholder's
Common Stock Capital Retained Equity
Shares Amount (Deficit) Earnings (Deficit)
------- -------- -------- --------- -----------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
Balances at July 2, 1994 $ 100 $ 0 $ 2,217 $ 8,905 $ 11,122
Net Income -- -- -- 5,051 5,051
Other -- -- (83) -- (83)
---------- -------- ------------ --------------- -----------
Balances at July 1, 1995 100 0 2,134 13,956 16,090
Net (loss) -- -- -- (24,799) (24,799)
----------- ---------- -------- ----------- ------------
Balances at June 29, 1996 100 0 2,134 (10,843) (8,709)
Net income -- -- -- 16,553 16,553
---------- ----------- ------- ------------ --------------
Balances at June 28, 1997 100 0 2,134 5,710 7,844
--------- -------- ------- ----------- -------------
Net income -- -- -- 3,666 3,666
Capital Contribution -- -- 49,658 -- 49,658
-------------------- ---------- ---------------- --------------
Balances at September 27, 1997 (unaudited) $ 100 $ 0 $ 51,792 $9,376 $ 61,168
======== ========= ========== ============ =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Delta Mills, Inc.
Year Ended Quarter Ended
---------------------------------------- --------------
July 1, June 29, June 28, September 28, September 27,
1995 1996 1997 1996 1997
--------- ---------- --------- ------------ -------------
(Unaudited) (Unaudited)
(In thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net Income (loss) $ 5,051 $ (24,799) $ 16,553 $ 2,512 $ 3,666
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 17,007 18,963 19,393 4,808 5,131
Amortization (10) (11) (70) (7) 57
Writedown of property and equipment - 12,554 - - -
Provision for losses on accounts receivable 746 490 388 543 96
Provision for deferred income taxes 1,119 (2,201) 3,152 - -
Losses (gains) on disposition of property
and equipment 335 1,016 (1,504) - (3)
Deferred compensation 676 428 605 197 352
Changes in operating assets and liabilities:
Accounts receivable 3,502 (4,519) (14,525) (433) (20)
Inventories (3,130) 21,952 (2,562) (7,308) (6,440)
Prepaid expenses and other current assets 2 403 (346) (620) 93
Accounts payable and accrued expenses (6,117) (22) 13,680 7,203 (9,430)
----------- ---------- ----------- --------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 19,181 24,254 34,764 6,895 (6,498)
INVESTING ACTIVITIES
Property, plant and equipment:
Purchases (27,195) (47,946) (15,718) (5,509) (1,517)
Proceeds from dispositions - 1,826 2,274 -- 3
--------------- ----------- ------------------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (27,195) (46,120) (13,444) (5,509) (1,514)
FINANCING ACTIVITIES
Scheduled principal payments of long-term debt (548) - - - -
Net proceeds from issuance of long-term debt - - - - 144,588
Proceeds from revolving line of credit - - - - 73,000
Principal payments on revolving line of credit - - - - (8,000)
Net proceeds from (repayments of) due to affiliates 7,660 21,865 (20,269) (1,384) (202,093)
----------- ---------- ----------- ----------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 7,112 21,865 (20,269) (1,384) 7,495
----------- ---------- ---------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (902) (1) 1,051 2 (517)
Cash and cash equivalents at beginning
of year 947 45 44 44 1,095
----------- ------------- ------------ ------------- -----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 45 $ 44 $ 1,095 $ 46 $ 578
=========== ============ ========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Delta Mills, Inc.
NOTE A--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: The Company manufactures woven and knitted textile
fabrics which are sold through separate sales divisions. The Company's
operations, all within the textile industry, are considered a single business
segment.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of Delta Mills, Inc. and its subsidiaries (the "Company"). The Delta
Mills, Inc. marketing divisions of Delta Consolidated Corporation were
transferred to Delta Mills Marketing, Inc., now a wholly-owned subsidiary of the
Company, in August, 1997. The combination of these entities under common control
was accounted for similar to pooling of interest accounting for business
combinations. All prior periods have been restated to reflect the consolidated
operations and financial position. All significant intercompany balances and
transactions have been eliminated. Delta Mills, Inc. is a wholly-owned
subsidiary of Alchem Capital Corporation, which is a wholly-owned subsidiary of
Delta Woodside Industries, Inc. ("DWI").
UNAUDITED INTERIM FINANCIAL STATEMENTS: The interim financial information
contained herein is unaudited and, in the opinion of management, includes all
adjustments (consisting only of normal, recurring adjustments) necessary to
state fairly the information included therein in accordance with generally
accepted accounting principles. The results of operations for the three month
period ended September 27, 1997, are not necessarily indicative of the results
to be expected for the full year.
CASH EQUIVALENTS: The Company considers all highly liquid investments having
maturities of three months or less when purchased to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market determined
using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on the
basis of cost. Depreciation is computed by the straight-line method for
financial reporting based on estimated useful lives of three to thirty-two
years, but predominantly over seven to ten years, and by accelerated methods for
income tax reporting.
IMPAIRMENT OF LONG-LIVED ASSETS: When required by circumstances, the Company
evaluates the recoverability of its long-lived assets by comparing estimated
future undiscounted cash flows with the asset's carrying amount to determine if
a write-down to market value or discounted cash flow is required. This policy
was formally adopted by the Company in fiscal year 1996. See note H for a
discussion of impairment charges in the Company's knitting business.
REVENUE RECOGNITION: Sales are recorded upon shipment or designation of specific
goods for later shipment at customers' request with related risk of ownership
passing to such customers.
INCOME TAXES: Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.
EARNINGS PER COMMON SHARE: Per share data are computed based on the weighted
average number of shares of Common Stock outstanding during each period.
ENVIRONMENTAL COSTS: Environmental compliance costs including ongoing
maintenance, monitoring and similar costs, are expensed as incurred.
Environmental remediation costs are accrued, except to the extent costs can be
capitalized, when remedial efforts are probable, and the cost can be reasonably
estimated.
COTTON PROCUREMENT: The Company contracts to buy cotton with future delivery
dates at fixed prices in order to reduce the effects of fluctuations in the
prices of cotton used in the manufacture of its products. These contracts permit
settlement by delivery and are not used for trading purposes. The Company
commits to fixed prices on a percentage of its cotton requirements up to
eighteen months in the future. If market prices for cotton fall below the
Company's committed fixed costs and are not recoverable, the differential is
charged to income at that time.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ACCOUNTING STANDARDS: The Company has not yet adopted Statements of Financial
Accounting Standard ("SFAS") 128, 130 or 131. These statements contain
guidelines for reporting of earnings per share, segments and comprehensive
income, respectively. The Company does not believe that the requirements of any
of these statements will impact the Company's results of operations; however,
additional disclosure may be necessary to comply with these guidelines when
adopted by the Company.
F-8
<PAGE>
FISCAL YEAR: The Company's operations are based on a fifty-two or fifty-three
week fiscal year ending on the Saturday closest to June 30. Fiscal years 1995,
1996 and 1997 each consist of 52 weeks.
NOTE B--ACCOUNTS RECEIVABLE
The woven fabrics operation has a factoring arrangement with a bank under which
certain pre-approved accounts receivable are sold to the factor who assumes the
risk of collection, without recourse to the Company in the event of credit loss.
The factor remits payments to the Company on a fixed schedule which approximates
collections from customers.
The Company operates within the textile industry, and its operations are
affected by the relative strength or weakness of the textile markets. The
Company has a major customer who accounted for 15%, 13% and 17% of total net
sales for fiscal years 1995, 1996, and 1997, respectively.
The Company's accounts receivable are due from many companies that produce
apparel, home furnishings and other products located throughout the United
States. The many companies represented in the Company's accounts receivable
limits, to a certain extent, the concentration of credit risk. The Company
generally does not require collateral for its accounts receivable.
NOTE C--LONG-TERM DEBT AND LEASES
Long-term debt consists of two 6% notes payable of $120,000,000 and $50,000,000
to Alchem Capital Corporation, due July 6, 1998 and June 27, 1998, respectively.
The debt is unsecured. Long-term debt also includes $40,189,000 of amounts
payable to affiliate at June 28, 1997, which were subsequently refinanced as
long-term debt as described in the following paragraph.
On August 25, 1997 the Company issued $150 million of unsecured ten-year senior
notes at an interest rate of 9.625%, and obtained a secured five-year $100
million revolving line of credit. The net proceeds of the senior notes, the
initial borrowings under the new revolving line of credit and a capital
contribution of the remainder of the intercompany debt were used to repay the
long-term debt and current amounts payable to affiliate. At August 25, 1997, the
interest rate on the $100 million revolving line of credit was 7.1% based on
LIBOR. At August 25, 1997, accounts receivable and inventory (and related
property) with a net book value of approximately $192 million, served as
collateral for the $100 million revolving line of credit. Immediately after the
borrowing as described above, the Company had $42 million available under the
revolving line of credit.
The new credit facility and the senior notes contain restrictive covenants,
which include restrictions on additional indebtedness, transactions with
affiliates, payment of dividends, minimum tangible net worth, and certain other
minimum financial ratios and maximum capital expenditures.
Total interest expense incurred and paid by the Company was $12,523,000,
$14,622,000 and $14,587,000 for fiscal years 1995, 1996 and 1997, respectively,
of which $272,000, $523,000 and $302,000 was capitalized during fiscal years
1995, 1996 and 1997, respectively.
Rent expense relating to operating leases was approximately $1,593,000,
$1,309,000 and $2,759,000 for fiscal years 1995, 1996 and 1997, respectively.
Aggregate principal maturities of all long-term debt and minimum payments under
operating leases are as follows:
Long-Term Operating
Debt Leases
Fiscal Year
1998 $ 3,370,000
1999 3,362,000
2000 3,350,000
2001 3,347,000
Later Years $ 210,189,000 2,959,000
-------------- ------------
$ 210,189,000 $ 16,388,000
============== ============
F-9
<PAGE>
At June 28, 1997, financial instruments with off balance sheet risk to the
Company include a loan guarantee whereby the Company is contingently liable as
guarantor of a loan facility for $234 million for Delta Woodside (which loan
facility was repaid in full on August 25, 1997). In April 1996, the loan
facility was amended to secure it with accounts receivable, inventory and
equipment. As of December 20, 1996, the loan facility was amended to be secured
with mortgage liens on substantially all of the real property of the Company,
Delta Woodside and the other subsidiaries of Delta Woodside. At June 28, 1997
the Company's accounts receivable, inventory, property and equipment pledged as
collateral for this loan facility had a book value of $340 million.
NOTE D--INCOME TAXES
The Company reports its federal income taxes in the consolidated federal return
of Delta Woodside Industries, Inc. (DWI) and subsidiaries and had taxable income
of $17.6 million in fiscal year 1997. The consolidated group had a tax loss of
$15 million for fiscal year 1997, of which $11 million of alternative minimum
tax (AMT) loss was carried back to fiscal years 1994 and 1995. The consolidated
group received an AMT refund of $2.2 million. The Federal income tax obligation
or refund allocated to the Company is determined as if the Company were filing a
separate Federal income tax return. The Company's Federal tax liability or
receivable is paid to or receivable from Delta Woodside.
The Company had a Federal net operating loss carryforward of $1.9 million which
expired unused at the end of fiscal year 1996. During fiscal year 1997, the
Company utilized its state NOL carryovers of approximately $18 million.
The Company's gross deferred tax assets are reduced by a valuation allowance to
net deferred tax assets considered by management to be more likely than not
realizable. 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. The valuation allowance decreased by $1
million from fiscal year 1996 to fiscal year 1997 and increased by $0.3 million
from fiscal year 1995 to fiscal year 1996.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
1996 1997
--------------- ----------
Deferred tax assets:
<S> <C> <C>
Impairment and restructuring reserves $ 4,517,000 $ 3,939,000
Accrued and sundry liabilities 2,360,000 2,315,000
Deferred compensation 1,725,000 1,958,000
Inventory 1,468,000 744,000
Net operating loss carryforwards 1,096,000 81,000
Allowance for doubtful accounts & sales returns 308,000 184,000
Other 169,000 --
-------------- --------------
11,643,000 9,221,000
Valuation allowance (1,022,000) (37,000)
------------ ------------
Net deferred tax assets 10,621,000 9,184,000
Deferred tax liabilities:
Depreciation 19,970,000 22,488,000
Other 992,000 189,000
------------- -----------
Deferred tax liabilities 20,962,000 22,677,000
----------- -----------
Net deferred tax liabilities $ 10,341,000 $13,493,000
=========== ============
</TABLE>
<TABLE>
<CAPTION>
Significant components of the provision for income taxes (benefits) are as
follows:
1995 1996 1997
---- ---- ----
Current:
<S> <C> <C> <C>
Federal income taxes (benefits) $ 1,628,000 $(11,583,000) $ 7,353,000
State income taxes 433,000 81,000 150,000
------------- ---------------- --------------
Total current $ 2,061,000 $(11,502,000) $ 7,503,000
=========== ============ ============
Deferred:
Federal income taxes (benefits) $ 1,099,000 $ (1,886,000) $ 2,710,000
State income taxes (benefits) 20,000 (315,000) 442,000
-------------- --------------- -------------
F-10
<PAGE>
Total deferred 1,119,000 (2,201,000) 3,152,000
---------- ------------- -----------
Total provision (benefits) $ 3,180,000 $(13,703,000) $10,655,000
=========== ============ ===========
</TABLE>
The reconciliation of income tax expense (benefit) computed at the Federal
statutory tax rate to the actual income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------------- ------------- ------------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rates $ 2,881,000 $(13,476,000) $ 9,523,000
State taxes (benefits) net of federal benefit 294,000 (152,000) 385,000
Permanent differences 23,000 6,000 16,000
Other (18,000) (81,000) 731,000
------------- --------------- --------------
Income tax expense (benefit) $ 3,180,000 $(13,703,000) $10,655,000
=========== ============= ===========
The Company received tax refunds of $3,472,000 and $1,852,000 in fiscal years
1995 and 1996, respectively. During fiscal year 1997, the Company made tax
payments of $6,261,000.
</TABLE>
NOTE E--EMPLOYEE BENEFIT PLANS
The Company participates in the Delta Woodside Industries Employee Retirement
Plan. The Retirement Plan qualifies as an Employee Stock Ownership Plan ("ESOP")
under the Internal Revenue Code as a defined contribution plan. All employees of
the Company who are at least 21 years of age with one year of service are
eligible to participate in the Retirement Plan. Amounts allocated to participant
accounts generally vest over a five-year period. Each participant has the right
to direct the trustee as to the manner in which shares held are to be voted.
Contributions of approximately $247,000, $270,000 and $236,000 were allocated to
participants for fiscal years 1995, 1996, and 1997, respectively.
The Company participates in the Delta Woodside Industries 401(k) Employee
Savings and Investment Plan. Employees meeting certain eligibility requirements
may join the plan. During fiscal years 1995, 1996 and 1997, the Company
contributed $141,000, $398,000 and $480,000, respectively, to the Plan.
The Company also participates in a 501(c) (9) trust, the Delta Woodside Employee
Benefit Plan and Trust ("Trust"). The Trust collects both employer and employee
contributions from the Company and makes disbursements for health claims and
other qualified benefits. During fiscal year 1995, 1996 and 1997, the Company
contributed $5,793,000, $5,616,000 and $4,706,000, respectively, to the plan.
The Company participates in a Deferred Compensation Plan, managed by DWI, which
permits certain management employees to defer a portion of their compensation.
Deferred compensation accounts are credited with interest and are distributable
after retirement, disability or employment termination. As of June 29, 1996 and
June 28, 1997, the Company's liability was $4,481,000 and $5,086,000,
respectively.
The Company also participates in the Delta Woodside Industries, Inc. Incentive
Stock Award Plan and Stock Option Plan. Including associated tax assistance,
under the Incentive Stock Award Plan, the Company recognized expense of
$404,000, $325,000 and $245,000 for fiscal years 1995, 1996, and 1997,
respectively. Under the Stock Option Plan, the Company recognized expense of
$63,000, $61,000 and $87,000 for fiscal years 1995, 1996, and 1997,
respectively.
NOTE F--AFFILIATED PARTY TRANSACTIONS
The Company participated in a cash management system maintained by Delta
Woodside Industries, Inc. until August 25, 1997. Under this system excess cash
was forwarded to DWI each day, reducing the current loan payable to affiliate.
Likewise, cash requirements were funded daily by DWI, increasing loan payable to
affiliate. Interest was charged on loan payable to affiliate balances based on
the weighted average cost of DWI's borrowings. The rate charged on these
borrowings was approximately 8.5% at June 28, 1997. In connection with the
refinancing described in Note C, current loan payable to affiliate was
reclassified as long-term debt as of June 28, 1997.
Accounts receivable due from affiliates include $8.4 million and $1.7 million at
June 29, 1996 and June 28, 1997, respectively, for anticipated refunds of income
taxes from Delta Woodside Industries, Inc. Receivables from affiliates also
include $.1 million and $1.2 million at June 29, 1996 and June 28, 1997,
respectively, resulting from sales to Duck Head Apparel Company, Inc., an
affiliate.
F-11
<PAGE>
Current payable to affiliates bears no interest and includes (1) $40.5 million
at June 29, 1996 and June 28, 1997, payable to DWI resulting from previous
mergers, (2) an advance from Duck Head Apparel Company, Inc. of $7.5 million at
June 29, 1996 in connection with certain affiliated sales programs (see below),
(3) interest payable of $10.2 million owed Alchem Capital Corporation at June
29, 1996 and June 28, 1997 and (4) other amounts payable to DWI for current
activity as described in the following paragraphs.
<TABLE>
<CAPTION>
Affiliated party transactions included in the statements of operations result
from a variety of services provided and goods transferred as shown in the
following table:
1995 1996 1997
------------ -------------- -------
<S> <C> <C> <C>
Textile and yarn sales $ 20,192,000 $ 25,600,000 $ 29,870,000
Corporate services expense 2,950,000 3,123,000 3,302,000
Income tax payments (refunds) (3,472,000) (1,852,000) 6,261,000
Payroll taxes, insurance and employee related expenses 14,941,000 25,548,000 42,578,000
Printing services expense 460,000 407,000 505,000
Interest expense 11,760,000 13,627,000 13,679,000
Rental income 153,000 141,000 93,000
</TABLE>
Beginning March 29, 1997, the Company sells textiles and yarn to an affiliate at
prices which approximate market. Prior to March 29, 1997, the Company sold
textiles and yarn to an affiliate at prices which approximate cost. In
connection with the prior pricing arrangement, the affiliate also maintained a
noninterest bearing deposit with the Company. The amount of deposit was based on
the volume of purchases. At June 29, 1996, the non-interest bearing deposit was
$7,516,000 and is classified as payable to affiliate. There was no such deposit
at June 28,1997 based upon the changes in the pricing agreement. Corporate
services include management, treasury, computer, purchasing, benefits, payroll,
auditing, accounting and tax services. For these services, DWI charges actual
cost based on relative usage and other factors. Actual cost is charged for
payroll taxes, insurance and employee related expenses which are managed by DWI
as a corporate service. During fiscal year 1996, DWI began making payments for
payroll taxes and receiving related reimbursements from the Company. Printing
services are charged at market prices. Interest is charged based on fixed rates
for long-term debt. Interest on loan payable to affiliate is charged based on
DWI's weighted average interest rate. The Company believes that these methods of
allocating corporate expenses to the Company are reasonable. The Company charges
affiliates for rent based on estimated cost and space utilized.
NOTE G--FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 28, 1997, the Company's carrying value of long-term debt was
approximately $4.4 million higher than fair value. Fair value was determined
using market rates for debt of a similar maturity. For other material financial
instruments, carrying value approximates fair value.
NOTE H--RESTRUCTURING AND IMPAIRMENT CHARGES
The history of operating losses at the knitting and knit finishing operations at
two plants in the knitted fabrics division caused the Company to recognize an
impairment charge of $11.7 million during fiscal year 1996 to reduce the book
value of the fixed assets in this business to fair market value.
In fiscal year 1996, the Company also recognized restructuring charges of $1.6
million for plant closings in the woven textile division. Of the $1.6 million,
$1.0 million is for the write-down of property, plant and equipment, and the
remainder is for expenses which were incurred in connection with the plant
closings.
NOTE I--COMMITMENTS AND CONTINGENCIES
During fiscal year 1998, the Company plans to spend approximately $15 million
for capital improvements and new equipment, primarily to complete the
modernization program for the woven fabrics division.
The Company has entered into agreements, and has fixed prices, to purchase
cotton for use in its manufacturing operations. At June 28, 1997 minimum
payments under these contracts with noncancelable contract terms were
$58,874,000 in fiscal year 1998 and $11,646,000 in fiscal year 1999.
F-12
<PAGE>
Some of the Company's textile plants have been unable to comply with certain
environmental standards including acute toxicity and other permit-related
limits. The Company is investigating several alternative courses of action to
comply with these and other environmental standards which would result in
capital expenditures ranging from $4.4 million to $5.2 million. Until these
capital improvements are made, it is likely that the Company will incur certain
penalties for violations of its permits; however the Company does not believe
that they will have a material adverse impact on the Company.
From time to time the Company and its subsidiaries are defendants in legal
actions involving claims arising in the normal course of business, including
product liability claims. The Company believes that, as a result of legal
defenses, insurance arrangements and indemnification provisions with parties
believed to be financially capable, none of these actions should have a material
adverse effect on its results of operations or financial condition.
NOTE J--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the years ended June 29, 1996 and June 28, 1997.
<TABLE>
<CAPTION>
September 30 December 30 March 30 June 29
-------------- ------------ ---------- ---------
(in thousands except per share data)
1996
<S> <C> <C> <C> <C>
Net sales..........................................$97,424 $106,254 $91,659 $107,124
Gross profit...................................... 8,285 4,943 987 (1,731)
Net income (loss)................................... (829) (2,945) (5,453) (15,572)
Earnings (loss) per share of Common Stock...........(8,290) (29,450) (54,530) (155,720)
</TABLE>
<TABLE>
<CAPTION>
September 28 December 28 March 27 June 28
------------- ----------- -------- --------
(in thousands except for per share data)
1997
<S> <C> <C> <C> <C>
Net sales.............................................$99,939 $119,220 $115,078 $130,311
Gross profit...........................................13,188 15,695 16,489 19,798
Net income..............................................2,512 4,129 4,062 5,850
Earnings per share of Common Stock................. 25,120 41,290 40,620 58,500
</TABLE>
During the fourth quarter of fiscal year 1996, the Company recognized impairment
and restructuring charges of $13.3 million, and also charged cost of goods sold
for $1.1 million attributable to cotton purchase commitments at prices in excess
of market value and in quantities in excess of orders from customers.
F-13
<PAGE>
DELTA MILLS, INC.
All tendered Senior Notes, executed Letters of Transmittal, and other
related documents should be directed to the Exchange Agent. Requests for
assistance and for additional copies of this Prospectus, the Letter of
Transmittal and other related documents should be directed to the Exchange
Agent.
The Exchange Agent for the Exchange Offer is
THE BANK OF NEW YORK
By Facsimile:
(212) 815-6339
Confirm by Telephone:
(212) 815-2742
By Overnight Delivery:
The Bank of New York
101 Barclay Street
Attention: 7th Floor
Corporate Trust & Agencies Service Window
New York, New York 10286
Attention: Reorganization Section
By Hand Delivery:
The Bank of New York
101 Barclay Street
Attention: 7th Floor
Corporate Trust & Agencies Service Window
New York, New York 10286
Attention: Reorganization Section
By Registered or Certified Mail:
The Bank of New York
101 Barclay Street, 7th Floor
New York, New York 10286
Attention: Reorganization Section
UNTIL [95 DAYS AFTER EFFECTIVE DATE], 1998 ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN ANY
DISTRIBUTION OF THE EXCHANGE NOTES, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS OR AS
REQUIRED BY THE TERMS OF THE EXCHANGE OFFER.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Sixth of the Company's Restated Certificate of Incorporation
provides that the Company shall, to the fullest extent permitted by Section 145
of the Delaware General Corporation Law ("DGCL"), indemnify all persons whom it
may indemnify pursuant thereto. A copy of Section 145 of the DGCL is attached as
Exhibit 99.6.
Article VII, Section 7 of the Guarantor's by-laws require the Guarantor
to indemnify its officers, directors, employees and agents to the fullest extent
permitted by the DGCL.
The Registration Rights Agreement provides that each holder of Senior
Notes agrees severally and not jointly to indemnify and hold harmless the
Company and the Guarantor, and their respective directors, officers, employees
and agents (including, without limitation, attorneys) and any person controlling
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act) the Company and the Guarantor, and the respective officers,
directors, partners, employees, representatives and agents (including, without
limitation, attorneys) of each such person, with respect to claims and actions
based on information relating to each such holder furnished in writing by or on
behalf of such holder expressly for use in any registration statement. The
extent of holders' obligation to indemnify the Company and the Guarantor is set
out in full in Section 8 of the Registration Rights Agreement filed as Exhibit
1.2 to this Registration Statement, to which reference is hereby made.
The Registration Rights Agreement provides that the Company and the
Guarantor jointly and severally agree to indemnify and hold harmless each holder
of Senior Notes, each person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) any holder, and the
respective officers, directors, partners, employees, representatives and agents
(including without limitation, attorneys) of any holder or any controlling
person, to the fullest extent lawful, from and against any and all losses,
claims, damages, liabilities, judgments, actions and reasonable expenses
directly or indirectly caused by, related to, based upon, arising out of or in
connection with any untrue statement or alleged untrue statement of a material
fact contained in any registration statement or prospectus, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading unless such untrue
statement or omission or alleged untrue statement or omission is made in
reliance upon and in conformity with information relating to any of the holders
furnished in writing to the Company by any of the holders expressly for use
therein. The extent of the obligation of the Company and the Guarantor to
indemnify holders is set out in full in Section 8 of the Registration Rights
Agreement filed as Exhibit 1.2 to this Registration Statement, to which
reference is hereby made.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
1.1 Purchase Agreement Relating to $150,000,000 9-5/8% Senior Notes due
2007, dated August 20, 1997, by and among Delta Mills, Inc., Delta
Mills Marketing, Inc. and NationsBanc Capital Markets, Inc. *
1.2 Registration Rights Agreement, dated as of August 25, 1997, by and
among Delta Mills, Inc., Delta Mills Marketing, Inc. and NationsBanc
Capital Markets, Inc. *
3.1 Restated and Amended Certificate of Incorporation of Delta Mills,
Inc. *
3.2 Bylaws of Delta Mills, Inc. *
4.1 Indenture, dated as of August 25, 1997, by and among Delta Mills,
Inc., Delta Mills Marketing, Inc. and NationsBanc Capital Markets,
Inc. *
4.2 Credit Agreement dated as of August 25, 1997 among Delta Mills, Inc.
as Borrower, certain subsidiaries of the Borrower from time to time
party thereto, as guarantors, the several Lenders from time to time
party thereto, NationsBank, N.A., as Administrative Agent, and BNY
Financial Corporation, as Collateral Agent: incorporated by reference
to Form 8-K/A of Delta Woodside Industries, Inc., filed September 25,
1997.
5.1 Opinion of Wyche, Burgess, Freeman & Parham, P.A. re Legality.
8.1 Opinion of Wyche, Burgess, Freeman & Parham, P.A. re Tax Matters.
10.1 See Exhibits 1.1, 1.2, 4.1 and 4.2.
10.2 Delta Woodside Industries, Inc. Long Term Incentive Plan (approved by
shareholders on November 6, 1997).
12.1 Statements re Computation of Ratios. *
21.1 Listing of subsidiaries. *
23.1 Consent of Wyche, Burgess, Freeman & Parham, P.A.: Contained in
Exhibits 5.1 and 8.1.
23.2 Consent of KPMG Peat Marwick LLP.
II-1
<PAGE>
24.1 Power of Attorney (Delta Mills, Inc.): Included on Signature Page. *
25.1 Statement of Eligibility of Trustee (bound separately from other
exhibits). *
27.1 Financial Data Schedule (electronic filing only). *
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Clients.
99.4 Form of Letter to Registered Holders and DTC Participants.
99.5 Instructions to Registered Holders and DTC Participants.
99.6 Section 145 of the Delaware General Corporation Law. *
* Filed with initial filing of Registration Statement on October 9,
1997.
(b) Certain Additional Financial Statement Schedules: Not applicable.
(c) Report, Opinion or Appraisal: Not applicable.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) 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.
(d) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is part of this registration statement, by any person
or party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will
II-3
<PAGE>
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the 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 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 their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of
Greenville, State of South Carolina, on December 5, 1997.
DELTA MILLS, INC.
By: /s/ Bettis C. Rainsford
--------------------------
Bettis C. Rainsford
Executive Vice President,
Treasurer, and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
SIGNATURE TITLE DATE
<S> <C>
/s/ E. Erwin Maddrey, II * President, Chief Executive December 5, 1997
- ------------------------------------
E. Erwin Maddrey, II Officer and Director
/s/ Bettis C. Rainsford Executive Vice President, December 5, 1997
- ------------------------------------
Bettis C. Rainsford Treasurer, Chief Financial Officer
and Director
/s/ Douglas J. Stevens * Controller and Assistant Secretary December 5,1997
- -------------------------
Douglas J. Stevens
/s/ C.C. Guy * Director December 5, 1997
- ------------------------------------
C. C. Guy
/s/ Buck A. Mickel * Director December 5, 1997
- ------------------------------------
Buck A. Mickel
* By Bettis C. Rainsford, attorney in fact.
</TABLE>
<PAGE>
EXHIBIT INDEX
1.1 Purchase Agreement Relating to $150,000,000 9-5/8% Senior Notes due
2007, dated August 20, 1997, by and among Delta Mills, Inc., Delta Mills
Marketing, Inc. and NationsBanc Capital Markets, Inc. *
1.2 Registration Rights Agreement, dated as of August 25, 1997, by and among
Delta Mills, Inc., Delta Mills Marketing, Inc. and NationsBanc Capital
Markets, Inc. *
3.1 Restated and Amended Certificate of Incorporation of Delta Mills, Inc. *
3.2 Bylaws of Delta Mills, Inc. *
4.1 Indenture, dated as of August 25, 1997, by and among Delta Mills, Inc.,
Delta Mills Marketing, Inc. and NationsBanc Capital Markets, Inc. *
4.2 Credit Agreement dated as of August 25, 1997, among Delta Mills, Inc.
as Borrower, certain subsidiaries of the Borrower from time to time
party thereto, as guarantors, the several Lenders from time to time
party thereto, NationsBank, N.A., as Administrative Agent, and BNY
Financial Corporation, as Collateral Agent: Incorporated by reference
to Form 8-K/A of Delta Woodside Industries, Inc., filed September 25,
1997.
5.1 Opinion of Wyche, Burgess, Freeman & Parham, P.A. re Legality.
8.1 Opinion of Wyche, Burgess, Freeman & Parham, P.A. re Tax Matters.
10.1 See Exhibits 1.1, 1.2, 4.1 and 4.2.
10.2 Delta Woodside Industries, Inc. Long Term Incentive Plan (approved by
shareholders o November 6, 1997.
12.1 Statements re Computation of Ratios. *
21.1 Listing of subsidiaries. *
23.1 Consent of Wyche, Burgess, Freeman & Parham, P.A.: Contained in Exhibits
5.1 and 8.1.
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (Delta Mills, Inc.): Included in Signature Page. *
25.1 Statement of Eligibility of Trustee (bound separately from other
exhibits). *
27.1 Financial Data Schedule (electronic filing only). *
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Clients.
99.4 Form of Letter to Registered Holders and DTC Participants.
99.5 Instructions to Registered Holders and DTC Participants.
99.6 Section 145 of the Delaware General Corporation Law. *
* Filed with initial filing of Registration Statement on October 9, 1997.
II-6
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF WYCHE, BURGESS, FREEMAN & PARHAM, P.A.]
OPINION REGARDING LEGALITY
December 9, 1997
Delta Mills, Inc.
233 North Main Street
Greenville, South Carolina 29601
RE: Registration Statement on Form S-1 (No. 333-37617)
Amendment No. 1
Ladies and Gentlemen:
We have served as counsel to Delta Mills, Inc, a Delaware corporation
(the "Company"), and Delta Mills Marketing, Inc., a Delaware corporation (the
"Guarantor"), in connection with the filing of the above referenced Registration
Statement (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") to register under the Securities Act of 1933, as
amended (the "Act"), $150,000,000 in aggregate principal amount of 9-5/8% Senior
Notes due 2007, Series B (the "Exchange Notes"), guaranteed by the Guarantor, to
be issued under an Indenture dated as of August 25, 1997 (the "Indenture")
between the Company, the Guarantor and the Bank of New York, as Trustee (the
"Trustee"). The Company intends, following effectiveness of the Registration
Statement, to offer to exchange the Exchange Notes for the Company's 9-5/8%
Senior Notes due 2007, Series A (the "Senior Notes"), guaranteed by the
Guarantor.
In this connection, we have examined the Indenture, the form of the
Exchange Notes and the Registration Statement. We have also examined originals
or copies of such corporate documents and records of the Company and the
Guarantor, certificates of public officials, certificates of the Company, the
Guarantor or any officer thereof and such other documents as we have deemed
relevant and necessary as the basis for this opinion and statement.
With respect to matters of fact, we have relied upon certificates of
public officials and certificates of the Company, the Guarantor or any officer
thereof and have assumed, without independent investigation, the accuracy of the
factual statements made and the information contained in such certificates.
We have assumed, without investigation, the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to authentic original documents of all documents submitted to us as
copies, and the accuracy and completeness of all documents made available to us
by the Company or the Guarantor. We have assumed, without investigation, the
legal capacity of all persons. We have assumed, without investigation, that
there has not been any mutual mistake of fact or misunderstanding. With respect
to agreements, instruments and other documents executed by entities or
individuals other than or in addition to the Company or the Guarantor, we have
assumed, without investigation, the power and authority of any such other entity
or individual to enter into and perform all of its or his obligations under such
agreements, instruments and other documents, the due execution and delivery by
each such entity or individual of such agreements, instruments and other
documents and that such agreements, instruments and other documents are the
valid, binding and enforceable obligations of each such other entity or
individual.
Based upon and subject to the foregoing, and subject to the comments,
limitations and qualifications set forth below, it is our opinion that the
execution and delivery of the Exchange Notes have been duly authorized by all
requisite corporate action of each of the Company and the Guarantor, and, when
duly executed and delivered by the Company and the Guarantor and duly
authenticated by the Trustee, and assuming that the Exchange Notes are governed
by South Carolina law, the Exchange Notes will be legally issued and valid and
binding obligations of the Company and the Guarantor, except that enforcement
thereof may be subject to (a) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally, and (b) general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law) and the exercise of discretionary authority of
any court before which a proceeding may be brought.
<PAGE>
No opinion is given as to:
(A) any provision of the Indenture or the Exchange Notes
(collectively, the "Documents") requiring or in effect requiring that
any waiver or amendment of any provision of any of the Documents or any
other agreement, instrument or other document may be effected only in
writing or in a particular form;
(B) any appointment of any person or entity as agent or
attorney-in-fact;
(C) any requirement to pay any amount, after a default or
event of default or other failure to perform an act or satisfy a
condition, in the nature of a higher rate of interest or post-default
interest or other amount that a court determines is a "penalty";
(D) any provision releasing, exculpating or exempting any
person or entity from, or requiring indemnification or legal defense of
any person or entity for, liability for action or inaction, to the
extent the action or inaction involves negligence, willful misconduct
or unlawful conduct or does not satisfy a standard required by law;
(E) Section 11.11 of the Indenture;
(F) any provision of any guaranty providing that the guaranty
is enforceable, notwithstanding the unenforceability of the obligations
guaranteed, to the extent that the obligations guaranteed are held to
be void or invalid under applicable law or barred by the applicable
statute of limitations;
(G) any choice-of-law provision;
(H) any provision that creates a presumption or an evidentiary
standard or other standard by which an agreement, instrument or other
document or an action or inaction is to be construed or a fact is to be
established or that prohibits the use of an agreement to interpret
another agreement;
(I) the effect of section "SEVENTH" (respecting compromises or
arrangements with creditors or stockholders) of the Company's
certificate of incorporation;
(J) any matter governed by or arising under any law requiring
or in effect requiring accurate and/or complete disclosure or
prohibiting or in effect prohibiting inaccurate and/or incomplete
disclosure;
(K) the second sentence of section 7.07 of the Indenture; or
(L) the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the Trust Indenture Act of 1939, as
amended, the South Carolina Uniform Securities Act, any other state's
securities laws, or any rule or regulation promulgated under any of the
foregoing laws.
Any waiver of any right or defense is legal, valid, binding and
enforceable only to the extent such waiver is not contrary to law.
Any inspection right provided by any of the Documents may be limited by
confidentiality or privilege rules established by law.
Whenever in this letter the phrase "to our knowledge", the phrase "come
to our attention" or any similar phrase is used, we are referring to the current
awareness of information of the attorneys of this law firm, after such inquiry
of such attorneys as we believe to be reasonable in the circumstances, who are
included in either of the following descriptions: (i) lawyers primarily involved
in the preparation of an opinion or statement
<PAGE>
set forth herein, and (ii) lawyers whose relationship with the Company and the
Guarantor, or with the subject matter of any such opinion or statement, is of
such significance that the lawyer principally responsible for the Registration
Statement reasonably believes those lawyers should be consulted with respect to
such opinion or statement.
Provisions of any of the Documents that permit any party to take or
omit to take action or to make any determination, or to benefit from any
indemnity or compensation for costs (including without limitation taxes) or
similar undertaking, may be subject to a requirement that such action be taken,
such omission be made or such determination be made, and that any action or
inaction by the party that may give rise to a request for payment under such an
undertaking be taken or not taken, on a reasonable basis and in good faith and
that the amount of such requested payment be reasonable.
We do not herein intend to express any opinion, statement or belief as
to any matter governed by (or that purports to be governed by) any law other
than, and our opinions, statements and beliefs are limited solely to, the
existing laws of the State of South Carolina, the existing Federal laws of the
United States of America, and the General Corporation Law of the State of
Delaware. We express no opinion with regard to any matter that is or may be (or
that purports to be) governed by the law of any other state or jurisdiction or
the law of the State of Delaware other than the Delaware General Corporation
Law. The law covered by the opinions expressed herein does not include any
statute, ordinance, decision, rule or regulation of any political subdivision of
any State.
This letter is rendered as of the date hereof and applies only to
matters specifically covered by this letter, and we disclaim any continuing
responsibility for matters occurring after the date of this letter or any
obligation to update this letter. This opinion is limited to the matters
expressly set forth herein, and no opinion is implied or may be inferred beyond
the matters expressly stated herein.
We consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus constituting a part thereof. In giving such consent,
we do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the Act or the rules and regulations of the
Commission thereunder.
Subject to the immediately preceding paragraph, this opinion letter is
being provided to you in connection with the Registration Statement and is not
to be used, circulated, quoted or otherwise relied upon by any other person or
entity, or for any other purpose, without our express written consent. No
opinion may be implied or inferred beyond the opinion expressly stated.
Very truly yours,
WYCHE, BURGESS, FREEMAN & PARHAM, P.A.
By: /s/ Eric B. Amstutz
----------------------
Eric B. Amstutz, Esq.
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF WYCHE, BURGESS, FREEMAN & PARHAM, P.A.]
FORM OF OPINION REGARDING TAX CONSEQUENCES
_______________, 1997
Delta Mills, Inc.
233 North Main Street
Greenville, South Carolina 29601
Re: Proposed Exchange of 9-5/8% Senior Notes Due 2007, Series B, of
Delta Mills, Inc. for all outstanding 9-5/8% Senior Notes Due
2007, Series A of Delta Mills, Inc.
Ladies and Gentlemen:
We have acted as counsel to Delta Mills, Inc., a Delaware corporation
(the "Company"), a wholly-owned subsidiary of Delta Woodside Industries, Inc., a
South Carolina corporation ("Delta Woodside"), in offering (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in the
Prospectus (the "Prospectus") and the Letter of Transmittal accompanying the
Prospectus (the "Letter of Transmittal"), to exchange up to $150,000,000
aggregate principal amount of its 9-5/8% Senior Notes Due 2007, Series B, (the
"Exchange Notes") for equal principal amounts of its outstanding 9-5/8% Senior
Notes Due 2007, Series A (the "Senior Notes").
The Exchange Notes are substantially identical (including principal
amount, interest rate, maturity and redemption rights) to the Senior Notes for
which they may be exchanged pursuant to this offer, except that (i) the offering
and sale of the Exchange Notes will have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and (ii) holders of Exchange
Notes will not be entitled to certain rights of holders under a Registration
Rights Agreement of the Company dated as of August 25, 1997. The Senior Notes
have been, and the Exchange Notes will be, issued under an Indenture dated as of
August 25, 1997 (the "Indenture"), between the Company, Delta Mills Marketing,
Inc., the Company's wholly-owned subsidiary (the "Guarantor"), and the Bank of
New York, as Trustee (the "Trustee"). The Company will not receive any proceeds
from this Exchange Offer; however, pursuant to the Registration Rights
Agreement, the Company will bear certain offering expenses. See "The Exchange
Offer -- Fees and Expenses."
In rendering this opinion, we have examined (i) the Internal Revenue
Code of 1986, as amended (the "Code") and Treasury Regulations and (ii)
appropriate Internal Revenue Service and court decisional authority. In
addition, we have relied upon certain information made known to us as more fully
described below. All capitalized terms used herein without definition shall have
the respective meanings specified in the Prospectus, and unless otherwise
specified, all section references herein are to the Code.
INFORMATION RELIED UPON
In rendering the opinions expressed herein, we have examined such
documents as we have deemed appropriate, including:
(1) the Prospectus; and
(2) such additional documents as we have considered relevant.
In our examination of such documents, we have assumed, with your
consent, that all documents submitted to us as photocopies faithfully reproduce
the originals thereof, that such originals are authentic, that all such
documents have been or will be duly executed to the extent required, and that
all statements set forth in such documents are accurate.
We have also obtained such additional information and representations
as we have deemed relevant and necessary through consultation with and
certificates provided by the management of the Company and the Guarantor.
With your consent, we have also assumed that the following statements
are true on the date hereof and will be true on the date the proposed
transaction is consummated:
(1) Except for the Purchase Agreement dated as of August 20, 1997
(pursuant to which the Senior Notes were orginally sold to the Initial
Purchaser) and the Registration Rights Agreement of the Company and the
Indenture, both dated
<PAGE>
as of August 25, 1997, the Company has not entered into any agreement (whether
written, oral, by conduct or otherwise) with respect to the Senior Notes or the
Exchange Notes.
(2) The Exchange Offer is being made for a substantial business
purpose.
OPINIONS
Based solely on the information submitted and the representations set
forth above and assuming that the Exchange Offer takes place as described in the
Prospectus and that the representations made by the Company and the Guarantor
are true and correct at the time of the exchange, we are of the opinion that the
exchange of Senior Notes for Exchange Notes pursuant to the Exchange Offer will
not be considered a taxable exchange for U.S. federal income tax purposes
because the Exchange Notes will not be considered to differ materially in kind
or extent from the Senior Notes. Exchange Notes received by a holder of Senior
Notes will be treated as a continuation of the Senior Notes in the hands of such
holder. Accordingly, there will not be any U.S. federal income tax consequences
to holders exchanging Senior Notes for Exchange Notes in the Exchange Offer.
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinions are based solely on the documents
that we have examined, the additional information that we have obtained, and the
statements set out herein, which we have assumed and you have confirmed to be
true on the date hereof and will be true on the date on which the proposed
transaction is consummated. Our opinions cannot be relied upon if any of the
facts contained in such documents or if such additional information is, or later
becomes, inaccurate. This opinion deals only with holders that will hold
Exchange Notes as "capital assets" (within the meaning of Section 1221 of the
Code) and that are (i) citizens or residents of the United States, (ii) domestic
corporations, or (iii) otherwise subject to United States federal income
taxation on a net income basis in respect of an Exchange Note. The opinions
expressed herein do not address tax considerations applicable to investors that
may be subject to special tax rules, such as banks, tax-exempt organizations,
insurance companies, dealers in securities or currencies, or persons that will
hold Notes as a position in a hedging transaction, "straddle" or "conversion
transaction" for tax purposes. The opinion addresses the material U.S. federal
income tax consequences of the exchange of Senior Notes for Exchange Notes
pursuant to the Exchange Offer. Finally, our opinions are limited to the tax
matters specifically covered thereby, and we have not been asked to address, nor
have we addressed, any other tax consequences of the Exchange Offer or the
Notes.
This opinion is being provided solely for the benefit of the Company
and the holders of Senior Notes that receive Exchange Notes pursuant to the
Exchange Offer. No other person or party shall be entitled to rely on this
opinion.
We consent to the use of this opinion and to the references made to the
firm under the caption "Certain Federal Income Tax Considerations" in the
Prospectus.
Sincerely,
WYCHE, BURGESS, FREEMAN & PARHAM, P.A.
By: Cary H. Hall
<PAGE>
EXHIBIT 10.2
DELTA WOODSIDE INDUSTRIES, INC.
LONG TERM INCENTIVE PLAN
(Approved by Shareholders on November 6, 1997)
OBJECTIVE
The objective of the Long Term Incentive Plan (this "Plan" or the "Plan") of
Delta Woodside Industries, Inc. (the "Company") is to reward the key executives
of the Company (including its subsidiaries) and the non-employee directors of
the Company for increasing shareholder value through the growth of the Company's
stock price, profitability and/or return on capital employed. The Plan is
intended to reward the achievement of projected and better-than-projected stock
price increases and/or financial results. It is also intended to assist in the
attraction and retention of key executives and to provide them with a
significant retirement vehicle.
ADMINISTRATION
The Plan will be administered by a special committee (the "Long Term Plan
Committee") of the Company's Board of Directors that includes those members of
the Company's Compensation Committee who are "outside directors," as that term
is defined in the regulations promulgated under Section 162(m) of the Internal
Revenue Code (or any successor provision) ("Section 162(m)").
Near the beginning of each fiscal year of the Company (or, in the case of Fiscal
Year 1998, the commencement of this Plan), the Company's chief executive officer
(the "CEO") will present for Long Term Plan Committee consideration a
recommendation for that fiscal year as to:
o Plan participants
o The performance period or periods to be used for awards (which shall be
at least three years)
o The performance measurement goals for each performance period to be
used for awards under the Plan
o Awards to be made under the Plan
The Long Term Plan Committee has the authority to and will, in its sole
discretion, establish and administer the awards and the performance measurement
goals to be used in connection with awards, and certify the degree to which, if
at all, such measurement goals are attained. The Long Term Plan Committee also
has the authority to interpret the Plan, and to establish, revise or rescind
rules and regulations relating to the Plan. Among other matters, the Long Term
Plan Committee shall have complete authority to: (i) select the key executives
and non-employee directors who will participate in the Plan; (ii) within the
limits established herein, determine the terms of each award to be granted to
each such key executive and director and, if desired, amend such terms; (iii)
prescribe the form of instrument(s) evidencing awards and the form of
instrument(s) evidencing options granted under this Plan; (iv) determine the
time or times at which awards shall be granted; (v) make special grants of
awards when determined to be appropriate; and (vi) make all other determinations
necessary or advisable for the administration of this Plan.
Any action that the Long Term Plan Committee is authorized to take may be taken
without a meeting if all the members of the Committee sign a written document
authorizing such action to be taken, unless different provision is made by the
ByLaws of the Company or by resolution of the Committee.
The Long Term Plan Committee may designate selected Board members or certain
employees of the Company to assist the Committee in the administration of the
Plan and may grant authority to such persons to execute documents including
awards and options on behalf of the Committee; subject in each such case to the
requirements of Section 162(m) of the Internal Revenue Code (or any successor
provision).
<PAGE>
No member of the Board or Long Term Plan Committee shall be liable for any
action taken or determination made in good faith.
Ex. 10.2-1
PARTICIPATION AND AWARDS
Participation in the Plan is limited to the key executives of the Company
(including its subsidiaries) (whether or not executive officers of the Company
or any of its subsidiaries) who, in the opinion of the Long Term Plan Committee,
have the greatest impact on the Company's long-term performance and are selected
by the Long Term Plan Committee and those non-employee directors of the Company
who are selected by the Long Term Plan Committee. Awards may be granted under
the Plan to a key executive only for a reason connected with a key executive's
employment.
Each award will set forth potential bonus values, which will be expressed as
varying percentages of the participant's base salary (in the case of a key
executive) or director fees (in the case of a non-employee director) in effect
as of the beginning of the fiscal year of the award grant. The actual bonus
value earned will depend on the achievement of goals over the performance
period, and (where applicable) in accordance with the measurement weighting,
selected by the Long Term Plan Committee.
After the initial grant of awards in a fiscal year, the Long Term Plan Committee
may during that fiscal year grant additional awards to one or more other
employees or other non-employee directors, with such provisions as the Long Term
Plan Committee deems appropriate.
MEASUREMENTS THAT DETERMINE AWARD BONUS VALUES
The Company's results over the applicable performance period will be compared to
the measurement goals established by the Long Term Plan Committee for the
participants. Where applicable, as between individuals the weighting of
measurements may vary due to the Long Term Plan Committee's opinion as to the
respective individuals' specific impact on the measurements. The measurements
will include (a) average annual stock price performance as compared to the peer
group of publicly traded companies used for purposes of the most recent
performance graph contained in a proxy statement of the Company, (b) average
annual increase in net income per share and (c) average annual increase in
return on capital employed, except that the measurement described in clause (a)
shall be the only measurement applicable to the plan participants who are the
senior executive officers (including the "covered employees" for purposes of
Section 162(m)) or non-employee directors of the Company.
Upon the grant of awards by the Long Term Plan Committee, each participant will
be advised in writing by the Committee of his or her participation, the
potential bonus values of the award and the measurements and measurement goals
used.
EMPLOYMENT TERMINATION PROVISIONS WITH RESPECT TO AWARDS
With respect to key executive participants, participants who terminate
employment with the Company (including its subsidiaries) prior to the end of the
applicable performance period for an award due to death, permanent and total
disability or (in the case of any employee whose age is at least 62 at the time
of award grant) retirement will receive the bonus value of their award according
to the normal terms of the award (or, in the case of an employee who is not a
"covered employee" for purposes of Section 162(m), sooner if the Long Term Plan
Committee so determines).
With respect to key executive participants, any other employment termination
(whether voluntary or involuntary) prior to the end of the applicable
performance period will result in forfeiture of the applicable awards. The Long
Term Plan Committee may, however, in its discretion, in the case of an employee
who is not a "covered employee" for purposes of Section 162 (m), allow the bonus
value of such awards to be received according to the normal terms of the award
or sooner.
With respect to non-employee director participants, participants whose service
as director terminates prior to the end of the applicable performance period for
an award due to death, permanent and total disability or (in the case of any
non-employee director whose age is at least 62 at the time of award grant)
retirement will receive the bonus value of their award according to the normal
terms of the award (or sooner if the Long Term Plan Committee so determines).
With respect to non-employee director participants, any other termination of
service as a director (whether voluntary or involuntary) prior to the end of the
applicable performance period will result in forfeiture of the applicable
awards. The Long Term Plan Committee may, however, in its discretion allow the
bonus value of such awards to be received according to the normal terms of the
award or sooner.
Ex. 10.2-2
<PAGE>
GRANTS OF OPTIONS
At the end of the applicable performance period, results will be calculated and
presented to the Long Term Plan Committee for certification. The Long Term Plan
Committee will certify in writing the extent to which, if any, the applicable
performance measurement goal or goals have been satisfied and the Bonus Value
Earned, if any, of each participant based on these results. The results will
then be given to the participants.
Upon certification by the Long Term Plan Committee of these results, the Company
will grant options for the Company's common stock (at an exercise price equal to
50% of the then market value of the stock) to each participant with a Bonus
Value Earned, based on the following formula:
Participant's Salary (in the case of a key executive participant) or
director's fee (in the case of a non-employee director participant) (at
beginning of fiscal year of original award) X Target % X (Measurement 1
Weighting % X Measurement 1 Performance Level) + (Measurement 2
Weighting % X Measurement 2 Performance Level) + (Measurement 3
Weighting % X Measurement 3 Performance Level) X 0.62 =
Bonus Value Earned.
In no event may the aggregate Bonus Value Earned by any participant in
any fiscal year of the Company exceed $350,000.
The number of shares to be covered by the options so granted will be
determined by dividing the difference between the market value per
share of the stock on the date of option grant and the exercise price
per share into the Bonus Value Earned. Fractional shares shall be
rounded up to the next whole number. The participant will be promptly
notified of the options that have been granted to him or her under the
Plan.
The stock to be offered under this Plan, upon exercise of options, may be
authorized but unissued shares, shares previously issued and thereafter acquired
by the Company, or any combination thereof.
The maximum aggregate number of shares of the Company's common stock that may be
issued pursuant to options granted under the Plan is 1,000,000. The maximum
number of shares of the Company's common stock that may be covered by options
granted under the Plan in any fiscal year of the Company to any single
participant is 120,000. Provided that the adjustment does not cause compensation
payable under this Plan to lose its deductibility under Section 162(m), these
numbers of shares shall be appropriately adjusted to reflect any change in the
capitalization of the Company resulting from a stock dividend, stock split, or
other adjustment contemplated below and occurring after the adoption of this
Plan. The Long Term Plan Committee will maintain records showing the cumulative
total of all shares subject to options outstanding under this Plan.
If an option granted hereunder shall expire or terminate for any reason without
having been fully exercised, the unpurchased shares subject thereto shall again
be available for the purposes of this Plan.
Provided that the adjustment does not cause compensation payable under this Plan
to lose its deductibility under Section 162(m), in the event of a stock
dividend, recapitalization, merger, reorganization, consolidation, stock
split-up, stock consolidation or any other change in the capitalization of the
Company, the shares available for purposes of this Plan or an award or subject
to options hereunder shall be correspondingly increased, diminished or changed,
so that by exercise of an option the participant shall receive, without change
in aggregate purchase price, securities, as so increased, diminished or changed,
comparable to the securities he or she would have received if he or she had
exercised the option prior to such event and had continued to hold the common
stock so purchased until affected by such event.
Adjustments under this provision shall be made by the Long Term Plan Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive.
EXERCISE OF OPTIONS
Options can be exercised for up to ten years from the date of option grant. No
option can be exercised until one year after option grant. An option then
becomes exercisable to the extent of 33 1/3% of the shares covered thereby per
year. With respect to any key executive participant, if, following the grant of
option(s) under this Plan, the participant's employment with the Company
(including its subsidiaries) terminates due to death, permanent and total
disability or retirement, then all previously unexercisable options shall become
immediately exercisable. With respect to any key executive participant, if the
participant's employment with the Company (including its subsidiaries) shall
terminate for any other reason, all options
Ex. 10.2-3
<PAGE>
that have not yet become exercisable shall be forfeited (unless, with respect to
an employee who is not a "covered employee" for purposes of Section 162(m), the
Long Term Plan Committee determines otherwise). With respect to any non-employee
director participant, if, following the grant of option(s) under this Plan, the
participant's service as a director of the Company terminates due to death,
permanent and total disability or retirement, then all previously unexercisable
options shall become immediately exercisable. With respect to any non-employee
director, if the participant's service as a director of the Company shall
terminate for any other reason, all options that have not yet become exercisable
shall be forfeited (unless the Long Term Plan Committee determines otherwise).
Each option granted under this Plan shall be deemed exercised when the holder
(a) shall indicate the decision to do so in writing delivered to the Company,
(b) shall tender to the Company payment in full in cash (or if the Long Term
Plan Committee so determines at the time of award grant, in shares of the
Company's common stock) of the exercise price for the shares for which the
option is exercised, (c) shall tender to the Company payment in full in cash of
the amount of all federal and state withholding or other employment or
self-employment taxes applicable to the taxable income, if any, of the holder
resulting from such exercise and (d) shall comply with such other reasonable
requirements as the Long Term Plan Committee may establish.
No person shall have any of the rights of a shareholder with reference to shares
subject to an option until a certificate for the shares has been delivered.
An option granted under this Plan may be exercised for any lesser number of
shares than the full amount for which it could be exercised. Such a partial
exercise of an option shall not affect the right to exercise the option from
time to time in accordance with this Plan for the remaining shares subject to
the option.
No certificate for shares shall be executed and delivered upon exercise of an
option until the Company shall have taken such action, if any, as is then
required to comply with the provisions of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the South Carolina
Uniform Securities Act, as amended, any other applicable state blue sky law(s)
and the requirements of any exchange on which the common stock of the Company
may, at the time, be listed.
In the case of the exercise of an option by a person or estate acquiring the
right to exercise the option by bequest or inheritance, the Long Term Plan
Committee may require reasonable evidence as to the ownership of the option and
may require such consent and releases of taxing authorities as it may deem
advisable.
CASH BONUS UPON OPTION EXERCISE FOR TAX PROTECTION
One of the objectives of the Plan is to give key executives and non-employee
directors a way to participate in the equity growth of the Company without being
forced by income taxation to sell the stock acquired upon exercise of options
granted under this Plan. In connection with the exercise of an option granted
under the Plan, the Company will pay the participant such cash bonus as is
estimated to provide the participant with sufficient cash to pay his or her
federal and state income taxes attributable to the option exercise and to such
cash bonus. For each participant who is a "covered employee" for purposes of
Section 162(m), such cash bonus shall be calculated using an assumed 38% income
tax rate.
TERMINATION OF OPTIONS
An option granted under this Plan shall be considered terminated in whole or in
part to the extent that, in accordance with the provisions of this Plan, it can
no longer be exercised for any shares originally subject to the option. The
shares subject to any option, or portion thereof, that terminates shall no
longer be charged against the aggregate share limitation provided above in this
Plan and may again become shares subject to the Plan.
SALE OF STOCK ACQUIRED UPON OPTION EXERCISE
If the participant desires to sell any stock acquired upon exercise of an option
granted under this Plan, the Company will have the right of first refusal
(exercisable within 5 business days after notice) to acquire such stock at the
closing market price on the date of such notice. All certificates for stock
acquired upon exercise of options granted under the Plan will bear a legend to
this effect.
NO RIGHT TO EMPLOYMENT
Neither the adoption of this Plan nor its operation, nor any document describing
or referring to the Plan, or any part thereof, (a) shall confer upon any key
executive participant under this Plan any right to continue in the employ of the
Company or
Ex. 10.2-4
<PAGE>
any of its subsidiaries, or shall in any way affect the right and power of the
Company or any of its subsidiaries to terminate the employment of any such
participant under this Plan at any time with or without assigning a reason
therefor, to the same extent as the Company or such subsidiary might have done
if this Plan had not been adopted or (b) shall confer upon any non-employee
director participant under this Plan any right to continue as a director of the
Company, or shall in any way affect the right and power of the Company to
terminate the service as a director of any such participant under this Plan at
any time with or without assigning a reason therefor, to the same extent as the
Company might have done if this Plan had not been adopted.
USE OF PROCEEDS
The proceeds received by the Company from the sale of shares pursuant to options
granted under this Plan shall be used for general corporate purposes as
determined by the Board.
INDEMNIFICATION OF LONG TERM PLAN COMMITTEE
In addition to such other rights of indemnification as they may have as members
of the Board, the members of the Long Term Plan Committee shall, to the fullest
extent permitted by law, be indemnified by the Company against the reasonable
expenses, including attorney's fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any award or option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action, suit or proceeding, except in relation to matters as to
which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for gross negligence or misconduct in the performance
of his or her duties; provided that within 60 days after institution of any such
action, suit or proceeding the Committee member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the same.
EFFECTIVE DATE OF THE PLAN
This Plan shall be effective on the date that it is approved by the holders of a
majority of the Company's shares of common stock voting on the issue.
DURATION OF THE PLAN
Unless previously terminated by the Board and the Long Term Plan Committee, this
Plan shall terminate ten years after its commencement, and no award shall be
granted under it thereafter, but such termination shall not affect any award
theretofore granted under the Plan or any option theretofore granted (or
subsequently granted as a result of any award theretofore granted) under the
Plan.
PLAN AMENDMENT
This Plan may be amended from time to time or terminated by approval of the Long
Term Plan Committee and the Board of Directors of the Company.
TRANSFERABILITY OF AWARDS AND OPTIONS
Neither any award nor any option granted under the Plan is transferable by the
participant, except by will or the laws of descent and distribution.
SECTION 162(m)
This Plan and its operation are intended to satisfy the requirements of Section
162(m) with respect to permitting the deductibility of compensation for those
participants who are "covered employees" for purposes of Section 162(m). In the
event that any provision of this Plan or an award or option granted under this
Plan does not so satisfy Section 162(m), that provision shall be deemed amended
to the extent necessary to satisfy Section 162(m).
Ex. 10.2-5
<PAGE>
EXHIBIT 23.2
[FIRM LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
The Boards of Directors
Delta Mills, Inc.
We consent to the use of our report dated August 15, 1997, except for Note C as
to which the date is August 25, 1997, included in Amendment No. 1 to the
Registration Statement on Form S-4 of Delta Mills, Inc. ("Delta Mills") for the
registration of $150.0 million in aggregate principal amount of Delta Mills'
9-5/8% Senior Notes due 2007, Series B to be exchanged for equal principal
amounts of Delta Mills' 9-5/8% Senior Notes due 2007, Series A. We also consent
to the reference to our firm under the heading "Experts" in the Prospectus
contained in the Registration Statement described above.
As discussed in Notes A and H to the consolidated financial statements, in 1996
the Company adopted the method of assessing impairment of long-lived assets as
prescribed by Statement of Financial Accounting Standards No. 121.
/s/ KPMG Peat Marwick LLP
Greenville, South Carolina KPMG Peat Marwick LLP
December 10, 1997
<PAGE>
FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1
DELTA MILLS, INC.
Offer to Exchange
$150,000,000 9 5/8% Senior Notes due 2007, Series B
which have been registered under the Securities Act of 1933, as amended
for any and all outstanding
$150,000,000 9 5/8% Senior Notes due 2007, Series A
Pursuant to the Prospectus, dated [________], 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON [25 business days following effectiveness], 1998 (AS SUCH DATE AND TIME
MAY BE EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed and submitted to:
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT OR HAND DELIVERY:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Floor 7 East Corporate Trust & Agencies Service Window
New York, N.Y. New York, N.Y. 10286
Attention: Reorganization Section Attention: Reorganization Section
BY FACSIMILE:
(for Eligible Institutions only)
(212) 815-6339
CONFIRM BY TELEPHONE:
(212) 815-2742
Delivery of this Letter of Transmittal to an address other than as set
forth above or transmission of instructions via a facsimile number other than
that set forth above will not constitute a valid delivery.
THE REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-37617) OF WHICH
THIS PROSPECTUS IS A PART WAS DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE
COMMISSION ON [_________], 1998.
The undersigned hereby acknowledges receipt of the Prospectus dated
[________], 1998 (the "Prospectus") of Delta Mills, Inc., a corporation
incorporated under the laws of the state of Delaware (the "Company"), and this
Letter of Transmittal (the "Letter of Transmittal"), that together constitute
the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount
of 9 5/8% Senior Notes due 2007, Series B (the "Exchange Notes") for each $1,000
principal amount of its outstanding 9 5/8% Senior Notes due 2007, Series A (the
"Senior Notes"). The Exchange Notes and the Senior Notes are collectively
referred to as the "Notes." Capitalized terms used but not defined herein have
the meanings ascribed to them in the Prospectus.
Either this Letter of Transmittal or an Agent's Message (as defined
herein) is to be completed by a holder of Senior Notes (which term, for purposes
of the Exchange Offer, includes any participant in the DTC system whose name
appears on a security position listing as the holder of such Senior Notes) in
order to tender Senior Notes. All deliveries of Senior Notes must be made either
by (i) endorsement and delivery of certificated Senior Notes registered in the
name of the Holder thereof and issued in accordance with the Indenture
("Definitive Registered Notes") or (ii) by book-entry transfer of book-entry
interests of participants ("Book-Entry Interests") of the Depository Trust
Company ("DTC") to the account maintained by the Exchange Agent at DTC pursuant
to the procedures set forth in the Prospectus under "The Exchange Offer -
Book-Entry Transfer". Holders of Senior Notes who are unable to deliver (i)
endorsed Definitive Registered Notes, (ii) confirmation of the book-entry tender
of their Senior Notes into the Exchange Agent's account at DTC (a "Book-Entry
Confirmation") or (iii) in either case all other documents required by or
pursuant to this Letter of Transmittal to the Exchange Agent on or prior to the
Expiration Date must tender their Senior Notes according to the guaranteed
delivery procedures set forth in the Prospectus under "The Exchange Offer --
Guaranteed Delivery Procedures". See Instruction 1. Delivery of documents to DTC
or any other party does not constitute delivery to the Exchange Agent.
<PAGE>
The undersigned has completed the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
List below the Senior Notes to which this Letter relates. If the space
provided is inadequate, the principal amount of Senior Notes should be listed on
a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF SENIOR NOTES TENDERED
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NAME(S) AND ADDRESSES OF
HOLDER(S) OF SENIOR NOTES AGGREGATE PRINCIPAL PRINCIPAL AMOUNT OF
(PLEASE FILL IN, IF BLANK) AMOUNT OF SENIOR NOTES SENIOR NOTES TENDERED*
--------------------------------------------------------------------------
--------------------------------------------------------------------------
-------------------------------------------------------------------------
--------------------------------------------------------------------------
---------------------------------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unless otherwise indicated in this column, ALL of the Senior Notes
indicated in the preceding column of this Box 1 or delivered to the
Exchange Agent herewith shall be deemed tendered. See Instruction 4.
[ ] CHECK HERE IF DEFINITIVE REGISTERED NOTES ARE BEING DELIVERED WITH THIS
LETTER OF TRANSMITTAL AND COMPLETE THE FOLLOWING:
Name(s) of Holder(s)________________________________________________
Certificate Number(s)________________________________________________
[ ] CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH
DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution_______________________________________
The Depository Trust Company Account Number______
Transaction Code Number____
By crediting the Senior Notes to the Exchange Agent's account at DTC in
accordance with DTC's Automated Tender Offer Program ("ATOP") and by complying
with applicable ATOP procedures with respect to the Exchange Offer, including
transmitting a computer-generated message (an "Agent's Message") to the Exchange
Agent in which the holder of the Senior Notes acknowledges and agrees to be
bound by the terms of this Letter of Transmittal and the Prospectus, the DTC
participant confirms on behalf of itself and the beneficial owners of such
Senior Notes all provisions of this Letter of Transmittal applicable to it and
such beneficial owners as fully as if it had completed the information required
herein and executed and transmitted this Letter of Transmittal to the Exchange
Agent.
[ ] CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Name(s) of Holder(s)________________________________________________
Name of Institution that guaranteed delivery_______________________
If Definitive Registered Notes are being tendered:
Name of Holder(s)_________________________________________
Certificate number________________________________________
<PAGE>
If Book-Entry Interests are being tendered:
The Depository Trust Company: Account Number ______________________
Transactions 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___________________________________________________________
You are entitled to as many copies as you may reasonably request and if
you need more than 10 copies, please so indicate by a notation below.
Total number of copies needed_____________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
Delta Mills, Inc.
233 North Main Street, Suite 200
Greenville, South Carolina 29601
Attention: Secretary
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Attention: Corporate Trust Administration
Re: Tender of Senior Notes for Exchange Notes
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer
described in the Prospectus and this Letter of Transmittal, the undersigned
hereby tenders to Delta Mills, Inc. the principal amount of Senior Notes
indicated in Box 1 above (the "Tendered Notes"). Subject to, and effective upon,
the acceptance for exchange of the Tendered Notes, the undersigned hereby
exchanges, assigns, and transfers to, or upon the order of, Delta Mills, Inc.,
all right, title, and interest in, to and under the Tendered Notes and agrees to
be bound by the terms and conditions of the Exchange Offer as set forth in the
Prospectus and this Letter of Transmittal. Each DTC participant transmitting by
means of DTC a computer-generated message forming part of a Book-Entry
Confirmation, on behalf of itself and the beneficial owner of the Senior Notes
tendered thereby, acknowledges receipt of the Prospectus and this Letter of
Transmittal and agrees to be bound by the terms and conditions of the Exchange
Offer as set forth in the Prospectus and this Letter of Transmittal.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign, and transfer the Tendered
Notes and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges, encumbrances, and adverse
claims when the Tendered Notes are acquired by the Company as contemplated
herein. The undersigned and each beneficial owner of Senior Notes tendered by
the undersigned will, upon request, execute and deliver any additional documents
reasonably requested by the Company as necessary or desirable to complete and
give effect to the transactions contemplated hereby.
The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as the true and lawful agent and attorney in fact of the
undersigned with respect to the Tendered Notes, with full power of substitution
(such power of attorney being deemed to be an irrevocable power coupled with an
interest), to (i) deliver the Tendered Notes to the Company or cause ownership
of the Tendered Notes to be transferred to, or upon the order of, the Company,
and deliver all accompanying evidences of transfer and authenticity to, or upon
the order of, the Company upon receipt by the Exchange Agent, as the
undersigned's agent, of the Exchange Notes to which the undersigned is entitled
upon the acceptance by the Company of the Tendered Notes pursuant to the
Exchange Offer, and (ii) receive all benefits and otherwise exercise all rights
of beneficial ownership of the Tendered Notes, all in accordance with the terms
of the Exchange Offer.
The undersigned also acknowledges that this Exchange Offer is being
made by the Company in reliance on an interpretation by the staff of the
Securities and Exchange Commission (the "Commission"), as set forth in certain
noaction letters to third parties, that the Exchange Notes issued in exchange
for the Senior Notes pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by holders thereof (other than a broker-dealer,
as set forth below, or any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act")), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holders have
no arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of such Exchange Notes. By tendering, each holder
of Senior Notes represents to the Company that (i) the Exchange Notes or
Book-Entry Interests therein to be acquired by such holder and any beneficial
owner(s) of such Senior Notes or interests therein ("Beneficial Owner(s)") in
connection with the Exchange Offer are being acquired by such holder and any
Beneficial Owner(s) in the ordinary course of business of any Beneficial
Owner(s), (ii) the holder and each Beneficial Owner are not participating, do
not intend to participate, and have no arrangement or understanding with any
person to participate, in the distribution of the Exchange Notes, (iii) if the
holder is a resident of the State of California, it falls under the
self-executing institutional investor exemption set forth under Section 25102(i)
of the Corporate Securities Law of 1968 and Rules 260.102.10 and 260.105.14 of
the California Blue Sky Regulations, (iv) if the undersigned is a resident of
the Commonwealth of Pennsylvania, it falls under the self-executing
institutional investor exemption set forth under Section 203(c), 102(d) and (k)
of the Pennsylvania Securities Act of 1972, Section 102.111 of the Pennsylvania
Blue Sky Regulations and an interpretive opinion dated November 16, 1985, (v)
the holder and each Beneficial Owner acknowledge and agree that any person who
is a broker-dealer registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or is participating in the Exchange Offer for the
purpose of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements
<PAGE>
of the Securities Act in connection with a secondary resale transaction of the
Exchange Notes or interests therein acquired by such person and cannot rely on
the position of the staff of the Commission set forth in certain no-action
letters, (vi) the holder and each Beneficial Owner understands that a secondary
resale transaction described in clause (v) above and any resales of Exchange
Notes or interests therein obtained by such holder in exchange for Senior Notes
or interests therein originally acquired by such holder directly from the
Company should be covered by an effective registration statement containing the
selling security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission and (vii) neither the holder nor
any Beneficial Owner(s) is an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company. Upon a request by the Company, a holder or
Beneficial Owner will deliver to the Company a legal opinion confirming its
representation made in clause (vii) above. By tendering, each holder of Senior
Notes that is a broker-dealer (whether or not it is also an "affiliate") that
will receive Exchange Notes for its own account pursuant to the Exchange Offer,
represents that the Senior Notes to be exchanged for the Exchange Notes were
acquired by it as a result of market-making activities or other trading
activities, and acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the holder 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 the Exchange Notes received in exchange for Senior Notes where
such Senior Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities.
The undersigned understands that tendering the Senior Notes pursuant to
the procedures described under the captions "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 upon the terms and
subject to the conditions of the Exchange Offer, subject only to withdrawal of
such tenders on the terms set forth in the following paragraph. All authority
herein conferred or agreed to be conferred shall survive the death or incapacity
of the undersigned and any Beneficial Owner(s), and every obligation of the
undersigned or any Beneficial Owners hereunder shall be binding upon the heirs,
representatives, successors, and assigns of the undersigned and such Beneficial
Owner(s).
Except as otherwise provided in the Prospectus, tenders of Senior Notes
may be withdrawn at any time prior to the Expiration Date. To withdraw a tender
of Senior 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 the Expiration Date. Any such notice of withdrawal must
(i) specify the name of the person having deposited the Senior Notes to be
withdrawn (the "Depositor"), (ii) identify the Senior Notes to be withdrawn
(including the certificate number or numbers and principal amount of such Senior
Notes) and (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Senior Notes were tendered
(including any required signature guarantees). All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by the Company in its sole discretion, whose determination shall be
final and binding on all parties. Any Senior Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no
Exchange Notes will be issued with respect thereto unless the Senior Notes so
withdrawn are validly retendered. Properly withdrawn Senior Notes may be
retendered by following one of the procedures described herein and in the
Prospectus under "The Exchange Offer--Procedures for Tendering" at any time
prior to the Expiration Date.
The undersigned acknowledges and understands that Exchange Notes will
be issued in exchange for Tendered Notes (i) as Definitive Registered Notes
registered in the name(s) of the undersigned and sent to the address(es) shown
above in Box 1 or, if applicable, Box 2 if Definitive Registered Notes were
tendered or (ii) as Book-Entry Interests delivered by book-entry transfer to the
account of the undersigned shown above under Box 1 or, if applicable, Box 2 if
Book-Entry Interests were tendered.
Unless otherwise indicated in Box 2 below, please deliver Exchange
Notes as specified in Box 1.
The undersigned, by completing Box 1 above and signing this letter,
will be deemed to have tendered the Senior Notes as set forth in such Box above.
<PAGE>
(Box appears here.)
BOX 2
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
To be completed ONLY if the Exchange Notes exchanged for Senior Notes and/or if
untendered Senior Notes or Senior Notes that are not accepted for exchange are
to be delivered to someone other than the undersigned, or to the undersigned at
an address or an account maintained at DTC other than that shown above under Box
1.
Please issue Exchange Notes and/or any unexchanged or unaccepted Senior Notes
to:
Name(s):
- ----------------------------------------------------------------------------
(please type or print)
Address:
- ------------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(include Zip Code)
Tax Identification or
Social Security No.:
[ ] Credit Book-Entry Interests in Exchange Notes and/or unexchanged or
unaccepted Senior Notes to the DTC account set forth below:
----------------------------------------------------------------------
<PAGE>
(Box appears here.)
BOX 3
USE OF GUARANTEED DELIVERY
[ ] CHECK HERE ONLY IF SENIOR NOTES ARE BEING TENDERED BY MEANS OF
A NOTICE OF GUARANTEED DELIVERY.
See Instruction 2. If this box is checked, please provide the following
information:
Name(s) of Holder(s):_________________________________________________________
- ---------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:_________________________
Name of Institution which Guaranteed Delivery:______________________________
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE
(TOGETHER WITH A BOOK-ENTRY CONFIRMATION AND ANY OTHER REQUIRED DOCUMENTS OR THE
NOTICE OF GUARANTEED DELIVERY, AS APPLICABLE) MUST BE RECEIVED BY THE EXCHANGE
AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON OR PRIOR TO THE EXPIRATION
DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
<TABLE>
<CAPTION>
(Box appears here.)
BOX 4
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
X ___________________________________ Signature Guarantee
(If required by Instruction 5)
X ___________________________________ Authorized Signature
(Signature of Owner(s))
X ___________________________________
The above lines must be signed by the person in whose
name such Senior Notes are (i) registered in the case of Name: _______________________________
Definitive Registered Notes being tendered or (ii) (please print)
registered on the security position listing maintained by
DTC or, in each case, by an person(s) authorized to Title: ________________________________
become holder(s) by documents transmitted herewith. If
signature is by a trustee, executor, administrator, Name of Firm: ________________________
guardian, attorney-in-fact, officer, or other person acting (Must be an Eligible
in a fiduciary or representative capacity, such person Institution as defined in
must set forth is or her full title below. See Instruction Instruction 2)
5.
Name(s):______________________________ Address: __________________________
------------------------------ -------------------------
Capacity: _____________________________ _________________________
(include Zip Code)
Title:_________________________________
Area Code and Telephone Number:
Street Address: ________________________
-------------------------
-------------------------------
Date: ________________________________
-------------------------------
(include Zip Code)
Area Code and Telephone Number:
-------------------------------
Tax Identification or Social Security Number:
-------------------------------
</TABLE>
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THE SENIOR NOTES AND THIS LETTER OF TRANSMITTAL.
(A) If the holder is tendering Definitive Registered Notes,
such holder must deliver (i) the certificate(s) representing the Senior Notes
tendered, (ii) a properly completed and duly executed copy of this Letter of
Transmittal and (iii) any other documents required by or pursuant to this Letter
of Transmittal, all of which must be received by the Exchange Agent at its
address set forth herein prior to the Expiration Date.
(B) If the holder is tendering Book-Entry Interests, such
holder must (i) utilize DTC's ATOP system to tender such holder's Book-Entry
Interests to an account established at DTC by the Exchange Agent, (ii) make the
Agent's Message and cause a Book-Entry Confirmation to be issued to the Exchange
Agent or deliver a properly completed and duly executed copy of this Letter of
Transmittal and (iii) deliver any other documents required by this Letter of
Transmittal, all of which must be received by the Exchange Agent at its DTC
account or address set forth herein prior to the Expiration Date.
The method of delivery of certificates for Senior Notes and all other
required documents is at the election and risk of the tendering holder and
delivery will be deemed made only when actually received by the Exchange Agent.
If delivery is by mail, registered mail with return receipt requested, properly
insured, is recommended. 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. In no event should any Senior Notes
or related documentation be sent to the Company. Neither the Company nor the
Registrar is under any obligation to notify any tendering holder of the
Company's acceptance of Tendered Notes prior to the Expiration Date.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their
Senior Notes but who cannot deliver their Senior Notes, Letter of Transmittal or
any other documents required by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date must tender their Senior Notes according to the
guaranteed delivery procedures set forth below, including completion of Box 3
(if this Letter of Transmittal is being delivered). Pursuant to such procedures:
(i) such tender must be made by or through a firm that is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., or is a commercial bank or trust company having an
office or correspondent in the United States, or is otherwise an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (an "Eligible Institution"), and the Notice of
Guaranteed Delivery must be signed by the holder; (ii) prior to the Expiration
Date, the Exchange Agent must have received from the holder and 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, in the case of Definitive Registered Notes, the
certificate number or numbers of the Tendered Notes, and, in each case, the
principal amount of Tendered Notes, stating that the tender is being made
thereby and guaranteeing that, within five New York Stock Exchange ("NYSE")
trading days after the Expiration Date, either a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) or a properly
transmitted Agent's Message, together with the Tendered Notes and any other
required documents will be deposited by the Eligible Institution with the
Exchange Agent; and (iii) such Agent's Message or Letter of Transmittal, such
properly completed and executed documents required by this Letter of Transmittal
and such Tendered Notes in proper form for transfer must be received by the
Exchange Agent within five NYSE trading days after the Expiration Date. Failure
to complete the guaranteed delivery procedures outlined above will not, of
itself, affect the validity or effect a revocation of any Letter of Transmittal
form properly completed and executed by an Eligible Holder who attempted to use
the guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder
in whose name Definitive Registered Notes are registered on the books of the
Registrar (or the legal representative or attorney-in-fact of such registered
holder) or who is a DTC participant who owns a Book-Entry Interest in the Senior
Notes through a security position maintained by DTC may execute and deliver this
Letter of Transmittal. Any Beneficial Owner of Senior Notes who is not the
registered holder or who is not a DTC participant who has a security position in
the Senior Notes maintained by DTC in its name must arrange promptly with the
registered holder or a DTC participant, as the case may be, to execute and
deliver this Letter of Transmittal or an Agent's Message on his or her behalf
through the execution and delivery to the registered holder or DTC participant
of the "Instruction to Registered Holder or DTC Participant from Beneficial
Owner" form accompanying this Letter of Transmittal.
<PAGE>
4. PARTIAL TENDERS. If less than the entire number of Senior Notes are
tendered, the tendering holder should fill in the number of Senior Notes
tendered in the column labeled "Principal Amount of Senior Notes Tendered" of
Box 1 above. The entire number of Senior Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated. If the entire
number of all Senior Notes indicated in Box 1 above is not tendered, Senior
Notes in a principal amount equal to Senior Notes not tendered as well as
Exchange Notes exchanged for any Senior Notes tendered will be delivered to the
address or account, as applicable, indicated in Box 1, unless a different
address or account, as applicable, is provided in Box 2 of this Letter of
Transmittal.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; ENDORSEMENTS; GUARANTEE OF
SIGNATURES. If this Letter of Transmittal is signed by the registered holder(s)
of the Tendered Notes (in the case of Definitive Registered Notes), the
signature must correspond with the name(s) as written on the face of the
Tendered Notes without alteration, enlargement, or any change whatsoever. If
this Letter of Transmittal is signed by the DTC participant whose name appears
on a security position maintained by DTC (in the case of Book-Entry Interests),
the signature must correspond exactly with such participant's name as it appears
on a security position maintained by DTC listing such participant as the owner
of the Senior Notes, without any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names on several Senior Notes, it will be necessary
to complete, sign, and submit as many separate copies of the Letter of
Transmittal documents as there are names in which Tendered Notes are held.
When this Letter of Transmittal is signed by the holders of the Senior
Notes specified herein and tendered hereby, no separate bond powers are
required. If, however, the Exchange Notes are to be issued, or any untendered or
unaccepted Senior Notes are to be reissued, to a person other than the holder,
then separate bond powers are required. Signatures on such bond powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal or any Senior Notes 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 this Letter of Transmittal.
Signatures on bond powers required by this Instruction 5 must be
guaranteed by an Eligible Institution. Signatures on this Letter of Transmittal
need not be guaranteed by an Eligible Institution if: (i) this Letter of
Transmittal is signed by the registered holder of Definitive Registered Notes
tendered hereby, (ii) this Letter of Transmittal is signed by any participant in
DTC whose name appears on a security position listing maintained by DTC as the
owner of the Senior Notes tendered and such person has not completed Box 2 of
this Letter of Transmittal or (iii) the Senior Notes are tendered for the
account of an Eligible Institution.
6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders of Senior Notes
should indicate in Box 2 (i) the name and address to which Definitive Registered
Notes representing Exchange Notes and/or substitute Definitive Registered Notes
representing Senior Notes in a principal amount equal to the Senior Notes not
tendered or not accepted for exchange are to be sent or (ii) the DTC account to
which Book-Entry Interests in the Exchange Notes issued pursuant to the Exchange
Offer and/or substitute Book-Entry Interests in the Senior Notes not tendered or
not accepted for exchange are to be issued, in each case only if the recipient
of such Exchange Notes or substitute Senior Notes is different from the person
signing this Letter of Transmittal. The employer identification number or social
security number of the person named must also be indicated. If no such
instructions are given, such Exchange Notes and/or Senior Notes not tendered or
not accepted for exchange will be credited to the registered holder or DTC
account of the person(s) signing this Letter of Transmittal.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Senior Notes to it or its order and the issuance
of Exchange Notes to the holder thereof pursuant to the Exchange Offer. If,
however, a transfer tax is imposed for any reason other than the transfer of
Senior Notes to the Company or its order and the issuance of Exchange Notes to
the holder thereof pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or on any other person)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption from taxes therefrom is not submitted with this Letter
of Transmittal, the amount of transfer taxes will be billed directly to such
tendering holder.
8. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of Tendered Notes will
be determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the right to reject any and all Senior
Notes not validly tendered or any Senior Notes the Company's acceptance of which
would, in the opinion of the Company or its counsel, be unlawful. The Company
also reserves the right to waive any conditions of the Exchange Offer or defects
or irregularities in tenders of Senior Notes as to any ineligibility of any
<PAGE>
holder who seeks to tender Senior Notes in the Exchange Offer. The
interpretation of the terms and conditions of the Exchange Offer (including this
Letter of Transmittal and the instructions hereto) by the Company shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Senior Notes must be cured within such time as the
Company shall determine. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Senior
Notes, but shall not incur any liability for failure to give such notification.
9. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive, or modify specified conditions of the Exchange Offer as enumerated
in the Prospectus or this Letter of Transmittal in the case of any Tendered
Notes.
10. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Senior Notes or transmittal of this Letter of Transmittal
will be accepted.
11. MUTILATED, LOST, STOLEN OR DESTROYED SENIOR NOTES. Any tendering
holder whose Senior Notes have been mutilated, lost, stolen, or destroyed should
contact the Exchange Agent as soon as possible at the address indicated above
for further instruction.
12. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance and requests for additional copies of the Prospectus may
be directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
13. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN
OF SENIOR NOTES. Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered Senior Notes as soon as
practicable after the Expiration Date and will issue Exchange Notes therefor as
soon as practicable thereafter. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted tendered Senior Notes when, as and if the
Company has given written or oral notice thereof (such oral notice being
promptly confirmed in writing) to the Exchange Agent. If any Tendered Notes are
not exchanged pursuant to the Exchange Offer for any reason, such unexchanged
Senior Notes will be returned, without expense, to the signatory of Box 4 at the
address or DTC account shown above or at a different address or DTC account as
may be indicated herein under Box 2.
14. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth above and in the Prospectus under the caption "The
Exchange Offer--Withdrawal of Tenders".
15. INCORPORATION OF LETTER OF TRANSMITTAL. This Letter of Transmittal
shall be deemed to be incorporated in and acknowledged and accepted by any
tender through DTC's ATOP procedures by any DTC participant on behalf of itself
and the beneficial owners of any Book-Entry Interests representing Senior Notes
so tendered.
<PAGE>
FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2
FOR
9 5/8% SENIOR NOTES DUE 2007
OF
DELTA MILLS, INC.
As set forth in the Prospectus dated [_________], 1998 (the "Prospectus")
of Delta Mills, Inc. (the "Company') and in the accompanying Letter of
Transmittal and instructions thereto (the "Letter of Transmittal"), this form or
one substantially equivalent hereto must be used to accept the Company's
Exchange Offer (the "Exchange Offer") to exchange new 9 5/8% Senior Notes due
2007, Series B (the "Exchange Notes") that have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for all of its
outstanding 9 5/8 % Senior Notes due 2007, Series A (the "Senior Notes") IF the
Letter of Transmittal or any other documents required thereby cannot be
delivered to the Exchange Agent, or Definitive Registered Notes (as defined in
the Letter of Transmittal) cannot be delivered or the procedure for book-entry
transfer cannot be completed, prior to 5:00 p.m., New York City Time, on the
Expiration Date (as defined in the Prospectus). This form may be delivered by an
Eligible Institution (as defined in the Letter of Transmittal) by hand or
transmitted by facsimile transmission, overnight courier or mail to the Exchange
Agent as set forth below. Capitalized terms not defined herein have the meanings
ascribed to them in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON [25 business days after effectiveness], 1998 (AS SUCH DATE AND TIME MAY
BE EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
To: The Bank of New York, as Exchange Agent
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT OR HAND DELIVERY:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Floor 7 East Corporate Trust & Agencies Service Window
New York, N.Y. 10286 New York, N.Y. 10286
Attention: Reorganization Section Attention: Reorganization Section
BY FACSIMILE:
(for Eligible Institutions only)
(212) 815-6339
CONFIRM BY TELEPHONE:
(212) 815-2742
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile number other
than that set forth above will not constitute a valid delivery.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Senior Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the principal amount of Senior Notes specified below
pursuant to the guaranteed delivery procedures set forth in the Prospectus and
in Instruction 2 of the Letter of Transmittal.
The undersigned understands that tenders of Senior Notes pursuant to the
Exchange Offer may not be withdrawn after 5:00 p.m., New York City time, on the
Expiration Date. Tenders of Senior Notes may also be withdrawn if the
<PAGE>
Exchange Offer is terminated without any such Senior Notes being purchased
thereunder or as otherwise provided in the Prospectus.
All authority thereto conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned.
(Box appears here.)
<TABLE>
<CAPTION>
The undersigned hereby tenders the Senior Notes listed below:
<S> <C>
Aggregate Principal Amount of Senior Notes Principal Amount of Senior Notes Tendered
- ----------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW
SIGN HERE
Name(s) of Holder(s):_________________________________________________________
Address(es): ________________________________________________________________
----------------------------------------------------------------
Telephone Number:_____________________________________________________________
Signature(s):_________________________________________________________________
-------------------------------------------------------------------
Date:_________________________________________________________________________
DTC Account Number (if applicable):__________________________________________
This Notice of Guaranteed Delivery must be signed by (i) the holder(s) of
Senior Notes exactly as its/their name(s) appear on Definitive Registered Notes,
(ii) the holder(s) of Senior Notes exactly as its/their name(s) appear on a
security position listing maintained by DTC as the owner of Senior Notes or
(iii) by person(s) authorized to become holder(s) by documents transmitted with
this Notice of Guaranteed Delivery. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting in a
fiduciary or representative capacity, such person must provide the following
information and, unless waived by the Company, submit evidence satisfactory to
the Company of their authority to act:
Please print name(s) and addresses of person signing above
Name(s):____________________________________________________________________
<PAGE>
Capacity:__________________________________________________________________
Address(es):_______________________________________________________________
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), hereby (a) represents that the above named
person(s) "own(s)" the Senior Notes tendered hereby within the meaning of Rule
14e-4 under the Exchange Act, (b) represents that such tender of Senior Notes
complies with Rule 14e-4 under the Exchange Act and (c) guarantees that delivery
to the Exchange Agent of the Letter of Transmittal (or facsimile thereof),
either Definitive Registered Notes in proper form for transfer or a confirmation
of the book-entry transfer of Book-Entry Interests representing such Senior
Notes into the Exchange Agent's account at DTC, pursuant to the procedures for
book-entry transfer set forth in the Prospectus, and delivery of either a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) with any required signatures and any other documents required
by the Letter of Transmittal or an Agent's Message, will be received by the
Exchange Agent by 5:00 p.m., New York City time, on the fifth New York Stock
Exchange trading day after the Expiration Date.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
OR AGENT'S MESSAGE AND SENIOR NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN
THE TIME PERIOD SET FORTH THEREIN AND THAT FAILURE TO DO SO COULD RESULT IN
FINANCIAL LOSS TO THE UNDERSIGNED.
(Box appears here.)
SIGN HERE
Name of firm: __________________________________
Authorized Signature:________________________________
Name (PLEASE PRINT):_________________________________
Address: _________________________________
---------------------------------
---------------------------------
Telephone Number: _________________________________
Date: _________________________________
DO NOT SEND ANY DEFINITIVE REGISTERED NOTES WITH THIS FORM. ACTUAL SURRENDER
OF DEFINITIVE REGISTERED NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED
BY, AN EXECUTED LETTER OF TRANSMITTAL.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and risk of the holder, and
the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. 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. For a description
of the guaranteed delivery procedure, see Instruction 2 of the Letter of
Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Senior Notes to
be tendered (in the case of Definitive Registered Notes), the signature must
correspond with the name(s) as written on the face of such Senior Notes without
alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed
Delivery is signed by the DTC participant whose name appears on a security
position maintained by DTC (in the case of Book-Entry Interests), the
signature must correspond exactly
<PAGE>
with such participant's name as it appears on a security position maintained by
DTC listing such participant as the owner of the Senior Notes, without any
change whatsoever.
If any of the Senior Notes to be tendered are owned of record by two or
more joint owners, all such owners must sign this Notice of Guaranteed Delivery.
If any Senior Notes to be tendered are held in different names on several Senior
Notes, it will be necessary to complete, sign, and submit as many separate
copies of the Notice of Guaranteed Delivery documents as there are names in
which Senior Notes to be tendered are held.
If this Notice of Guaranteed Delivery or any Senior Notes 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 this Notice of Guaranteed Delivery.
3. REQUESTS FOR ASSISTANCE OF ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders also
may contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
<PAGE>
FORM OF LETTER TO CLIENTS EXHIBIT 99.3
REGARDING THE OFFER TO EXCHANGE
$150,000,000 PRINCIPAL AMOUNT OF 9 5/8% SENIOR NOTES DUE 2007, SERIES B
FOR ANY AND ALL OUTSTANDING
$150,000,000 PRINCIPAL AMOUNT OF 9 5/8% SENIOR NOTES DUE 2007, SERIES A
OF
DELTA MILLS, INC.
To Our Clients:
We are enclosing herewith a Prospectus, dated [_______], 1998, of Delta
Mills, Inc. (the "Company") and a related Letter of Transmittal (which together
constitute the "Exchange Offer") relating to the offer by the Company to
exchange its new 9 5/8 % Senior Notes due 2007, Series B (the "Exchange Notes"),
pursuant to an offering registered under the Securities Act of 1933, as amended
(the "Securities Act"), for a like principal amount of its issued and
outstanding 9 5/8% Senior Notes due 2007, Series A (the "Senior Notes") upon the
terms and subject to the conditions set forth in the Prospectus and the Letter
of Transmittal.
Please note that the Exchange Offer will expire at 5:00 p.m., New York City
time, on [25 days after effectiveness], 1998, unless extended.
The Exchange Offer is not conditioned upon any minimum number of Senior
Notes being tendered.
We are the Registered Holder or DTC participant through which you hold an
interest in the Senior Notes. A tender of such Senior Notes can be made only by
us pursuant to your instructions. The Letter of Transmittal is furnished to you
for your information only and cannot be used by you to tender your beneficial
ownership of Senior Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of your
Senior Notes held by us for your account pursuant to the terms and subject to
the conditions of the Exchange Offer. We also request that you confirm that we
may on your behalf make the representations contained in the Letter of
Transmittal that are to be made with respect to you as beneficial owner.
Pursuant to the Letter of Transmittal, each holder of Senior Notes must
make certain representations and warranties that are set forth in the Letter of
Transmittal and in the attached form that we have provided to you for your
instructions regarding what action we should take in the Exchange Offer with
respect to your interest in the Senior Notes.
<PAGE>
EXHIBIT 99.4
FORM OF LETTER TO REGISTERED HOLDERS AND DTC PARTICIPANTS
REGARDING THE OFFER TO EXCHANGE
$150,000,000 PRINCIPAL AMOUNT OF 9 5/8% SENIOR NOTES DUE 2007, SERIES B
FOR ANY AND ALL OUTSTANDING
$150,000,000 PRINCIPAL AMOUNT OF 9 5/8% SENIOR NOTES DUE 2007, SERIES A
OF
DELTA MILLS, INC.
To Registered Holders and The Depository Trust Company Participants:
We are enclosing herewith the materials listed below relating to the offer
by Delta Mills, Inc. (the "Company") to exchange its new 9 5/8 % Senior Notes
due 2007, Series B (the "Exchange Notes"), pursuant to an offering registered
under the Securities Act of 1933, as amended (the "Securities Act"), for a like
principal amount of its issued and outstanding 9 5/8% Senior Notes due 2007,
Series A (the "Senior Notes") upon the terms and subject to the conditions set
forth in the Company's Prospectus, dated [___________], 1998, and the related
Letter of Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated [________], 1998;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder or DTC Participant from
Beneficial Owner; and
5. Letter which may be sent to your clients for whose account you
hold Definitive Registered Notes (as defined in the Letter of
Transmittal) or Book-Entry Interests(as defined in the Letter of
Transmittal) representing Senior Notes in your name or in the name
of your nominee, to accompany the instruction form referred to
above, for obtaining such client's instruction with regard to the
Exchange Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE EXCHANGE
OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [25 BUSINESS DAYS AFTER
EFFECTIVENESS], 1998, UNLESS EXTENDED.
The Exchange Offer is not conditioned upon any minimum number of Senior
Notes being tendered.
To participate in the Exchange Offer, a beneficial holder must either (i)
cause to be delivered to The Bank of New York (the "Exchange Agent") at the
address set forth in the Letter of Transmittal Definitive Registered Notes (as
defined in the Letter of Transmittal) in proper form for transfer together with
a properly executed Letter of Transmittal or (ii) cause a DTC Participant to
tender such holder's Senior Notes to the Exchange Agent's account maintained at
the Depository Trust Company ("DTC") for the benefit of the Exchange Agent
through DTC's Automated Tender Offer Program ("ATOP"), including transmission of
a computer-generated message that acknowledges and agrees to be bound by the
terms of the Letter of Transmittal. By complying with DTC's ATOP procedures with
respect to the Exchange Offer, the DTC Participant confirms on behalf of itself
and the beneficial owners of tendered Senior Notes all provisions of the Letter
of Transmittal applicable to it and such beneficial owners as fully as if it
completed, executed and returned the Letter of Transmittal to the Exchange
Agent.
Pursuant to the Letter of Transmittal, each holder of Senior Notes will
represent to the Company that: (i) the Exchange Notes or Book-Entry Interests
therein to be acquired by such holder and any beneficial owner(s) of such Senior
Notes or interests therein ("Beneficial Owner(s)") in connection with the
Exchange Offer are being acquired by such holder and any Beneficial Owner(s) in
the ordinary course of business of the holder and any Beneficial Owner(s), (ii)
the holder and each Beneficial Owner are not participating, do not intend to
participate, and have no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, (iii) the holder and
each Beneficial Owner acknowledge and agree that any person who is a
broker-dealer registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") or is participating in the Exchange Offer for the purpose
of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes or interests therein
acquired by such person and cannot rely on the position of the staff of the
Commission set forth in certain no-action letters, (iv) the holder and each
Beneficial Owner understands that a secondary resale transaction described in
clause
<PAGE>
(iii) above and any resales of Exchange Notes or interests therein obtained by
such holder in exchange for Senior Notes or interests therein originally
acquired by such holder directly from the Company should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or Item 508, as applicable, of Regulation S-K
of the Commission and (v) neither the holder nor any Beneficial Owner(s) is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company.
Upon a request by the Company, a holder or beneficial owner will deliver to the
Company a legal opinion confirming its representation made in clause (v) above.
If the tendering holder of Senior Notes is a broker-dealer (whether or not it is
also an "affiliate") or any Beneficial Owner(s) that will receive Exchange Notes
for its own or their account pursuant to the Exchange Offer, the tendering
holder will represent on behalf of itself and the Beneficial Owner(s) that the
Senior Notes to be exchanged for the Exchange Notes were acquired as a result of
market-making activities or other trading activities, and acknowledge on its own
behalf and on the behalf of such Beneficial Owner(s) that it or they will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, such tendering holder will not be deemed to
admit that it or any Beneficial Owner is an "underwriter" within the meaning of
the Securities Act.
The enclosed "Instruction to Registered Holder or DTC Participant from
Beneficial Owner" form contains an authorization by the beneficial owners of
Senior Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Senior Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the transfer
of Senior Notes to it, except as otherwise provided in Instruction 7 of the
enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from The Bank of
New York, 101 Barclay Street, Floor 7 East, New York, NY 10286, Attention:
Corporate Trust Department.
Very truly yours,
DELTA MILLS, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF DELTA MILLS, INC. OR THE BANK OF NEW YORK OR AUTHORIZE YOU TO USE ANY
DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE
OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED
THEREIN.
<PAGE>
EXHIBIT 99.5
FORM OF INSTRUCTION TO REGISTERED HOLDER OR DTC PARTICIPANT
FROM BENEFICIAL OWNER
FOR
9 5/8% SENIOR NOTES DUE 2007, SERIES A
OF
DELTA MILLS, INC.
The undersigned hereby acknowledges receipt of the Prospectus dated
[________], 1998 (the "Prospectus"), of Delta Mills, Inc., a company
incorporated under the laws of Delaware (the "Company"), and the accompanying
Letter of Transmittal (the "Letter of Transmittal") that together constitute the
Company's offer (the "Exchange Offer"). Capitalized terms used but not defined
herein have the meanings assigned to them in the Prospectus and the Letter of
Transmittal.
This will instruct you as to the action to be taken by you relating to the
Exchange Offer with respect to the 9 5/8% Senior Notes due 2007, Series A (the
"Senior Notes") held by you for the account of the undersigned.
The principal amount of the Senior Notes held by you for the account of the
undersigned is (FILL IN AMOUNT): $_____________________ principal amount of
Senior Notes.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] To TENDER the following principal amount of Senior Notes held by
you for the account of the undersigned (INSERT AMOUNT OF SENIOR
NOTES TO BE TENDERED, IF ANY):
$_______________ principal amount of Senior Notes.
[ ] NOT to TENDER any Senior Notes held by you for the account of
the undersigned.
If the undersigned instructs you to tender the Senior Notes held
by you for the account of the undersigned, it is understood that you are
authorized:
(a) to make, on behalf of the undersigned (and the undersigned, by its
signature below, hereby makes to you), the representations and warranties
contained in the Letter of Transmittal that are to be made with respect to
the undersigned as a beneficial owner, including but not limited to the
representations that (i) the Exchange Notes or Book-Entry Interests therein
to be acquired by the undersigned (the "Beneficial Owner(s)") in connection
with the Exchange Offer are being acquired by the undersigned in the
ordinary course of business of the undersigned, (ii) the undersigned is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes, (iii) the undersigned acknowledges and agrees that any
person who is a broker-dealer registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the
Exchange Notes or interests therein acquired by such person and cannot rely
on the position of the staff of the Commission set forth in certain
noaction letters, (iv) the undersigned understands that a secondary resale
transaction described in clause (iii) above and any resales of Exchange
Notes or interests therein obtained by such holder in exchange for Senior
Notes or interests therein originally acquired by such holder directly from
the Company should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the Commission and (v) the
undersigned is not an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company. Upon a request by the Company, a holder or
beneficial owner will deliver to the Company a legal opinion confirming its
representation made in clause (v) above. If the undersigned is a
broker-dealer (whether or not it is also an "affiliate") that will receive
Exchange Notes for its own account pursuant to the Exchange Offer, the
undersigned represents that the Senior Notes to be exchanged for the
Exchange Notes were acquired by it as a result of market-making activities
or other trading activities, and acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the undersigned does not and will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act;
(b) to agree, on behalf of the undersigned, as set forth in
the Letter of Transmittal; and
(c) to take such other action as necessary under the
Prospectus or the Letter of Transmittal to effect the
valid tender of such Senior Notes.
SIGN HERE
<PAGE>
Name of Beneficial Owner(s):_________________________________________________
Signature(s):________________________________________________________________
Name(s) (PLEASE PRINT):______________________________________________________
Address:_____________________________________________________________________
------------------------------------------------------------------------
Telephone
Number:___________________________________________________________
Taxpayer Identification or Social Security
number:__________________________
Date:_______________________________________________________________________
<PAGE>
EXHIBIT 99.6
DELAWARE GENERAL CORPORATION CODE SS. 145
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or director of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the present or former
director, officer, employee or agent is proper in the circumstances because the
person has met the applicable standard of conduct set forth in subsections (a)
and (b) of this section. Such determination shall be made with respect to a
person who is a director or officer at the time of such determination (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by former officers and directors or other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
<PAGE>
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by s uch person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
